Agency Relationships and a Broker’s Duties

Most states have enacted agency legislation that attempts to specifically list a broker’s duties to a client and non-client. However, Arizona has enacted no such legislation. The ADRE Commissioner’s Rules do address a broker’s duties. R4-28-1101 requires a broker to:

  • Protect and promote the client’s interests;
  • Disclose any known material defect existing in the property;
  • Expeditiously perform all duties without delay;
  • Provide services that conform to the standards of practice and competence recognized in the professional community for the specific real estate discipline in which the salesperson or broker engages;
  • Exercise reasonable care in ensuring that the salesperson or broker obtains information material to a client’s interests and relevant to the contemplated transaction and accurately communicates the information to the client;
  • Take reasonable steps to assist a client in confirming the accuracy of information relevant to the transaction, especially under circumstances in which a reasonably prudent broker would question the accuracy of the information or where the client has questioned the accuracy of the information (Note: Substantive Policy Statement 2005.13 expands on the Rule);
  • Recommend to a client that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post-possession of a property.
    R4-28-1101 prohibits a broker from:

  • Allowing a controversy with another broker to jeopardize, delay, or interfere with the transaction. (However, a broker is not obligated to agree to alter the terms of any compensation agreement or to relinquish the right to maintain an action to resolve a controversy);
  • Acting in a transaction without disclosing in writing before a contract is signed any present or prospective interest or conflict in the transaction;
  • Accepting compensation from more than one party to a transaction without prior written consent;
  • Acting as a dual agent without prior written consent;
  • Accepting any compensation for any goods or services related to or resulting from the transaction without obtaining prior written acknowledgment;
  • Representing a client concerning a type of property or service that is outside the broker’s field of competence without the assistance of a person who is competent to provide those services, unless the broker’s lack of expertise is first disclosed to the client in writing;
  • Permitting or facilitating a person’s occupancy in a property without prior written authorization from the property owner;
  • Delivering possession prior to close of escrow unless expressly instructed to do so by the seller.

Question: During a listing presentation, the seller divulges what could be considered confidential information to the broker. The seller does not enter into a listing agreement with the broker, but lists the property with another brokerage firm. Is an implied agency created?
Answer: Although the concept of agency is one of law, whether an agency relationship exists is a determination that a court makes only after considering all the peculiar circumstances of the particular case, and no single fact is regarded as conclusive or controlling. See Busk v. Hoard, 396 P.2d 171 (Wash. 1964). In other words, whether an agency relationship exists depends on all the facts. In Hayward Lumber & Inv. Co. v. Graham, 104 Ariz. 103, 449 P.2d 31 (1968), the court stated:

An implied agency must be based on facts such as to imply an intention to create the agency, and the implication must arise from a natural and reasonable, and not from a forced, strained, or distorted, construction of them. They must lead to the reasonable conclusion that mutual assent exists, and be such as naturally lead another to believe in and to rely on the agency.
See also, Walter v. Moore, 700 P.2d 1219 (Wyo. 1985).

When applying these concepts to a listing presentation, a court would likely find no implied agency. Generally, a listing presentation alone does not include the intent to create an agency relationship. Further, the mutual assent necessary to create an agency relationship would generally not occur until the seller agreed to list the property with the broker and an express agency relationship was entered into. Thus, an implied agency is not created in a listing presentation, unless the broker demonstrates an intention to create an agency relationship and the seller consents.

To avoid this situation, and any implied agency, a broker could explain to the seller early in the listing presentation that no agency relationship will exist until the seller enters into a listing agreement with the broker. Until that time, no information disclosed by the seller should be considered confidential.

Question: The seller has insisted on listing the property at a list price that is above the listing broker’s comparable price opinion because the seller believes that the property is worth the price. Should the listing broker provide the buyer with information that is public knowledge or is a matter of public record, such as comparables, when that information is detrimental to the seller’s interest?
Answer: Probably not. A listing broker is an agent with fiduciary duties to the seller. See e.g., Haymes v. Rogers, 70 Ariz. 257, 219 P.2d 339 (1950) (a real estate broker employed to sell property owes the duty of utmost good faith and loyalty to his principal and a fiduciary relationship exits).

A listing broker is obligated to exercise reasonable care to effect a sale to the best advantage of the seller; i.e., secure the best terms at the best price obtainable. See e.g., Vivian Arnold Realty Co. v. McCormick, 19 Ariz. App. 289, 506 P.2d 1074 (1973); Morley v. J. Pagel Realty, 27 Ariz. App. 62, 550 P.2d 1104 (1976) (broker has duty to effect a sale for seller on best terms possible); Meerdink v. Krieger, 550 P.2d 42 (Wash. App. 1976) (broker has a duty to exercise reasonable care, skill, and judgment in securing best bargain possible).

Despite this fiduciary duty to the seller, the listing broker is obligated to disclose known information to the buyer that materially and adversely affects the consideration to be paid for the property. See Lombardo v. Albu, 199 Ariz. 97, 14 P.3d 288 (2000); A.A.C. R4-28-1101(B).

However, public information such as comparable price information should not be the type of material and adverse information that the listing broker is legally obligated to disclose to the buyer. See, e.g., Buffington v. Haas, 124 Ariz. 36, 601 P.2d 1320 (1979) (absent an agency relationship a broker has no obligation to advise a non-client as to the advisability of the contract terms); Fraizer v. Southwest Sav. & Loan Ass’n, 134 Ariz. 12, 653 P.2d 362 (App. 1982) (representations by the bank as to the value and marketability were mere expressions of opinion and statements of future events that could not support a claim.)

Disclosure of opinions of value is also excluded in the warranty sections of the AAR contracts.

Therefore, the listing broker should not be legally obligated to disclose the comparables to the buyer. Further, if the disclosure would prevent the listing broker from effecting a sale to the best advantage of the seller, the listing broker would breach a duty to the seller by disclosing the information, unless, of course, the broker obtains the seller’s consent.

Lind, K. Michelle. Arizona Real Estate: A Professional’s Guide to Law and Practice – Third Edition
Xulon Press (Paperback ed. page 50, Kindle loc. 1667-1735)

©2018 by K. Michelle Lind, Esq./Arizona REALTORS®

This post is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

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