I think the best way to approach this topic is anecdotally rather than theoretically.
This scenario might shed some light on the subject.
Tim, an agent with "Splendid Realty," gets a listing from Jones who is selling his house. Tim and all the agents at "Splendid Realty" are representing Jones and therefore have a fiduciary responsibility to Jones even though Tim is the only one who has met Jones.
All the "Splendid" agents have potential buyers who they have gotten to know well. These buyers have been loyal to them, haven't worked with any other realtors, have made reasonable offers but have always lost out to other buyers. But the "Splendid" agents don't represent these buyers, they represent Jones.
Here are some common questions their buyers might ask when those agents show them the Jones house.
Q. Why is Jones selling?
A. He's moving to Florida and needs the money from the sale of this house to close on the one in Florida.
Q. Has Jones had any offers?
A. Yes, but all were either below what he's asking, or the buyers couldn't get the mortgages.
Q. Do you think Jones is anxious to sell and might take less?
A. He might. If he can't sell this house before he must close on the one in Florida, he risks losing his deposit on that one.
These are perfectly reasonable questions for buyers to ask but if the "Splendid" agents were to answer as they did in this scenario, they would have violated the confidentially required by their fiduciary responsibilities to Jones.
How could they have answered respecting their duty of confidentiality to Jones and honesty to the buyer? When Tim first met with Jones, he could have advised him that buyers usually ask why the owner is selling, and rather than say I don't have permission to tell you that, an answer that conjures up all sorts of reasons in the minds of the buyers far worse than the reason for selling.
Has Jones had any offers? Yes, but none that met all his terms.
Do you think Jones will accept less than the list price? I don't know, but I suggest you make an offer and find out.
The context for these hypothetical examples is contained in National Association of Realtors definition of Confidentiality. "A real estate broker, therefore, must keep confidential any information that might weaken his principal's bargaining position if it were revealed. The duty of confidentiality precludes a broker representing a seller from disclosing to a buyer that the seller can, or must, sell the property below the listed price."
However, the NAR also offers the following caveat: " This duty of confidentiality plainly does not include any obligation on a broker representing a seller to withhold from a buyer known material facts concerning the condition of the seller's property or to misrepresent the condition of the property. To do so would constitute misrepresentation and would impose liability on both the broker and the seller. This obligation of the broker is addressed in the License Law of New York State and the Court of Appeals, New York's highest court, has long recognized the Legislature's intent to give to the Department of State the authority to regulate real estate brokers and their agents, including imposing financial penalties, suspension, and revocations of licenses, as well as the return of commissions earned from the transaction."
If "Splendid" engages the support of realtors from other brokerage firms to try to sell Jones' property, which is the common practice, the agents of those other brokerage firms also owe their fiduciary responsibility to Jones.
When representing buyers, real estate agents affiliated with the brokerage firm representing the buyer owe their fiduciary responsibility to the buyer, including confidentiality, and must act in the best interests of the buyer. If they know the seller will accept less than the list price, is under pressure to sell, has lost deals with other buyers, the broker representing the buyer must disclose those facts to the buyer. Conversely, as with sellers and their brokers, the broker representing the buyer must disclose to the seller any known facts that would affect an offer to purchase the property. Examples would be the fact that the buyer has a house to sell before they could complete the purchase with the buyer, that they are in bankruptcy, must finance the purchase with a loan, or when they would be prepared to take title.
Following our Jones/"Splendid Realty" scenario, a special dilemma arises when Jones, after his house is sold by "Splendid," wants to look at houses listed with "Splendid Realty" by other of their clients with the intention of purchasing one of those homes. The Department of State warns that the broker's obligation of confidentiality to Jones has not ended, even though the agency relationship has and advises before "Splendid" shows homes of their seller/clients to Jones, "Splendid" act as either a Dual Agent of Jones and "Splendid's" seller/clients or as a Buyer's Agent of Jones.
The License Law of New York requires real estate agents to inform customers and clients of these relationships and duties and receive their informed written consent to them. It is imbedded in Section 443 of the license Law, Agency Disclosure.
An article was posted on this website on June 8, 2015 that provides greater detail regarding disclosure of agency under Section 443 of New York's Real Property Law. Since the posting of that article, real estate agents are required to complete at least one hour of course work in Agency Disclosure every two years as part of their twenty-two and a half hours of continuing education necessary to renew their licenses. Agents renewing their license for the first time must complete two hours.
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.
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