Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, December 7, 2011

Real Estate Broker’s Are Not True Fiduciaries

Gerald-KorngoldGerald Korngold (Professor of Law, New York Law School) recently published his article entitled Real Estate Brokers are Not ‘Fiduciaries’: A Call for Developing a New Legal Framework, 40 Real Estate L.J. 3 (2011). The abstract available on SSRN is below:

Clients have brought actions against their real estate brokers seeking compensation for alleged improper behavior in dealing with the clients and their interests. Courts have typically adjudicated these cases by defining the broker as a “fiduciary” and then applying traditional fiduciary doctrines to the broker’s actions. This article argues, however, that real estate brokers are not true “fiduciaries” and do not share much in common with classic fiduciaries such as trustees and executors. For example, real estate brokers have a fundamental, inherent conflict of interest with their seller clients with regard to the terms of the sale, a typical seller should be able to recognize that the broker is operating under an incentive system that is at odds with the seller, the broker does not have legal power over the property and the transaction, and fiduciary models create disappointed expectations in buyers.

Other attempts to define real estate brokers as either “professionals” or “salespersons” create a false dichotomy. In actuality, brokers are both professionals and salespeople. Rules controlling broker conduct must reflect both of these functions in order to be effective. Designating brokers as “fiduciaries” has the deleterious effect of diluting the concept of the fiduciary in American law and creates confusion as to duties that true fiduciaries should observe. Courts should eschew decision by definition, especially when the definition is inappropriate. This article suggests that legislatures and courts should instead adopt a distinct, bespoke set of obligations governing the behavior of real estate brokers based on the reality of the marketplace and legitimate expectations of the parties. 

https://lawprofessors.typepad.com/trusts_estates_prof/2011/12/real-estate-brokers-are-not-true-fiduciaries.html

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Comments

I would like to thank you for sharing this information with all of us. I totally agree with your statement and also want you to make aware about the same situation in India also.

Posted by: Properties in pune | Dec 8, 2011 1:23:20 AM

Thanks, Gerry W. Beyer Sir for sharing an informative article on real estate brokers. It was really helpful for people.

Posted by: Dhoot Nirmiti | Dec 29, 2021 2:58:49 AM

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