1. 3-1 3. Client and Customer Relationships In This Chapter Duties to clients and customers Exercising reasonable care and diligence Agency conflicts, dual and disclosed dual agency Implied and imputed knowledge Conflicts of interest Penalties for breach of duties Establishing scope of services 43

2. 3-2 Fiduciary The relationship existing when one person justifiably reposes confidence, faith, and reliance in another whose aid, advice, or protection is sought. Duties to both a client and a customer Highest level of fiduciary duty is to the buyer Statutorily defined or common law 43

3. 3-3 Skill Builder Tip Common law is made by judicial decisions –assumes all licensees affiliated with a brokerage, including the managing broker, represent all of the broker’s clients in an agency relationship Statutory law is created by legislators –specifically defines the duties of the agent. 43

4. 3-4 “Old Car” O = Obedience L = Loyalty D = Disclosure C = Confidentially A = Accounting R = Reasonable care and diligence 44

5. 3-5 Duties to a Client Obedience Undivided loyalty Full disclosure Confidentiality Accounting Reasonable care and diligence 44

6. 3-6 Responsibilities to a Customer Honesty Accounting Reasonable skill Disclosure – agency and material fact 45

7. 3-7 Reasonable Care to Protect the Buyer Property disclosure Recommend inspections Approved protective clauses CMA Home warranty Other professionals Share all information about the property Stay informed and inform about local issues Notify of potentially negative influences 46

8. 3-8 Controversy Express agreement? Disclosures? Consent? Control of actions? Who benefited? Who relied on licensee? Perception of representation? 48

9. 3-9 Imputed (Assumed) Knowledge State specific If one knows, everyone knows Applies within an entire firm 52

10. 3-10 Imputed (Assumed) Notice State specific Informing the agent is assumed (imputed) to be informing the client 54

11. 3-11 Vicarious Liability VERY state specific – does this apply in your state? Client is responsible for agent’s actions, even if unaware Based on the duty of obedience and concept that principals should not benefit from fraudulent actions by the agent 54

12. 3-12 Single Agency Does not usually present conflicts of interest Events can create conflicts Two buyer-clients pursuing the same property 55

13. 3-13 Disclosed Dual Agency Cannot fulfill all fiduciary duties to both Lawful after disclosure and informed consent Cannot have undivided loyalty to opposing parties Confidentiality vs. full disclosure Both clients may agree to modify the brokerage company's fiduciary duties to eliminate the duties of undivided loyalty and full disclosure 55

14. 3-14 Skill Builder Tip: Conflicts Report conflict to broker Decide if the company's attorney should be consulted Send a letter to both clients and suggest a resolution to the conflict Give one or both of the parties the opportunity to terminate the agency Add conflict to the brokerage company's policy 56

15. 3-15 Limiting Scope Define the limits of the services that will be performed on behalf of the client? Will the property search be limited to properties listed on the MLS? 61

16. 3-16 Penalties Forfeiture of commission Actual and punitive damages (not covered in E & O insurance) Other damages Penalties for violation of NAR’s Code of Ethics Loss of license in most states 61

17. 3-17 Building Blocks How might you explain to a buyer handling of confidential information before an agreement is signed? After an agreement is signed? How would you explain conflicts of interest that might arise and how they will be handled? What fiduciary duties can you perform for a buyer- client? What is this to the client’s advantage? 62