Understanding the relationship between a real estate broker and their client is the cornerstone of real estate practice. For candidates preparing for the state licensing exam, mastering the nuances of agency law is absolutely non-negotiable. Whether you are taking the national portion or the state-specific section, you must understand both traditional fiduciary duties and Indiana’s specific statutory agency laws. This article will break down exactly what you need to know to pass. For a broader overview of all exam topics, be sure to bookmark our Complete Indiana Exam Guide.

The National Standard: Traditional Fiduciary Duties (OLD CAR)

On the national portion of your licensing exam, agency relationships are governed by common law fiduciary duties. A fiduciary relationship is one of utmost trust and confidence. The easiest way to remember these six core duties is by using the acronym OLD CAR.

Obedience

As an agent, you must promptly and willingly obey all lawful instructions from your client. If a seller asks you to require 24-hour notice for showings, you must comply. However, you cannot obey instructions that violate the law. For example, if a client asks you to steer buyers away based on race or religion, you must refuse, as this violates Fair Housing laws. For more on this, review our Indiana protected classes and discrimination guide.

Loyalty

The duty of loyalty dictates that the agent must put the client’s interests above all others—including the agent's own interests. You cannot secretly buy a property your client has listed to flip it for a profit without full, written disclosure and consent.

Disclosure

Agents must disclose all material facts regarding the property and the transaction to their client. This includes disclosing any known defects, the inability of a buyer to secure financing, or any relationship the agent has with another party in the transaction.

Confidentiality

You must keep your client's personal information, financial status, and negotiating motivations strictly confidential. Unlike the other duties, the duty of confidentiality survives the termination of the agency relationship. You can never share that your former seller client was desperate to sell due to a divorce.

Accounting

Agents must account for all money and property entrusted to them. In Indiana, earnest money must be deposited into an escrow account in a timely manner (usually within two banking days after acceptance of the offer). Commingling (mixing client funds with personal funds) and conversion (using client funds) are severe violations.

Reasonable Care and Skill

You are expected to use your professional expertise to assist your client. This includes accurately filling out contracts, meeting deadlines, and helping sellers accurately price their homes. If you need a refresher on property pricing, check out our Indiana comparative market analysis guide.

Indiana Specific: Statutory Duties (IC 25-34.1-10)

Here is a critical distinction for the state portion of your exam: Indiana is a statutory agency state. According to Indiana Code (IC 25-34.1-10), the traditional common law fiduciary duties have been officially replaced by statutory duties. While they mirror OLD CAR closely, the exam will test your knowledge of Indiana's specific terminology and rules.

Duties to a Seller or Landlord

Under Indiana law, a licensee representing a seller or landlord must:

  • Fulfill the terms of the agency relationship made in writing.
  • Promote the interests of the seller/landlord by seeking a price and terms acceptable to them.
  • Present all offers and counteroffers immediately (even if the property is already under contract).
  • Disclose adverse material facts actually known by the licensee.
  • Account for all money and property received.

Duties to a Buyer or Tenant

Similarly, a licensee representing a buyer or tenant must promote their client's interests by:

  • Seeking a property with acceptable price and terms.
  • Presenting all offers and counteroffers immediately.
  • Disclosing adverse material facts known about the property or the seller's ability to perform.
  • Advising the buyer to obtain expert advice on matters outside the licensee's expertise (e.g., advising a home inspection).

Limited Agency in Indiana (Dual Agency)

In many states, representing both the buyer and the seller in the same transaction is called "Dual Agency." In Indiana, it is legally referred to as "Limited Agency." This is a highly testable topic.

To act as a limited agent in Indiana, the broker must obtain written, informed consent from all parties before acting in this capacity. Because the agent is representing opposing sides, the duty of loyalty is inherently compromised. Therefore, the law restricts what the limited agent can disclose. A limited agent may not disclose:

  • That the buyer will pay more than the offered price.
  • That the seller will accept less than the listed price.
  • The motivation of either party for buying or selling.
  • Any adverse financial information about either party.

Exam Data: Where Do Agents Go Wrong?

To help you understand how seriously the Indiana Real Estate Commission takes these duties, let's look at a breakdown of the most common statutory and fiduciary violations that lead to disciplinary action. Understanding these pitfalls can help you recognize violation scenarios on your exam.

Common Agency Duty Violations (%)

Notice that failure to disclose material facts and lack of reasonable care (such as drafting errors in contracts) make up the vast majority of real-world violations. Expect to see scenario-based questions targeting these exact areas.

Practical Exam Scenario: Spot the Violation

Scenario: Broker Jane represents Seller Tom. A prospective buyer asks Jane if the roof has ever leaked. Jane knows the roof leaked two years ago, but Tom patched it himself and told Jane not to tell anyone because it "hasn't leaked since." Jane obeys Tom and tells the buyer the roof is fine.

Analysis: Jane has violated her statutory duty of Disclosure and the common law duty of Reasonable Care. While she was following Tom's instructions, an agent cannot obey an instruction to hide a known adverse material fact. Her duty of Obedience only applies to lawful instructions. Jane could face disciplinary action from the Indiana Real Estate Commission, and her license could be suspended or revoked.

Exam Preparation Strategy

Agency law makes up a significant percentage of both the state and national exams. You should dedicate at least two full study sessions solely to mastering OLD CAR and Indiana's Limited Agency rules. If you struggle with time management during your exam prep, we highly recommend using an Indiana study schedule planner to keep yourself on track.

Frequently Asked Questions (FAQs)

Does Indiana recognize common law fiduciary duties?

Technically, no. Indiana Code (IC 25-34.1-10) specifically states that statutory duties replace common law fiduciary duties. However, because the national portion of the exam tests general real estate concepts, you must understand the traditional "OLD CAR" fiduciary duties as well as Indiana's specific statutory rules.

What is the difference between a customer and a client in Indiana?

A client (or principal) has an established agency relationship with the broker, meaning the broker owes them full statutory duties (loyalty, confidentiality, etc.). A customer is an unrepresented party. Brokers owe customers only the duties of honesty, fair dealing, and the disclosure of known adverse material facts.

How is Limited Agency created in Indiana?

Limited Agency (Indiana's term for dual agency) can only be created with the written, informed consent of all parties involved in the transaction. This consent must clearly state that the agent represents parties with adverse interests and outline the limits of confidentiality.

Which fiduciary duty lasts forever?

The duty of Confidentiality outlasts the agency relationship. Even after a transaction closes or a listing agreement expires, you can never disclose your former client's private information, motivations, or financial status unless legally required by a court order.

Do I have to present an offer if my Indiana seller is already under contract?

Yes. Under Indiana statutory law, a licensee must present all offers and counteroffers immediately, even if the property is already subject to an accepted contract, unless the seller has explicitly instructed the agent otherwise in writing.