What is Fiduciary Duty in Real Estate?
When real estate agents or brokers act in an agency position for a buyer or seller client in a negotiation, the agents or brokers work under specific legally recognized duties known as fiduciary duties, and they must always act in the best interests of their client and not their own.
Fiduciary duties differ by state by state, but one unifying commonality is “confidentiality” of the client’s details. In a fiduciary position, it’s the duty of the real estate agent or broker to safeguard the client’s privacy and keep all their details confidential, unless compelled otherwise by a court of law.
Primary Duties of a Fiduciary
The fundamental duties owed by any real estate buyer regardless if they’re a Customer/ non-Client or a Principal/Client are the following:
Honesty:
No declaration or action can end up in fraud or falsification. Every law and regulation pertaining to the transaction has to be followed, including fully disclosing all material facts to the client.
Agency Disclosing and Material Facts Disclosing:
Disclosing of agency relationships, comprising of an explanation of the differences with a customer and principal/ client relationships, are required to be made in a timely manner so customers can safeguard their own interests. (for instance, revealing any confidential details). Material conditions about real properties need to be disclosed also.
Accounting:
The agent needs to declare to the principal swiftly all consideration and property received and paid out, and when requested, to legally tender an accounting of those items to the client upon demand. This duty also requires the agent to safeguard cash or property held or managed on the behalf of the principal.
Duties Owed to a Principal/ Client by a Fiduciary
As well as Honesty, Agency Disclosure and Material Fact Disclosure and Client Accounting Rights, a Principal/ Client is owed the following from his fiduciary agent:
Undivided loyalty:
The agent is forbidden from advancing any personal interests harmful to the interest of the principal or carrying out the principal’s business in such ways to benefit a different customer, a sub-agent, the agent or any other parties to the disservice of the principal’s interest. Put another way, the fiduciary must place his self-interest below that of his principal at all times.
Obedience:
The fiduciary agent needs to act by abiding every lawful instruction subject to the principal’s continuing control, but cannot exceed the extent of the authority granted by the principal. That is, an agent acting under a scope of fiduciary duty cannot and will not make choices for the principal that exceeds the scope of the authority actually provided.
Reasonable Care and Diligence:
The agent is required to safeguard the principal from anticipated risks of harm, and when necessary suggesting that the principal acquire professional advice or specialized help when the principal’s requirements or facts presented are beyond the scope of the agent’s skill set.
Confidentiality:
The agent is forbidden from relaying personal details about the principal that was given to or obtained by the agent inside the fiduciary scope of employment as an agent to the principal. Personal details are required to be kept private and confidential previous to the client relinquishing the agent, or subagent, from their duty. Nevertheless, material facts and property defects will NOT be private and confidential and must be disclosed to both parties to the real estate transaction.
Full Disclosure:
The agent is required to disclose all material information regarding the transaction (and property) that could impact the choices a principal makes and keeping fully informed the principal of the agent’s personal knowledge of any known defects or material features of the real property.
Accounting:
The agent is required to inform the principal without delay all cash and property acquired and paid out, and when requested, to tender an accounting of those items. This duty also is required by the agent to protect cash, capital or property held on the principal’s behalf.
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