Understanding a Real Estate Agent’s Fiduciary Duties – Self Dealing

Today, we continue our series on a real estate professionals fiduciary duties. Attorney, Laura Ferret, examines the duty of loyalty and through the prohibition of self-dealing. Most self-dealing involves some sort of secret profit that is taken. While it sounds nefarious, it is easy find oneself on the wrong side of the self-dealing equation. Something as simple as forgetting to disclose a commission rate could have implications. Take caution and make sure to disclose.

As always, if you have any questions about your real estate, business, estate planning, or any other legal issue, please let us know by e-mailing managing shareholder Keith Dunnagan at kbdunnagan@bpelaw.com.

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Understanding a Real Estate Agent’s Fiduciary Duties – 
Self Dealing
By: Laura Ferret, Esq.

In part two of this series we examined the fiduciary duties of dual agents. Today, we will look at the agent’s duty to avoid self-dealing. The prohibition of self-dealing falls under the umbrella of the agent’s fiduciary duty of loyalty. As the agent has a duty of undivided loyalty to their principal (client), the client must be the only one who profits from the transaction the agent enters on their behalf. In other words, the agent must avoid conflicts of interest with their clients.

Under California law, a conflict of interest exists when an agent stands to profit personally from a transaction. As with any other conflict, full and timely disclosure of the facts and the client’s informed consent are required to avoid a breach of fiduciary duty. Cal. Business & Property Code § § 10176(g) and 10177(o).

The principal of a real estate transaction owns all profits from that transaction unless they knowingly consent to the agent’s retention of a profit. An agent engages in self-dealing if they stand to make any profit from the transaction which is not disclosed to the client. This can be true even where the undisclosed profit is merely a sales commission, referral fee, or assignment fee. Agents should obtain a client’s informed consent in order to retain fees by disclosing the amount of the fee concurrently with the residential purchase agreement, and before escrow closes. If an agent fails to inform the client of profits, they will be subject to a court’s disgorgement of the profits and other liabilities.

One common violation of the agent’s fiduciary duty against self-dealing is the “dummy” sale. A dummy sale is where the agent arranges for a third party (such as a relative or employee) to purchase the property on the agent’s behalf. When the property is then resold at a higher price, the agent stands to profit from the difference between the selling prices.

A similar situation occurs when the broker has a purchase option on a property and waits for an offer on the property that is higher than the option price. If the agent exercises their lower option price without informing the principal of the higher offer, and then resells the property at the higher price, the agent is self-dealing.

Agents should be careful to avoid breaching their fiduciary duty of loyalty by engaging in self-dealing and realizing secret profits from real estate transactions. In such cases, the principal can recover the amount of the secret profits from the broker, rescind the transaction, and recover other damages against the agent. Furthermore, a real estate agent who violates the prohibition against secret profits may have his or her license suspended or revoked. (Business and Professions Code Sec. 10176(g) and (h)). The risk of exposure to liability and the penalties or discipline that flow from self-dealing are not worth it. Make sure that you disclose your interests, if any, including your commission fee so that you don’t needlessly expose yourself to liability.

Stay tuned — in our next installment on fiduciary duties, we will examine the duty to investigate and disclose.


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 kbdunnagan@bpelaw.com. 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.