In real estate, the relationship between the agent and their client is sacred, at least in legal and ethical terms. The real estate agent is often considered a fiduciary, which establishes them as a trusted source who is obligated to keep the client’s interests and desires in mind while maintaining various boundaries.
A real estate agent becomes a fiduciary after they’re hired under exclusive agency and brought on board to represent the seller or buyer and honor their best interests. Until that point, agents are not considered fiduciaries; they’re not obligated to work in the seller or buyer’s best interests, although they are expected to be honest, knowledgeable, and act with integrity. In other words, an agent will act as a fiduciary for a client, while they have no fiduciary duty for customers.
Whether your real estate agent is a fiduciary depends on the type of contract you have. An exclusive contract/agency agreement is representative of a fiduciary where a customer service-oriented/transaction broker agreement is not.
In a fiduciary, the relationship between the agent and client is so serious that several fiduciary duties have been established, including the following:
Accounting for all funds
The real estate agent must be able to account for all funds entrusted to them at any time. They are not allowed to combine their client’s funds with their personal or business funds and must keep the funds separate.
Utilizing all skills
The real estate agent is obligated to use all of their skills to best serve their client. Of course, this is in terms of applicable skills; if a real estate agent can juggle bowling pins, they’re not expected to put on a show between showings.
The real estate agent is expected to maintain their client’s confidentiality. While agents don’t offer the same confidentiality as therapists, lawyers, or priests, they are expected to keep certain issues private, especially when those issues could hurt a client’s negotiating position. If a client is desperate to land a home, for example, the selling party shouldn’t receive this intel.
Providing open and honest disclosure
The real estate agent must be open and honest and inform the client of any information they’re aware of that may give the client an edge during a negotiation or the decision-making process. This information will depend on whether the agent is a buyer or a seller but may include disclosing items like present offers, potential buyers, and the length of time the property has been on the market. Property issues must be disclosed, as well; if the client is interested in a house that’s home to an ant colony or full of foundation issues, they need to know before they close.
The real estate agent must maintain loyalty to their client and act in their best interest throughout the buying or selling process. The agent must put their client’s wants and needs ahead of their own self-interests and ahead of anyone else’s. Even if the client is buying a home from the agent’s best friend, loyalty to the client still applies.
Honoring lawful obedience
The real estate agent must honor any of the client’s instructions as long as those instructions are legal. For example, if a client wants to put an offer on a home that is a potential money pit, the real estate agent must honor their desires (assuming all disclosures have been made). If a client is interested in undervaluing their home so they can sell it quickly and move to the beach, the agent must honor that, as well.
The relationship between the real estate agent and the client is critically important. These fiduciary responsibilities aren’t just paramount to an ethical and trusting transaction, they are also key to a satisfying experience, one that increases the odds of working together in the future.
By Jennifer Egbert. Jennifer is an award-winning, licensed Realtor® at milehimodern real estate in Boulder with more than eleven years of experience. She specializes in Luxury neighborhoods, home builders and current market conditions. Visit jenniferegbert.com, e-mail [email protected] or call 303.619.3373.