California Real Estate SalespersonLaws of Agency and Fiduciary DutiesMedium
A broker represents a buyer under a buyer representation agreement. Under the accepted purchase contract, the seller pays the buyer's broker a commission through escrow. To whom does the broker owe fiduciary duties?
- ATo the seller, because the seller is paying the commission
- BTo the buyer only, because the source of compensation does not determine agency
- CTo neither party, since this arrangement creates a conflict that voids the agency
- DTo both parties equally, since compensation came from the seller
Show answer & explanationAnswer & explanation
Correct answer: B. To the buyer only, because the source of compensation does not determine agency
Agency relationships are established by agreement and conduct, not by who pays the commission. Even though the seller funds the commission through escrow, the buyer's broker's fiduciary duties remain owed exclusively to the buyer under the buyer representation agreement.
Why the other options are wrong
- A. Payment source does not create an agency relationship with the payer.
- C. This common commission structure does not void the agency.
- D. Dual agency requires disclosed consent from both parties, not implied by payment.
Compensation Source vs. Agency Duty
The party who pays a broker's commission does not determine who the broker legally represents; agency arises from the representation agreement.
- Seller-paid buyer's agent still owes fiduciary duty only to buyer.
- Compensation structure is a business arrangement, not an agency indicator.
- Buyer representation agreements define the fiduciary relationship.
Memory trick: 'Paycheck doesn't pick sides — the contract does.'