Direct transactional risks on the listing side are risks associated with the services provided, not the property. Direct risks flow from the duties an agent owes their client. Click here for a copy of listing side agency duties. These duties create the potential for the client to sue the agent claiming the agent breached a duty owed to the principal. Such claims are lumped under the heading of “professional malpractice.”
In Oregon, as in many states, the duties a real estate agent owes to the seller are set out in statute. Click here for a detailed discussion of statutory duties in Oregon. Notwithstanding this statutory illumination, the duties remain basically the same as under common law “fiduciary” duties: Loyalty; Obedience; Confidentiality; Disclosure; Reasonable Care and Diligence; and Accounting. Each duty is a separate risk generator for risk identification purposes.
The duty of loyalty will be implicated anytime the agent deals with their principal directly or otherwise benefits from the agency relationship in the way not known or anticipated by the principal. For example, a listing agent buying the listed property or an agent taking a kickback on a home warranty or receiving an undisclosed “bonus” of some kind on the sale or taking an interest in a company that is purchasing the property or anything that might secretly put money (other than the agreed-to commission) in the agent’s pocket. Analysis of these loyalty risks is covered in the Risk Analysis section of this subject.
Obedience means obeying the lawful instructions of the principal. This duty is rarely violated directly as in an agent refusing to do what the principal asks. Obedience becomes a risk management issue when the seller asks the agent to do something, usually withhold information, which violates the agent’s duties of honesty and fair dealing. Obedience issues are, therefore, almost always based on a conflict of duties. Analysis of these obedience risks is covered in the Risk Analysis section of this subject.
The duty of confidentiality is implicated anytime an agent discusses the object of the agency relationship with a third party. On the listing side, that means anytime the seller’s agent discusses the property, the seller’s motivation or the terms of a transaction with anyone other than the seller. Confidentiality is a big duty. Fortunately, the definition of confidential information (anything learned as an agent that it is not in the principal’s interest to disclose or is not required by law to be disclosed) makes analyzing and controlling confidentiality risk fairly simple. Analysis of confidentiality risks is covered in the Risk Analysis section of this subject.
An agent’s statutory duty of disclosure runs to all parties to a real estate transaction. To one’s own client, an agent must disclose anything that might be important or useful to the client. Direct risk is created anytime an agent withholds information from a client. On the listing side, for instance, the agent might withhold the fact that another offer has been made or is coming in, or that the buyer has failed to meet some deadline or anything else the client is entitled to know about. In Oregon, real estate licensees have a disclosure duty to all parties, not just their clients, creating yet another direct disclosure risk. This duty, however, is limited to material information not known or readily available to another party. Analysis of disclosure risks is covered in the Risk Analysis section of this subject.
The duty of reasonable care and diligence generates little risk on the listing side. Care and diligence is strictly a direct risk issue. Failing to exercise care and diligence means failing to protect or advance the client interests. The duty runs directly only to the client. On the listing side, the seller’s interests are mostly financial. Care and diligence can become an issue on the listing side if property is listed unreasonably high and doesn’t sell as a result, or listed too low and immediately sells below its market value or there is insufficient or incompetent marketing. Sellers who become aware of these costs may try to shift them to the real estate agent. It is this simple economic fact that drives listing cancellations, listing side marketing strife, lack of diligence ethics complaints and occasionally a lawsuit. Analysis of reasonable care and diligence risks is covered in the Risk Analysis section of this subject.
Accounting is the final direct risk duty. Accounting is a duty that flows logically from the duties of loyalty, disclosure and diligence. The duty to account requires the agent to keep track of (account for) any money or property of the client’s coming into the agent’s hands as a result of the agency. The duty to account can be violated innocently from ignorance, but typically failure-to-account claims are the result of the agent deliberately hiding or otherwise misappropriating their client’s funds. Because Oregon law requires licensees to keep their client’s funds in trust accounts, accounting is mostly a matter of following trust account rules. Analysis of accounting risk is covered in theRisk Analysis section of this subject.
In addition to the direct risks created by agency relationships, there is also a direct risk that flows from simply being in the business of providing real estate services. This risk results from the Unlawful Trade Practices Act. The Unlawful Trade Practices Act is state consumer protection legislation that protects consumers as consumers from sharp business practices. The Act creates a separate duty to conduct business affairs in a lawful manner. As such, it creates a direct risk for all real estate licensees. Analysis of risks created by the Unlawful Trade Practice Act is covered in the Risk Analysis section of this subject.
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