A real estate broker who becomes an agent of a seller or buyer, either intentionally through the execution of a written agreement or unintentionally by a course of conduct, will be deemed a fiduciary. Fiduciary duties are the highest duties known to the law. Classic examples of fiduciaries are trustees, executors, and guardians. As a fiduciary, a real estate broker will be held under the law to owe certain specific duties to their principal, in addition to any duties or obligations outlined in a listing agreement or other contract of employment.
These specific fiduciary duties include:
Loyalty
Confidentiality
Disclosure
Obedience
Reasonable care and diligence
Accounting
Loyalty
A duty of loyalty is one of the most fundamental fiduciary duties owed by an agent to their principal. This duty obligates a real estate broker to act at all times solely in the best interests of their principal to the exclusion of all other claims, including the broker’s self-interest. A corollary of this duty of loyalty is a duty to avoid steadfastly any conflicts of interest that might compromise or dilute the broker’s undivided loyalty to their principal’s interests. Thus, a real estate broker’s duty of loyalty prohibits them from accepting employment from any person whose interests compete with or are adverse to their principal’s interests. A classic example of a breach of this duty of loyalty by a real estate broker is a broker who purchases a property listed with their firm and then immediately resells it at a profit. Such conduct ordinarily is perfectly appropriate and lawful by persons acting “at arm’s length.” But a fiduciary will be deemed to have “stolen” a profit opportunity rightfully belonging to their principal and thus to have breached their duty of loyalty.
Confidentiality
An agent is obligated to safeguard their principal’s confidence and secrets. A real estate broker, therefore, must keep confidential any information that might weaken their principal’s bargaining position if it were revealed. This duty of confidentiality precludes a broker representing a seller from disclosing to a buyer that the seller can or must sell their property below the listed price. Conversely, a broker representing a buyer is prohibited from disclosing to a seller that the buyer can or will pay more for a property than has been offered.
CAVEAT: This duty of confidentiality does not include any obligation on a broker representing a seller to withhold from a buyer known material facts concerning the condition of the seller’s property or to misrepresent the state of the property. To do so would constitute misrepresentation and would impose liability on both the broker and the seller.
Disclosure
An agent is obligated to disclose to their principal all relevant and material information that the agent knows and that pertains to the scope of the agency.
The duty of disclosure obligates a real estate broker representing a seller to reveal to the seller:
- All offers to purchase the seller’s property.
- The identity of all potential purchasers.
- Any facts affecting the value of the property.
- Information concerning the ability or willingness of the buyer to complete the sale or to offer a higher price.
- The broker’s relationship to, or interest in, a prospective buyer.
- A buyer’s intention to subdivide or resell the property for a profit.
- Any other information that might affect the seller’s ability to obtain the highest price and best terms in the sale of their property.
A real estate broker representing a buyer is obligated to reveal to the buyer:
- The willingness of the seller to accept a lower price.
- Any facts relating to the urgency of the seller’s need to dispose of the property.
- The broker’s relationship to, or interest in, the seller of the property for sale.
- Any facts affecting the value of the property.
- The length of time the property has been on the market and any other offers or counteroffers that have been made relating to the property.
- Any other information that would affect the buyer’s ability to obtain the property at the lowest price and on the most favorable terms.
CAVEAT: An agent’s duty of disclosure to their principal must not be confused with a real estate broker’s duty to disclose to non-principals any known material facts concerning the value of the property. This duty to disclose known material facts is based upon a real estate broker’s duty to treat all persons honestly and fairly. This duty of honesty and fairness does not depend on the existence of an agency relationship.
Obedience
An agent is obligated to obey promptly and efficiently all lawful instructions of their principal. However, this duty does not include an obligation to follow any unlawful instructions; for example, an instruction not to market the property to minorities or to misrepresent the condition of the property. Compliance with instructions the agent knows to be unlawful could constitute a breach of an agent’s duty of loyalty.
Reasonable Care and Diligence
An agent is obligated to use reasonable care and diligence in pursuing the principal’s affairs. The standard of care expected of a real estate broker representing a seller or buyer is that of a competent real estate professional. Because of their license, a real estate broker is deemed to have skill and expertise in real estate matters superior to that of the average person. As an agent representing others in their real estate dealings, a broker or salesperson is under a duty to use their superior skill and knowledge while pursuing their principal’s affairs. This duty includes an obligation to affirmatively discover facts relating to their principal’s affairs that a reasonable and prudent real estate broker would be expected to investigate. Simply put, this is the same duty any professional, such as a doctor or lawyer, owes to their patient or client.
Accounting
An agent is obligated to account for all money or property belonging to the principal that is entrusted to them. This duty compels a real estate broker to safeguard any money, deeds, or other documents entrusted to them that relate to their client’s transactions or affairs.
We take these responsibilities very seriously, and this is one of the reasons you should use the MLS and a Licensed Realtor.
Jay Bru
480-466-4917
jay@jaybrugroup.com
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