Common Law & Standard Agency Duties

Common Law: Agency Duties Owed to Client

The term Fiduciary refers to a person holding a position of trust and confidence by virtue of his representation of another (Agency).  Every Licensee who has established an Agency relationship has a Fiduciary Duty to their Client, and to some extent Customers as well.

Real Estate and Property Law covers an extensive legal area, which is regulated by federal and state statutes, as well as Common Law.  Common Law is the system of laws originated and developed in England, which are based on court decisions, as well as customs and usages rather than on codified written laws, such as Virginia Code created by state legislation.  Our Fiduciary Duties derive from and are imposed by these Common Law doctrines, and while it provides the foundation, some state laws have expanded these Agency Duties through state legislation.  Should there be a conflict between the two, state law would prevail.

Common Law: Agency Duties Owed to Customer

Although we’ve already touched on this subject earlier in the course, let’s take a moment to define which Fiduciary Duties Licensees owe to Customers.  Such duties include the following: Licensee must

  • Provide Customers honest and fair dealings, and must not knowingly provide false information;
  • Account for all money and property held;
  • Disclose all material adverse facts, including latent defects, and
  • Identify their Client by Disclosing the Agency relationship;

To help you remember these duties I created and outlined below the acronym CRADOL, an Old English noun for cradle.  I felt this acronym was most suiting being that it is our duty to care for our Clients, cradle the real estate transaction, and both cradol and Common Law are traced back to English roots.

C*

R

A*

D

O

L

Confidentiality

Reasonable Care & Due Diligence

Accounting

Disclosure

Obedience

Loyalty

Licensee must keep all Client information secret from third parties if such information could harm the Clients position, unless the client

Licensee must use the same skill and commitment that a reasonable competent agent in the same profession would use under similar circumstances.

Licensee must protect and account for all money and property held on behalf of Client/Customer.

Licensee must Disclose all material facts, rumors, and other information to Client.

Licensee must follow all lawful Client instructions.

Licensee must promote Client interests above all others, including their own.

 

Note that both Confidentiality and Accounting are asterisked above.  That is because Licensees continue to these two duties to Clients even after the Agency relationship concludes or is terminated, unless the Client give permission or Disclosure of said information is required by Law (for example the information is subpoena).

REALTOR Membership Expands on Duties Owed

Common Law, Virginia Laws, and REALTOR Association Code of Ethics, Rules & Regulations?  Yes indeed!  While REALTOR Association membership is voluntary for Licensee’s, being a member of the local, state and National REALTOR Associations does impose another set of rules and regulations upon its Members.  These rules and regulations not only set additional standards regarding Licensee’s  relationship with Clients and Customers, it also set standards regarding the relationship we have with each other as real estate professionals.  As a risk management component to your business model, it is strongly advised that REALTOR Members visit the National Association of REALTORS website, review the Code of Ethics annually and take the necessary steps to comply.

Duties of Standard Agents as Defined by Virginia Law

Virginia legislation has amended the Common Law and sets forth specific duties that a Standard Agent must follow.  We’ll outline these duties in detail below.  These laws are set forth in the Code of Virginia as follows:

  • Licensees engaged by sellers — § 54.1-2131;
  • Licensees engaged by buyers — § 54.1-2132;
  • Licensees engaged by landlord — § 54.1-2133;
  • Licensees engaged by tenants — § 54.1-2134; and
  • Licensees engaged to manage real estate — § 54.1-2135.

Duties of Standard Agents: Common Provisions

Many of Virginia statues cited above have common provisions regardless of whether the Licensee represents a seller, buyer, landlord or tenant.  Those common elements have been highlighted below and are referenced in several sections to follow as “common provisions paragraph”.

Every licensee, salesperson or broker, representing a Client must:

  • Perform in accordance with the terms of the Brokerage Agreement;
  • Assist in the drafting and negotiation of contracts or leases (whichever is applicable);
  • Maintain the confidentiality of all personal and financial information received from the Client during the Brokerage relationship and any other information that the Client requests during the brokerage relationship to be maintained confidential unless the client consents in writing to its release or it is required by law;
  • Exercise ordinary care;
  • Account in a timely manner for all money and property received by the licensee in which the Client has an interest;
  • Disclose to the Client material facts related to the property or concerning the transaction of which the Licensee has actual knowledge;
  • Comply with fair housing law;
  • Treat all prospective Clients honestly and not knowingly give them false information;
  • Disclose the existence of defective drywall to the prospective buyer or tenant (whichever is applicable); and
  • Disclose the Brokerage relationship as provided by law.

Duties of Standard Agents: Seller Client

In addition to the duties set forth in the common provisions paragraph above, Licensees engaged by Sellers must also:

  • Conduct marketing activities and seek contract terms agreed upon in the brokerage agreement or otherwise acceptable to the seller;
  • Receive and present written offers and counteroffers, even if the property is already under contract;
  • Provide reasonable assistance to the seller to satisfy the seller’s contractual obligation and to facilitate the closing; and
  • Disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee.

Duties of Standard Agents: Buyer Client

In addition to the duties set forth in the common provisions paragraph above, Licensees engaged by buyers must also:

  • Seek property of a type and on terms acceptable to the buyer;
  • Receive and present written offers and counteroffers, even if the buyer is already a party to a contract to purchase property; and
  • Provide reasonable assistance to the buyer to satisfy the buyer’s contractual obligation and to facilitate the closing.

Duties of Standard Agents: Landlord Client

In addition to the duties set forth in the common provisions paragraph above, Licensees engaged by the landlord must also:

  • Conduct marketing activities and seek a tenant and lease terms agreed upon in the brokerage agreement or otherwise acceptable to the landlord;
  • Provide reasonable assistance to the landlord to finalize the lease agreement; and
  • Disclose to prospective tenants all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee.

Duties of Standard Agents: Tenant Client

In addition to the duties set forth in the common provisions paragraph above, Licensees engaged by tenants must also:

  • Seek a lease on terms acceptable to the tenant; and
  • Provide reasonable assistance to the tenant to finalize the lease agreement.

Duties of Standard Agents: Property Management

Licensees engaged to manage real estate must:

  • Perform in accordance with the terms of the property management agreement;
  • Exercise ordinary care;
  • Disclose to the client material facts of which the licensee has actual knowledge;
  • Maintain the confidentiality of all personal and financial information received from the client during the brokerage relationship and any other information that the client requests during the brokerage relationship to be maintained confidential unless the client consents in writing to its release or it is required by law;
  • Account in a timely manner for all money and property received by the licensee in which the client has an interest;
  • Comply with fair housing law;
  • Disclose the existence of defective drywall to the owner; and
  • Enter into a written property management agreement with an owner containing the following terms:
    • A definite termination date or duration (if a property management agreement does not specify a definite termination date or duration, the agreement shall terminate 90 days after the date of the agreement);
    • Amount of the management fees and how and when such fees are to be paid;
    • Services to be rendered by the licensee; and
    • Such other terms as have been agreed to by the owner and the property manager.

 

Author: Lee Gosselin, Associate Broker & Owner

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