Days before Paul Manafort was arrested on a host of charges related to special counselor Robert Mueller’s federal investigation into the Trump campaign’s ties with Russia, an Alexandria, Virginia-based Realtor who worked with the former Trump campaign chairman was forced to testify before a grand jury in connection with the probe.
The news brings to the surface some interesting questions about the legal relationship between real estate agents and clients, and how far the law protects the information they share.
On Monday, October 30, Manafort and his longtime business associate Rick Gates were indicted on multiple charges including conspiracy against the United States and money laundering.
It’s alleged that Manafort laundered money through overseas shell companies to purchase luxury items, including real estate, so it’s no surprise the grand jury was looking into the multimillion dollar condo that Manafort purchased in 2015. Wayne Holland of McEnearney Associates, represented Manafort in purchasing the home that was raided by the FBI earlier this year.
Holland was subpoenaed to testify on October 13; however, his legal team objected, citing two laws from Washington, D.C., and Virginia that both state that “a real estate licensee shall maintain confidentiality of all personal and financial information received.”
“The respondents are wrong: the information the grand jury subpoenas seek is not privileged under state or federal law and the government need not make any special showing to obtain these records, nor would production be ‘unreasonable or oppressive.’”
The laws that dictate the legal relationship between real estate agents and clients often vary by state and even depend on the parties involved, but there’s no recognized precedent — like attorney-client or clergy penitent privilege — that would dictate that an agent needs to keep any or all discussion private.
“It potentially varies by relationship in the sense that each agent and broker enters into a contractual relationship with his or her client and the details of that relationship are spelled out in that contract,” Ralph Holmen, associate general counsel for the National Association of Realtors (NAR) said.
In Manafort and Holland’s case, Holland acting as the agent for the buyer may not have required any sort of contractual relationship, Holmen explained. A contract covering that relationship happens more frequently today, but in the past, it wasn’t as common.
If that news has real estate clients reconsidering what they tell their agent — not to worry. Chances are, you are not under investigation for crimes against the country. There are actually a lot of things that your real estate agent cannot share. In fact, agents are obligated by the law not to reveal information to the other party involved in the transaction.
“A buyer, for example, may have given his agent information about his need to buy quickly,” Holmen said. “That would be information that the agent would not want to convey to the seller, because it may change negotiating flexibility.”
That confidentiality is especially explicit in dual agency situations, where the buyer and seller are both represented by brokers from the same agency. A sharing of information could greatly compromise negotiations.
That also leads into a very important question raised by industry veteran and Inman contributor Russ Cofano. Are real estate agents considered fiduciaries?
“Under the common law of agency in most states, an agent (someone who has been appointed by a principal to represent him or her) is deemed to be a fiduciary to their principal, which status is defined by the highest level of trust and care that the law can impose and carries certain (drumroll please) fiduciary duties,” Cofano wrote in an article for Inman. “According to the National Association of Realtors, these duties generally include loyalty, confidentiality, disclosure, obedience, reasonable care and diligence and accounting.”
However that’s not the case in every state and it’s important that agents familiarize themselves with state law on the matter, so they are able to convey exactly what their relationship is to the client.
According to Andrew Wetzel, a broker with Long & Foster Havertown Real Estate in Pennsylvania, brokers are required to provide a consumer notice before having a “substantive” conversation with a potential client.
“The consumer notice spells out potential roles for us and clearly states that there is no ‘presumed’ role,” Wetzel wrote on Facebook in response to Cofano’s story. “We are then required to execute a formal representation contract to specifically define our role in any relationship. The contract states our duties to the client, the duration of our relationship and our fee(s) (and how we earn them).”
He added, “Absent any of that, we are just an agent and they are just a member of the public.”