Regulation of Agency

The duties of an agency are based on ethical consideration, and on the seven fiduciary responsibilities, which originated from common law. Specifically, these duties include:

  1. Loyalty
  2. Obedience
  3. Disclosure
  4. Confidentiality
  5. Reasonable care & diligence
  6. Accounting
  7. Advocacy
A good way to remember the duties of agency for your seller or buyer is the acronym CARLOAD.

Confidentiality
Accounting
Reasonable care and diligence
Loyalty
Obedience
Advocacy
Disclosure

A fiduciary duty is a legal relationship of confidence or trust between two or more parties: the fiduciary (in this case, the real estate agent) and the principal (the client). Given these duties, agents must act on behalf of another in a particular circumstance, which creates a special relationship and specific duties.

Fill in the Blank
A is a legal relationship of confidence or trust between two or more .

Loyalty

loyalty-blocksAs an agent, you are required to act at all times in the best interest of the principal and to put those interests above all others, including yourself, and work solely for the benefit of the principal. When a principal of an agent questions the acts of the agent in the course of an agency relationship, the burden is on the agent to show that he or she acted in utmost good faith and loyalty for the principal.

  • As an agent for the seller, you are obligated to do everything ethical within your power to give an advantage to the seller.
  • As an agent for the buyer, you are obligated to do everything ethical within your power to give an advantage to the buyer

Example: Unless given authority to do so, while in the process of working with a buyer, an agent should not ever reveal information related to the monetary status or financial willingness of a seller to accept less than the asking price. In the event the agency relationship ends without transaction completion, an agent must still maintain the seller’s confidentiality.

NOTE: In some states, confidentiality is not required after the transactions process has completed however, it is good practice to adhere to the principle that anything an agent learns about a client should remain confidential. 

obey-dog

Obedience

You are required to obey all lawful instruction identified by the principal however, this does not include the obligation to follow instructions that violate the law (including unethical conduct such as excluding minorities from purchasing a property).

  • As a seller’s agent, you must obey all lawful instructions of the seller, but you are not obligated to follow instructions from the buyer.
  • As a buyer’s agent, you must follow all lawful instructions of the buyer, but you are not obligated to obey instructions from the seller.

Fill in the Blank
It is good practice to adhere to the principle that an learns about a client should remain confidential.

disclosureDisclosure

Agents are required to disclose all known relevant material facts to the principal. This duty includes any facts affecting the value or desirability of the property and other relevant information pertaining to the transaction, which can include such information as the identification of all potential purchasers, the other party’s bargaining position, and any intent to subdivide or resell the property for a profit.

  • As a seller’s agent, you must reveal all known material defects in the seller’s property.
  • As a buyer’s agent, you must tell the buyer everything that you can find out about the seller, such as their motivation to sell.

NOTE: Any facts that may reasonably influence a principal’s judgment related to a transaction are known as material facts. These facts are anything that would affect the buyer’s decision to purchase. For example, depending on when it occurred, a person’s death in a home could be considered a material fact. Other examples of material facts could include the buyer’s motivation and how the agent will be paid.

To help reduce confusion that a principal can associate with agency representation, many states have passed agency disclosure laws that require agents to tell buyers and sellers who they contractually represent. For instance, too often buyers confuse an agent as their representing agent, when actually the broker was looking out, not for their needs, but for the interests of a seller. 


Fill in the Blank
Agents are required to all known relevant material facts to the.

To help minimize these occurrences, many states have implanted legislation and procedures to help ensure buyers fully understand who is and who is not representing them.

In the late 1990s for instance, the Florida Legislature created a “Brokerage Relationship Disclosure Act” which identified a statute that requires brokers to provide a non-representation disclosure to customers “upon the first contact.” The disclosure (non-representation) is intended to let consumers know their position relative to the agent they are talking to. It also helps to limit those occasions when an unintended, unauthorized, and undisclosed dual agency may arise as a result of the actions of those involved in a given business process. [Florida Stat., sect. 275.276 (3)]

You are hereby notified that __________ (insert name of brokerage firm) and I do not represent you in any capacity. You should not assume that any real estate broker or salesperson represents you unless you agree to engage a real estate licensee in an authorized brokerage relationship, either as a single agent or as a transaction broker. You are advised not to disclose any information you want to be held in confidence until you make a decision on representation. Your signature below acknowledges receipt of this form and does not establish a brokerage relationship. __________ Date (Signature Optional)  Once a consumer has read and signed the notice, he or she has at least three options. If the consumer and the agent have a mutual agreement, the licensee and the consumer may enter into an authorized brokerage relationship.

Professionalism and the Standard of Care Source: Arizona Association of REALTORS®

 A “professional” is a person who has received special or advanced education in a particular occupation and is capable of providing competent services to others who are less knowledgeable. A professional has a duty to provide services consistent with the standard of care in the industry. We expect this from doctors and lawyers. The buying and selling public deserves that same degree of professionalism from real estate brokers and agents.As a real estate professional, it is important to be knowledgeable about the standard of care in the industry. The failure to act professionally often involves conduct that falls below the standard of care, which may result in both an unsatisfied client and legal liability.

What is the standard of care for a real estate broker or agent?

The law requires that a real estate broker or agent (hereinafter “broker”) exercise that degree of care that a reasonable broker would exercise in the same or similar circumstances. A broker complies with the standard of care by performing the broker’s duties with reasonable care and skill. For example, a listing broker must exercise reasonable care to sell the seller’s property at the best price and terms. Vivian Arnold Realty Co. v. McCormick, 19 Ariz. App. 289, 506 P.2d 1074 (1973). Stated another way, a broker must “exercise reasonable due care and diligence to effect a sale to the principal’s best advantage.” Haldiman v. Gosnell Development Corp., 155 Ariz. 585, 588, 748 P.2d 1209, 1212 (App.1987).

What is reasonable care?

Reasonable care in the course of a transaction will vary depending on the situation. Therefore, the specific disclosures, advice and counsel required of a broker depend on the facts of each transaction, the knowledge and the experience of the client, the questions asked by the client, the nature of the property and the terms of the sale.

Do the Commissioner’s Rules prescribe the standard of care?

The Arizona Department of Real Estate’s Commissioner’s Rules can form the basis for the standard of care. For example, in Lombardo v. Albu, 199 Ariz. 97, 14 P.3d 288 (2000), the Court stated that Commissioner’s Rule R4-28-1101 prescribed an appropriate standard of care in that case, which was the duty to disclose any information relating to the buyer’s inability to perform. Therefore, a broker should be familiar with the Commissioner’s Rules and stay updated on any revisions.

What happens if a broker’s conduct falls below the standard of care?

The broker is subject to legal liability. If a broker’s conduct fell below the standard of care, the broker is negligent. Once a broker’s negligence is established in a lawsuit, the broker will be held liable to the plaintiff for all damages caused by the broker’s negligent conduct.

What does a plaintiff in such a lawsuit have to prove?

To prevail in a lawsuit, a plaintiff must prove that the broker’s conduct fell below the standard of care by failing to use the skill, prudence and diligence that other real estate brokers commonly exercise. Also, a plaintiff must prove that the broker’s conduct caused harm to the plaintiff.

In a lawsuit, who decides if a broker fell below the standard of care?

After listening to all the testimony or evidence, the “trier-of-fact” decides whether a broker fell below the standard of care. The “trier-of-fact” is generally a jury, but may also be the judge or arbitrator in the case.

How does the trier-of-fact know what the standard of care is?

The standard of care is generally established by expert testimony unless the conduct required by the particular situation is within the common knowledge of a layperson. Therefore, a plaintiff who alleges that a broker acted negligently usually must present the testimony of a qualified expert, i.e., another broker, that the defendant broker acted unreasonably and breached the standard of care.

How can a broker keep informed as to the standard of care in the industry?

A broker can take advantage of quality educational programs and become involved in professional organizations. Advanced education and professional development will enable brokers to maintain a high level of professionalism, provide better service to their clients and avoid legal liability. Remember, in court, expert brokers establish the standard of care. Strive to be one of those experts.

Quick Quiz

Fill in the Blank:
A can take advantage of quality educational programs and become in professional organizations.