Is one agent just as good as another? Here’s some food for thought.
When a real estate agent and that person’s respective broker are acting in an agency capacity for a buyer or seller client for the sale of real property, they are legally bound to something called fiduciary duty. It’s part of the licensing requirements. A fiduciary is held to act in the best interest of the client. Some examples outside of the real estate industry where there is also a fiduciary responsibility are Trustees, Executors, and Guardians, and now even Financial Advisors as of June 9, 2017.
So what are the duties of a fiduciary?
A duty of loyalty is one of the most fundamental fiduciary duties owed by an agent to his principal (otherwise known as a client). This duty obligates a real estate broker to act, at all times, solely in the best interests of his principal to the exclusion of all other interests, including the broker’s own self-interest.
An example of breach of loyalty is when an agent/broker purchases a property listed with his/her firm and immediately resells it for a profit. Such conduct is usually considered appropriate and lawful by persons who act at “arm’s length”, but a fiduciary would be considered to have stolen an opportunity for profit that rightfully belongs to the principal.
An agent is obligated to safeguard his principal’s confidence and secrets. An agent/broker must not reveal any confidential information that might weaken his principal’s bargaining position if it were revealed. Caveat: this does NOT include an obligation to withhold information from a buyer of known material facts or to misrepresent the condition of the property. To do so constitutes misrepresentation and imposes liability on both the broker/agent AND the Seller.
For a Listing Agent – the agent/broker must not reveal anything that would help the Buyer gain an advantage such as impending foreclosure, need to move in a hurry, need to sell to settle divorce, etc.
For a Buyer’s Agent – the agent/broker must not reveal the Buyer’s ability or willingness to pay more for the property.
An agent is obligated to disclose to his principal all relevant and material information that the agent knows and that pertains to the scope of the agency. The duty of disclosure obligates a real estate broker representing a seller to reveal to the seller:
- All offers to purchase the seller’s property.
- The identity of all potential purchasers.
- Any facts affecting the value of the property.
- Information concerning the ability or willingness of the buyer to complete the sale or to offer a higher price.
- The broker’s relationship to, or interest in, a prospective buyer.
- A buyer’s intention to subdivide or resell the property for a profit.
- Any other information that might affect the seller’s ability to obtain the highest price and best terms in the sale of his property.
A real estate broker representing a buyer is obligated to reveal to the buyer:
- The willingness of the seller to accept a lower price.
- Any facts relating to the urgency of the seller’s need to dispose of the property.
- The broker’s relationship to, or interest in, the seller of the property for sale.
- Any facts affecting the value of the property.
- The length of time the property has been on the market and any other offers or counteroffers that have been made relating to the property.
- Any other information that would affect the buyer’s ability to obtain the property at the lowest price and on the most favorable terms.
CAVEAT: An agent’s duty of disclosure to his principal must not be confused with a real estate broker’s duty to disclose to non-principals any known material facts concerning the value of the property. This duty to disclose known material facts is based upon a real estate broker’s duty to treat all persons honestly and fairly. This duty of honesty and fairness does not depend on the existence of an agency relationship.
An example of non-disclosure is when an agent does not present all offers to the seller. A classic example is when a Listing Agent also represents a Buyer in what’s known as Dual Agency and other offers that may be better than the Agent’s buyer’s offer are not disclosed.
An agent is obligated to obey promptly and efficiently all lawful instructions of his principal. However, this duty plainly does not include an obligation to obey any unlawful instructions; for example, an instruction not to market the property to minorities or to misrepresent the condition of the property. Compliance with instructions the agent knows to be unlawful could constitute a breach of an agent’s duty of loyalty.
Reasonable Care and Diligence
An agent is obligated to use reasonable care and diligence in pursuing the principal’s affairs. The standard of care expected of a real estate broker representing a seller or buyer is that of a competent real estate professional. By reason of his license, a real estate broker is deemed to have skill and expertise in real estate matters superior to that of the average person. As an agent representing others in their real estate dealings, a broker or salesperson is under a duty to use his superior skill and knowledge while pursuing his principal’s affairs. This duty includes an obligation to affirmatively discover facts relating to his principal’s affairs that a reasonable and prudent real estate broker would be expected to investigate. Simply put, this is the same duty any professional, such as a doctor or lawyer, owes to his patient or client.
An agent is obligated to account for all money or property belonging to his principal that is entrusted to him. This duty compels a real estate broker to safeguard any money, deeds, or other documents entrusted to him that relate to his client’s transactions or affairs.
Simply put, an agent and broker are to act in the best interest of their clients.
I believe that beyond these fiduciary pillars, that clients should have a true advocate to guide them through buying and/or selling a home.
I believe in a Win-Win or No Deal.
I believe in helping people make sound financial decisions regarding their home sale and purchase.
I believe that honesty and integrity are foundational to a long-lasting business.
I’d love to be able to help you with your New Year’s Real Estate Goals! Let’s find a time to chat.
As an update to last week’s blog post on the New Tax Laws:
As promised, I am confirming that I had pulled correct information about the Mortgage Interest Deduction. Here the wording by the California Association of Realtors:
The mortgage interest deduction (MID) is limited to $750,000 for new loans taken out after December 15, 2017. The MID of $1 million is grandfathered in for existing loans. The MID is retained for second homes and refinances (but not beyond the amount being refinanced). The MID on home equity debt has been eliminated (unless the proceeds are used to substantially improve the property).
Note that the National Association of Realtors (NAR) lobbied hard and WON the existing capital gains tax exclusion periods:
In the sale of real property, the capital gains tax exclusion period has been retained. To qualify for the exclusion from capital gains tax for the sale of real property, homeowners must have lived in their home as a principal residence for any 2 of the last 5 years. Without NAR’s efforts, the residency requirement exclusion period would have been lengthened to 5 of the last 8 years.
This would have disproportionately impacted US military personnel, marrying couples with two previous separate residences, divorcing couples, and those with job transfers to name just a few.