14.34 Breach of Fiduciary Duties

Care

If an agent represents a seller, care and skill may include assisting the seller in:

• Establishing a realistic market price.

• Advising the seller in making the property more marketable.

• Advising the seller on disclosure issues.

• Using available industry standard tools and techniques to market the property.

• Assisting the seller in evaluating terms and conditions of any offers.

• Preparing and explaining transaction documents and ensuring that all transaction deadlines are met.

If an agent represents a buyer, care and skill may include:

• Locating property meeting the buyer’s criteria.

• Assisting the buyer in evaluation of the property as to condition, value, and neighborhood.

• Assisting in locating financial alternatives available to the buyer.

• Explaining and preparing the terms and implications of the buyer’s offer and responses to counteroffers and other documents.

• Tracking and ensuring that transaction deadlines are met.

Loyalty

• Information relating to confidential matters gained from the principal may not be disclosed. A seller’s agent may not disclose the financial condition of the seller, the seller’s willingness to take a lesser price, the seller’s desperation to sell, etc., unless specifically authorized by the seller. Simply put, unless the principal desires that certain matters be disclosed to third parties, the agent is under a legal obligation to protect the confidentiality of those matters. However, there is a limitation imposed on this duty by statute and case law. The protection of confidential information does not include or permit a licensee to withhold material facts that must be disclosed as a matter of good faith and honest dealing. Because the concept of confidentiality is so intertwined with the duty of loyalty, it is viewed as one aspect of the duty of loyalty, rather than a separate fiduciary duty.

• The duty of loyalty prohibits a divided agency, also known as an undisclosed dual agency, where an agent acts on behalf of an adverse party without the principal’s knowledge or consent.

• The duty of loyalty requires an agent to disclose an ownership interest of 5% or more in a property for sale, and to disclose that he/she has a real estate license if he/she is making an offer on a property for his/her own account.

• The duty of loyalty prohibits competing with the principal either for another principal or for the agent’s own account in matters relating to the subject of the agency. A common example of this prohibited conduct would be for a licensee to take an under-priced listing and then purchase the property with full knowledge that it will sell for more. Any profit made on the resale of the property may be subject to a claim by the principal. Anything that an agent obtains by virtue of placing his/her interest above that of principal belongs to the principal.

The duty of loyalty requires the agent to place the interests of the principal above all others, particularly the agent’s own interest.

Accounting

At all times, the agent must be able to account for all funds received from or on behalf of the principal. For example, property management rent payments from a tenant. In addition, this duty requires the agent to keep accurate records of all documents relating to a transaction, an engagement to sell property, or agreements relating to the leasing of real property. Most states have specific requirements for record keeping that must be strictly adhered to.

Obedience

An agent must act according to the instructions and wishes of the principal unless it is illegal or unethical.

Disclosure

The duty of disclosure requires the agent to keep the principal informed of all material facts that the agent knows or should have known that may have an impact on the principal choosing a particular course of action. These facts may be either favorable or unfavorable to the principal. For example, a home inspection report from a buyer.