Laws of Agency and Fiduciary Duties

Agency is the law of who represents whom. It carries 17 percent of both license exams, about 26 of 150 salesperson questions and 34 of 200 broker questions. It also changed most recently. A 2024 statute rewrote the disclosure rules and created the buyer-broker representation agreement effective January 1, 2025, leaving older prep materials wrong where flagged below.

§ 2.1How agency is created

The definition has no compensation or writing element. Those matter for collecting a commission, not for whether an agency exists. The principal needs capacity to contract, yet any person may be an agent (Civil Code § 2296).

Agency and authority are actual when the principal creates the agent's belief in them, and ostensible when the principal, intentionally or by want of ordinary care, creates a third person's belief (Civil Code §§ 2298 to 2300, 2316, 2317). The source is always the principal's conduct, so an imposter's own claims create nothing. Ratification creates agency after the fact when a principal knowingly retains the benefit of an unauthorized act (§§ 2307, 2310). Three writing rules follow:

• Equal dignities rule. Authority to sign a contract the law requires to be written can only be given in writing (§ 2309). A listing never makes the broker an attorney-in-fact.
• Statute of frauds. A broker's employment to buy or sell real estate, or lease it beyond a year, must be written and signed (§ 1624(a)(4)). An oral listing does not undo the sale, it only forfeits the commission.
• Imputed notice. What the agent knows and ought to communicate, the principal is deemed to know (§ 2332), so a seller cannot plead ignorance of a defect the listing agent found.

§ 2.2Types of agents and who holds the agency

An agent for a particular transaction is a special agent, all others are general (Civil Code § 2297). A listing broker is a special agent, and the continuously operating property manager is the classic general agent.

The agency always runs at the broker level. A salesperson performs licensed acts for a responsible broker, who is the client's agent even when the salesperson is an independent contractor for tax purposes (Business and Professions Code § 10016, Civil Code § 2079.13(a)). Current statute calls the licensee working with the buyer a buyer's agent (§§ 10018.03 to 10018.06). Older materials say selling agent, terminology now superseded. A dual agent acts, directly or through a salesperson or broker associate, for both parties in one transaction (§ 10018.11). A principal also answers to third persons for the agent's in-scope wrongful acts (Civil Code § 2338).

§ 2.3Listing agreements and their three statutory types

A listing agreement is a written contract authorizing a broker to sell property or find a buyer, in three statutory types (Business and Professions Code §§ 10018.14 to 10018.17):

• Exclusive right to sell. Paid if the property sells during the term no matter who effected the sale, the owner included, or when the agent presents a ready, able, and willing buyer on the authorized terms.
• Seller reserved. The statutory name for the traditional exclusive agency. The agent beats every other broker but not the owner, whose direct sale pays nothing.
• Open listing. No exclusivity. Only the first agent to present an enforceable accepted offer is paid, and the owner may sell personally and pay no one.

Either exclusive form may add a safety clause covering a post-termination sale, a protection period set by contract, not statute. Every exclusive agreement needs a definite termination date, and taking compensation under one without it is a disciplinary ground (§ 10176(f)). Net listings are lawful, contrary to myth, with timely disclosure. A seller netting 600,000 dollars on a 636,000 dollar sale must learn the broker keeps 36,000 dollars no later than the meeting of the minds (§ 10176(g)).

§ 2.4Buyer representation agreements, the 2025 rules

The written agreement must state the broker's compensation, the services, when compensation is due, and termination. The disclosure form comes first, so the order is form, agreement, offer. The term caps at three months, 90 calendar days counted from the day after the last signature unless the agreement sets a delayed start (10 CCR § 2906.1). Corporate, LLC, and partnership buyers escape the cap but not the writing requirement. Automatic renewal is forbidden, a renewal must be signed before the original expires, each with its own 90-day ceiling. A violating agreement is void and unenforceable, and the licensee faces discipline.

The regulations presume, rebuttably, that signing is practicable before any showing, in person or virtual, even a walk-through for an absent buyer. An open house alone triggers nothing, the host works for the seller. The requirement reaches buying, selling, or exchange services for a buyer, commercial included, never leasing-only or loan work (10 CCR §§ 2906.2, 2906.3).

§ 2.5The disclosure sequence: disclose, elect, confirm

The licensee first delivers the statutory form explaining the roles (Civil Code § 2079.14). Each agent then discloses its role, and the election is confirmed in the purchase contract or a separate writing executed prior to or coincident with it (§ 2079.17). The form and the confirmation are separate documents, neither substitutes for the other.

The seller receives the form before signing the listing, the buyer before both the representation agreement and the offer, and if the buyer drafted the offer alone the fallback is the next business day, not the three days older books teach (§ 2079.14, as amended effective 2025). A refusal to sign does not stop the deal, the agent instead signs and dates a declaration of the facts of the refusal (§ 2079.15).

Coverage reaches commercial property, vacant land, manufactured homes, and leaseholds exceeding one year, not a six-month lease (§ 2079.13).

§ 2.6Fiduciary duties to the principal

The statutory form gives the principal a fiduciary duty of utmost care, integrity, honesty, and loyalty, and both parties reasonable skill and care, honest and fair dealing and good faith, and disclosure of known material facts not observable by them (Civil Code § 2079.16). The fiduciary side is memorized as OLD CAR:

• Obedience, to lawful instructions only. An order to conceal a defect or discriminate must be refused, and refusing is not a breach.
• Loyalty, which bars secret profit. Full compensation must be revealed by the meeting of the minds, disclosure after closing cures nothing (Business and Professions Code § 10176(g)). An option inside a listing needs written profit disclosure and written consent before exercise (§ 10176(h)), and a buyer's agent must reveal any interest in the property, even one held through relatives or entities (§ 10177(o)).
• Disclosure, of everything material to the principal.
• Confidentiality, protecting the principal's bargaining information even after the transaction ends. Material property facts are never confidential.
• Accounting, for all funds of others. Commingling is the mixing itself, a violation even with no loss, while conversion, actually using trust money, is the more serious wrong (§§ 10176(e), 10145).
• Reasonable care, an objective standard set by what the license requires a licensee to know, so inexperience is no defense (Civil Code § 2079.2).

§ 2.7Duties to third parties, and dual agency

The non-client gets no fiduciary duty but is still owed reasonable skill and care, honest and fair dealing, and disclosure of known material facts (Civil Code § 2079.16). On one to four unit residential property and manufactured homes, the seller's broker and cooperating brokers also owe the buyer a reasonably competent and diligent visual inspection and disclosure of what it reveals (§ 2079). The duty is visual only, excluding inaccessible areas, off-site matters, and public records (§ 2079.3), and suit runs two years from possession, the earliest of recordation, closing, or occupancy, not discovery (§ 2079.4). Residential contracts carry the Megan's Law notice, and delivering it, not researching offenders, is the whole duty (§ 2079.10a).

Dual agency is lawful in California. What violates the law is acting for both sides without the knowledge and consent of all parties (Business and Professions Code § 10176(d)), risking discipline, rescission, and a forfeited commission. A dual agent remains a full fiduciary to both principals but may not disclose either side's confidential information, facts like financial position, motivation, or price flexibility, without that party's express permission (Civil Code § 2079.21). The current statute says express permission, not the express written consent older materials recite.

§ 2.8Ending the agency, and getting paid

An agency ends by expiration, extinction of its subject, or the agent's death, incapacity, or renunciation, and, unless coupled with an interest in the subject, by the principal's revocation, death, or incapacity. A bona fide deal with someone lacking actual knowledge of the event still binds the estate (Civil Code §§ 2355, 2356). A hoped-for commission is not such an interest, so listings stay revocable, but revocation is a power, not always a right, and a mid-term cancellation may owe the broker the lost commission as damages.

Form agreements setting compensation for one to four unit residential property or mobilehomes carry a 10-point boldface notice, just before the compensation provision, that commissions are not fixed by law and are negotiable, and the rate may never be preprinted (Business and Professions Code § 10147.5). The notice now runs on both sides, buyer-side agreements included. A salesperson may accept compensation for licensed acts only through the responsible broker, even a grateful seller's bonus, and referral fees flow broker to broker, including out of state (§ 10137). Paying a non-licensee for licensed acts costs the payor up to 100 dollars per offense, while the unlicensed actor faces up to 20,000 dollars and six months in county jail (§§ 10138, 10139).

Commission math is rate times price, then successive splits. A sale at 825,000 dollars with a 5 percent commission yields 41,250 dollars, each brokerage takes 20,625, and a salesperson keeping 60 percent of the office share earns 12,375. The classic error applies 60 percent to the full commission, reaching 24,750.

§ 2.9The broker exam supplement: supervision and trust funds

Reasonable supervision is a system, not a glance at closed files, with policies covering transactions, documents, trust funds, advertising, antidiscrimination familiarity, and regular reports, plus compliance monitoring (10 CCR § 2725). The broker may delegate the running but never the responsibility, and failure to supervise, even by a corporate broker's designated officer, supports suspension or revocation (Business and Professions Code § 10177(h)). A salesperson's violation costs the broker's license only on a hearing finding of guilty knowledge (§ 10179). Every affiliation needs a written, dated, signed agreement (10 CCR § 2726), and the independent contractor label dilutes none of this (§ 10159.2). A discharge for a disciplinary violation is reported forthwith by certified written statement, and affiliation notices follow the manner the commissioner specifies. Neither statute states a day count, so materials quoting one are stale (§§ 10178, 10161.8).

The numbers come from Business and Professions Code §§ 10145 and 10148 and 10 CCR §§ 2831.1 to 2835. Retention runs from closing or, for a deal that never closes, from the listing date, and the common error swaps the 200 dollar bank-charge ceiling with the 25 day clock for earned fees.