Understanding The Agency Relationships in Real Estate Transactions Disclosure

Agency Relationships in Real Estate Transactions Disclosure

While some may find the discussions and paperwork surrounding agency relationships in Minnesota real estate transactions excessive or mundane, I emphasize their critical importance. It falls squarely on the shoulders of real estate brokers and Realtors to make sure that our clients understand the legal obligations we have Realtors have towards our clients. The reality is, the average person lacks the time to study the complexities of real estate transactions and comprehend the legal obligations incumbent upon licensed agents contracted to represent them.

I’m often surprised by how many clients I encounter have never been presented with the legally mandated disclosure form in Minnesota. It appears that far too many agents are still overlooking the mandated conversation. Today, I aim to share my insights on this matter, both for prospective real estate consumers and fellow agents in the area.

If I were a buyer or seller, and an agent failed to discuss these fundamental concepts and disclosures, I would approach the situation with caution from the outset, as it signifies a breach of the law up front. Realtors are obligated to give this form out to ensure that those we serve comprehend our duties toward them. It establishes the foundation of trust necessary for effective transactions, and quite frankly makes it harder for agents to act against their clients’ best interests. While I would like to believe such breaches are rare, my experience as a realtor and broker suggests otherwise; I’ve witnessed fiduciary duties being violated on numerous occasions, whether due to agents overly eager to manipulate a situation for a quick, easy deal or a lack of understanding regarding their obligations. It does not matter as realtors whether we agree with our clients’ opinions and decisions or not. Our job is to give the best insight, perspective, and guidance we can, but in the end the choices are theirs.

Each of the six legal fiduciary duties warrants its own in-depth discussion. Exploring the real world application surrounding each duty could aid individuals in understanding their significance. It’s crucial for agents to comprehend how easily they can stray into gray areas and potentially violate these foundational principles of trust. I sincerely believe the mandated agency duties are a guiding lights and they have helped me many times over the years.

There are six fiduciary duties mandated by the state:

    1. Loyalty: Brokers and salespersons must prioritize their clients’ best interests above all else. This overarching rule encompasses all other responsibilities. This is a broad duty, but the bottom line is an agent should constantly be asking if their actions and words are in the best interest of their client. For example (and I have many of them) isn’t a buyer agent obligated to suggest the best home inspectors they are aware of? Should not a seller agent list a home for the highest possible price they think is effective?

    1. Obedience: Agents must faithfully execute all lawful instructions provided by their clients, regardless of scale, ensuring their actions align with the client’s wishes. Agents don’t always agree with their clients’ decisions. Whether it is during the negotiation, inspection items, etc. However, we must do what the client asks.

    1. Disclosure: Agents are obligated to divulge any information that may impact their client’s interests or negotiation position. This duty extends to revealing any details that could influence a client’s decision to proceed with a transaction. If at any time, before or during a transaction the Realtor gets information, from any source that may benefit their clients,  they must disclose it to them as soon as possible. This goes beyond just the condition of the property. This is in regard to anything that might effect their price, terms, or motivation.

    1. Confidentiality: Agents must safeguard client confidences unless legally mandated to disclose specific information. Unfortunately, this duty is too frequently breached, with agents sometimes sharing sensitive information to expedite deals or gain an advantage. This is the other side of the coin, and unfortunately, especially for newer or less careful agents, this is by far the most breached of the duties. The general rule needs to be that more is less, and an agent should get in writing, at least in text, written permission to disclose anything about their clients’ potential price, terms, and motivation. This includes details concerning their personal desires or situation. 

    1. Reasonable Care: Agents must exercise a level of expertise in performing their duties. Because the truth is real estate can get very complicated depending on how a property or transaction goes. As a broker I am very leery about the direction that brokerages overall are going. As a new realtor I ran into several situations when transactions that went sideways for one reason or another, and without the help and guidance of a good broker I could have been in trouble. Some structures of brokerages in Minnesota have brokers that are literally less than 200 to one when it comes to the broker/Realtor structure. I really question if in the coming years we’re not going to see many Realtors get into trouble because they don’t have the guidance and expertise behind them that the state originally intended when they set up the rules. I sincerely hope I am wrong!

    1. Accounting: Brokers and salespersons are responsible for meticulously accounting for all client funds and property received during the transaction process.

I urge newer Realtors to embrace the Agency Relationships in Real Estate Transaction Disclosure form and the guidelines we must live by. It’s crucial to provide this information in the initial interactions with clients. By incorporating it into discussions seamlessly, it avoids awkwardness and establishes transparency from the outset.

Personally, I’ve found that adhering to these guidelines not only fulfills my legal obligations but also facilitates smoother transactions and strengthens client relationships. Regularly referencing these fundamental duties during interactions ensures that clients feel informed and supported throughout the process. For example, if I get new information, I will start the conversation out with something like, I need let you know….it may or may not change anything, but I want to make sure I am fulfilling my duties of disclosure to you.

In conclusion, if every agent operated within this framework, it would foster greater trust within the industry and minimize complications when transactions don’t go the way our clients want them to. Whether you’re a prospective buyer or seller or a fellow agent, don’t hesitate to reach out for further discussions on the fiduciary duties. Below is a downloadable link to the forms for your reference.