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Real Estate Agent Fiduciary Duties 101

We'll give you a high-level overview of what an agent's fiduciary duties are, plus five red flags you should be on the lookout for in your own team.

April 17, 2020

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The relationship between a client and their real estate agent is delicate and comes with great moral responsibility. Referred to as a fiduciary relationship, the client is placing complete trust in their agent or broker because the latter has the industry expertise while the client does not. So, when managing a team of agents, you’ll want to make sure everyone fully understands what it means to be in a “fiduciary” role. What exactly are fiduciary duties, and how can they impact the buying and selling process in real estate? Here’s what you and your team need to prioritize. But first, a little Fiduciary 101.

What Is a Fiduciary?

Simply put, the term "fiduciary" means a party who holds a legal or ethical relationship of trust with one or more others, called the “principal.” Usually, the two parties have entered into an agreement together — whether explicit or implied — with one party acting as the representative and making decisions on behalf of the other(s), with the duties of good faith and acting in the principal's best interest. Classic examples of fiduciaries include trustees, executors, guardians, and real estate professionals. The National Association of Realtors (NAR) says fiduciary duties are the “highest duties known to the law.”

What Are the Fiduciary Duties of a Real Estate Agent?

When acting in a fiduciary role, an agent will perform the duties requested by a client throughout the buying and selling process while keeping the client's best interests in mind. The NAR states that “as a fiduciary, a real estate broker will be held under the law to owe certain specific duties to his principal, in addition to any duties or obligations set forth in a listing agreement or other contract of employment.”

There are six specific fiduciary duties that a real estate agent must uphold when working with a client. However, these duties will vary depending on whether or not the client is interested in buying or selling a property. But first, let’s broadly define the six duties. The acronym "OLDCAR" is an easy way to remember the six duties. Here's what the term stands for:

  • Obedience: Oblige to the lawful instructions set forth by the principal's control but should not engage in any tasks that break the law.
  • Loyalty: Act with a client's best interests in mind at all times during the buying or selling process.
  • Disclosure: Share all information about a property.
  • Confidentiality: Shield a client's personal information and other sensitive information.
  • Accounting: Be responsible for keeping track of money and property that are given to them on behalf of the buyer or seller.
  • Reasonable Care and Diligence: Fulfill their duties when helping a client buy or sell a property, using reasonable care and diligence and professional expertise.

Real Estate Agents’ Duties to the Seller

The six fiduciary duties are applied to real estate agents and brokers, but the terms can hold different meanings in the context of representing a buyer or a seller. Here’s what each term means as it relates to an agents’ duties to the seller:

  • Obedience: Follow the lawful instruction from the seller at all times.
  • Loyalty: Be an advocate for — and team player to — the seller. Always be on the lookout for opportunities that will benefit the seller.
  • Disclosure: Sellers’ agents are responsible for shedding light on any problems that impact a property to their clients. However, they are not obligated to share negative information about the local community that may impact a buyer's decision to purchase a property.
  • Confidentiality: Agents are obligated to determine as much information as possible that will benefit the seller, including a buyer's financial details. At the same time, agents should also help the seller safeguard seller information (e.g., financial predicament or motivation for selling) that could benefit the buyer.
  • Accounting: The agent is responsible for safekeeping all money and documents that are given to them by the seller.
  • Reasonable Care and Diligence: Agents must use their real estate education and know-how to offer the best possible services to the seller.

Real Estate Agents’ Duties to the Buyer

Now that you know how OLDCAR applies to an agent and seller, it’s important to understand how the same terms also apply to a buyer’s agent. Here’s what you need to know:

  • Obedience: Follow the lawful instruction of the buyer at all times.
  • Loyalty: Be an advocate for — and team player to — the buyer. Always be on the lookout for opportunities that will benefit the buyer.
  • Disclosure: Buyers’ agents are responsible for learning as much as possible about the seller and relaying that information to the buyer. Agents should also seek out everything they can find out about the property that may affect the value of the home and work that might need to be done.
  • Confidentiality: Even if a buyer is willing to pay more than the asking price for a property, it's an agent's duty to shield this information from the seller. The agent should also protect other private information about the buyer, like the reason for purchasing.
  • Accounting: Agents are liable for all money and documents that are given to them by the buyer.
  • Reasonable Care and Diligence: Agents must use their real estate education and know-how to offer the best possible services to the buyer.

How Can a Real Estate Agent Breach Their Fiduciary Duty?

Here are a few common fiduciary duty-related scenarios for which real estate agents can get — and have been — sued:

  • Failing to share all material information about the property
  • Not disclosing the entire list of purchase offers to a seller
  • Saying yes or no to an offer before checking with the client
  • Sharing a client's personal details with the other party without the client's knowledge

According to FindLaw.com, if a client makes a claim for breach of fiduciary duty against their real estate agent, they must be able to prove the presence of three crucial elements: Duty, breach, and damages. To avoid confusion, we have provided the exact definitions below:

  1. Duty: The defendant had a duty or duties to the plaintiff, such as the duty of good faith and fair dealing, the duty of full disclosure, or the duty of loyalty (the exact nature of the duty or duties will depend on the facts of the case).”
  2. Breach: The defendant breached this duty in some way, such as by failing to disclose certain information, misappropriation of funds, misuse of influential position, neglect of responsibilities, or misrepresentation with regard to a statement of fact.”
  3. Damages: The plaintiff must have suffered damages, for which the breach was the proximate cause; a breach without damages is not actionable.”

In other words, clients must be able to show the existence of the fiduciary duty they’re claiming was breached, the actual breach of said duty, and any damages that occurred as a result of the breach.

What Happens If a Real Estate Agent Breaches Their Fiduciary Duty?

If an agent breaches any of the OLDCAR fiduciary duties, such as failing to inform a buyer of material defects to property or saying yes or no to an offer before speaking with a client, the principal can take them to court — and the agent may face legal repercussions as a result. This includes canceling any legal contracts and agreements the two parties entered into.

Additionally, real estate agents who do not adhere to their fiduciary duties may suffer financial consequences, such as not receiving payment, having commission taken away, or having to return deposits or other monies they received during the buying or selling process.

5 Red Flags to Look Out for in Your Own Agents

If you oversee a team of real estate professionals, you’ll want to make sure they positively represent your brand and don’t put your company at risk. Here are some signs your agents aren’t taking their fiduciary responsibility seriously.

Red Flag #1: They're always going for the highest offer.

If you notice your agent is encouraging multiple clients to put in the highest possible offer on properties, this could be a sign the agent is misleading the clients in hopes of their own personal gains, such as earning a higher commission.

Red Flag #2: Their knowledge is lacking.

In order to act with a client’s best interests in mind, agents must stay current on real estate trends, rules, and other educational information that can help buyers and sellers make informed decisions. If you notice your agent isn’t looking for ways to enhance their real estate knowledge, try suggesting a relevant opportunity to help them gain new skills to fulfill the “reasonable care” fiduciary duty.

Red Flag #3: They're disorganized.

Agents need to be organized when dealing with clients, especially when keeping track of money and other documents that are being held during the transaction. If you notice your agent is constantly misplacing important client papers and other information, it may be time to help them formulate a systematized plan for client paperwork.

Red Flag #4: They have issues with privacy.

Agents and clients enter into a trusted relationship in which the agent is responsible for safeguarding a client's secrets. If you notice your agent sharing details with the other party in the buying or selling process, like if a buyer is willing to pay the highest asking price but doesn’t want the seller to know, this is considered a breach of fiduciary duties.

Red Flag #5: They fail to uphold a client’s wishes.

Agents should be obedient to clients, meaning they should fulfill the client's legal wishes and not those of the other party to the transaction. For example, if a client requests to list a property at a certain price, the agent can give advice based on market data, but must follow the client’s instructions.

3 Examples of Real Estate Agents Who Breached Their Fiduciary Duties

Agents should avoid breaching their fiduciary duties at all times, but that doesn’t always happen. Here are three real-life examples of real estate agents who breached their fiduciary duties.

Case Study #1: Gebhard v. Laxmi-Vishnu Enterprises, Inc., 2012

In Texas, a jury verdict found that an agent misrepresented a property and moved to award damages to the seller. The owner of the property had been traveling overseas, so he appointed a friend as power of attorney to represent him during the sale. While out of the country, the agent created an amended contract that greatly reduced the buyer's down payment so much so that it no longer met the seller's specified terms. The seller’s agent allegedly told the owners’ representative that the changes were approved, although the owner claimed that was not the case. As a result, the seller’s agent did not accurately disclose the terms of an amended sales contract to the seller's representative when the seller was out of the country. The agent was sued for breach of fiduciary duty, fraud, and stationary fraud, upholding the jury's verdict.

Case Study #2: Lane v. Oustalet, 2004

In May 2004, a Mississippi court ruled that an agent representing both the buyer and seller in a transaction breached her fiduciary duty to the buyer. This was discovered when the agent only gave a copy of the termite report to the sellers of the home but not the buyer. This violates the disclosure duty because the agent did not share pertinent information that the buyers would want to know.

Case Study #3: Saiz v. Horn, 2003

A South Dakota court said a buyers' representative had a duty to inform the clients that the seller was required by law to produce a property condition disclosure form. When the transaction was completed in August 1995, the sellers never provided the buyers with a property condition disclosure form. The form completed by the sellers showed the property previously had water problems and cracks in the walls. Five years passed before buyers began noticing these problems with the house, prompting a lawsuit against the buyer's representative. Since the form disclosing the problems was never given to the buyers, and because their agent never informed them that the form was, in fact, required to be given to them, the court found that the representative breached his fiduciary duties to the buyers.


Image courtesy of iStock.com/aluxum


The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice.

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