PROPERTY ACQUISITION UPDATE: For the past year, I’ve shared with you our interest to relocate the Citrus Valley Association of REALTORS® to a new permanent home. We have been looking in an area adjacent to our existing location for the convenience of our membership. Well, we have located a site. The property is in Glendora and the address is 1010 Route 66. What is particularly palatable about this site is it has adequate parking and will permit the Association to create retail opportunities. The retail opportunities will help offset the mortgage and provide CVAR with a more valuable site. I will provide you with more information as it becomes available.

Avoid a Breach

You know the drill: When acting as an agent, you owe fiduciary duties to your buyer and seller clients. Frequently, however, it takes a court decision to outline the parameters of those duties. Three cases offer guidance to help clarify our understanding of fiduciary duties.

A decision by a Washington state court of appeals examined whether a buyers agent breached his fiduciary duty when the purchase offer he prepared on a $1.6 million commercial property included a legal description of the property that was incorrect in a number of material respects.

The agent obtained the description from a database compiled from tax records maintained by the county assessor’s office. The database incorrectly indicated the square footage to be 27,260 when it was 20,141. The database description also indicated that the seller owned three lots, when he actually owned two lots and the east 26 feet of the third.

After purchasing the property, the buyer discovered the discrepancies and sued the agent for, among other claims, breach of fiduciary duty. The agent argued that, on the basis of a state statute, he had no duty to verify the information obtained from the database. The statute expressly provides that, unless the parties agree otherwise, the licensee owes no duty to inspect the property or to independently verify the accuracy of any statement by a source the agent reasonably believes to be reliable.

The court found that the statute didn’t protect the agent in this case because the agent had acknowledged that the information in the database, including the square footage data, could be inaccurate. Therefore, the agent had a duty to verify the information obtained from the database. His failure to act on this red flag constituted a breach of his fiduciary duty to the buyer.

In New York, an appellate court recently examined a case in which a seller claimed that a listing broker steered a prospective buyer away from the seller’s lot because it wasn’t listed with the broker. The seller, a real estate developer and subdivision owner, had listed six lots in the subdivision with the broker but intended to sell several other lots independently. The seller claimed that when a buyer expressed interest in a lot that wasn’t listed with the broker, the broker told the buyer the lot wasn’t for sale. The broker then successfully sold that buyer one of the lots listed with him. The seller claimed the broker’s conduct constituted a breach of fiduciary duty, requiring the broker to forfeit his commission.

The court held that a broker’s fiduciary duty to protect the principal’s interests and to refrain from taking action adverse to the principal’s interest extended only to the transaction that formed the agency relationship. Since the broker didn’t represent the seller on any of the unlisted lots, the broker’s fiduciary duty didn’t extend to those properties. The court therefore concluded there had been no breach of fiduciary duties.

In the third case, an Ohio appellate court addressed a claim brought by a couple, who said their buyer’s agent had breached her fiduciary duty by refusing the wife’s repeated requests for information about the ethnic diversity of the neighborhoods the agent suggested.

The court recognized that it’s in the best interest of the salespeople and brokers not to disclose information about a neighborhood’s racial composition in order to avoid fair housing claims of unlawful steering. The court further recognized that since what constitutes a satisfactory diverse neighborhood is subjective, responding to such a question puts an agent in an untenable position.

These factors led the court to conclude the agent had no fiduciary duty to disclose the racial composition or ethnic diversity of a neighborhood to a potential buyer, even when the buyer requests such information. The court noted that a buyer’s agent could accommodate a specific request by a buyer who indicated a preference for housing on a racial basis. However, if challenged in court, the agent would face a heavy burden proving that a buyer’s request was independent from any encouragement by the agent.

To avoid breaching your fiduciary duties to clients, remember, among other things, to protect their interests within the scope of your engagement, to verify unreliable information, and to uphold fair housing laws.

Authored by
Laurie Janik
Realtor Magazine