A fiduciary must exercise loyalty, confidentiality, disclosure, obedience, diligence, and accounting to the principal. Examples of fiduciary relationships are from a trustee to a beneficiary; a guardian to a ward; an agent to a principal; an attorney to a client; and an executor to an estate.

 

The Pennsylvania Real Estate Licensing and Registration Act (RELRA) codifies a real estate salesperson’s fiduciary duty to their client. Section 35.201 of the Act states that the agency relationship “between a broker or licensees employed by a broker and a consumer who becomes a principal” is a fiduciary relationship.

 

For a real estate salesperson who enters into a business relationship with a buyer or seller, loyalty is key. The salesperson must be fully devoted to their client and act solely in their best interest. An action taken by the salesperson that is deemed contrary to the best interest of their client is considered a breach in loyalty. For example, a salesperson should not compete with their client for the purchase of real estate. 

 

When a salesperson is in a business relationship with a client, they must also exercise confidentiality. Any information that an agent learns from the client must be kept private and not disclosed unless express consent is provided by the client. For example, a salesperson who represents a buyer may not share with a seller that the buyer will pay more for a property than the amount already offered. 

 

Disclosure is another key duty of a fiduciary. A salesperson must disclose to their principal all relevant and material information within the scope of their business relationship. For example, an agent must present the principal - in this case a seller - all purchase offers, the identity of all persons making an offer, and any knowledge that the salesperson possesses that could negatively impact the price of a property.

 

A salesperson must be obedient to their client. The salesperson must follow the commands of the client, as permitted law, to the best her ability. The exception to this rule is that a salesperson may not lie nor conceal information for the purpose of deceit. For example, if a seller commands the salesperson to conceal her knowledge of water damage, then the salesperson may breach the  duty of confidence because a failure to report the damage would be fraudulent.

 

A salesperson must exercise care and diligence at every step of the process. For example, the Agreement of Sale contains several deadlines that must be met by the parties. It is the salesperson’s obligation to inform the client about what tasks must be performed before each deadline. Another example relates to the closing cost sheet (also known as the Closing Disclosure form). A salesperson must carefully review this form to ensure the figures are consistent with the Agreement of Sale. 

 

Last, a salesperson is responsible for all funds received by the client. The salesperson must deliver the hand money check to the real estate broker, who then deposits these funds into the real estate broker’s escrow account. This money must be deposited within one day of receipt by the salesperson. The hand money must remain in the escrow account until the closing. Those funds cannot be withdrawn without notification to the client. An accounting of all funds held by the salesperson/broker must be provided to the client.

 

It is imperative for salespersons to fulfill their fiduciary duty to their client. This is a sacred trust that is found in other relationships and, in addition to other statutory requirements, is at the core of a salesperson’s job description.