Learning Objectives

• Explain how agency relationships are created and distinguish clients from customers.
• Identify the authority of universal, general, and special agents and the difference between actual and apparent authority.
• Apply loyalty, obedience, disclosure, confidentiality, accounting, and reasonable-care duties.
• Distinguish duties owed to a client from honesty and fair-dealing duties owed to all parties.
• Recognize agency issues that require Indiana-law verification or legal guidance.

Key Vocabulary

Term	Definition
Agency	A fiduciary relationship in which an agent is authorized to act for a principal.
Principal / Client	The person represented by the agent.
Customer	A party receiving services but not represented as a client.
Fiduciary	A person owing heightened trust-based duties to another.
Express Agency	Agency created by spoken or written agreement.
Implied Agency	Agency inferred from conduct and circumstances.
Ratification	A principal’s later approval of an unauthorized act.
Estoppel	Doctrine preventing a person from denying agency after causing another reasonably to rely on its appearance.
Actual Authority	Authority the principal intentionally gives the agent.
Apparent Authority	Authority a third party reasonably believes exists because of the principal’s manifestations.
Special Agent	An agent authorized for a limited transaction or purpose.
Material Fact	A fact significant to a reasonable party’s transaction decision.

Core Lesson

Representation Begins With Consent and Control

Agency is not simply friendliness, assistance, or payment. It is a legal relationship in which a principal authorizes an agent to act on the principal’s behalf and subject to the principal’s lawful control. In brokerage, the client receives representation; a customer may receive ministerial or transaction services without becoming the broker’s client. The distinction controls whose interests the broker advocates and which information must remain confidential.

Methods of Creation

Method	How it arises	Primary risk
Express	Oral or written agreement	Terms may be misunderstood if not documented
Implied	Conduct reasonably shows consent	Accidental representation
Ratification	Principal later adopts unauthorized act with required knowledge	Assuming silence always ratifies
Estoppel/apparent authority	Principal’s conduct causes reasonable third-party reliance	Liability beyond intended authority

License law or a statute may require a written agreement or disclosure even though general agency doctrine recognizes oral or implied relationships. A broker should therefore use current authorized agreements and make relationship disclosures at the required time rather than relying on common-law inference.

Scope of Authority

A universal agent has broad authority, commonly through a power of attorney. A general agent handles an ongoing range of matters, such as a property manager operating a building. A special agent is authorized for a limited objective. A real estate broker in a sale is commonly examined as a special agent: authority to market and negotiate does not automatically include authority to sign a deed, accept an offer for the owner, alter legal rights, or guarantee property condition.

Express actual authority is specifically communicated. Implied actual authority includes acts reasonably necessary to carry out express authority. Apparent authority comes from the principal’s manifestations to the third party, not merely from the agent claiming power. An agent cannot manufacture apparent authority by saying, “Trust me, I am authorized.”

Core Fiduciary Duties

The common licensing mnemonic is OLD CAR: obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care.

• Obedience: follow the client’s lawful instructions. Refuse directions involving discrimination, concealment, fraud, or other illegality.
• Loyalty: place the client’s interests ahead of the agent’s interests within the law. Disclose self-dealing, undisclosed compensation, and conflicts.
• Disclosure: give the client material information relevant to the agency and transaction. A seller’s urgency or willingness to take less is normally confidential unless authorized.
• Confidentiality: protect information entrusted by the client, subject to duties concerning material defects, law, and authorized disclosure. Confidentiality may survive termination.
• Accounting: safeguard and accurately account for money and property entrusted to the brokerage.
• Reasonable care: use the competence and diligence expected of a licensed professional and recommend qualified experts outside the broker’s scope.

Client Duties Versus Duties to Everyone

A broker owes fiduciary advocacy to the client but must deal honestly with customers and other parties. Loyalty never authorizes a lie. Confidentiality does not permit concealment of a material fact that law requires to be disclosed. A broker may explain known facts and transaction procedures but should not give legal, tax, engineering, environmental, or lending opinions outside professional competence.

Information Classification

Information	Usual treatment
Client will accept less	Confidential unless authorized or required
Buyer can pay more	Confidential unless authorized or required
Known material structural defect	Analyze mandatory disclosure; loyalty does not justify concealment
Publicly recorded zoning	May be shared accurately, with current verification
Broker’s ownership interest	Conflict requiring clear disclosure and compliance

Subagency and Brokerage Supervision

A subagent represents the principal through authority derived from another agent and owes fiduciary duties to that principal. Modern practice often uses buyer representation rather than assuming a cooperating broker is a seller’s subagent. A brokerage relationship belongs within the licensed firm structure established by state law; affiliated licensees act under managing-broker supervision and cannot privately invent a relationship outside required firm procedures.

Compensation Does Not Decide Agency

The source of compensation does not by itself identify the client. A seller may fund compensation received by a buyer’s broker without making that broker the seller’s agent. Conversely, payment does not excuse missing consent or disclosure. Analyze the agreement, consent, conduct, and governing law—not who writes the check.

Worked Decision Process

1. Identify the client and the customer.
2. Identify the agreement and required disclosures.
3. Determine the agent’s actual authority.
4. Classify the information as confidential, material, public, or outside scope.
5. Apply fiduciary duties without violating duties owed to others.
6. Document instructions, advice, referrals, and consent.

Indiana Law Spotlight

Partially verified against current authority. Indiana Code Chapter 25-34.1-10 supplies the statutory real-estate-agency framework. Current PLA guidance confirms that Indiana licensees representing seller or buyer clients must use a written paper or electronic representation agreement with a definite expiration date, provide the client a copy within three business days after signing, and retain the original agreement and electronic files. Indiana law also requires a broker-company written office policy concerning permitted agency relationships, states that compensation alone does not create agency, and requires written consent when one licensee acts as a limited agent.

Practical brokerage application: Identify the client before giving strategic advice, use the broker company's approved current agreement and agency policy, obtain every required written consent, deliver copies on time, preserve the records, and escalate conflicts or unclear authority to the managing broker.

Still open for current-authority verification: Every mandatory agreement term and prohibited provision; the precise execution point for each activity; renewals, extensions, amendments and termination; office-policy delivery; in-house and limited-agency disclosures; duties to clients and nonclients; confidentiality exceptions; material-fact, personal-interest and compensation disclosures; managing-broker supervision; electronic signatures; retention and audit rules; authorized forms; discipline, civil liability, and controlling decisions. General common-law agency concepts do not replace Indiana's statutory brokerage requirements.

Official sources: Current Indiana Code Title 25 · 876 IAC Article 8 · Indiana Real Estate Commission · PLA Written-Agreement Guidance

National Exam Alert

Agency requires authorization; compensation alone does not create it. Apparent authority comes from the principal’s conduct. Obey only lawful instructions. Confidentiality does not authorize concealment of a fact that must legally be disclosed.

Common Exam Trap

Do not confuse a customer with a client, a cooperating broker with an automatic subagent, or a listing agreement with authority to sign a deed. The person paying compensation is not necessarily the principal.

PASS FIRST Memory Trick

OLD CAR: Obedience · Loyalty · Disclosure · Confidentiality · Accounting · Reasonable care.
A-P-P: Apparent authority flows from the Principal’s Presentation.

Broker Insight

At the first substantive conversation, know whom you represent, state it plainly, provide required disclosures, and avoid giving strategic advice to an unrepresented party that contradicts your client’s interests.

Chapter Summary

• Agency connects a principal and agent through authorization and control.
• General agency doctrine recognizes express, implied, ratified, and estoppel-based relationships, but Indiana brokerage representation must follow current statutory written-agreement requirements.
• Actual authority comes from the principal; apparent authority arises from the principal’s manifestations to third parties.
• Sale brokers are commonly special agents with limited authority.
• OLD CAR organizes fiduciary duties.
• Clients receive advocacy; all parties remain entitled to honest and lawful conduct.
• Indiana's written-agreement, office-policy, compensation, limited-agency, and surviving-duty framework is partially verified; remaining form, timing, supervision, record, liability, and case-specific details stay queued.

Practice Questions

1. Who is represented in an agency relationship?
   1. Customer
   2. Principal
   3. Appraiser
   4. Recorder
2. Agency inferred from conduct is:
   1. Universal
   2. Void
   3. Statutory only
   4. Implied
3. A principal knowingly adopts an unauthorized act. This is:
   1. Ratification
   2. Novation
   3. Rescission
   4. Assignment
4. Apparent authority is primarily created by:
   1. The agent’s private statement
   2. Compensation source
   3. The principal’s manifestations to a third party
   4. The property address
5. A broker hired only to sell one property is usually a:
   1. Universal agent
   2. Special agent
   3. General guardian
   4. Trustee
6. A seller tells the broker to reject buyers of a protected class. The broker must:
   1. Obey loyalty
   2. Keep it confidential and comply
   3. Refer only some buyers
   4. Refuse the unlawful instruction
7. Which duty requires placing the client’s lawful interests ahead of the agent’s?
   1. Loyalty
   2. Accounting
   3. Recording
   4. Appraisal
8. A buyer deposits earnest money with the brokerage. Which duty is most directly involved?
   1. Disclosure
   2. Obedience
   3. Accounting
   4. Estoppel
9. A seller privately says she will take $15,000 less. Without authorization, the listing broker should generally:
   1. Advertise it
   2. Protect the confidential information
   3. Tell every buyer
   4. Change the list price
10. A broker learns of a known material foundation failure. Loyalty to the seller means the broker should:
    1. Conceal it
    2. Destroy the report
    3. Call it cosmetic
    4. Follow applicable disclosure law despite the client’s preference
11. Which statement is correct?
    1. Compensation source alone does not determine agency
    2. The payer is always the principal
    3. No payment means no agency
    4. Every cooperating broker is a subagent
12. A property manager authorized to handle continuing operations is commonly a:
    1. Special agent only
    2. Customer
    3. General agent
    4. Escrow holder only
13. Authority reasonably necessary to carry out express authority is:
    1. Apparent only
    2. Implied actual authority
    3. Adverse possession
    4. Universal title
14. A broker claims authority the seller never represented to the buyer. Apparent authority most likely:
    1. Exists automatically
    2. Comes from the listing price
    3. Comes from the agent’s license
    4. Does not arise from the agent’s claim alone
15. Which is owed to a customer even when the broker represents the other party?
    1. Honest dealing and required material-fact disclosure
    2. Undivided loyalty
    3. Disclosure of the client’s bargaining limit
    4. Strategic advocacy
16. A broker lacks expertise about a structural crack. Reasonable care calls for:
    1. A guarantee
    2. Ignoring it
    3. Recommending an appropriate qualified professional
    4. Drafting an engineering report
17. A listing agreement ordinarily gives the broker authority to:
    1. Sign the deed
    2. Market and negotiate within the agreement
    3. Accept any offer for the seller
    4. Change title
18. Which duty may continue after agency ends?
    1. Duty to advertise forever
    2. Duty to accept offers
    3. Duty to manage property
    4. Confidentiality, subject to law
19. A broker buys the listed property through an undisclosed entity. The clearest issue is:
    1. Undisclosed self-dealing and loyalty conflict
    2. A survey error
    3. Valid puffing
    4. Tax assessment
20. Before stating an Indiana disclosure deadline, the broker should:
    1. Use memory from another state
    2. Guess conservatively
    3. Verify current Indiana authority and approved procedures
    4. Ask the customer to choose

Detailed Answer Explanations

1. B. The principal is the client represented by the agent; a customer is not represented in that relationship.
2. D. Implied agency is inferred from conduct and circumstances rather than explicit words alone.
3. A. Ratification is the principal’s informed adoption of an act originally performed without authority.
4. C. Apparent authority depends on what the principal causes the third party reasonably to believe.
5. B. A sale listing normally creates limited, transaction-specific special agency.
6. D. Obedience extends only to lawful instructions; discrimination must be refused.
7. A. Loyalty requires the agent to put the client’s lawful interests before personal gain.
8. C. Accounting governs safekeeping and records for money or property entrusted to the agent.
9. B. A client’s bargaining position is generally confidential unless disclosure is authorized or legally required.
10. D. Fiduciary loyalty cannot override mandatory disclosure or permit fraud.
11. A. Agency is determined by consent, agreement, conduct, and law—not merely who pays.
12. C. A property manager often has general authority over an ongoing class of operational acts.
13. B. Implied actual authority includes reasonable acts necessary to perform express instructions.
14. D. The agent cannot create apparent authority solely through self-serving assertions.
15. A. A nonclient is still entitled to honesty and legally required disclosures, but not the other party’s confidential strategy.
16. C. Competent brokerage includes recognizing limits and recommending an appropriate expert.
17. B. A listing typically authorizes marketing and negotiation; acceptance and conveyance remain the owner’s decisions unless separately authorized.
18. D. Confidentiality commonly survives termination, subject to law and disclosure duties.
19. A. Hidden personal acquisition is self-dealing and conflicts with loyalty and disclosure duties.
20. C. State-specific deadlines and forms must be checked against current controlling authority.

Mastery Checklist

• I can distinguish principal, client, customer, and agent.
• I can explain express, implied, ratified, and estoppel-based agency.
• I can compare actual and apparent authority.
• I can distinguish universal, general, and special agents.
• I can apply every OLD CAR duty.
• I can classify confidential and mandatory-disclosure information.
• I can explain why compensation does not decide agency.
• I can identify Indiana agency rules awaiting verification.
• I can score at least 80% and explain every answer.