A fiduciary is an individual who is entrusted with acting on behalf of another individual and making decisions in the best interest of the other person. Lawyers, accountants, and financial advisors all have a fiduciary duty to their clients. Real estate agents also owe a fiduciary duty to their clients.
The most important aspect of the real estate agent’s fiduciary duty is the need to operate honestly and in the best interest of the client. In the course of representing a buyer or seller in a transaction, the real estate agent will spend most of their time working independently of the client. They negotiate with other parties, coordinate inspections, and prepare contract documents.
The real estate agent is, therefore, required to act as a proxy for the client and makes decisions for the client. The agent must also report information in an open and honest manner to the client.
A real estate agent’s fiduciary duties include:
- The duty to fully disclose all material facts known about a property to the client. This means, for example, that the real estate agent who represents a buyer must make a good faith effort to learn all of the available information about the condition of a property and communicate everything known about it to the buyer, so the buyer can purchase the property at a price that accurately represents its value;
- The duty to submit all purchase offers made on a property to a seller;
- The duty to handle the keep a client’s personal and financial information confidential;
- The duty to refrain from representing opposing parties in the same transaction without the knowledge and consent of both parties.
Real estate agent fiduciary duty issues come up when a real estate agent acts in any way that is not consistent with their fiduciary obligation.
What are Some Common Real Estate Breaches of Fiduciary Duty?
A real estate agent is hired by a client to act in the client’s best interest, not in their own best interest. Generally, when a real estate agent decides to act for their own personal benefit to the detriment of their client, they have breached the fiduciary duty that they owe to their client.
The following are common examples of real estate agent breach of fiduciary duty:
- Receiving fees or other payments that are not disclosed to the client; for example, if a seller needs to make repairs and improvements to their house before putting it on the market, the agent might receive a kickback from a contractor to get the job. This would be a breach of the agent’s fiduciary duty;
- Failing to inform a seller of all offers on the table after an offer has been accepted;
- Failing to advise a buyer of known material defects in a property;
- Dual representation or facilitating a sale of a property by acting as the real estate agent for both the buyer and seller without the knowledge and consent of both parties;
- Passing a client’s personal information to the another agent or party to a transaction without the client’s knowledge and permission; for example, an agent might tell a seller that a buyer has qualified for a loan amount that would allow them to purchase the house at a higher price than the agent’s buyer client has offered;
- Declining or accepting an offer without the client’s knowledge and approval.
Any one of these breaches can have a serious financial impact on the client’s financial interests. The consequences of a breach could go beyond causing the client to lose money on a sales price that is lower than it should be or to pay more than they should for a property.
A breach of the fiduciary duty could also result in other harm to a client. This is especially true if the client ends up buying a house with defects that would be expensive to repair, or if their personal details have been disclosed to unknown people.
How Do You Prove Breach of Fiduciary Duty?
The first step in proving breach of a fiduciary duty is proving that a real estate agent had a fiduciary duty to a client. Generally, once a client signs a contract with an agent, the fiduciary relationship is established that applies to real estate transactions. The duty is imposed by state law in the state in which the agent is licensed. But this fact has to be shown by evidence in a trial.
Once the fiduciary duty has been established, the party who is suing the agent must show that the agent acted contrary to the requirements of the duty. That would entail proving, for example, that the agent knew of defects in the property, but failed to disclose them to the buyer. Or, maybe the agent represented both the buyer and the seller in a transaction without making full disclosure to the parties and getting their consent. Or, the agent may, in some other way, have acted in their own self interest and not in the interest of their client. Whatever the breach, the facts that constitute the breach must be proven.
The last step is to prove that the breach caused the agent’s client harm. A breach of the duty that did not cause measurable harm cannot be the basis for a lawsuit.
What Are the Consequences for Breaches of Fiduciary Duty?
If the client who is harmed by an agent’s breach of fiduciary duty files a lawsuit, then the consequence would be an award of compensatory damages to the client. The agent would be responsible for paying the award. Compensatory damages are designed to compensate the victim for economic losses they suffered as a result of the breach. The measure would be comparable to the measure for compensatory damages in a personal injury or breach of contract case. So, for example, a real estate agent might have represented the buyer of a home. If the home turned out to have a defect that the agent did not disclose to the buyer, then the damages would be the cost of repairing the defect.
In some states, if the breach of fiduciary duty was especially egregious, then punitive damages might be allowed by the court. Punitive damages are an amount of money awarded by a jury in an amount determined by the jury. The point of punitive damages is to punish the wrongdoer and not to compensate the victim for a specific economic loss.
Punitive damages are intended to discourage the agent from committing the same breach in the future, and also to send a message to the community of real estate agents that breaching a fiduciary duty can have expensive consequences. Generally, punitive damages are awarded only in cases involving fraud or intentional misconduct.
In some cases, it is possible that a serious breach of fiduciary duty could result in an agent losing their license and thus, their profession. The type of breach that might result in the loss of a license would involve serious misconduct such as financial impropriety, fraud or misrepresentation, being convicted of a crime as a result of breaching a fiduciary duty. The exact type of misconduct that can lead to the loss of a license would be determined by the state licensing board that has issued the license.
Do I Need a Lawyer If My Real Estate Agent Breached a Fiduciary Duty?
When your real estate agent has breached their fiduciary duty, you may feel confused as to how to proceed. You were probably adversely affected financially by the breach. You may have lost the opportunity to sell your home to the highest offer, or you may have found yourself listed as the defendant in a lawsuit involving a failure to disclose known defects. A real estate lawyer can advise you on how to best proceed and provide you with a defense in a civil lawsuit, if necessary.