Real Estate Broker's Obligations To Third Parties

A real estate broker’s obligations are primarily to the principal who has employed him. Many…

A real estate broker’s obligations are primarily to the principal who has employed him. Many state laws nonetheless make certain demands on the mortgage broker in relation to the third parties the broker deals with on behalf of the principal. Foremost among these are honesty, integrity, and fair business dealing. This includes the proper care of deposit money and offers, and the responsibility for written or verbal statements made by the mortgage broker or his sales staff or any impression made by withholding information. Misrepresenting a property by omitting vital information is as wrong as giving false information. Disclosure of such misconduct usually result in a broker losing his right to a commission. He may also lose his real estate license, and can be sued by any party to the transaction who suffered a financial loss because of the misrepresentation.

In guarding against misrepresentation, a real estate agent must be careful not to make statements about which he/she does not know the answer. For example, a prospective home buyer looks at a house listed for sale and asks if it is connected to the city sewer system. The real estate agent does not know the answer, but sensing it is important to making a sale, says, “Yes.” This is fraud. If the prospect relies on this statement, purchases the house, and finds out that there is no sewer connection, the agent may find himself the center of litigation regarding sale cancellation, commission loss, damage lawsuit, and state license discipline. The answer should be, “I don’t know, but I will find out for you.”

Suppose instead, that the property owner has told the broker that the house is connected to the city sewer system, and the broker, having no reason to doubt the statement, accepts it in good faith and gives that information to prospective home buyers. If this statement is not true, the owner is at fault, owes the broker a commission, and is subject to legal action from the buyer for sale cancellation and money damages. In addition, the mortgage broker has committed a fraud, is liable to the buyer for damages, and is entitled to recover from the owner. Therefore, relying on the owner for information does not completely relieve the real estate broker’s responsibility to third parties. When a broker must rely on information supplied by the owner, it is best to have it in writing.