Client Relationships: Listings, Authority, and Fiduciary Duties
Understand the broker-client relationship including exclusive vs. open listings, authority to sell agreements, fiduciary duties, and proper handling of client funds.
Exclusive vs. Open Listings
“A real estate broker shall enter into a written agreement with the property owner or buyer before performing any act of a real estate broker in connection with the sale, exchange, mortgage, or lease of any real property. Such agreement shall specify the terms of engagement, the scope of authority, the commission or fees, and the duration of the engagement.”
What This Means
Two main listing types: (1) Exclusive Listing. only ONE broker is authorized to sell for a specified period. If the property sells during that period (even without the broker's involvement), the broker earns commission. Advantage: broker invests more in marketing. (2) Open Listing. multiple brokers can market the property simultaneously. Only the broker who produces the successful buyer earns commission. Advantage: wider exposure, but less broker commitment. The Authority to Sell should clearly state: exclusive or open, commission rate, listing period, property details, and authorized selling price.
- Exclusive: one broker only, guaranteed commission if sold during the period
- Open: multiple brokers, only the procuring broker earns commission
- Authority to Sell (ATS): the written engagement contract (REQUIRED by RA 9646)
- Must specify: commission, duration, price, scope, termination terms
- Exclusive listings motivate higher broker investment in marketing
Real-World Scenario
Broker A has an exclusive listing for 90 days at 5% commission. On day 60, the seller's friend (not a broker) introduces a buyer directly. The sale closes at P10,000,000 without Broker A's involvement.
Is Broker A entitled to the 5% commission?
Fiduciary Duties to Clients
“A real estate service practitioner shall protect the interest of his client. He shall be loyal to his client and shall not undertake any act which would be adverse to the interest of his client. A real estate service practitioner shall disclose to his client all facts and information relevant to the transaction which may affect the client's rights and interests.”
What This Means
As a broker, you owe your client (the party who engaged you) fiduciary duties. the highest standard of care in law. These include: (1) Loyalty. prioritize your client's interests above your own. (2) Disclosure. reveal all material facts that could affect the decision. (3) Confidentiality. keep client information private (price flexibility, motivation, financial situation). (4) Obedience. follow lawful instructions. (5) Accountability. properly handle client funds and documents. (6) Care. exercise professional skill and diligence. Violating these duties can result in PRC disciplinary action, civil liability, and loss of license.
- Loyalty: client's interest above your own (no secret profits, no double-dealing)
- Disclosure: reveal all material facts (defects, encumbrances, flooding, disputes)
- Confidentiality: protect client's private information
- Accountability: proper handling of earnest money, keys, documents
- Dual agency (representing both buyer AND seller) requires BOTH parties' written consent
Real-World Scenario
Broker Lee represents the seller on a P20,000,000 property. During negotiations, the buyer tells Broker Lee privately: "I'm willing to go up to P22,000,000 if the seller won't budge." Broker Lee's client (the seller) is currently holding firm at P20,000,000.
What should Broker Lee do with the buyer's information?
Handling Earnest Money and Client Funds
“A real estate service practitioner shall not commingle the money of his client with his own, and he shall maintain at all times a separate account for funds held in trust. Any money received by a real estate broker in his professional capacity shall be held in trust and shall not be used by the broker for his own benefit.”
What This Means
When a buyer pays earnest money or reservation fees through the broker, those funds are held IN TRUST. they are not the broker's money. Key rules: (1) Never mix client funds with personal/business funds (no commingling). (2) Maintain a separate trust account for client money. (3) Issue official receipts for all money received. (4) Turn over funds to the seller/developer per the agreed schedule. (5) Keep detailed records of all trust account transactions. Mishandling client funds is grounds for: criminal charges (estafa), PRC license revocation, and civil liability. Even temporary "borrowing" from trust funds is a serious violation.
- Client funds = held in TRUST. never the broker's money
- Maintain a separate trust/escrow bank account
- Never commingle: client funds must be in a separate account from business funds
- Issue receipts for every payment received
- Mishandling trust funds = estafa (criminal) + license revocation
Real-World Scenario
Broker Ramos receives P200,000 earnest money from a buyer on Friday. The closing is scheduled for the following Thursday. Broker Ramos deposits the money in his personal savings account over the weekend, planning to transfer it to the seller at closing.
Is this handling of funds proper?
Frequently Asked Questions
Can a broker represent both the buyer and seller in the same transaction?
This is called "dual agency" and is allowed in the Philippines only with BOTH parties' informed written consent. The broker must disclose to both parties that they are representing the other side, explain the limitations (cannot share confidential information from either side), and get signed dual agency consent. Many experienced practitioners avoid dual agency because the inherent conflict makes it difficult to fulfill fiduciary duties to both parties fully.
How long should an exclusive listing period be?
Industry standard is 60-90 days for residential properties and 90-180 days for commercial/industrial. The period should be long enough for the broker to effectively market the property (create materials, list online, network, conduct viewings). If the property doesn't sell within the exclusive period, the seller can renew with the same broker, switch to a different broker, or change to an open listing. Extremely long exclusive periods (6-12 months) may be deemed unreasonable.
What happens if a seller terminates an exclusive listing early?
The consequences depend on the ATS terms. Common provisions: (1) The seller pays the broker a "withdrawal fee" or reimbursement for marketing expenses incurred, (2) A "protection clause". if a buyer the broker introduced during the listing period eventually purchases (even after termination), the broker still earns commission, (3) Some ATS agreements allow early termination with 30 days written notice. Without a written ATS, the seller can terminate anytime. another reason why brokers should always get written agreements.