The National Association of Realtors (NAR), with a membership of over one million members, defines and explains six categories that comprise fiduciary responsibility under the law. They are Loyalty, Confidentiality, Disclosure, Obedience, Reasonable Care and Diligence, and Accounting.
This article looks at one of these categories - Loyalty. According to the NAR's definition, it requires "the broker to act at all times solely in the best interests of his principal to the exclusion of all other interests, including the broker's own self-interest." The question addressed in this article is, how literally must that be taken. For an example of a possible explanation, let's look at a Supreme Court of New York decision handed down on January 2, 2007 in the case of Tamara Cohen v. Jerome and Jessica Seinfeld
In September 2004, Cohen, a licensed New York Real Estate Broker began showing apartments to the Seinfelds' estate manager. The Seinfelds were interested in renting several apartments to accommodate staff and family members but instead decided to purchase a brownstone. Their estate manager asked Cohen to help them find a suitable property. When he enquired about her commission, she told him it would be either 5% or 6%, depending upon the property.
In December 2004, Cohen became aware of a building in Manhattan advertised for sale. She contacted the listing broker representing the owner and according to Cohen, told him she could not show the premises on Friday evenings or Saturdays before sundown because she observed the Sabbath. In January 2005, Cohen showed the premises to the estate manager and Jessica Seinfeld. Jerome Seinfeld was not present and not all the apartments were available for inspection, so it was proposed that another viewing be scheduled for a night during the week. According to Cohen, later that day she told the estate manager she would try to arrange something for Monday or Tuesday of the following week and reminded him she would not be available on the Sabbath.
Over the weekend the Seinfelds went to the property on their own, inspected the property with the owner, and agreed to purchase it for $3.95 million. Jerome Seinfeld testified in court that he attempted to contact Cohen for approximately 24 hours to no avail. Both Seinfelds testified that they didn't know Cohen observed the Sabbath.
After the Sabbath, Cohen checked her voicemail and there was a message form the Seinfelds' estate manager requesting that the Seinfelds be given access to the apartments and also learned that the Seinfelds and the owner of the building negotiated the deal and would not be paying Cohen a commission. The seller's broker did receive his commission from his client, the seller. Mrs. Seinfeld had expressed dissatisfaction with Cohen for not returning phone calls, and Mr. Seinfeld didn't think Cohen deserved the commission because she was not available to show the premises when he wanted to see it. The Court did not agree. It concluded: Cohen is a licensed real estate broker, may rely on an oral agreement in support of her claim for a commission, and did serve as the Seinfelds' real estate broker. The Court further concluded that the Seinfelds did agree to pay her commission and the only remaining issue to be determined by a court was whether it was 5% or 6%.
Several Points: In New York, the employment of a broker by a client need not be in writing unless otherwise required by the Statute of Frauds. It may be expressed in writing, orally, or implied by the conduct between the parties.
While one of the requirements to earn a commission may be that the broker demonstrate that he or she was the procuring cause, the broker must be given the opportunity by the client to attempt to perform the necessary steps to be the procuring cause. In other words, you can't go around the broker and negotiate your own deal and claim that the broker was not the procuring cause.
Also, while a client may not always be completely satisfied with a broker's inability to respond to a client's demands, that may not be a violation of their fiduciary responsibilities.
June's article will look at Confidentiality as an element of Fiduciary Responsibility.
John is a St. John's University graduate, licensed Real Estate Broker, DOS Certified Instructor, and real estate consultant. He previously taught at NYU, LIU, and The Cook Maran Real Estate School, which he helped found.