Real Estate Agent's Secret: 6 Fiduciary Duties Revealed

Understanding the 6 fiduciary duties of a real estate agent is paramount for clients and agents alike. The National Association of REALTORS® (NAR) outlines ethical guidelines that emphasize these crucial responsibilities. These duties are vital when representing a buyer or seller in a real estate transaction involving escrow accounts. Competent legal counsel can provide further clarity on navigating these obligations, ensuring adherence to the 6 fiduciary duties of a real estate agent, especially concerning concepts like agency disclosure.

Image taken from the YouTube channel US Realty Training , from the video titled What are the Fiduciary Duties of a Real Estate Agent? .

Unveiling the 6 Fiduciary Duties of a Real Estate Agent

This article aims to explain the core responsibilities a real estate agent holds towards their client. We'll explore the legal concept of "fiduciary duty" and then break down each of the "6 fiduciary duties of a real estate agent" in a clear and understandable way.

Introduction to Fiduciary Duty

Fiduciary duty is a legal obligation one party has to act in the best interest of another. In the context of real estate, your agent has a legal and ethical responsibility to prioritize your needs above their own. This means transparency, honesty, and putting your interests first throughout the entire transaction.

The 6 Fiduciary Duties Explained

The following list outlines the six core fiduciary duties owed to a client by a real estate agent.

1. Obedience: The agent must follow your lawful instructions.

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   • This means the agent must act according to your directions within the bounds of the law.
   • Example: If you instruct your agent not to present offers below a certain price, they must abide by that instruction (unless it's discriminatory or illegal).

2. Loyalty: The agent must put your interests above their own and those of others.

   • This is perhaps the most crucial aspect of fiduciary duty.
   • The agent cannot represent both the buyer and seller in the same transaction without informed consent from both parties (referred to as dual agency).
   • An agent cannot use information gained from representing you to benefit themselves or another client.

3. Disclosure: The agent must disclose all relevant information that could affect your decisions.

   • This includes potential problems with the property, conflicts of interest, and any other material facts.
   • Example: If the agent is aware of undisclosed water damage in the basement, they must inform you, even if the seller has not disclosed it.
   • This also includes disclosing any familial or business relationships with other parties involved in the transaction (e.g., the appraiser, the inspector).

4. Confidentiality: The agent must keep your confidential information private.

   • This includes your financial situation, your motivations for buying or selling, and any information you share with them in confidence.
   • They cannot share your bottom-line price or how desperate you are to sell with the other party.
   • This duty extends even after the transaction is complete.

5. Accounting: The agent must account for all funds entrusted to them.

   • This includes earnest money deposits and any other funds related to the transaction.
   • The agent must keep accurate records and provide you with a proper accounting of all funds handled.
   • This also includes proper handling of escrow accounts.

6. Reasonable Care: The agent must use reasonable skill and care in representing you.

   • This means the agent must be competent and knowledgeable in their field.
   • They should be familiar with the local market, understand contract law, and be able to effectively negotiate on your behalf.
   • Example: They should advise you on a reasonable offer price based on comparable sales and market conditions.
   • They should also recommend seeking professional advice when necessary, such as from a lawyer or inspector.

Dual Agency: A Closer Look

Dual agency is a situation where a real estate agent represents both the buyer and the seller in the same transaction.

• Potential Conflicts: This situation creates an inherent conflict of interest, as the agent is now obligated to act in the best interests of two opposing parties.
• Informed Consent is Key: Dual agency is legal in many jurisdictions, but only with the informed consent of both the buyer and the seller. This means that both parties must be fully aware of the potential conflicts and agree to proceed.
• Limitations: Even with informed consent, dual agents are often limited in what they can disclose to either party. They cannot, for example, reveal the seller's bottom-line price to the buyer or the buyer's willingness to pay more than their initial offer to the seller.

Breach of Fiduciary Duty

A breach of fiduciary duty occurs when an agent violates one or more of these six duties. This can have serious consequences for the agent, including:

• Loss of license: A real estate agent's license can be suspended or revoked for violating their fiduciary duties.
• Lawsuits: Clients can sue agents for damages resulting from a breach of fiduciary duty.
• Reputational Damage: A breach of fiduciary duty can severely damage an agent's reputation, making it difficult to attract new clients.

Choosing an Agent and Ensuring Fiduciary Duty

Choosing a real estate agent is a crucial decision. Here are some tips to ensure your agent understands and upholds their fiduciary duties:

• Interview multiple agents: Ask them about their understanding of fiduciary duty and how they handle potential conflicts of interest.
• Check their background: Verify their license status and check for any disciplinary actions or complaints.
• Read reviews and testimonials: See what other clients have to say about their experience with the agent.
• Trust your gut: Choose an agent you feel comfortable with and who you believe will act in your best interests.

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