In the world of commercial real estate, those of us who are involved in the leasing or selling of commercial space refer to ourselves as “agents”. Does taking the role of an “agent” create a fiduciary relationship between us and those principals? In other words, when does a person owe another a fiduciary duty? While many have tried to define the circumstances or relationships that warrant the imposition of fiduciary duties, few have completely captured the countless applications of true fiduciary duty. So I decided to do a bit of research on the topic. I came across a reference to the fiduciary relationship as “one of the most elusive concepts in Anglo-American law,” and another as “a concept in search of a principle.” While entertaining commentary, it still leaves a gap in answering the question. In short, a fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties. One party, a corporate trust company, for example, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment.
A real estate broker, who becomes an agent of a seller or landlord, either through the execution of a written agreement, or unintentionally by a course of conduct, is deemed to be a fiduciary. Classic examples of fiduciaries are trustees, executors, and guardians. In a fiduciary relationship, the fiduciary is required to act at all times for the sole benefit and interests his client.
When a real estate agent or broker is acting in an agency capacity for a client in a transaction, they have certain legally mandated duties that are called fiduciary duties. A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties. In a fiduciary relationship, one person (the client), in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another (the agent) whose aid, advice or protection is sought in some matter.
As a fiduciary, a real estate broker is held under Idaho regulations to owe certain specific duties to his client, but not to his customer. The Idaho Department of Real Estate publishes a booklet that specifically explains the difference between a client and a customer, and details how the licensee is to treat each. It used to be referred to as “The Blue Book”.
Specifically, fiduciary duties include:
Loyalty: A duty of loyalty the most fundamental fiduciary duties owed by an agent to his client. The client’s real estate broker is required to act solely in the best interests of his client.
Obedience: An agent is obligated to obey all lawful instructions of his client.
Disclosure: An agent is obligated to disclose to his client all relevant and material information that the agent knows, including a tenant’s willingness to pay more.
Confidentiality: A real estate broker is obligated to keep his client’ bargaining position confidential, and safeguard any information that might weaken his client’s position.
Reasonable care and diligence: The standard of care expected of a real estate broker representing a seller or buyer is that of a competent real estate professional. In other words, by reason of his license, a real estate broker is deemed to have skill and expertise in real estate matters superior to that of the average person.
Accounting: This duty compels a real estate broker to safeguard any money, deeds, or other documents entrusted to him that relate to his client’s transactions.
Unfortunately, the potential buyer or tenant may perceive they have a fiduciary relationship with the agent, but in all reality, they probably do not. They may think they are the client, but they are the customer.
According to Idaho law, real estate licensees in Idaho are required to not only give their clients that brochure explaining agency regulations in Idaho, but also have them sign an affidavit that they received it. So it must be important, but what does it really say? Or not say?
The brochure tiptoes around the issue of fiduciary duty without ever actually using the term. It defines a client as a buyer or seller of real estate who has a written agreement for representation in the transaction (as in a contract to sell or lease). The customer is defined as a buyer or seller who is not represented, but who receives services from a real estate professional. Then there’s the “limited dual agent,” a real estate brokerage which offers specific and limited representation to both a buyer and a seller with their consent. (And let’s not even discuss what a mess that relationship makes.) The bottom line is that it’s up to the customer to infer that the agent does not have a fiduciary responsibility to them.
So let’s make this clear: In a real estate transaction, the agent only has a fiduciary responsibility to the client, not to the customer. All real estate consumers are customers unless they have signed a representation agreement with a broker. And, if the broker is representing both sides of the transaction, his fiduciary duties are confused, and there may be a conflict of interest. Everyone should be aware of that possibility.
As a customer, a real estate agent is not required to promote your best interests or keep your bargaining information confidential. In fact, it’s just the opposite. If a real estate agent is representing the seller or landlord in the transaction, and you mention your ability to pay more, the representative is legally obligated by fiduciary duty to reveal that information to his client. Why would you ever pursue a deal without your own representative?
Talk to an experienced real estate pro who works only on one side of the bargaining table-your side!