When you go to school to become a real estate agent, one of the first things you learn is Fiduciary duty. It is a cornerstone of integrity for anyone in the business and is reviewed over and over again in your continuing education as an agent. It is also a basic component of the Code of Ethics to which all Real Estate Agents are bound.
But what exactly is fiduciary duty? Let’s start with a simple acronym: CARLOAD. There are seven principles that define fiduciary duty:
VSconfidentiality-Any information disclosed by the client is kept in the utmost confidentiality and is NOT SHARED with anyone. Think of doctors and lawyers.
FORdefending-The agent takes into account the best interests of the client and will do everything possible to ensure the best possible result for them.
Reasy care-The agent makes sure all processes are completed in a timely manner, tracks and follows up. Think of your agent as a project manager.
THEloyalty-the agent acts in the best interest of the client; Every decision and discussion is made as a representative of the client.
ORslowness-the agent who reaches an agreement with a client agrees to perform in accordance with his agreement. The agent acts (or does not act) according to the client’s instructions (within the law, of course)
FORaccountability-the agent keeps the client informed of all the developments of the transaction and keeps the lines of communication open. The agent also checks all the numbers so there are no surprises.
Dclosing-Any information within the scope of the transaction is disclosed to the customer. ALL offers are presented to the customer, even “lowballs”.
You will notice that the term CUSTOMER is used throughout the discussion above. Anyone with an interest in buying or selling a home can be considered a client, and an agent has a general obligation to be honest and reasonably frank with them. However, there is no fiduciary duty. A client is a client who has entered into a representation contract with the agent, either with a listing contract or an employment contract between the buyer and the broker. Once this agreement is in effect, the agent is officially on the client’s team and therefore MUST act as a fiduciary.
An example of the value of this is the dual agency situation. Suppose Bob and Betty Buyer are driving down the street and see a real estate agent’s sign in the backyard of a house. They decide to call the number on the sign, which belongs to the listing agent, Sammy Salesman. During the call, Sammy asks them if they are represented by an agent and they answer that they are not. This is an opportunity for Sammy to offer his services to Bob and Betty. This can be a problem because Sammy’s fiduciary duty remains with the owner, and it can be problematic for him to provide the same duty to buyers without violating most or all of the CARLOAD principles; for example, the duty of full disclosure would conflict with the duty of confidentiality. It is not illegal, but it is obviously a conflict of interest. Bob and Betty are certainly free to accept it; by doing so, they would be accepting limited representation. A much better solution for them would have been to work with a buyer’s agent, who would work in their best interest under the Employment Agreement between the buyer and the broker.
The importance of quality representation is hard to underestimate, whether you are buying or selling real estate. By having a professional by your side, you can be sure that your best interests are being served and that the transaction will reach a satisfactory and successful conclusion.
