National Real Estate Exam (PSI)General Principles of AgencyMedium
During a showing, a buyer directly asks the seller's listing agent whether the basement has ever flooded. The agent knows it flooded twice last year but says nothing, hoping the buyer won't ask again. Which duty owed to the buyer, a non-client third party, has the agent violated?
- ADuty to disclose known material facts
- BFiduciary duty of loyalty
- CDuty of obedience
- DDuty of confidentiality
Show answer & explanationAnswer & explanation
Correct answer: A. Duty to disclose known material facts
Even though the buyer is a customer and not a client, all agents owe third parties the duty to disclose known material facts affecting the property's value or desirability, such as a history of flooding. Silence in the face of a direct, false-by-omission answer is a violation of this duty.
Why the other options are wrong
- B. Loyalty is a fiduciary duty owed only to the agent's own client (the seller), not the buyer.
- C. Obedience is owed to the principal, not a duty owed to third parties.
- D. Confidentiality protects the client's information from being shared, unrelated to this omission.
Duty to Disclose Material Facts (Third Parties)
All real estate agents, regardless of who they represent, must disclose known material facts about a property that affect its value or desirability to all parties in the transaction.
- Applies even to non-client customers
- Failure to disclose known defects can lead to liability
- Distinct from fiduciary duties owed only to one's own client
Memory trick: Honesty to everyone, loyalty to your client only