Hawaii Pre-Licensing National Practice Exam

What does the law of agency establish?

1. A buyer’s right to representation

2. A fiduciary relationship

3. The seller's right to withdraw

4. Commission rates for agents

The correct answer is: A fiduciary relationship

The law of agency establishes a fiduciary relationship, which is a legal and ethical relationship of trust and confidence between a principal (such as a buyer or seller) and an agent (such as a real estate agent). In this relationship, the agent is required to act in the best interests of the principal, which includes duties such as loyalty, confidentiality, full disclosure, and accounting for all funds related to the transaction. This fiduciary duty is fundamental to ensuring that agents prioritize their clients' interests over their own. While the other options have relevance in real estate transactions, they do not define the fundamental essence of the law of agency. A buyer's right to representation, for instance, is an outcome of the fiduciary relationship but does not encapsulate the broader concept. The seller's right to withdraw and commission rates involve contractual agreements and negotiations between parties but do not pertain directly to the legal principles governing the agent-principal relationship.