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Fiduciary Duties for the Buyer Agent

Reprinted from REALTOR® Magazine July, 2001 by permission of the NATIONAL ASSOCIATION OF REALTORS® Copyright 2001. All rights reserved.

Sarah was excited about signing her first buyer agency contract. She told her buyers she’d look out for their best interests, and they smiled, signed, and said they understood.

Sarah then searched the MLS for possible properties. Several met the criteria indicated on her written buyer agency contract, which detailed what type of home Sarah would search for: “3 bedrooms, 2 baths, 2-car garage, and full basement.”

The buyers liked the third property they saw and wanted to make an offer. The home, in a local subdivision, was the Prelude model, with an unfinished basement. The offers went back and forth, and finally a contract for $175,000 was signed.

The buyers were happy with the sales price Sarah had helped negotiate; it was well below the list price of $197,500. Sarah had a great bargaining chip during the negotiation: Even after she had told the listing broker that she was the buyer’s agent, as required by NAR’s Code of Ethics, she had learned from the listing agent that the sellers were very motivated and that several offers had fallen through. Sarah recommended that the offer be structured to include a large amount of earnest money, a simple and fast loan condition, and a quick close.

The deal closed, and things looked great. Sarah felt confident that she’d represented the buyers properly in every way. However, the next day Sarah got a call from the buyers. Apparently, as they were moving in, a neighbor came over to welcome them to the neighborhood. He mentioned that he also had a Prelude house for sale and that he was selling it as a FSBO. When the neighbor asked what the buyers paid for their new home, they crowed about how great their agent had been to get the house for $175,000.

The neighbor’s house was nicer than the one they had bought – it was on a quiet cul-de-sac, and part of the basement was already finished – and it was also priced at $175,000. The buyers were upset and immediately called their attorney.

The attorney explained that since Sarah was a buyer’s agent, she had fiduciary duties to the buyers of “loyalty, obedience, disclosure, confidentiality, reasonable care, diligence, and accounting.” Therefore, unless they agreed otherwise, Sarah had an obligation to search out all available properties for her clients, including those not listed in the MLS.

Sarah had a written buyer agency agreement with the buyers. But even if she’d had only an oral agreement, her fiduciary duties would have been the same in most states.

Rather than litigate, the parties decided to try mediation. The buyers said that they liked their house and trusted their agent but that they never knew she was showing them only properties listed by other licensees in the MLS. They testified that had they known of the FSBO home, they would have tried to buy it first. At the very least, they’d have used the comparable price to negotiate a better price on the house they bought.

The mediator, a retired judge, told Sarah privately that if the case were to got to court, Sarah would likely be found to have breached her duty to her clients. He also told Sarah that she had a duty to either disclaim her obligation to search all listings or make a reasonable effort to search all listings, including those not in the MLS. In short, Sarah probably breached her fiduciary duty to her buyers and could be liable to the buyers, at least to the extent of the selling commission – the whole selling commission, not just the portion paid to her. She decided it was probably in her best interest to reach an agreement with the buyers, and they settled.

The lesson learned is that buyer’s agents have a fiduciary duty to search for all available properties – just as the listing agent has a duty to work with all potential buyers – unless the agency agreement says otherwise. Keep in mind that there’s no need for buyers to show actual loss in a breach-of-fiduciary-duty case; if a breach took place, you can lose your commission or worse.

Here are some tips to avoid breaching your fiduciary duty to buyers:

Specify in writing, in the agency agreement with the buyer, how you plan to search for available properties. You might include something that reads “Broker shall search multiple listing services of which broker is a member” in your written buyer agency agreement or in the literature you give those you don’t sign up as buyers clients.

Know your state law.

In most states, fiduciary duties exist as a matter of law in agency relationships, in addition to any other duties or obligations specified in your buyer agency agreement. Knowing what your fiduciary duties are can save you money and keep clients happy.

Keep your client’s business private.

The fact that the buyer is motivated, divorcing, transferring, needs to be near a particular school, or is getting moving expenses paid by a relocation company is confidential information. Therefore, it’s a breach of fiduciary duty to tell the other side.

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