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July 09, 2020 Articles

Beware of Your Broker: Duties Arising from Agency Representation of Real Estate Professionals

Brokers for the transactions may owe duties to no one but themselves.

By Nicole Levy Kushner

When real estate transactions go awry, people often look to their broker and question whether the broker fulfilled its obligations in connection with the transaction. Unfortunately, when these disputes result in litigation, clients often assume that the broker was acting as their agent and, as a result, owed them fiduciary duties. However, whether the broker is potentially liable with respect to a given transaction often depends on what type of agency relationship truly existed and the resulting duties (if any) owed to the broker’s client from that relationship. Much to the surprise of property owners, quite often these duties are less than the traditional common-law fiduciary duties that a client might expect.

The duties owed by a real estate broker in a given transaction vary both by state and by the nature of the agency relationship at issue. From a litigation standpoint, a traditional action against a real estate professional for breach of fiduciary duties may not be an option and the client may be left with limited recourse against a broker that the client believed was acting only in its behalf.

One court aptly put it this way: “Ultimately the precise duties of a real estate broker must be determined by an examination of the nature of the tasks the real estate agent undertakes to perform and the agreements he makes with the involved parties.” Latter & Blum, Inc. v. Richmond, 388 So. 2d 368, 372 (La. 1980).

Distinguishing the traditional common-law fiduciary duties that arise in a single-agency relationship in which the broker represents only one party in the transaction, at least 25 states—including Colorado, Florida, Georgia, Michigan, Minnesota, Pennsylvania, and Texas—allow brokers to limit the duties they owe in a transaction by providing services as a transaction broker. A transaction broker is not considered to represent the buyer or the seller, but instead purports to act as a neutral resource to help both parties complete the sale. At least two of those states (Florida and Colorado) go as far as to create a statutory presumption that a broker is acting as a transaction broker rather than in a single-agency capacity where no written agreement of a single-agent relationship has been executed. Century Land Dev., L.P. v. Weits, No. 07-14377-CIV-MOORE, 2009 WL 252091, at *2 (S.D. Fla. Feb. 2, 2009); Hoff & Leigh, Inc. v. Byler, 62 P.3d 1077, 1078 (Colo. App. 2002).

For example, the Florida legislature has codified the duties of a transaction broker in Florida Statutes section 475.278(2). That statute limits the duties owed by the transaction broker to

(a)        dealing honestly and fairly;

(b)        accounting for all funds;

(c)        using skill, care, and diligence in the transaction;

(d)       disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer;

(e)        presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing;

(f)        limited confidentiality, unless waived in writing by a party (This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or of any other information requested by a party to remain confidential.); and

(g)        any additional duties that are mutually agreed to with a party.

Fla. Stat. § 475.278(2) (2009); see also Colo. Rev. Stat. Ann. § 12-10-407 (West 2019) (setting out similar duties).

Transaction brokers do not owe a duty of loyalty, full confidentiality, obedience, or full disclosure, in contrast with the common-law fiduciary duties a broker owes its client in a single-agency relationship.

Many states explicitly provide that a transaction broker is not an agent for either party to the transaction, unlike a single-agency relationship, in which the broker represents one party, or a dual-agency relationship (which is legal in the majority of states), in which the broker represents both parties. See, e.g., Fla. Stat. § 475.01(1) (a transaction broker is one who “provides limited representation to a buyer, a seller, or both, in a real estate transaction but does not represent either in a fiduciary capacity or as a single agent”); see also  Ann Morales Olazábal, “Redefining Realtor Relationships and Responsibilities: The Failure of State Regulatory Responses,” 40 Harv. J. on Legis. 65, 87 (2003).

Notwithstanding such limitations on the duties owed by transaction brokers, these duties may still expose the transaction broker to liability. For instance, in one Florida case, a court found that a transaction broker could still be potentially liable for fraudulent misrepresentation and fraudulent concealment. Kjellander v. Abbott, 199 So. 3d 1129 (Fla. 1st Dist. Ct. App. 2016).

Clients and counsel should be familiar with the law relating to brokers in their jurisdiction and whether their jurisdiction allows brokers to provide services as transaction brokers with limited duties. Clients should also manage their expectations concerning a broker’s duties and potential liabilities by having a clear understanding of the broker’s role in a transaction in the first instance, preferably set out in a contract.

Nicole Levy Kushner is an associate at Berger Singerman in Fort Lauderdale, Florida.

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