Knowing the reasons on why you should use real estate agents may sound straightforward, but figuring out how to find a Realtor you can trust can be stressful. Luckily it isn’t just the threat of a bad reputation that keeps your real estate agent from acting in their best interests instead of yours. Their obligation as a fiduciary has been codified into law.
You might know that your real estate agent has a professional obligation to act in your best interests, but did you know they have a legal obligation to you as well? The agent-client relationship is legally defined as a fiduciary relationship, which means that the fiduciary must always act in your best interest. As the client you are the principal, and the agent in this fiduciary is legally bound to fill their obligations to you.
Fiduciary Obligations
When we say your agent ‘s duty is to always act in your best interest, it means these Fiduciary Obligations actions are clearly enshrined in law:
1. Loyalty. When you hire your agent, they must become completely loyal to your interests. For example they must act in a way that allows you to sell your home at the highest price with the most favorable terms. As your agent it is their duty to not breach your trust by establishing clear communication and working to accomplish your motives.
2. Confidentiality. Your agent must keep confidential any information that could weaken your bargaining position. What they don’t have to do (and what is illegal if they do it) is lie to the potential buyers, buyer, buyer’s broker, home inspector or appraiser about the condition of the property, or withhold any material facts from these parties. It’s their duty to help you get the best deal possible – but that doesn’t mean they have to tell everyone everything.
3. Disclosure. The fiduciary’s duty to disclose information is different for seller’s and buyer’s agents. The seller’s agent must reveal the following:
- All purchase offers
- The identity of potential purchasers
- Any facts affecting value of property
- Any information about the ability of the buyer to afford a higher sales price
- Their relationship with the buyer
- Buyer’s intention to subdivide and resell the property for profit
- Anything else that might affect your ability to obtain the highest price for your home at the best terms.
Even though your agent has a fiduciary duty to disclose all pertinent information to you, you should make a habit of checking in with them throughout the process. Be willing to ask questions; things may be moving fast or they’re working on multiple sales and information may slip through the cracks. It’s their duty to fill these roles, so make sure that they are answering your questions and filling their obligations.
The buyer’s agent must reveal the following:
- The willingness of seller to accept a lower sales price
- Any facts related to seller’s urgency in disposing of the property (e.g. a structural issue)
- Agent’s relationship to seller
- Any facts affecting value of the property
- Length of time home has been on the market
- Anything else that might affect their ability to buy the home at the lowest price and with the best terms.
As a buyer, if you have questions about the agent fulfilling their duty it’s a good idea to check in and ask any questions that are on your mind – they’ll be sure to welcome your interest and provide answers to your questions.
4. Obedience. Real estate agents are required to act as you instruct them as long as your instructions are lawful. For example, your agent would not be compelled to discriminate against buyers for race or gender on your request but they could look for candidates best suited for your home or yard.
5. Reasonable Care and Diligence. The law posits that real estate agents possess a certain level of skill and expertise. And because of that expertise, their clients are entitled to competent assistance and the expectation the agent will provide a reasonable level of due diligence and care during the transaction. The agent should work with appropriate buyer’s brokers, home appraisers, and home inspectors.
6. Accounting. Real estate agents must safeguard and account for all money, documents and other property their principal (clients) puts into their care during the transaction.
You don’t have to sign a contract with an agent from a brokerage firm in order to receive the protections of a fiduciary arrangement. According to the National Association of Realtors (NAR), the fiduciary obligations apply to anyone who is also acting as a real estate agent, broker or consultant, even if a formal contract was never signed. When you are selecting a real estate agent it may be helpful to review their fiduciary duty together and create clear communication at the start of your relationship.
Why is This Important?
In a word: trust. Your agent is the conduit of information between you and the buyer. If you can’t trust what they are telling you or the potential buyers, then how do you know you’re getting the best deal you can? You might think your agent has the best incentive —commission — to sell your home at the highest possible price. But what if the buyer is a family member? They might convince you your home is worth 10% below market. You’ll need to be able to trust your agent with your home and affairs throughout the process.
You also have to be able to trust your agent’s advice — especially when it comes to decisions around which repairs to make and which to take out of the purchase price. If they are motivated by a high commission, they might convince clients to fix any immediate repairs instead of listing their home at a lower price, even if it would be more economical for them to do so. Knowing the fiduciary duties of the agent can put your mind at ease and allow you to keep an active part in finding buyers and the process of selling your home.
Selling your home is a stressful process and you don’t have time to second guess everything your real estate agent is telling you. The seller agent fiduciary obligations are an important factor in making the process go smoothly. And if it doesn’t and you find out later they violated one of the above obligations, you have recourse with your state’s real estate division or possibly in the civil or criminal courts.
