The concept of vicarious liability in real estate is not widely discussed but is important when an individual represents another as a buyer or seller of property. It means a real estate broker or agent can be held responsible for actions when they misrepresent buyers or sellers. Here’s a closer look at what vicarious liability means in the real estate business.
Vicarious Liability Comes with Agency
Real estate agents and brokers are supposed to follow laws and ethics when representing buyers and sellers. An example of vicarious liability in real estate is when an agent or broker is sued for some misconduct, such as negligence regarding due diligence. Agents and brokers in most states are expected to disclose to clients the ways in which they will represent them. Another example of vicarious liability is when an agent or broker misrepresents their client.
If you decide to become a real estate agent, it’s important to know how your state defines an agent, as the legal definition varies among states. You are not allowed to offer services for which you are not qualified based on the laws in your state. It’s imperative for all parties involved in a real estate transaction to be aware of the real estate agent’s role in preparing the work.
In some vicarious liability cases, an employer can be held liable for the acts of their employees. For example, a real estate agent, who knowingly discriminates against a possible buyer due to race, can get their company in trouble as well as themselves.
Fiduciary’s Role in Real Estate
A fiduciary is usually a professional with an appropriate financial background whom you can appoint to oversee your assets, money, or property. A real estate agent plays the role of a fiduciary when working with a buyer or seller. It’s understood that fiduciaries have a higher level of expertise in financial matters than the common person, which is why they generally command trust in overseeing transactions.
When a real estate professional acts as an agent, they must conduct certain fiduciary duties. Various states require agents to provide clients with an agency disclosure form that explains the relationships between the agency and clients. It must clearly describe who represents whom regarding agency relationships. The client represented by the agent is called the “principal.”
The three different agency modes in real estate are a single agency, dual agency, and sub-agency. In a scenario in which a buyer’s agent via a single agency also operates as a sub-agent of the seller’s listing broker, the agent owes fiduciary duties to the seller. For a dual agency, the real estate agent makes it clear it represents both buyers and sellers. A sub-agency involves a seller allowing their real estate broker to get assistance from other firms.
Simply Buying Home with J Archer Insurance Agency!
Breach of fiduciary duties can lead to real estate buyers or sellers suing their real estate agent or broker. If you want to enter the real estate market as a buyer or seller, be aware of vicarious liability in real estate. Contact us today at J Archer Insurance Group to learn answers to your questions about buying or selling property.