Two Business People Shaking Hands
Two business people shaking hands

A real estate broker owes his or her clients a fiduciary duty to protect their interests in all real estate transactions. As a fiduciary, the broker must put his or her client’s interests above all other interests.   The broker’s fiduciary duties include the duties of loyalty, obedience, disclosure, confidentiality, reasonable care and accounting. In real estate transactions, the duties of disclosure and loyalty play particularly important roles in the broker’s relationship with a client. The violation of any of these duties can impose liability on the agent or broker.

Disclosure. One of the most basic duties of a real estate professional is the disclosure of important defects in the home. Many states, including Arizona, require agents to make disclosures of material facts to their clients. In determining materiality, the standard requires disclosure of those facts that a reasonable person would regard as consequential in deciding whether to proceed with the transaction. According to the Arizona Administrative Code (A.A.C.) section R4-28-1101(B), the agent must disclose information that may “materially or adversely” affect the decision to buy the home, including information indicating that the seller cannot perform his obligations under the contract, that a material defect exists on the property or that a lien has been placed on the property. In addition, an agent is required to disclose information about immaterial facts when the buyer asks the seller a particular question pertaining to such information.

Loyalty. The duty of loyalty entails seeking the best price for a client regardless of any financial incentives offered to the broker. The duty of loyalty is particularly significant when a broker acts as a dual agent. Dual agency is a relationship in which the broker acts as an agent for both the buyer and the seller. In most states, the broker in this type of agency relationship is required to disclose his status to the parties and receive their consent to the relationship.  Lack of disclosure to the parties means that the agent is acting as an undisclosed agent, which is deemed to be a breach of loyalty. In Arizona, a dual agency is permitted, but the agent can receive compensation from both parties only if they have consented in writing. In addition, the disclosure of the dual agency relationship must be in writing. A.A.C. R4-28-1101(F).

Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your legal matter.