The agency relationship imposes fiduciary duties on the client and agent, but particularly on the agent. An agent must also observe certain standards of conduct in dealing with customers and other outside parties.
to the client Skill, care, and diligence. The agent is hired to do a job, and is therefore expected to do it with diligence and reasonable competence. Competence is generally defined as a level of real estate marketing skills and knowledge comparable to those of other practitioners in the area.
The notion of care extends to observing the limited scope of authority granted to the agent. A conventional listing agreement does not authorize an agent to obligate the client to contracts, and it does not allow the agent to conceal offers to buy, sell, or lease coming from a customer or another agent. Further, since a client relies on a broker’s representations, a broker must exercise care not to offer advice outside of his or her field of expertise. Violations of this standard may expose the agent to liability for the unlicensed practice of a profession such as law, engineering, or accounting.
Loyalty. The duty of loyalty requires the agent to place the interests of the client above those of all others, particularly the agent’s own. This standard is particularly relevant whenever an agent discusses transaction terms with a prospect.
Obedience. An agent must comply with the client’s directions and instructions, provided they are legal. An agent who cannot obey a legal directive, for whatever reason, must withdraw from the relationship. If the directive is illegal, the agent must also immediately withdraw.
Confidentiality. An agent must hold in confidence any personal or business information received from the client during the term of employment. An agent may not disclose any information that would harm the client’s interests or bargaining position, or anything else the client wishes to keep secret.
The confidentiality standard is one of the duties that extends beyond the termination of the listing: at no time in the future may the agent disclose confidential information.
An agent must exercise care in fulfilling this duty: if confidentiality conflicts with the agent’s legal requirements to disclose material facts, the agent must inform the client of this obligation and make the required disclosures. If such a conflict cannot be resolved, the agent must withdraw from the relationship.
Accounting. An agent must safeguard and account for all monies, documents, and other property received from a client or customer. Florida license law regulates the broker’s accounting obligations and escrow practices.
In recent years, the disclosure standard has been raised to require an agent to disclose items that a practicing agent should know, whether the agent actually had the knowledge or not, and regardless of whether the disclosure furthers or impedes the progress of the transaction.
The most obvious example of a “should have known” disclosure is a property defect, such as an inoperative central air conditioner, that the agent failed to notice. If the air conditioner becomes a problem, the agent may be held liable for failing to disclose a material fact if a court rules that the typical agent in that area would detect and recognize a faulty air conditioner.
There is no obligation to obtain or disclose information related to a customer’s race, creed, color, religion, sex or national origin: anti-discrimination laws hold such information to be immaterial to the transaction.
Florida law requires a seller to make a written disclosure about property condition to a prospective buyer.
Agent’s duties to the customer
The traditional notion of caveat emptor— let the buyer beware– no longer applies unequivocally to real estate transactions. Agents do have certain obligations to customers, even though they do not represent them. In general, they owe a third party:
- honesty and fair dealing
- reasonable care and skill
- proper disclosure
An agent has a duty to deal fairly and honestly with a customer. Thus, an agent may not deceive, defraud, or otherwise take advantage of a customer.
“Reasonable care and skill” means that an agent will be held to the standards of knowledge, expertise, and ethics that are commonly maintained by other agents in the area.
Proper disclosure primarily concerns disclosure of agency, property condition, and environmental hazards.
An agent who fails to live up to prevailing standards may be held liable for negligence, fraud, or violation of state real estate license laws and regulations. Agents should be particularly careful about misrepresenting and offering inappropriate expert advice when working with customers.
Intentional misrepresentation. An agent may intentionally or unintentionally defraud a buyer by misrepresenting or concealing facts. While it is acceptable to promote the features of a property to a buyer or the virtues of a buyer to a seller, it is a fine line that divides promotion from misrepresentation. Silent misrepresentation, which is intentionally failing to reveal a material fact, is just as fraudulent as a false statement.
Negligent misrepresentation. An agent can be held liable for failure to disclose facts the agent was not aware of if it can be demonstrated that the agent should have known such facts. For example, if it is a common standard that agents inspect property, then an agent can be held liable for failing to disclose a leaky roof that was not inspected.
Misrepresentation of expertise. An agent should not act or speak outside the agent’s area of expertise. A customer may rely on anything an agent says, and the agent will be held accountable. For example, an agent represents that a property will appreciate. The buyer interprets this as expert investment advice and buys the property. If the property does not appreciate, the buyer may hold the agent liable.
Principal’s general duties
The obligations of a principal in an agency relationship concern the following:
Availability. In a special agency, the power and decision-making authority of the agent are limited. Therefore, the principal must be available for consultation, direction, and decision-making. Otherwise the agent cannot complete the job.
Information. The principal must provide the agent with a sufficient amount of information to complete the desired activity. This may include property data, financial data, and the client’s timing requirements.
Compensation. If an agreement includes a provision for compensating the agent and the agent performs in accordance with the agreement, the client is obligated to compensate the agent. As indicated earlier, however, the agency relationship does not necessarily include compensation.