Many people are surprised to learn that they have a fiduciary relationship with their real estate broker, and through the broker their agent. What does that mean? Under agency law the real estate agent is appropriately deemed to be an agent of their client, otherwise known as the principal. The agency relationship is created when the principal delegates responsibility to the agent in a specific transaction and the agent accepts this responsibility. Once the relationship is created the real estate agent owes certain fiduciary obligations to their principal. Real estate agents must act in absolute good faith toward their principal and cannot obtain any advantage over their principal in the transaction. Agents must also be loyal to their principal and disclose any facts that might influence their principal’s decision to enter into a transaction. These concepts have been categorized as the obligations of good faith, fair dealing and loyalty.
Many real estate agents don’t appreciate the extent of their fiduciary obligations. The easiest way to conceive of fiduciary obligations is to think of a real estate agent as a selfless advisor. The agent acting as a selfless advisor will disclose to their client all information that might affect their client’s decision in a real estate transaction. For example, if a real estate agent representing a buyer who is ready to make an offer on a 5 million dollar home from which the agent will receive a $150,000 commission knows of something that, if known to the buyer, would kill the sale, the agent must disclose that fact to the buyer. The selfless advisor acts in the interests of their client without any thought of their own commission. They represent only their client’s interests, no one elses. They do not accept secret compensation from others because that would jeopardize their loyalty to their client. The real estate agent is above all else a loyal, selfless advisor.
By Adam Garcia.