Vicarious Liability in Real Estate Agency

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The term "vicarious liability" refers to the responsibility one individual has for the acts of another. In the real estate business, this would be the case when a listing or buyer's broker is an "agent" of the seller or buyer. The client can be held responsible for the actions of the broker/agent if he or she has knowledge of an improper or negligent act.

In the not-so-common situation of sub-agency, the buyer's agent is working as a sub-agent of the seller's listing broker. As such, he owes fiduciary duties to the seller rather than to the buyer. In this situation, the seller and their broker could be held liable for the actions of the buyer's agent.

Vicarious Liability Comes With Agency

There aren't many transactions these days where the real estate professional actually acts as an agent for his customer or client. Understanding some associated terms and provisions can help determine whether this is the case in your situation.

Express agency is created by either an oral or a written agreement between the principal and the agent. It indicates their express intent for this representational status. In real estate, agency is normally created by either a written listing agreement with a seller or a buyer agency agreement with a buyer. Some states allow verbal agreements, but most do not.

Almost all states require some form of disclosure to the client or the prospective client as to how the agent will be representing them in their real estate transaction. Be sure you understand your state's rules and the various ways in which you can be legally considered a representative. Your duties and obligations to the client will vary significantly based on the type of representation to which you've contractually agreed.

Know the laws in your state that define when someone is an "agent" and when he is not as well. Know what's required of you if you're an agent, and carefully and diligently try to perform accordingly. Don't offer services or advice that you're not qualified to give. Courts have ruled that the real estate professional should have known where to send the client for the necessary information. 

Fiduciary Duties 

A fiduciary is generally a person you trust to act in your own best interests rather than her own or those of anyone else. The trust is typically connected to assets, money, or property. In real estate, a fiduciary relationship exists between an agent, known as the fiduciary, and a buyer or seller, known as the principal. A buyer's agent works on behalf of the buyer and must hold that buyer's interests above the agent's own interests. The trust that is created requires the highest standard of care and loyal treatment to the buyer.

Fiduciary duties are required only if the real estate professional is acting in an "agent" capacity. Although they may all be called real estate "agents," the fact is that very few deals these days involve a real estate agent actually acting as an agent. But there are certain remedies available for breach of fiduciary duties when this is the case.

Buyers and sellers of real estate are often confused about the role of real estate agents, who the agents represent, and real estate agency relationships. Many states require that agents give buyers and sellers an agency disclosure form to sign. This form is not an agreement. It's literally what it says it is—a disclosure explaining the various natures of possible agency relationships. It's important to read and review it thoroughly so you can be better prepared to select the type of agency relationship you want.