California Real Estate Broker ExaminationAgencyHard
A real estate broker is representing a buyer. During the negotiation phase, the seller's agent proposes an arrangement where the buyer's agent would receive a bonus directly from the seller if the transaction closes above a certain price. The buyer's agent believes this bonus could incentivize them to push their buyer to offer more. What is the appropriate action for the buyer's agent?
- AAccept the bonus, but inform the buyer only after the transaction has closed.
- BAccept the bonus, as it is additional compensation and does not directly harm the buyer.
- CDisclose the proposed bonus to the buyer and obtain their informed consent before proceeding.
- DDecline the bonus, as it creates a conflict of interest that cannot be resolved.
Show answer & explanationAnswer & explanation
Correct answer: C. Disclose the proposed bonus to the buyer and obtain their informed consent before proceeding.
The duty of loyalty requires an agent to act solely in the best interests of their principal and avoid conflicts of interest. While accepting a bonus from the opposing party creates a potential conflict, it can be permissible if fully disclosed to the principal and their informed consent is obtained.
Why the other options are wrong
- A. Disclosure after the fact is insufficient; consent must be obtained beforehand.
- B. Accepting without disclosure is a breach of loyalty due to a conflict of interest.
- D. Declining is a safe option, but disclosure and consent allow the principal to decide.
Duty of Loyalty (Conflict of Interest)
An agent's fiduciary duty to act solely in the best interest of their principal, avoiding any conflicts of interest that could compromise that loyalty. If a conflict arises, full disclosure and informed consent are typically required.
- Agent must prioritize principal's interests.
- Avoid situations where personal gain conflicts with principal's gain.
- Disclosure and consent can resolve some conflicts.
Memory trick: OLD CAR: Obedience, Loyalty, Disclosure, Confidentiality, Accounting, Reasonable Care.