Legal Insight to the Broker/Client Relationship

Bendelow Law Office LLC, Colorado
The basic relationship between a real estate broker and client is one of principal and agent and is subject to the general law of agency. In general, a real estate broker owes a fiduciary duty of good faith and loyalty to the principal. This article briefly outlines the duration of the broker/client relationship and obligations of confidentiality.

WHAT IS THE TIME FRAME OF THE BROKER CLIENT RELATIONSHIP? The Colorado Real Estate Broker license law is contained in the Colorado Revised Statutes. These statues define the duration of the broker/client relationship as starting at such time as the broker is engaged, i.e., a listing contract or buyer’s brokerage agreement. The relationship then continues until completion of the agreement by which the broker was engaged or if not completed, when the relationship otherwise ends. Except in limited areas, the duties and obligations terminate upon the termination of the relationship.

WHAT FIDUCIARY DUTY DOES A BROKER HAVE TO HIS OR HER CLIENT? The Code of Ethics of the National Association of Realtors, which is also the Code for the Colorado Association of Realtors, provides that the broker/client relationship entails an obligation of “absolute fidelity” to the client’s interest. This obligation is primarily the broker’s.

Colorado case law also establishes and requires the same fiduciary duty to the client. This fiduciary duty has been defined as the requirement that the broker act with the utmost good faith and loyalty in all dealings. In addition to the requirement of good faith and loyalty, the broker must not take unfair advantage of the client in the use of information acquired by the broker by being in the position of a broker or by opportunities afforded by the broker’s position. Unless there is an express agreement to the contrary, the broker is required to act solely for the benefit of the principal.

HOW MAY A BROKER USE INFORMATION RECEIVED FROM THE CLIENT OR SOURCES OTHER THAN THE CLIENT DURING THE COURSE OF THE BROKER/CLIENT RELATIONSHIP? A broker should not use of information or knowledge acquired from a client or acquired by the broker from other sources that might relate to the client’s business while acting as a broker for the client, to either the broker’s benefit or the benefit of others. Such action by a broker will generally be viewed as a breach fiduciary duty.

IS THE BROKER OBLIGATED TO KEEP INFORMATION RECEIVED FROM THE CLIENT CONFIDENTIAL AFTER THE RELATIONSHIP IS TERMINATED? This is one limited area where a broker’s duties and obligations extend beyond the duration of the broker/client relationship. The broker must keep confidential all information received during the course of engagement with the client when such information was made confidential by the client.

WHAT IF THE BROKER REPRESENTS BOTH BUYER AND SELLER IN A TRANSACTION? The nature of the relationship between the broker and client and all of the limitations placed on the broker become even more important when the broker attempts to represent “both sides of a deal” and/or has acquired confidential information while acting as transactional broker.

Authorities make it abundantly clear that, unless there is full disclosure to all parties and agreement from the clients that the broker can act in such a capacity, the broker cannot and should not represent “both sides of a deal”. To do so will generally be viewed as a breach of the broker’s fiduciary duty.

When a close, ongoing relationship between broker and client exists, the better and preferred course of action is for the broker to refrain from acting as a broker for both sides of the deal. This is because loyalties have already been established by virtue of the ongoing relationship. In such instances, the broker should advise the other parties to the transaction to seek independent help and assistance – even if such action would result in a smaller financial return to the broker. Because of the nature of the fiduciary relationship.

Briefly stated, a broker must place the position of the client above that of the broker in all matters. Even when the broker is a buyer or seller in a transaction, the broker cannot avoid the responsibilities imposed on a broker. Notably, the fiduciary duty can be breached even if the client has not sustained an actual monetary loss because of the broker’s actions.