The Selling Real Estate Broker and the Purchaser: Assessing the Relationship

I. INTRODUCTION Residential real property sellers have traditionally employed licensed real estate brokers(1) to find suitable purchasers for their properties. In a typical real estate transaction, the broker and the seller enter into an agency relationship through written agreement, thus creating a fiduciary relationship between the seller, as principal, and the broker, as agent. On the basis of this fiduciary relationship, the broker is required to act with utmost good faith toward the seller in protecting the seller's best interests.(2) While the broker's duty to the seller is clearly recognized, an increasing number of courts have also recognized a legal duty owed by the broker to the purchaser.(3) The uncertainty of the exact nature of the relationship between the selling broker and the purchaser has been confusing to those in the real estate industry as well as to the general public. Understandably, the broker is uncertain as to his duties because of the legal predicament in which he finds himself. The broker is obviously aware that as the seller's agent he owes a fiduciary duty to the seller. In addition, the broker is becoming aware of a duty he owes to the purchaser--a duty which remains unclear but appears to be expanding. Both the broker and the prospective purchaser need direction in understanding the precise nature of the broker's duties. This comment analyzes this broker/purchaser relationship. Part II reviews existing agency law applicable to a selling broker and explains how this law is reflected in a broker's relationship with a purchaser. Part II also discusses possible problem areas arising out of the establishment of an agency relationship between the selling broker and the purchaser, including the need to rely on the court to find an agency relationship, dual agency, and subagency in Multiple Listing Service transactions. Part III reviews the duties owed by the selling broker to the purchaser absent the establishment of an agency relationship. In conclusion, Part IV proposes not only that the broker be required to disclose to prospective purchasers that he is in a fiduciary relationship with the seller, but also that the broker be required to conduct a diligent inspection of the property and disclose any material defects to the purchaser. II. AN AGENCY RELATIONSHIP? A. ELEMENTS OF AN AGENCY RELATIONSHIP An agency relationship generally arises when (1) one party manifests its intention that another shall act on its behalf; (2) the other party consents to such relationship; and (3) the party for whom the other acts has the right to control the ultimate direction of the cooperative effort.(4) The first element is the principal's manifestation of his intent that the agent act for him.(5) In the typical agency relationship, one authorizes another to act on his behalf either by written or spoken words or by conduct through which another may reasonably believe that such authorization to act was given.(6) The second element requires that the agent accept responsibility to act for the principal.(7) No specific words are necessary to find such an acceptance. If the principal communicates to the purported agent his desire that the agent act on his behalf, and the agent subsequently acts as requested without expressly accepting the responsibility, the principal may reasonably infer from these actions that the agent acted on the principal's behalf.(8) The final element requires that the principal has the right to control the direction of the cooperative effort.(9) Though the principal may exercise the right to control either before the agent acts, at the time the agent acts, or at both times, the principal need not exercise this right at all.(10) To establish an agency relationship, the principal needs only to exhibit the right to control the ultimate direction of the cooperative effort, not a specific act As a result, the principal may have no control over the actual physical acts of an agent. …