The Fiduciary Duties of Your Real Estate Broker
The law sets forth very strict, specific responsibilities regarding the broker - client relationship. It is not one to be entered into lightly.
- Universal Agency:
- A universal agent is someone who has the authority to represent their client in all matters that can be delegated. An example of this would be a trustee or guardian. A universal agent can legally bind a principal to a contract by signing on their behalf.
- General Agency:
- A general agent is someone who has the authority to represent their client in a specific range of matters. An example of this would be a property manager who is hired by a landlord. A general agent can legally bind a principal to a contract, but only within the limited range of matters in which they are authorized to represent the principal. For example, the property manager could hire a concrete company to install sidewalks at the landlord's apartment building, but he could not make health care decisions on behalf of the landlord; that is outside the scope of authority granted to him. The most common example of a general agent is the power of attorney.
- Special Agency:
- A special agent is someone who has the authority to represent their client in one specific transaction. However, a special agent cannot legally bind the principal to a contract. This is the agency category in which real estate brokers operate. Its true - like 007, we too are technically "special agents"... The easiest way to tell us apart? I very seldom find it necessary to leap from disabled aircraft or detonate underwater explosives. Also, when it comes to our tech gadgets, I get much more use out of my laser room measurer and smartphone apps than ejector seats and flamethrower bagpipes.)
Any time one person undertakes to represent another and a fiduciary relationship is created, the law takes it extremely seriously and holds the fiduciary to a very high standard. The most distinguishing characteristic of a fiduciary is their obligation of undivided loyalty to the principal. The fiduciary must be careful to avoid a situation where their personal interests and fiduciary duties conflict.
- The broker owes you a reasonable degree of care during the transaction - more than would be received from a nonprofessional. A licensed real estate professional is expected to have a certain level of knowedge and competence, and they are further expected to guide and advise you through the process of a transaction without inflicting harm.
- Confidential information that you share with your real estate broker must be kept secret by the broker, especially if it would compromise your negotiating position with a potential buyer. The only exception to this would be property defects, which brokers are legally required to disclose to purchasers. This particular fiduciary duty is a bit different than the rest because it survives beyond the closing table. Even after the home has been sold, the deal is done, and the rest of the fiduciary responsibilities are released, your broker must maintain the secrecy of your confidential information forever. (Unless you instruct them to do otherwise.)
- The real estate broker's sole loyalty is to you, and they must put your interests above those of everyone else (including their own).
- Your real estate broker is duty-bound to follow your instructions, as long as they are not in violation of the law.
- Your real estate broker is required to keep good records, be able to account for all funds deposited with them and maintain the security of any documents entrusted to their care. They are also required to archive documents related to the transaction for a minimum of three years. (The Department of State stipulates the 3 year document retention requirement, however because the statute of limitations in New York State for potentially relevant actions such as breach of contract and fraud extend to 6 years, a diligent broker will take it upon themselves to retain documents for at least twice the Department of State requirement.)
- In order for you to be able to make the best decisions possible, your real estate broker must pass along all pertinent facts and information about a transaction.