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This week I’ve decided to write about real estate agency
relationships and the duties real estate agents owe to their clients and
customers. When you enter into an
agreement involving a real estate agent, either by listing your property for
sale or by submitting an offer on a piece of property through your agent, you
should be given a form describing agency relationships. Before you enter such an agreement you may
not know the duties owed to you by your agent or the duties that agent owes
other people involved in the transaction – and even if you’ve been in such an
agreement, it’s likely that this was explained once, briefly, and you may not
have fully understood what was said.
Let’s start with the Seller’s Agent. This is the Agent who has the property listed
for sale with the property owner. The
Seller’s Agent owes the Seller the fiduciary duty of utmost care, integrity,
honesty and loyalty in dealings with the Seller. According to Wikipedia “a fiduciary duty is a
legal or ethical relationship of confidence or trust between two or more
parties.” What this means is that the Agent
needs to put the Seller’s needs above their own. Wikipedia again: “good conscience requires
one to act at all times for the sole benefit and interests of another, with
loyalty to those interests.”
The Seller’s Agent also owes something to the Buyer (and the
Seller): Diligent exercise of reasonable care and performance in the Agent’s
duties, honesty, fair dealing and good faith, and a duty to disclose all
material facts relating to the property in question.
A Buyer’s Agent owes the exact same duties, loyalties,
ethical behavior and honesty to the Buyer as the Seller’s Agent owed the
Seller. In addition, the Buyer’s Agent owes
reasonable care, honesty, good faith, etc., and the disclosure of material
facts to both the Buyer and the Seller.
These are basic duties owed to clients by all real estate
agents in California. In addition, some
of you may remember my post about ethics in real estate. Most real estate agents in our area are also
REALTORS® and to become a REALTOR® one must also agree to and sign a Code of
Ethics. This takes those fiduciary
duties a step further in that a REALTOR® agrees voluntarily to act
ethically. This also means that if a REALTOR®
acts unethically or fails in her or his duties the wronged party(ies) can file
an ethics complaint with the California Association of REALTORS® (CAR).
Here’s an example of not putting a Seller’s interests above
the Agent’s: Let’s say an Agent has a
property listed for sale and the Agent gets two offers on the property at
roughly the same time. Both are
presented to the Seller by the Agent. It
is now up to the Seller to decide which offer to accept. Of course, the Seller is probably relying on
the Agent for advice and that is a good thing.
Let’s say the two offers are basically the same – price, conditions,
etc. Let’s also say that the Agent is
acting as a Dual Agent – meaning she/he is the Agent for this other Buyer as
well as the Seller. What this means for
the Agent is that if her/his Buyers gets the property, this Agent will get the
full commission, rather than splitting it with second Buyer’s agent. Let’s
also say that for one reason or another, the Seller has a personal preference for
one of the Buyer’s – maybe they know each other, maybe the Buyer included a
letter about themselves that touched the Seller, whatever the reason, the
Seller is leaning toward the one Buyer and tells the Agent, “I’d like to see
this Buyer get the property, but since both offers are basically the same, let’s
find out if this Buyer can offer $10,000 more; if they can, the property is
theirs.” Now let’s say the Agent does
not do this; instead the Agent goes back to the preferred Buyer and says “How
much higher can you go?” And for whatever reason, this Buyer does not want to
get into a “bidding war” and decides to back out at this point. This now leaves the Seller’s Agent with only her/his
clients buying the property and means that she/he will get the full
commission. However, this also shows that
instead of acting in the interests of the Seller the Agent acted in her/his own
interests, not communicating exactly what the Seller said to the Buyer and
instead acting in such a way for her/his own financial gain. This would be a violation of the fiduciary
duty owed toward the Seller and a violation of the Code of Ethics. Were the Seller or Buyer to become aware of
such a breach of duty and ethics, the Seller or Buyer could then file a
complaint with CAR.
I hope this helps clarify the role of the real estate agent
in dealing with Seller’s and Buyer’s. As
always, please feel free to contact me with any questions.