Fiduciary duties, duties to other parties, and misrepresentation

Two layers of duty

A fiduciary acts for a client's interests. New York Real Property Law § 443 identifies six duties: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience, and accounting. Seller and landlord agents represent their respective clients; buyer and tenant agents represent theirs. Honest dealing with the other party does not make that party a client.

Apply the duties

Reasonable care requires competent work and care with factual claims. Loyalty puts the client's interests ahead of personal gain. Confidentiality protects bargaining information. Full disclosure keeps the client informed of material information and conflicts. Obedience means following lawful instructions, not directions to deceive. Accounting requires safeguarding and reporting entrusted money and property.

A seller's agent should protect the seller's private minimum price, but must disclose known facts materially affecting property value or desirability, except as otherwise provided by law. Recurring basement flooding is not protected bargaining information. New York requires reasonable skill and care, honesty, fairness, and good faith toward the buyer. A buyer's agent owes corresponding honest treatment to the seller and disclosure of known facts materially affecting the buyer's ability or willingness to perform that is consistent with fiduciary duties to the buyer.

Misrepresentation

Puffing is subjective sales opinion, such as calling a view beautiful. Saying a roof was replaced last year is a verifiable factual claim. Knowingly false material statements intended to induce reliance can constitute fraudulent misrepresentation. Careless unsupported factual assertions can constitute negligent misrepresentation. Deliberate concealment where disclosure is required can also be deceptive. An innocent mistake is not necessarily intentional fraud, but absence of intent does not excuse carelessness. Liability depends on the circumstances and the required elements of the claim.

Money and conflicts

Under 19 NYCRR § 175.1, principal funds must be safeguarded pending deposit and deposited within three business days into a separate, special federally insured bank account. Commingling mixes principal and personal funds; conversion is unauthorized use of entrusted funds. Section 175.2 requires an account and remittance of unexpended client funds within a reasonable time.

Sections 175.5 and 175.6 require ownership-interest disclosure: to all parties before buying for a client property in which the broker has an interest, and to the purchaser before selling property in which the broker owns an interest. Under New York's § 443, dual agency requires both parties' informed written consent. Dual agents and designated sales agents cannot provide undivided loyalty.