What is Fiduciary Duty in Real Estate Transactions
When you enter into a buyer agency agreement with a homebuyer, you are obligated to provide them with the full range of real estate fiduciary duties. A fiduciary relationship is one of special trust. It is similar to that of doctor and patient, religious minister and parishioner, or attorney and client. On top of the minimum level of service, there are additional fiduciary/statutory duties that you owe your clients. We’ve put together some info to help you understand the full scope of your obligations as a buyer agent.
Minimum level of service vs. fiduciary duties
As a real estate licensee, you owe a minimum level of service to every consumer you work with—even if you’re working as a non-agent. Whether or not the consumer has signed a written agency agreement, you must:
- Disclose known material defects
- Treat the customer fairly and honestly
- Provide an accounting of all funds received and disbursed
- Comply with all state and federal laws
Once the consumer has signed a buyer agency agreement, they become your client. You are obligated to provide all contracted real estate clients with the full scope of fiduciary/statutory duties.
What does the full scope of fiduciary duties entail?
Here is an acronym to help you remember what specific duties you owe to your real estate clients when in an agency relationship. It is important for your clients to understand how you protect them:
- the skillful care you offer your client.
- lawful obedience to the client.
- loyalty to the client (above even yourself).
- disclosure of material facts relevant to the transaction.
- timely diligence in handling documents, funds, and research.
- accounting of all funds.
- confidentiality of information that may potentially harm your client—now and always.
What if your buyer client is interested in one of your listings?
Depending on the state you work in, you may be allowed to represent both sides of a transaction, as long as your dual agency relationship is fully disclosed and authorized by both the buyer and the seller. However, note that dual agency is a slippery slope in terms of the fiduciary duties owed to each client. It poses unique challenges because of the confidentiality responsibility. Specifically, as a dual agent, you cannot disclose the seller’s willingness to take a price lower than the list price. You may not disclose if the buyer is willing to pay a price higher than the offer price. In addition, you may not disclose any negotiating strategy or the motivation of the seller to sell the property—unless you are explicitly authorized to do so (in writing is best).
In some states, dual agency exists if the buyer and seller are represented by licensees within the same firm. Check with your state licensing agency and principal broker for clarification on what is allowed in your state and firm.
Remember, the purchase of real property is often the single largest purchase a person will make in their lifetime. As a real estate licensee assisting a buyer with this purchase, you shoulder a tremendous responsibility, fraught with liabilities and risk. With the proper care and an eye toward professional conduct, the home buying process can be tremendously beneficial for both you and your client.