What Is a Fiduciary Duty in Real Estate?

When one person acts as the agent of another, the agent owes the other fiduciary duties. Yet, who is considered the agent can get confusing when a professional uses a title like “real estate agent.” So, what is a fiduciary duty in real estate? In short, realtors and brokers must act in the best interests of anyone they work for.Whether you are a client or a real estate professional, if you are wondering about fiduciary responsibilities in real estate, our breach of fiduciary attorneys at Hunnicutt Law Group can help. We offer our experience and knowledge of the law alongside a commitment to ensuring we minimize the stress of your legal case however we can.

What Is a Fiduciary?

A fiduciary is a person or entity that owes duties to another, known as the beneficiary or principal. Fiduciary relationships are created when you hire someone to act on your behalf in certain circumstances. Fiduciaries must “act with the highest degree of honesty and loyalty” toward principals.

What Fiduciary Duties Do Real Estate Professionals Owe?

The National Association of Realtors (NAR) uses the acronym OLDCAR to explain the duties real estate professionals owe:

  • Obedience—the professional must follow their client’s instructions; 
  • Loyalty—the professional must act in the client’s best interests;
  • Disclosure—the professional must disclose material facts in any transaction;
  • Confidentiality—the professional must keep their client’s information confidential;
  • Accounting—the professional must keep accurate records; and 
  • Reasonable care—the professional must use reasonable care when representing the client.

In addition, the Texas Real Estate Commission (TREC) provides regulations for real estate agents and brokers. Under TREC’s Canons of Professional Conduct and Ethics, Texas real estate professionals owe fidelity when they act as an agent, including:

  • Representing the interests of the client;
  • Ensuring all parties to a transaction understand to whom the professional owes a duty;
  • Treating all parties fairly, regardless of client relationship;
  • Being “faithful and observant” to their role;
  • Being “scrupulous and meticulous” in performing their role; and
  • Placing “no personal interest above that of the client.”

Real estate professionals also must always act with integrity. They must be prudent and cautious to avoid affirmative misrepresentation and misrepresentation by omission.

When Does a Realtor Have a Fiduciary Duty?

Realtors and brokers must treat every party to a transaction fairly. But when does their fiduciary duty kick in? TREC is clear when the duty exists—when the professional acts as an agent. So, when does the professional become the person’s agent?Under basic principles of agency law, which apply to Texas real estate professionals, an agent acts on behalf of another. Thus, a realtor is an agent when they are acting on behalf of another in a professional capacity. The realtor who listed a home for sale is not a fiduciary to potential buyers, but they are a fiduciary to the seller. Similarly, a realtor who negotiates the terms of purchase with the seller’s realtor is an agent acting on behalf of the buyer. A broker is an agent who represents someone in a transaction or lists real estate for sale under an exclusive agreement.

What Is a Breach of a Fiduciary Duty in Real Estate?

To show a breach of fiduciary duty, the principal must prove:

Consider, for example, a buyer’s agent who deliberately steers the buyer toward higher-cost properties and away from properties within the buyer’s budget. As a result, the agent receives a larger commission. Because the realtor misled the buyer about the available options, they breached their duty and benefited from the higher commission.

In contrast, consider a seller’s agent who knows the seller is motivated to sell. A potential buyer offers a low bid on the property. Even if the realtor knows the property should go for much more, they must inform the seller. If they do not, they violate their fiduciary duty.

What Are the Remedies for Breach of a Fiduciary Duty?

When a real estate professional breaches their fiduciary duty, the principal usually requests contract rescission or damages.

Asking for rescission undoes a contract. The goal of rescission is to return the party to the position they were in before the breach. For example, if a person purchased a property with serious structural defects that their agent knew of and failed to disclose, they may ask for rescission. 

The most common remedy, however, is damages. Like rescission, damages are intended to place the party who was harmed in the position they would be had the breach not occurred. The principal can request the real estate professional pay for actual expenses incurred and cover the cost of any other harm their breach caused.

How Can Hunnicutt Law Help?

Fiduciary duties in real estate offer vital protection for everyone involved in real estate transactions, which often represent the largest purchase individuals will ever make. If you believe a real estate professional breached a fiduciary duty to you or if a former or current real estate client has accused you of breaching a fiduciary duty, the Hunnicutt Law Group can help. With our years of experience, we can honestly evaluate your case and help you figure out what to do next. Contact us today.

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J. Stephen Hunnicutt

Our founding attorney, Stephen Hunnicutt, set the precedent for a commitment to excellence and a focus on the client. With 25 years of experience, he has handled countless cases involving business litigation and commercial litigation. Over the years, Mr. Hunnicutt has worked as in-house counsel for a Fortune 500 energy company, a large firm, a small firm, and finally, in his own practice.

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