Understanding Fiduciary Duties – Part 1
Today, we take a look at fiduciary obligations. In this 2 part article we will examine the role and responsibilities an agent has to their client. The role of a fiduciary is complex and requires a loyalty to be given to the client. The question is how does that responsibility play out.
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Understanding Fiduciary Duties – Part 1
By: D. Keith B. Dunnagan, Esq.
A term that comes up often in the real estate world is an agent owes a “fiduciary duty” to their clients. However, this term is ambiguous. What does fiduciary duty really mean and what responsibilities are placed on agents? Fiduciary duty will be covered in two articles: this first article will discuss the concept of fiduciary duty generally and how it relates to disclosures in real estate. The second part will cover the other responsibilities that an agent has under fiduciary duty and how to avoid breaching their duty.
At its core, a fiduciary duty is the highest standard of care under the law. A fiduciary duty, for example, exists between a parent and child or between a doctor and their patient. The person who owes this duty has an obligation to the one who receives the benefit of the duty. The legal system has extended fiduciary duty to also include the relationship between a real estate agent and their client. This extension means that real estate agents owe the highest standard of care to their clients.
The real estate agent has the obligation to act within good faith and candor to their clients. An agent must be honest, loyal, and act within reasonable care when handling their clients’ transactions. Fiduciary duty includes loyalty, avoiding conflicts of interest, and to disclose all material facts.
Material facts include all the information that an agent knows or could reasonably obtain relating to the property or transaction. The information that the agent needs to disclose is generally fact specific. Knowledge and experience of the client, nature of the property, and terms of the sale are some of the issues that need to be considered when disclosing.
Clients are the beneficiaries of an agent’s fiduciary duty, so an agent must consider their role in the transaction. If they are representing a seller, then the agent owes that duty to the seller. The same applies when an agent represents a buyer. This concept also extends when an agent represents both the buyer and the seller in the transaction.
If an agent represents the buyer and the seller, the agent must disclose facts to the buyer. These facts include information that materially affects price and desirability that a reasonable visual inspection would reveal. A dual agent will owe care, integrity, honesty, and loyalty to both the buyer and seller.
Further, the agent cannot accept the information they receive to be automatically true. An agent must verify the information they receive or disclose to their client that the information has not been verified.
It is important to take steps to ensure that the agent is not breaching their fiduciary duty. The easiest step is to always make sure that the agent is acting within the best interests of their client. By putting a client’s interest first, rather than perhaps the agent’s interests, the risk of breaching their duty will be lower.
In sum, fiduciary duty creates a special relationship between an agent and their client and obligates the agent to put their clients’ interests first. In part two of this article, the other aspects and responsibilities under fiduciary duty will be discussed as well as further recommendations on how to avoid breaching fiduciary duty.
In the first segment of the discussion on fiduciary duty, the term was broken down into what a fiduciary duty really means in the case of an agent and client. In this segment, the responsibilities of an agent and how to avoid breaching that duty will be discussed.
Among the duty of disclosure discussed in the first segment, real estate agents owe the duty of loyalty, obedience, confidentiality, reasonable care and diligence, and accounting. These duties will be discussed more fully to ensure that agents do not accidentally breach their duties to their clients.
With loyalty, agents must at all times act on the best interests of their clients. This means that an agent must do everything they can to gain the best advantage for their clients, even if that means not acting in the best interest of the agent. An example of this would be buying a client’s property and then immediately re-selling the property for a profit. This conduct is not to the client’s best interest and would therefore breach the fiduciary duty.
Agents must be obedient with regards to obeying all lawful instructions that conform to the purpose of the relationship. Obedience includes speed and efficiency in carrying out the instructions, however it does include obeying unlawful instructions.
The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at firstname.lastname@example.org. Our flat fee consult for new clients may get you the answers you need for the questions you have.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.