UNDERSTANDING FIDUCIARY DUTY – Real Estate Agents
A real estate agent has numerous duties in representing the interests of their clients: duties to perform their contract obligations, and duties to act competently in what they do, and duties to act in the best interests of their clients.
This last duty is what is called a “fiduciary duty” and it is imposed by California law upon all real estate agents. The purchase and sale of a residential or commercial property is usually the biggest and most significant transaction for most people. Thus, the law charges real estate brokers and agents with the utmost duty allowed by law.
The client places a special trust, confidence, and reliance on the fiduciary (agent) to exercise discretion or expertise in acting for the client. The law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his/her own benefit in relation to the subject matter. In short, a person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.
Yet, unfortunately breaches often occur, for example:
- A Listing Agent steers the Seller to accept an Offer which, unknown to the Seller, is more favorable to the agent. Often this involves failure to present other competing offers;
- Failure of Listing agent to disclose the true value of a property. Often this involves the agent having some secret relationship with the Buyer where the agent will gain from the subsequent resale (“flip”) of the property;
- Failure of Listing Agent to disclose special relationship with Buyer such as when the Buyer is a relative or personal friend of the agent;
- Receiving “secret profits” such as undisclosed kickbacks from third parties such as lenders, property inspectors, contractors, etc.
Breach of fiduciary duty commonly falls under the following categories:
- Breach of reasonable care;
- Breach of duty of loyalty;
- Breach of confidentiality;
- Intentional fraud; and/or
- Negligent misrepresentation.
As with all legal claims, a Plaintiff alleging a claim for breach of fiduciary duty most prove:
- The existence of a fiduciary duty;
- That the agent breached that duty; and
- That the Plaintiff’s damage was approximately caused by the agent’s breach.
In certain cases, punitive damages may be available in specifically defined egregious cases. But attorneys fees are not generally recoverable.
What is common in all of these claims is that the agent is putting their own self-interest above the best interest of their clients. In such circumstances, not only can the agent and their broker be held liable for all resulting damages, but they could also be subject to losing their real estate license if Bureau of Real Estate learns of the claim.
The bottom-line: The best way to avoid a claim against you for breach of fiduciary duty is to always put the client’s interests first.
For over 20 years, the attorneys of BPE Law Group, P.C. have been advising and representing property owners and real estate professionals in dealing with their legal concerns. Our major areas of practice include: Real Estate, Business, and Estate Planning. We do business primarily in California although our clients are world-wide. Check us out on the Web at: www.bpelaw.com. If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you.
A real estate agent has numerous duties in representing the interests of their clients: duties to perform their contract obligations, and duties to act competently in what they do, and duties to act in the best interests of their clients.
This last duty is what is called a “fiduciary duty” and it is imposed by California law upon all real estate agents. The purchase and sale of a residential or commercial property is usually the biggest and most significant transaction for most people. Thus, the law charges real estate brokers and agents with the utmost duty allowed by law.
The client places a special trust, confidence, and reliance on the fiduciary (agent) to exercise discretion or expertise in acting for the client. The law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his/her own benefit in relation to the subject matter. In short, a person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.
Yet, unfortunately breaches often occur, for example:
- A Listing Agent steers the Seller to accept an Offer which, unknown to the Seller, is more favorable to the agent. Often this involves failure to present other competing offers;
- Failure of Listing agent to disclose the true value of a property. Often this involves the agent having some secret relationship with the Buyer where the agent will gain from the subsequent resale (“flip”) of the property;
- Failure of Listing Agent to disclose special relationship with Buyer such as when the Buyer is a relative or personal friend of the agent;
- Receiving “secret profits” such as undisclosed kickbacks from third parties such as lenders, property inspectors, contractors, etc.
Breach of fiduciary duty commonly falls under the following categories:
- Breach of reasonable care;
- Breach of duty of loyalty;
- Breach of confidentiality;
- Intentional fraud; and/or
- Negligent misrepresentation.
As with all legal claims, a Plaintiff alleging a claim for breach of fiduciary duty most prove:
- The existence of a fiduciary duty;
- That the agent breached that duty; and
- That the Plaintiff’s damage was approximately caused by the agent’s breach.
In certain cases, punitive damages may be available in specifically defined egregious cases. But attorneys fees are not generally recoverable.
What is common in all of these claims is that the agent is putting their own self-interest above the best interest of their clients. In such circumstances, not only can the agent and their broker be held liable for all resulting damages, but they could also be subject to losing their real estate license if Bureau of Real Estate learns of the claim.
The bottom-line: The best way to avoid a claim against you for breach of fiduciary duty is to always put the client’s interests first.
For over 20 years, the attorneys of BPE Law Group, P.C. have been advising and representing property owners and real estate professionals in dealing with their legal concerns. Our major areas of practice include: Real Estate, Business, and Estate Planning. We do business primarily in California although our clients are world-wide. Check us out on the Web at: www.bpelaw.com. If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at sjbeede@bpelaw.com.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you.