Some Brief Thoughts, Points, and Reminders About the “Fiduciary” Duty You will Have to Your Clients as a Real Estate Licensee

Wayne Bell, who was the former California Real Estate Commissioner and Chief Officer of the California Department of Real Estate, is an outstanding attorney and writer. I asked him to share his thoughts on a concept that all real estate licensees must know, and he drafted a brief piece on the fiduciary duty which is imposed on real estate agents and the importance of that duty. What he wrote, and which I share below, should be read and understood by everyone in the real estate industry. Fiduciary is an important word. Thank you Commissioner for allowing me to publish your thoughts.
By Wayne S. Bell, Esq., 23rd California Real Estate Commissioner  As a real estate licensee you will take on the role of a “fiduciary” when representing a client in a real estate-related transaction where you are acting as an agent. It is critically important to understand that a fiduciary has a very high level of responsibility to the person(s) who he or she represents. I know from talking with many licensees that while they know the term “fiduciary”, generally understand that they have a role as such, and the heightened level of responsibility that the same entails, there is not an extensive understanding of the term or of the responsibilities. For some, it is easier to recite that real estate licensees are fiduciaries than to explain the deeper meaning of that status and what it means, and the potential damages that can flow from a breach of the fiduciary obligation. The imposition of a fiduciary duty on real estate licensees performing real estate licensed activities and services was the result of court cases, and the responsibilities are legal (and also in large part ethical) in nature. The fundamental basis for applying such a duty on real estate licensees is the greater and specialized knowledge about real estate and related matters that licensees have compared to most clients. While I was Chief Counsel at the California Department of Real Estate, I wrote an article entitled “The Real Estate Brokerage as Fiduciary: A Summary Review of What it Means and Why it Matters”. That article can be easily accessed via the following link: That article goes into detail on the duty as it pertains to real estate licensees, and I recommend that licensees read it to more fully understand the duty, and the perils and possible negative consequences and damages if that duty is breached. Civil complaints for Breach of Fiduciary Duty are filed throughout the State of California by clients who feel they have been wronged and damaged by real estate licensees. What I want to do in the remainder of this brief piece is to provide a few key points – in what I hope is plain speak – to help you meet your fiduciary duty. In this regard, when you are performing real estate licensed activities for a client, you must: Act in a way that best serves your client.Place your client’s interests ahead of your own. Stated otherwise, put your client’s interests first. This is a challenging concept for some, and it might be against human nature to put another’s interests first. But that is the law.Help to ensure that your client’s desired outcome is achieved, and perform – to the best of your ability – the work for which you were retained as an agent.Safeguard your client’s funds. Misappropriating or mishandling funds belonging to a client is conduct that violates one’s fiduciary duty, and can also result in the most severe sanctions from the California Department of Real Estate, as well as criminal law consequences. There are specific rules and requirements in the Real Estate Law pertaining to the receipt and handling of client “trust” funds.Safeguard (and do not disclose without consent) information that your client gave you in confidence.Keep your client updated on all material occurrences and/or changes so your client can make informed decisions. In this regard, the courts have said that real estate licensees – as fiduciaries – are “charged with the duty of fullest disclosure of all material facts concerning the transaction that might affect the principal’s decision.”Be available (or make yourself available) to answer questions and/or to resolve matters as they arise. On this point, my view has always been that you should always provide a reasonable level of communication throughout your client-agent relationship. A clear example of violating your fiduciary duty would be if you were to recommend the purchase of a residential property that does not meet your client’s needs or wishes in order for you to achieve a commission. Another example would be in steering a client to a lender or to an escrow in order for you to gain some benefit. Borrowing money from a client’s trust account that you control (even with the best of intentions to replenish those funds) is a clear violation of one’s fiduciary duty, and a violation of the Real Estate Law and implementing regulations. And yet another illustration would be recommending a particular rental property that will not achieve your client’s desired return on investment (and/or when you are aware of a better, far less expensive property) so that you can earn a commission. The essential point is that you must put your client (and his or her interests) first, be forthcoming and honest, and always seek to do the best for him or her. Borrowing some concepts from the Girl Scout Law, you should do your best to be honest and fair, and friendly and helpful. Treat your client, and interact with him or her, as you would with your mom or dad, your son or daughter, or other favorite relative or friend. If you do that, you will be the fiduciary that your client expects and the law requires.
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