Chapter 4 -Fiduciary Duties

Agency Relationships

The definition of agency is inherent in the basic definitions of agent, principal, and third party. Ultimately, agency is the fiduciary relationship between one individual (the principal) and another (the agent). In this relationship, the agent acts on behalf of the principal to negotiate with a third individual (the third party), subject to the principal's control and consent.

Test Q - It is the buyer's agent's job to get the buyer the lowest price possible, even if it means they will earn less money in the transaction.

correct Choose the category that best matches this description Disclosure O O Loyalty * O O Accounting O O O O Obedience O

Fiduciary Duty: Loyalty

In addition, the agent has a duty of loyalty to their principal. The agent's job is to represent their principal's best interests, not the agent's best interests. What does that mean? Say a buyer's agent knows that Property A would bring the agent a higher commission than Property B. If Property B is best for their principal, it is their fiduciary duty to advise their client as such. An agent protecting their client's best interests? That's loyalty.

Fiduciary Duty: Disclosure

In the state of Texas, the requirement of disclosure is a very important topic for license holders. For example, sellers are required to fill out a written property disclosure to give to buyers (more on this later). License holders are required, whether working as an agent for someone or not, to disclose "material facts." Material facts are facts, oftentimes related to the condition of the property, that might cause a buyer or seller to change their mind about a transaction.

Fiduciary Duty: Confidentiality

Part of the concept of confidentiality is connected quite closely to the concept of loyalty, in that private information given to the agent by the buyer-client will be kept secret (unless the client wants to have the information shared).

Fiduciary Duty

A responsibility to act in the best interest of your client — the highest standard

Fiduciary Duties (cont.)

Agency relationships are considered to be fiduciary relationships, which means that the principal entrusts certain powers or authority to the agent with the understanding that the agent will act competently on the principal's behalf. In a fiduciary relationship, the client's interests come first — even over that of the agent. Because of the trust and confidence placed in the agent in a fiduciary relationship, the law has established that an agent has certain obligations to the principal. These obligations are called fiduciary duties. In addition, the principal has duties to the agent that are, in effect, obligations to behave in a way that makes it easier for the agent to provide competent service.

Fiduciary Duties Owed by Whole Brokerage

And as we talked about earlier in this level, because special agency is created at the broker level, not only does the broker owe the client (principal) fiduciary duties, but ALL of that broker's sponsored agents also owe that client fiduciary duties (OLD CAR).

Test Q - The agent will obey their principal's orders and work with them to follow their orders.

Choose the category that best matches this description Disclosure O O Loyalty O O Accounting O O O O Obedience * O

Test Q - Agents must account for all funds entrusted to themselves.

Choose the category that best matches this description Disclosure O O Loyalty O O Accounting * O O O O Obedience

A way to help you remember the fiduciary duties is the acronym OLD CAR.

Obedience (if legal) Loyalty (100%) Disclosure (full) Confidentiality (forever) Accounting (forever) Reasonable care

Test Q - The agent will obey their principal's orders and work with them to follow their orders.

Select the word that matches the list of facts. Disclosure Loyalty Accounting Obedience *

Test Q? - What is the name of the duties owed by agents to their clients? duties of care

due diligence duties agency duties fiduciary duties * Answer The duties owed by agents to their clients are known as fiduciary duties.

Test Q - License holders may not disburse money deposited in a custodial, trust, or escrow account before the completion or termination of the real estate transaction.

Choose the category that best matches this description Disclosure O O Loyalty O O Accounting * O O O O Obedience

Test Q - License holders may not use a client's funds for their personal funds, nor can they store them in the same account.

Choose the category that best matches this description Disclosure O O Loyalty O O Accounting * O O O O Obedience

Test Q- Commingling is illegal.

Choose the category that best matches this description Disclosure O O Loyalty O O Accounting * O O O O Obedience

Test Q- The agent's job is to represent their principal's best interests, not the agent's best interests.

Choose the category that best matches this description Disclosure O O Loyalty * O O Accounting O O O O Obedience O

Test Q - License holders are required to uncover material facts to their clients.

Choose the category that best matches this description Disclosure * O O Loyalty O O Accounting O O O O Obedience

Test Q - Any additional information about the property that may affect the prospective buyer's final decision must be provided.

Choose the category that best matches this description Disclosure * O O Loyalty O O Accounting O O O O Obedience O

Test Q? - After a contract is signed, an agent must deposit escrow funds no later than the close of the:

First Monday second calendar day second business day * third business day Answer Agents cannot wait any longer than the close of the second business day, after the signing of a contract to deposit escrow funds. The money will then be held in the escrow or separate account until closing, at which time the agent must release the funds to the appropriate party. Likewise, license holders may not disburse money deposited in a custodial, trust, or escrow account before the completion or termination of the real estate transaction.

Fiduciary Duty: Accounting

License holders owe their clients a duty of accounting — agents must account for all funds entrusted to themselves. License holders may not use a client's funds for their personal funds, nor can they store them in the same account. Mixing a client's funds with an agent's personal funds is known as commingling and is illegal. Mixing money that belongs to another person with personal money is messy and unethical. If a license holder receives escrow funds in a real estate transaction, that money must be deposited within a reasonable amount of time into a separate account. Agents (and any sales agents acting on their behalf) cannot wait any longer than the close of the second business day after the signing of a contract to make these deposits.

Buyer-Customers

One of the problems with working with buyers as customers (as opposed to clients) is that when they spend time with agents, the buyers begin to think the agent is on their side and looking out for them in the transaction. That is why it is so important for the agent to disclose to the buyer when they first meet the exact nature of their relationship. By doing so, the agent has met the state requirement, but also put the buyer on notice that the license holder does not a have a duty to represent them unless they become a client.

Test Q- Commingling is illegal. License holders may not use a client's funds for their personal funds, nor can they store them in the same account. Agents must account for all funds entrusted to themselves. License holders may not disburse money deposited in a custodial, trust, or escrow account before the completion or termination of the real estate transaction.

Select the word that matches the list of facts. Disclosure Loyalty Accounting * Obedience

Test Q - The agent's job is to represent their principal's best interests, not the agent's best interests. It is the buyer's agent's job to get the buyer the lowest price possible, even if it means they will earn less money in the transaction.

Select the word that matches the list of facts. Disclosure Loyalty * Accounting Obedience

Test Q - Any additional information about the property that may affect the prospective buyer's final decision must be provided. License holders are required to uncover material facts to their clients.

Select the word that matches the list of facts. Disclosure * Loyalty Accounting Obedience

Fiduciary Duty: Reasonable Care

The reasonable care part of OLD CAR is the most common sense duty of them all. You, as a license holder, will be hired to do more than just find a willing and able buyer or locate an adequate property. When hired, you are held to a high standard of care that requires knowledge concerning real estate. You must use reasonable care when you are filling out paperwork, writing an offer, inputting information into MLS, preparing graphics, taking pictures, mailing flyers, staging properties, completing a listing, writing agreements, showing properties, and knowing what to say and when to keep quiet.

Fiduciary Duties

This relationship is fiduciary because it is based on the principal's trust and confidence that the agent will act dutifully and responsibly as their representative. A fiduciary relationship is based on the law of agency that dictates the higher duties owed to the principal as opposed to the lesser duties owed to customers and third parties by the agent.

In an agency relationship, the agent owes the principal the fiduciary duties of loyalty, obedience, accounting, confidentiality, reasonable care, and what else?

disclosure * discovery damage control due diligence Answer A fiduciary relationship is a position of trust, and the agent owes the principal the duty of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care (OLD CAR).