New York Real Estate Salesperson ExaminationLaws of AgencyHard
An agent lists a property for sale. A potential buyer expresses strong interest, but the agent believes the property is significantly undervalued and could sell for much more. The agent then secretly arranges for a relative to make an offer on the property, intending to flip it for a profit. What fiduciary duty has the agent primarily breached?
- ADuty of reasonable care.
- BDuty of accounting.
- CDuty of obedience.
- DDuty of loyalty.
Show answer & explanationAnswer & explanation
Correct answer: D. Duty of loyalty.
The agent has a clear duty of loyalty to their principal (the seller). Secretly arranging for a relative to buy the undervalued property to profit from it directly conflicts with the seller's best interests and is a direct breach of the duty of loyalty, often referred to as self-dealing.
Why the other options are wrong
- A. While negligence might be involved, the primary breach here is acting against the client's direct financial interest.
- B. Accounting deals with funds and property; this scenario is about conflicting interests and profit.
- C. Obedience relates to following lawful instructions, which is not the core issue here.
Duty of Loyalty (Breach)
An agent's fiduciary duty to act solely in the best interest of their principal. It is breached when an agent engages in self-dealing, undisclosed conflicts of interest, or puts their own interests above the client's.
- Highest duty owed to a client.
- Requires avoiding conflicts of interest.
- Self-dealing is a direct violation.
Memory trick: LOYALTY is the first to fall in self-interest.