A person or organization that acts on behalf of another person is called a fiduciary, and it is a fiduciary’s job to always put their client’s interest first. Sometimes, a fiduciary’s responsibility involves the well-being of another, like in the case of legal guardianship for children. But usually, the term is used to refer to financial responsibilities or the management of money and assets.
Becoming a fiduciary also involves a legally binding contract to act in the best interest of the client. Acting according to a code of ethics and in a client’s best interest is called a “fiduciary duty.” Some business relationships that involve fiduciary duties include lawyers and clients, trustees and beneficiaries, guardians and wards, corporate board members and shareholders, and investment corporations and investors, among others.
These roles also apply to commercial real estate, specifically with brokers or real estate agents and sellers or buyers. The real estate professional acts as an agent on behalf of their clients.
Fiduciary Duties in Real Estate
In commercial real estate, the real estate agent or broker will act as the fiduciary for a buyer or seller. This broker or real estate agent is working under a legally mandated responsibility to act in the best interest of their client, fulfilling their fiduciary duties.
Different states have different laws, but one common fiduciary duty in real estate is client confidentiality. The agent or broker is responsible for keeping the clients’ information private and confidential at all times, unless under some legal mandate by a court.
What is OLDCAR?
OLDCAR is an acronym for the fiduciary duties of a real estate agent or broker.
An agent or broker is required to obey their client’s wishes, unless any of those wishes are illegal or unethical.
An agent or broker is to remain loyal to their clients, without letting any conflicts of interest or commission incentives get in the way.
Many states require real estate agents and brokers to disclose any facts that might affect a buyer or seller’s purchase and sale decisions.
Agents and brokers must keep their clients’ information private. This rule includes business, financial and personal details.
Agents and brokers must keep an account of all documents and funds related to the real estate transaction.
Reasonable care is the duty that an agent or broker owes to a client through state and Federal law. This tenet varies, depending on the state, and often, does not come into play until the tenet has been violated and brought to court, at which point the judge usually defines what is considered “reasonable care.”
How Is a Fiduciary Agreement Made?
When one becomes a fiduciary, there is always a legally binding written or oral agreement between the agent and the client. In commercial real estate, that fiduciary duty begins through a written listing agreement.
Before entering any fiduciary agreement, be sure to know the laws of your state, as fiduciary duties vary depending on where you live and where you buy or sell property.