Window to the Law: Know Your Fiduciary Duties - Transcript
When a client-agent relationship is formed pursuant to applicable state law, a real estate professional owes fiduciary duties to their consumer and must act in their client’s best interests throughout the transaction. In this Window to the Law, we will review the fiduciary duties and explain when and how they’re applied. We will also cover best practices that will ensure you fulfill your legal requirements.
A fiduciary duty is a legal obligation where one party, a principal, usually a buyer or seller, entrusts another party, typically a broker, to act in the principal’s best interests.
A real estate professional’s fiduciary duties to clients generally include:
- A duty of Loyalty – acting in the principal’s best interests to the exclusion of all other interests.
- A duty of Confidentiality – Protecting information affecting your principal’s bargaining position.
- A duty of Obedience – Promptly following your principal’s lawful instructions.
- A duty of Disclosure – Informing your principal all known relevant and material facts.
- A duty of Accounting – Keeping proper tabs on all money or property, and
- A duty of Reasonable Care – Pursuing your principal’s affairs with the standard expected of a competent professional.
Breaching these fiduciary responsibilities could lead to serious consequences. Not only could a breach harm your consumer, but it can result in legal liability and potential action against your license. Some common circumstances leading to claims against brokers include failing to disclose a broker’s own self-interest in the transaction, failing to disclose all offers, and withholding information from one party in a dual agency situation.
Fiduciary duties arise either by virtue of a written contract or by course of conduct, however some relationships with consumers do not require some or any fiduciary obligations.
For example, in Georgia, brokers do not have a fiduciary relationship with any party unless expressly stated in a signed agreement. And many states like Florida, Colorado, and Kansas have statutes limiting a licensee’s fiduciary responsibilities when providing non-advocacy transactional assistance. And with dual agency representation, not only are disclosure and consent required, but each principal should be made aware that fulfilling obligations of loyalty and confidentiality are especially challenging.
Follow these practical tools to fulfill your required legal obligations:
Understand your state laws to know how and at what point a fiduciary relationship is formed with your buyers and sellers.
Develop brokerage policies addressing the different types of relationships and how each should be practiced through written agreements.
Ensure your clients understand the fiduciary duties owed to the buyer or seller based on the established relationship, in addition to other contractual obligations.
Review and follow all state statutory disclosure requirements explaining your representation, duties owed and services provided.
Check out resources available on nar.realtor, consider pursuing the C2EX endorsement, and consult your local and state associations for jurisdiction-specific guidance. Thank you for watching this episode of Window to the Law.
