FAQ Agent Fiduciary and General Duty

Real Estate Disclosure and Licensing FAQ

1. What is the primary duty of a seller’s agent when dealing with a prospective buyer, and how does this differ from their duty to their client (the seller)?
2. A seller’s agent has a primary duty to their client, the seller, to diligently market the property for sale and find a buyer who is ready, willing, and able to purchase the property on the listed terms. However, upon locating a prospective buyer, the seller’s agent also owes a limited, non-client general duty to voluntarily provide critical factual information about the property that could affect its value or interfere with the buyer’s intended use. This is distinct from their duty to the seller as they are required to provide disclosures to the buyer, not to obtain the maximum financial gain for the seller by withholding critical information.
3. What types of information must a seller’s agent disclose to a prospective buyer, and what is the purpose of these disclosures?
4. Seller’s agents must disclose facts about the property that could adversely affect its value or interfere with the buyer’s intended use. These disclosures are intended to create transparency in the sales process and eliminate information asymmetry and power imbalances between the buyer and seller. Disclosures include (but are not limited to) natural hazards, the condition of the property, environmental hazards, and any known or suspected defects. The goal is to provide enough information so the buyer is placed on notice of potential issues before making an offer.
5. What are some examples of practices that a seller’s agent is prohibited from doing in their dealings with prospective buyers?
6. A seller’s agent is prohibited from engaging in practices that exploit a prospective buyer’s lack of knowledge about the property. This includes delivering less than the minimum required disclosures, giving unfounded opinions or deceptive responses to inquiries, and stifling inquiries about the property in order to secure the best financial advantage for the seller. They are obligated to respond fully and fairly to questions, not to hide adverse information.
7. What is a Transfer Disclosure Statement (TDS), and what is the agent’s role in it?
8. A Transfer Disclosure Statement (TDS) is a document prepared by the seller and their agent, providing the prospective buyer with information on the property’s condition, including known or suspected defects. The seller fills out the form and the seller’s agent reviews it for inconsistencies with their own knowledge or observations from a visual inspection. The agent is responsible for adding any known defects that are not included by the seller, or correcting the seller’s statements. The agent’s goal is to ensure that the TDS is as accurate as possible.
9. What are the limits of a seller’s agent’s duty regarding the physical condition of a one-to-four unit residential property?
10. A seller’s agent’s duty is limited to prior knowledge about the property and observations made during a reasonably diligent visual inspection of the property’s accessible areas. They are not required to inspect areas that are not readily accessible or to investigate off-site areas or public records, unless they have the knowledge that such research would yield relevant adverse information. Their primary responsibility is to disclose what they know and what a reasonable visual inspection would reveal.
11. What information is a seller’s agent not obligated to disclose to a prospective buyer?
12. Seller’s agents are not obligated to investigate information, data, or opinions disclosed by the seller, or authenticate its accuracy. They have no duty to investigate public records, or address matters like easements, operating expenses (except for statutory disclosures about fire hazards), zoning restrictions (except for industrial zoning and military ordinance locations), income tax implications, suitability of the property for the buyer’s goals, or information about mixed uses of the property. They are not required to provide advice, make recommendations, comment on the severity of disclosed issues, or explain the effect of facts on the buyer. However, a seller’s agent must be forthcoming and honest if they respond to direct questions about these subjects.
13. What factors affect the number of active real estate agents in the market?
14. The number of active real estate agents in the market is often influenced by economic conditions. Periods of booming home prices and perceived opportunities lure more individuals into the real estate profession, leading to an increase in agent numbers. Conversely, during economic downturns and housing crises, many agents may leave the market. Speculation by agents can also skew the market as they are sometimes more interested in flipping properties than assisting buyers and sellers.
15. What role does the California Department of Real Estate (DRE) play in regulating the number and quality of real estate agents?
16. The DRE is responsible for protecting the public from adverse licensee conduct. To maintain standards, they have the power to tighten up agent licensing exams to control the passing rate and ensure that only qualified, dedicated, and committed individuals become licensed agents. This action helps regulate the number of new agents and maintain professional standards in the industry. The DRE must take action to control the quality of new agents during times of economic recovery and boom, as it is during these periods that the number of new and unqualified agents increases.