Real Estate Brokers are Not 'Fiduciaries': A Call for Developing a New Legal Framework

Real Estate Law Journal, Vol. 40, No. 3, 2011

NYLS Legal Studies Research Paper No. 12/13 #31

14 Pages Posted: 26 Oct 2011 Last revised: 12 Sep 2012

Gerald Korngold

New York Law School

Date Written: October 25, 2011

Abstract

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 over 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.

Keywords: property, brokers, real estate, fiduciary

Suggested Citation

Korngold, Gerald, Real Estate Brokers are Not 'Fiduciaries': A Call for Developing a New Legal Framework (October 25, 2011). Real Estate Law Journal, Vol. 40, No. 3, 2011; NYLS Legal Studies Research Paper No. 12/13 #31. Available at SSRN: https://ssrn.com/abstract=1949289

Gerald Korngold (Contact Author)

New York Law School ( email )

185 West Broadway
New York, NY 10013
United States

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