Complete Study Guide
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Overview
Agency relationships define the legal and ethical obligations between real estate professionals and their clients in New York. An agent represents a principal (client) and owes specific fiduciary duties that govern every aspect of the transaction. Understanding who represents whom, how those relationships are created, disclosed, and terminated is essential for both the licensing exam and professional practice.
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Section 1: Fiduciary Duties (COALDA)
Overview
A fiduciary duty is the highest standard of care recognized by law. When an agent represents a principal, six core duties govern that relationship, remembered by the acronym COALDA.
The Six Fiduciary Duties
| Duty | What It Requires |
|------|-----------------|
| Care | Use reasonable skill, expertise, and diligence in all agency activities |
| Obedience | Follow all lawful instructions of the principal, even if the agent disagrees |
| Accountability | Maintain accurate records of all funds/property; safeguard principal's assets |
| Loyalty | Place the principal's interests above all others, including the agent's own |
| Disclosure | Inform the principal of all relevant facts that could affect the transaction |
| Confidentiality | Protect sensitive information about the principal — survives indefinitely |
Key Concepts
• Obedience only applies to lawful instructions. An agent is never required to follow instructions that are illegal or violate fair housing laws.
• Loyalty means no self-dealing — an agent cannot personally benefit at the principal's expense or pursue competing interests during the relationship.
• Disclosure flows toward your principal. You share relevant information with your client, but protect it from the other party.
• Confidentiality is the most frequently tested exception: it does not end when the listing expires or the transaction closes. It survives indefinitely.
• Accountability covers earnest money deposits, escrow funds, and any property held on behalf of the principal.
Real-World Application: Confidentiality vs. Disclosure
> An agent representing a buyer learns the buyer is desperate and will pay $20,000 over asking price.
> - Confidentiality → The agent cannot share this with the seller.
> - Disclosure → The agent must share any material facts that affect the buyer's decision (e.g., known defects).
> An agent representing a seller learns the seller must sell within 30 days due to foreclosure.
> - Confidentiality → That motivation stays confidential from the buyer.
Key Terms
• Fiduciary – A person with a legal duty to act in another's best interest
• Principal – The client who the agent legally represents
• COALDA – Memory acronym for the six fiduciary duties
⚠️ Watch Out For
• Students often confuse Disclosure and Confidentiality — remember: disclosure is about sharing relevant facts with your client; confidentiality is about protecting your client's information from others.
• The duty of Obedience does not include illegal instructions — this is a common trick question.
• Confidentiality does NOT end at closing — this surprises many test-takers.
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Section 2: Types of Agency
Seller's Agent
• Represents the seller/principal exclusively
• Owes all six COALDA duties to the seller
• When working with buyers, owes only honesty and fairness (not fiduciary duties) to the buyer
Buyer's Agent
• Represents the buyer/principal exclusively
• Owes all six COALDA duties to the buyer
• Works to secure the best price and terms for the buyer
Subagent
• Works with the buyer but owes fiduciary duties to the seller
• Essentially an extension of the listing broker
• Common source of buyer confusion — the person showing them homes may not be working for them
Dual Agent
• A single broker represents both buyer and seller in the same transaction
• Creates an inherent conflict of interest — the agent cannot fully serve both principals
• Requires informed written consent from both parties before the relationship begins
• In dual agency, the agent's fiduciary duties are reduced — they cannot, for example, advise either party on negotiation strategy
Designated Agency
• The broker assigns different salespersons within the same firm to each party
• Each salesperson provides full fiduciary representation to their respective client
• Avoids the conflict of dual agency while keeping the transaction within one brokerage
• Still requires disclosure to both parties
Transaction Broker (Non-Agent Facilitator)
• Assists both parties without representing either as a fiduciary
• Provides only ministerial services (scheduling showings, preparing paperwork)
• Owes no COALDA duties to either party
Express vs. Implied Agency
| Type | How Created |
|------|-------------|
| Express Agency | Written or oral agreement between principal and agent |
| Implied Agency | Conduct and actions of the parties, without a formal agreement |
Apparent Agency (Agency by Estoppel)
• Created when a principal's conduct causes a third party to reasonably believe an agency relationship exists
• The principal cannot later deny the relationship because their own actions created the impression
• Example: An owner lets someone negotiate on their behalf without a formal agreement → apparent agency may be established
Key Terms
• Subagent – Works with buyer; owes duties to seller
• Dual Agency – One broker, two principals; requires written consent
• Designated Agency – Different salespeople from same firm represent each party
• Apparent Agency – Agency created by conduct, not agreement
• Ministerial Services – Basic, mechanical tasks (not advisory)
⚠️ Watch Out For
• Subagent ≠ Buyer's Agent. Both work with the buyer, but only the buyer's agent works for the buyer.
• In dual agency, the broker's ability to advocate is limited — this is not the same as full representation of either party.
• Designated agency is often confused with dual agency. They are different — designated agency allows full fiduciary duties for each party through separate representatives.
• Apparent agency can arise unintentionally — principals must be careful about the authority they appear to grant.
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Section 3: Agency Disclosure Requirements
The NY Agency Disclosure Form
New York requires real estate agents to provide a standardized Agency Disclosure Form so consumers understand who is representing them.
#### When to Provide the Form
| Party | Timing of Disclosure |
|-------|---------------------|
| Buyer | At first substantive contact — before discussing any specific property |
| Seller | At first substantive contact — typically at the listing presentation |
> "First substantive contact" = the moment the conversation shifts toward the client's specific real estate needs, motivation, or financial situation.
What the Form Must Communicate
• All types of agency relationships available (seller's agent, buyer's agent, dual agent, designated agent)
• Which role the agent is currently performing in this relationship
• The rights and implications of each type of representation
Buyer Refuses to Sign
• The agent notes the refusal on the form
• The agent may still continue working with the buyer
• The refusal does not void the disclosure requirement or the relationship
Commission Disclosure
• Agents must disclose who is paying their commission
• Compensation source signals representation — e.g., if the seller is paying, it may indicate the agent represents the seller
• Helps consumers identify potential conflicts of interest
Key Terms
• First Substantive Contact – The trigger point for mandatory disclosure
• Agency Disclosure Form – NY-mandated form explaining representation types
• Informed Consent – Understanding and agreeing to the terms of representation
⚠️ Watch Out For
• Disclosure must happen before discussing a specific property with a buyer — not after showing homes or writing an offer.
• A buyer's refusal to sign does not mean you skip disclosure — you document the refusal and continue.
• The form informs; it does not create the agency relationship itself.
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Section 4: Creation & Termination of Agency Relationships
How Agency Is Created
| Method | Description |
|--------|-------------|
| Written Agreement | Most common — e.g., a signed listing agreement |
| Oral Agreement | Valid but harder to enforce |
| Implication | Conduct of the parties creates an implied agency |
| Ratification | Principal approves an unauthorized act after the fact, retroactively creating agency |
Types of Listing Agreements
| Listing Type | Who Can Sell? | Commission Owed? |
|-------------|--------------|-----------------|
| Exclusive Right to Sell | Anyone — broker, seller, or third party | Always owed to broker |
| Exclusive Agency | Broker or seller | Owed if broker or their agent sells; not owed if seller sells independently |
| Open Listing | Anyone | Owed only to the agent who procures the buyer |
| Net Listing | Anyone | Broker keeps everything above seller's net — discouraged/ethically problematic |
> Net Listing – The seller sets a minimum net price; the broker keeps any amount above that as commission. Creates a direct conflict between the agent's financial interest and the seller's interest. Considered unethical and is strongly discouraged in New York.
How Agency Is Terminated
Agency terminates automatically upon:
• Death of the principal or agent
• Incapacity/incompetency of the principal
• Destruction of the property (subject matter)
• Expiration of the listing agreement
• Mutual agreement to cancel
• Completion of the transaction
• Bankruptcy (in some circumstances)
• Renunciation by the agent or revocation by the principal
> ⚠️ Listing on MLS does NOT terminate agency — it is a marketing step, not a terminating event.
Consequences of Early Termination
If a seller unilaterally terminates a valid exclusive listing before expiration:
• The seller may be liable for damages or the agreed commission
• The broker was wrongfully prevented from earning their fee
If an agent (broker) renounces the agency:
• The agent may be liable for any damages caused by the abandonment
Key Terms
• Listing Agreement – Contract that creates a seller's agency relationship
• Exclusive Right to Sell – Commission owed regardless of who sells
• Exclusive Agency – Commission not owed if owner sells independently
• Ratification – Retroactive approval of an unauthorized agent act
• Net Listing – Seller sets net; broker keeps the excess (discouraged)
• Renunciation – Agent ends the agency relationship
• Revocation – Principal ends the agency relationship
⚠️ Watch Out For
• Exclusive Right to Sell vs. Exclusive Agency is heavily tested. Remember: "Right to Sell" = broker always gets paid; "Exclusive Agency" = seller can sell on their own without owing commission.
• Death of the principal terminates agency automatically — the heirs cannot simply continue the agreement.
• Net listings are not illegal in NY, but they are strongly discouraged due to the inherent conflict of interest — know this distinction.
• Ratification creates agency after the fact — the principal cannot ratify only the parts they liked; ratification is all-or-nothing.
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Quick Review Checklist
Use this checklist before your exam. Make sure you can confidently answer each point:
• [ ] Recite and explain all six COALDA fiduciary duties
• [ ] Explain why confidentiality survives the end of an agency relationship
• [ ] Distinguish between subagent and buyer's agent (who they work with vs. who they work for)
• [ ] Explain the requirements for dual agency in NY (informed written consent from both parties)
• [ ] Describe how designated agency differs from dual agency
• [ ] Define apparent agency and give an example of how it arises
• [ ] Know when the Agency Disclosure Form must be given to buyers and sellers
• [ ] Explain what happens when a buyer refuses to sign the disclosure form
• [ ] Distinguish between Exclusive Right to Sell and Exclusive Agency listings
• [ ] List the events that automatically terminate an agency relationship
• [ ] Explain why net listings are discouraged in New York
• [ ] Define ratification and understand how it creates agency retroactively
• [ ] Know the seller's potential liability for wrongful termination of an exclusive listing
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Master these concepts and you'll be well-prepared for agency relationship questions on the NY Real Estate Salesperson Exam.