Fiduciary Duties of a Real Estate Agent

 

What does "fiduciary" mean anyhow?

A fiduciary is a person to whom property or power is entrusted on behalf of another. A real estate broker who becomes an agent of a seller or buyer is deemed to be a fiduciary. Other examples of fiduciaries include trustees, executors, and guardians.
 
As a fiduciary, a real estate broker is held by law to owe specific duties to his/her principal (the person who he or she is representing), in addition to those duties or obligations set forth in a listing agreement, buyer representation agreement, or other contract of employment. These fiduciary duties include: loyalty, obedience, disclosure, confidentiality, reasonable care and diligence and accounting.
 

Loyalty

As one of the most fundamental fiduciary duties an agent owes his principal, the duty of loyalty obligates a real estate broker to act at all times, solely in the best interests of the principal, excluding all other interests, including those of the broker. As this duty applies to real estate, a Seller’s Agent must do everything possible to gain an advantage for the Seller, while a Buyer’s Agent must do the same for his/her Buyer.
 

Obedience

An agent is obligated to promptly and efficiently obey all lawful instructions of his or her principal that conform to the purpose of the agency relationship. It does not include an obligation to obey unlawful instructions, such as to misrepresent a property or not to sell to minorities.
 

Disclosure

An agent must disclose to the principal all known relevant and material information that pertains to the scope of the agency. This includes any facts affecting the value or desirability of the property, as well as any other relevant information pertaining to the transaction, such as the other party’s bargaining position, information concerning the ability or willingness of the buyer to offer a higher price, etc.
 
This duty of disclosure should not be confused with a real estate broker’s duty to disclose any known material facts about the property itself to non-principals. The duty to disclose know material facts, including defects, is based on a real estate broker’s duty to treat all persons honestly. The duty of honesty does not depend on the existence of an agency relationship.
 
In practical terms, a Seller’s Agent must reveal any known material defects in the property itself, but must NOT reveal such information as a poor school system, high crime rates, declining property values, or traffic problems, since these may make the property less desirable to Buyers. On the Buyer’s side of the equation, a Buyer’s Agent must tell the Buyer everything he or she can find out about the Seller, including the motivation for selling and any reasons the Seller may have for a quick sale, and about the property, including traffic problems, poor school system, high crime rates, etc.
 

Confidentiality

An agent is obligated to safeguard his or her principal’s lawful confidences and secrets. Thus a real estate broker must keep confidential any information that may weaken a principal’s bargaining position. The duty of confidentiality precludes a Seller’s Agent from disclosing to a Buyer that the Seller can, or must, sell a property below the listed price. For example, if a Buyer knows that the property is for sale because of a divorce or impending foreclosure, that information may give the Buyer a negotiating advantage. On the buyer’s side, a Buyer’s Agent cannot disclose to a Seller or to a Seller’s Agent that the Buyer can or will pay more than what has been offered for a property.
 

Reasonable Care and Diligence

An agent is obligated to use reasonable care and diligence when pursuing the principal’s affairs. By reason of having a real estate license, a real estate broker or agent is considered to have skill and expertise in real estate matters superior to that of the average person and is expected to use that superior skill and knowledge while representing the principal in real estate matters. However, no broker is expected to perform tasks or know information outside the scope of his or her real estate license such as services normally provided by engineers, lawyers, accountants or other professionals. For concerns outside the scope of a broker’s responsibility, reliable assistance should be sought from the appropriate competent professional.
 

Accounting

An agent is obligated to account for all money, documents or property which belongs to his or her principal and which has been entrusted to that agent.