What is Fiduciary Duty in Real Estate?
Fiduciary duty is the legal obligation that a real estate agent owes to their client to act in the client's best interest above all others, including the agent's own interests. This is the highest standard of care recognized by law. When you hire an agent and sign a representation agreement, they become your fiduciary and must prioritize your interests throughout the transaction.
Fiduciary duty is not just an ethical guideline. It is a legally enforceable obligation. Agents who breach their fiduciary duties can face license suspension or revocation, civil lawsuits for damages, and discipline from their broker or professional associations.
The six fiduciary duties
Real estate fiduciary duties are commonly summarized by the acronym OLD CAR:
- Obedience: The agent must follow the client's lawful instructions, even if the agent disagrees with the strategy. If a client wants to list at a price the agent considers too high, the agent must comply (while providing their professional opinion).
- Loyalty: The agent must put the client's interests above all others, including their own financial interest. An agent should not steer a client toward a property that pays a higher commission if a better option exists.
- Disclosure: The agent must disclose all material facts that could affect the client's decision, including known defects, liens, environmental issues, and any information about the other party's motivation or financial situation that the agent becomes aware of.
- Confidentiality: The agent must protect the client's private information, including their financial situation, motivation, and negotiation strategy. This duty survives the end of the agency relationship.
- Accountability: The agent must account for all money and documents entrusted to them, including earnest money deposits and transaction documents.
- Reasonable care: The agent must exercise the skill and care that a competent professional would use, including staying current on market conditions, legal requirements, and best practices.
Fiduciary duty and dual agency
Dual agency creates an inherent conflict with fiduciary duty because the agent cannot fully serve two clients with opposing interests. In dual agency states, the fiduciary standard is typically reduced to a facilitation or ministerial role. The agent becomes a neutral intermediary rather than an advocate. This is why dual agency requires informed written consent from both parties.
Fiduciary duty and investors
Understanding fiduciary duty helps investors hold their agents accountable and recognize when duty is being breached. If your buyer's agent is pushing you toward a property that seems to benefit the agent more than you, or if a listing agent fails to disclose a known issue, these may constitute fiduciary breaches. Investors should also understand that when dealing with the other party's agent, that agent owes no fiduciary duty to you.