A California real estate agent representing a buyer receives a bonus from a builder for each buyer brought to the builder's development. The agent does not disclose this arrangement to the buyer. Under California law, what is the primary legal problem with this situation?
Correct Answer
B) The undisclosed financial incentive from the builder creates a conflict of interest that breaches the agent's fiduciary duty of loyalty to the buyer
Under California Business & Professions Code §10176(g), it is a disciplinary violation for a licensee to receive undisclosed compensation from a party other than their principal. The agent owes the buyer a fiduciary duty of loyalty under Civil Code §2079.16, which requires placing the buyer's interests above all others. An undisclosed financial incentive from the builder creates a direct conflict of interest — the agent may be motivated to steer the buyer toward the builder's properties regardless of whether they are the best fit, violating that duty.
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