National Real Estate Exam (PSI)General Principles of AgencyMedium
A seller instructs the listing agent to conceal a known material defect in the roof from potential buyers. According to fiduciary duties, what should the agent do?
- ARefuse to conceal the defect because obedience does not extend to illegal or unethical acts
- BResign as agent immediately without giving any reason
- CDisclose the defect only if a buyer directly asks about it
- DFollow the seller's instruction because of the duty of obedience
Show answer & explanationAnswer & explanation
Correct answer: A. Refuse to conceal the defect because obedience does not extend to illegal or unethical acts
The duty of obedience requires agents to follow lawful instructions only; agents must never comply with instructions to commit fraud or violate disclosure laws. Material defect disclosure laws override a principal's instruction to conceal.
Why the other options are wrong
- B. Resigning does not resolve the legal disclosure obligation and is not required first.
- C. Material defects must be disclosed proactively, not only when directly asked.
- D. Obedience is limited to lawful instructions and cannot justify fraud or concealment.
Limits of Duty of Obedience
An agent must obey the principal's lawful instructions, but never instructions that are illegal, fraudulent, or unethical.
- Obedience is one of the fiduciary duties (often OLDCAR)
- Does not override disclosure laws
- Agents can be liable for following unlawful instructions
Memory trick: Obey the law, not just the boss