An agent enters into a fiduciary relationship with their client when they sign an agency agreement or also known as a representation agreement. This relationship is a legal relationship which provides for very specific duties owed to the client. Keep in mind, these duties aren’t just moral and ethical in nature but, are as much statutory and legislative as anything else. Two specific types of law are in control of this relationship and they are the Common Law of Agency and Statutory Law. I will discuss those duties below in detail and I strongly recommend that before you enter into any agency agreement with your local licensed real estate professional, you read over these duties and understand them.
Care: The fiduciary duty of care is when an agent is required by law to give his client and the transaction the necessary attention in order to do the job correctly and to avoid any damage or risk to the client. The idea behind this duty is that you, as the client, expect the agent to know more about real estate than the average person on the street. For this reason, the agent should use his knowledge, experience and expertise to your benefit.
When an agent doesn’t exercise reasonable care, a court of law could find that the agent neglected his duty. In situations where the agent was found to be neglectful, the agent could be liable to his client for any loss resulting from the agent’s lack of attention or neglect.
Obedience: The fiduciary duty of obedience is when an agent is required by law to act honestly, fairly and in good faith at all times, obeying the client’s lawful instructions. This duty is fairly self explanatory however, it’s important to remember that this duty is not absolute. The agent doesn’t have to obey any instructions that cause the agent to break the law or violate any moral or ethical standard.
Loyalty: The fiduciary duty of loyalty is when an agent is required by law to place his client’s interest above his own. It has been my experience that this duty always seems to bring the most debate however, the law is very clear. Your agent owes you his loyalty, above his own interest. This brings the most debate because most representation agreement includes commissions that are based on percentages of the gross sales price. In other words, the agent makes more money if he obtains a higher sales price on the home. The reason this can be a source of conflict is that sometimes, getting the most money for a home isn’t the offer that serves the clients best interest. In these types of cases, many agents seem to forget their loyalty duty in an effort to obtain the highest price and therefore, putting their own self interest above their clients. As the agent, we owe our clients absolute loyalty, above our own self interest.
Disclosure: The fiduciary duty of disclosure is when an agent is required by law to keep his client informed of all the facts and any other information that could impact the client. This duty brings in another concept called Material Facts. It’s important to know and understand that the definition of material facts is very broad in order to cover any fact that the client would consider in determining whether or not to engage in the transaction. When you couple the disclosure duty with the care duty, you get an agent who is obligated by law to find the facts that are important to the transaction. In fact, agents can be held liable for any damages relating to not disclosing their knowledge regardless if it’s favorable or unfavorable to their client. The rule of thumb for agents is to disclose everything and if you even have to question whether or not to disclose something, you disclose it.
Accounting: The fiduciary duty of accounting is when an agent is required by law to keep a record and be able to report on the status of ALL funds received on behalf of their client. In many states, agents are required to actually provide accounting records on funds to all parties in the transaction. Here in Tennessee, we are required by law to have funds deposited within certain time frames and they must be deposited into special escrow accounts as to not to co-mingle our client funds with our own.
Confidentiality: The fiduciary duty of confidentiality is when an agent is required by law to keep their clients affairs secret. This is likely the 2nd most hotly debated duty by agents because, not all agents have the same opinion on what is considered confidential and what isn’t. One of the biggest mistakes agents make in regards to this duty is disclosing their client’s eagerness or willingness to get the deal done. For example, your agent shouldn’t be telling the other party things like, “My client really wants this house and he will do what needs to be done to get it” or “My seller really needs to sell.” Statements like these could potentially give the other party an edge in negotiations and therefore hurt the client. Anything you tell your agent should remain confidential with one exception and that is material facts.
As you can see, working with an agent to buy or sell your home has very specific legal duties that are owed to you by the agent. When entering into a representation agreement, it’s imperative that you know and understand these duties. Knowledge of these duties will help you find the right agent for you and your needs. When selling, buying or investing here in Nashville Tennessee, Liberty House Realty LLC is aware of our duties to you and are ready to help.
This is a guest blog by:
Jesus "Jesse" D. Gonzalez Jr. Realtor, BBB Accredited Business
Principal Broker / Owner
Liberty House Realty LLC
1709 Ridgemere Ct.
Hermitage, Tn 37076
P# 615-424-0961
F# 615-391-4740
Facebook: www.facebook.com/LibertyHouseRealty
Designation / Certification: REOPro, RDCPro, NFSTI, PSC Pre-Foreclosure Mastery, PSC HAMP Mastery, PSC HAFA Mastery, PSC FDCPA Compliant, CDAT, HRC, Short Sale Specialist
EMATR Ethics Standard Grievance Committee Member
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