What are the six fiduciary duties (OLD CAR) that a real estate agent owes to their client, and what does each duty require?
The six fiduciary duties are Obedience (following the client's lawful instructions), Loyalty (putting the client's interests first), Disclosure (revealing all material information), Confidentiality (protecting the client's secrets), Accountability (managing client funds properly), and Reasonable Care (performing duties competently and diligently).
Key Takeaways
- Rules vary by state; always learn your specific state's requirements.
Laws of Agency on the Real Estate Exam
Fiduciary duties are the legal foundation of the agent-client relationship. Violating these duties exposes agents to civil liability, license suspension, and disciplinary action. Understanding and fulfilling these duties protects clients, builds professional credibility, and protects agents from liability claims.
Understanding Laws of Agency: Key Concepts
Overview
Obedience requires the agent to follow the client's lawful instructions regarding the transaction. The agent must execute the client's wishes within the scope of the agency agreement, including accepting or rejecting offers, setting listing prices, and disclosing information the client authorizes. The agent cannot refuse to follow lawful instructions based on personal judgment. However, obedience does not require the agent to assist with illegal or unethical conduct.
Loyalty means the agent must place the client's interests above all others, including the agent's own financial interests. The agent cannot accept benefits from the other party without the client's knowledge and consent, cannot compete with the client's transaction, and must disclose all conflicts of interest. Loyalty also requires the agent to work diligently to achieve the client's objectives and to avoid self-dealing transactions.
Requirements
Disclosure requires the agent to inform the client of all material information relevant to the transaction, including property condition issues, neighborhood problems, comparative market data, and any information that might affect the client's decisions. The agent must conduct reasonable investigation and disclose facts that would influence a prudent person's decision. Disclosure is a continuous duty throughout the agency relationship, not a one-time obligation.
Requirements
Confidentiality requires the agent to protect information the client shares that could harm the client if disclosed. This includes the client's motivations, financial situation, willingness to negotiate, and personal circumstances. Confidentiality survives the end of the agency relationship. However, confidentiality does not protect information about illegal conduct, and agents must disclose material facts about the property itself regardless of client confidentiality requests.
Requirements
Accountability requires the agent to properly manage client money, maintain trust accounts with proper records, account for all funds, and never commingle client money with the agent's personal funds. The broker is responsible for maintaining and auditing client trust accounts. Agents must provide accurate accounting and comply with all trust account regulations.
Requirements
Reasonable Care requires the agent to perform duties competently and diligently, applying the skill and care a prudent agent would exercise under similar circumstances. The agent must know relevant real estate law, stay current with market trends, and perform required inspections and investigations. Failure to exercise reasonable care can result in liability for negligence.
Laws of Agency Rules by State
Each state has its own rules when it comes to laws of agency. Here are a few examples of how requirements differ:
California
California Civil Code Section 2079.14 through 2079.24 codifies fiduciary duties. California requires written disclosure of fiduciary duties through the Disclosure Regarding Real Estate Agency Relationships form. Agents must also disclose financial interests and cannot accept undisclosed compensation from third parties.
Texas
Texas Property Code Section 1101.001 through 1101.806 defines broker and agent duties. Texas distinguishes between duties owed to clients (fiduciary duties) and duties owed to transaction parties (statutory duties). The IABS form discloses the nature of representation and which duties apply.
Florida
Florida Statute 475.278 requires disclosure of whether the agent is acting as a single agent, transaction broker, or statutory dual agent. Single agents owe fiduciary duties. Transaction brokers owe duties of honesty and fair dealing but not fiduciary duties. Statutory dual agents owe duties to both parties but cannot represent their interests in a way that's inconsistent with their respective interests.
Exam questions often present scenarios where an agent must choose between self-interest and client interest, or between loyalty to the client and a request to help the other party. Remember that fiduciary duties always place the client's interests first. Questions testing Accountability often involve trust account violations or mishandled client funds. Questions on Disclosure test whether the agent should share property condition issues or market information.
Rules vary across all 50 states
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