My recent post of 10/12/06 WHY DOES ANYONE TAKE THE ADVICE OF THE PRINT MEDIA, ANYWAY, prompted a reply from a mortgage lender that he agreed with the media that home buyers should NOT get referrals for their mortgage loan from their buyer's agent. A further suggestion was that home buyers should get advice about whom to finance their Maryland or Virginia home purchase from a "financial advisor, a stockbroker, financial planner, accountant, etc."
GET A MORTGAGE LENDER RECOMMENDATION FROM A FINANCIAL ADVISOR, FINANCIAL PLANNER, STOCKBROKER OR ACCOUNTANT?? Perhaps home buyers in California where the lender is located have a relationship with a financial advisor, a stockbroker, a financial planner, an accountant, etc. Maryland and Virginia home buyers do not usually use the services of these financial professionals. In managing the home purchases of approximately 850 home buyers over my real estate life, I have known of exactly 4 Maryland or Virginia real estate buyers who consulted a financial planner/financial advisor prior to purchasing a home. Their financial advisor/planners did NOT give them advice about mortgage instruments or lenders, but whether they should be even investing in real estate or renting. Of those 4 home buyers that consulted with their financial advisor / planner prior to making a decision on a home purchase, 3 were advised not to invest in real estate, but rather put their money in investment instruments SOLD BY THEIR FINANCIAL ADVISOR / PLANNER. The fourth suggested that they should invest in real estate and get a mortgage lender referral from their agent, me. Home buyers who consulted their account received advice about how their purchase of real estate would affect their tax obligation. They did not receive lender recommendations.
The average Maryland and Northern Virginia real estate owners use franchise tax preparation services, have their savings in a 401K through their employer, may know the name of the manager of their bank, may not; and their stockbroker is usually an on line discount stock brokerage like E-trade. These vendors of financial services would NOT have a duty of fiduciary, as would a buyer's real estate agent / broker with a written Buyer Agent Agreement, but they don't give advice outside their narrow field either, with the exception of personal referrals, which can be obtained from family and friends and be just as good - - or bad. Some of the worst, risky, and difficult transactions we've had were when our buyer/clients were using the services of friends or relatives for their mortgage.
SELECTION OF MORTGAGE LENDERS, WHERE SHOULD BUYERS GET ADVICE? It was further suggested that "A financing rep whom you do NOT suggest removes that piece from your fiduciary responsibility." Fact is, if buyer's agents wish to avoid the duty of fiduciary, they don't have to enter into a written Buyer's Agency Agreement with the home buyers. Fiduciary, while it may be some broker's policy, is not required to assist home buyers in the location, selection of a home to purchase and get that ensuing contract to settlement and collect a commission. Agents can sell homes without representing a home buyer. The home buyer can buy a home and use the services of a particular agent as a CUSTOMER.
The reason my company requires a written Buyer Agency Agreement is so that we DO have the duty of fiduciary and can (1) evaluate property (2) write contracts (3) negotiate for that buyer. Of course, our home buyer clients have make the decision about the selection of the home to buy. But, an experienced agent can surely evaluate property in terms of the value compared to others in the area or in that price range, something most lenders/ financial planners / advisors/ accountants CANNOT DO. We can write contracts and negotiate for our buyer / clients in a vigorous manner which is what we promise to do at all time and in our advertising.
AVOIDING THE DUTY OF FIDUCIARY IS NOT WHAT WE ARE HIRED TO DO. We, as the buyer's agent/broker, are the only entities involved in the home buying process that will have a duty of fiduciary to the buyer. As a fiduciary, we will give advice based on our experience for the referral of lenders, home inspectors, termite inspectors, etc. We base our recommendations on experience and the buyer/client's needs.
SHOULD WE RECOMMEND HOME INSPECTORS?? Of course. Now, if a buyer asks me for the names of several home inspectors, I'll give them. But, if a buyer wants a RECOMMENDATION, that is what they'll get. There are a lot of bad home inspectors in Maryland where they are not licensed. However, I know a very good one who is an architect and an engineer. Of course, I recommend him. My buyers rely on that advice. The reason I want a good home inspector is because, as a fiduciary, I want defects found while the contract is in the stage where the buyer can declare the contract void. I also, as a fiduciary, can hold my sellers to the terms and conditions of the contract and the home inspection contingency with language in the Home Inspection Notice that I couldn't use as a non-fiduciary. I would have to be honest, but couldn't negotiate for the buyer. That, IMO, would put my brokerage at extreme risk if these defects were discovered AFTER settlement because of a poor home inspector, agents who couldn't vigorously pursue repairs or compensation for defects or other things an agent can only do as a fiduciary.
My experience is that when a buyer brings in their own home inspector, that person will not necessarily INSPECT, but rather review the home and recommend additional inspections. I want our buyers to enjoy the services of an experience home inspector who will identify DEFECTS based on what is permissible under the Maryland or Virginia Contract of Sale. We rarely have time in the contract to obtain the services of additional inspections. And, since our contract doesn't cover maintenance, it does not one any good to get a home inspection report that simply advises to have this or that component serviced. Have inspected by an electrician. Have serviced, etc. isn't inspecting. It's passing the buck. For that advice, these companies charge as much as the home inspection company that I recommend.
WHAT IS A HOME BUYER'S REASONABLE EXPECTATION IN A BUYER'S AGENT? The average home buyers participates in 2-6 home buying or selling transactions IN A LIFE TIME. The average successful Realtor participates 10 to 40 a year personally or manages 50-500 transactions a year as a supervising broker. Who is in a better position to make recommendations about real estate matters involving lenders and home inspectors?? It is the nature of buyers to rely on "their agent" for such advice. Even when there is no agency relationship and no duty of fiduciary, home buyers will expect it and act accordingly. So, as long as we are expected to BE agents / fiduciaries, it seems a safer road for the licensee, agent or broker that we BE a fiduciary.
29 Comments on WHAT IS A BUYER'S AGENTS' DUTY OF FIDUCIARY??
OCT
13
2006
Hey Lenn, A few years ago, I sold a rental property of my own to a family that had picked a lender from the internet (based on price). It was a nightmare. Then, last year he refinanced using a bank that turned out to be just about as bad. I told him that if he ever needs a lender in the future "please let me know, because I know some excellent ones."
I didn't read the comments on your earlier post, but I did read your post and thought it was very good. Sounds like that mortgage rep may not be on many realtors 'preferred lists' so therefore, is against our recommendations. Who knows better than Realtors® which LO's are good and which are likely to jeopardize the transaction.
A good LO will give our clients a program that is best for them with competitive rates, low closing costs, reliable pre-approvals, meet contract due dates, and NO SURPRISES a few days before closing. And I prefer they be local so they can come to closings.
This is actualy hilarious. I just posted this post, independent of this one , a few minutes ago.
Lenn, we completely disagree on this topic but I respect and admire your rational arguement for assuming financial advisory as a function of your fiduciary responsibility. I believe it to be extremely dangerous for Realtors to engage in financial advisory but appreciate the fact that you want to expand the scope of your fiduciary responsibility.
As a consumer, I would most likely appreciate your advice inasmuch as it related to financing. I believe your passion for providing financial advise to customers is admirable and I believe that you're probably pretty good at it.
Let's remember that we are arguing an academic subject here. The real world operates in a bit of a void right now. I appreciate your efforts to provide even more services to your clients and be more of a financial advisor and true real estate consultant rather than a "salesperson". I think it's risky and you don't get paid enough to assume that responsibility but admire your fervor nonetheless
Most of the time, buyer's rate shopping for mortgages and focusing on interest rate and/or closing costs will lead to problems. Doesn't anyone remember that you get what you pay for?
The best LO will properly integrate the buyer's loan into their overall financial plan (only certain people truly know how to do this) while giving competetive rates and fees and closing on time.
Also, I get many of my referrals from financial planners/advisors because their clients got into the wrong loan program to begin with, sometimes as little as 6 months after the closing.
Brian...your comment came as I was writing. I agree with you and the exact comments. People can refer back to my $25,000 mistake blog as to why I say what I say.
Elaine, I am that mortgage rep and I am not arguing by reason of "sourgrapes" Hardly! I am on Realtors' preferred lists and can tell you that the pressure I receive from Realtors to "close the transaction" at all costs is inconsistent with their fiduciary responsibility as defined; subordinate their interests to the client's.
This is an "academic discussion". Not real world. I simply disagree with Lenn, academically. I'm hip to the rules of the game and play by them (as flawed as I believe them to be).
All this reminds me of a discussion I had with another agent about client service. I told him that I had gone to city hall and was told that the extension of the sewer line would be $x/sqft. I said that I had told my client this and the other agent's response was: "are you crazy? What if this information is wrong and the cost will be higher? If your client buys the home and it costs more he may sue you." So what should I have done, I asked? "Go with your client to City Hall. Then, let him ask the questions at the panning department and find out for himself."
Brian, like you, I don't agree with "closing at all costs" if it's ultimately harmful to the client. However, the LO's that I suggest to clients are on the up & up, and do an excellent job in talking to them upfront, advising them on what can or cannot be done, and are willing to tell the people when they are NOT in a situation to buy a home. I appreciate their honesty.
Some of the most troubling transactions I've had, have been when the buyer uses an internet company or their friend/relative.
I think that you and I are definitely on the same page . I fknow that you want our involvement. (you were the catalyst to our engagement in Active Rain).
Realtors' knowledge of personal financial planning is about as complete as my knowledge of local zoning issues. My opinion of them, other than how it relates to my lenders' collateral isimaterial to the transaction. Your opinion, of "points, closing costs and loan programs" and how they relate to the financial plan of a customer is akin to my knowledge of zoning. Your interest should only be held to the extent that it helps you complete the transaction.
In short, it will be the unpopular thing to say, but Realtors are not trained to be financing experts. No matter how many transactions you've supervised. Sadly, most loan officers are not either.
With a bankground in banking customers often come to with me financial planning advice quite frequently. My next venture is to do financial planning (with a liscense of course).
Brian says, "most loan officers are not either". This is a very interesting discussion. I should probably qualify that too few agents (and brokers) really know how to evaluate many buyers' financial ability. We older than dirt crowd had to learn buyer qualifying because we had to. Today with software to do it for them built right into their MLS, agents don't have to learn these skills.
One thing is sure, while I do NOT do the work of a mortgage lender, I know when I speaking with a good one. And in recommending a particular mortgage lender to our buyers, we are recommending based on our experiences with that lender, comparing rates, percentage of sales that close, prompt communication, etc.
I'm not doing the loan, I'm recommending a qualified and reliable lender. I would be failing my buyer / clients if I didn't.
When I have represented buyers as a Buyer's Agent (not when acting on behalf of the seller, the traditional role) I have recommended home inspectors I have used, but let the buyers make the final choice, often based on availability. I have also provide several names of mortgage officers my clients have used who did a good job, but I do not provide financial guidance, other than to share my thoughts on the issues the buyers need to be aware of and ask about. Just as I am not an attorney able to dispense legal advice, I am not a finance expert. It is surprising, sometime, to see how agents who are allegedly acting as a fiduciary for their buyer clients are not really doing much of anything to protect their clients' interests.
I think that there is a big difference between acting in a fiduciary role in the overall process of helping a buyer purchase a home, and actually encroaching into the realm of the loan officer/mortgage banker. I applaud any real estate agent who cares enough about their clients and their job to take an active role in helping them obtain quality financing at a reasonable rate.
Unfortunately, and the reason there seems to be some disagreement in the comments, some agents overstep their role as a professional real estate agent and begin to provide financial or legal advice. Providing two or three quality LOs and then reviewing the truth in lending statements for a client for obvious discrepancies (2 points charged for loan origination fees e.g.) is a proper function of a real estate agent's fiduciary capacities. If, however, an agent steps into the role of analyzing the "best" financial picture for their client or the "best" LO in the city (with whom they of course do reciprocal business) they are opening themselves up to legal liability and may be accused of improper behavior at best.
Lenn, you are absolutely right on, as usual! Here in CA due to the fact that we are a very litigious State, it is suggested that when giving any recommendations to a Buyer, it is in the best interest of the Realtor to give three names and let them pick. I typically, will give my clients 3 names and always let them know who I have personally used and worked with that is honest. Then, it's up to them to make their choice.
For home inspections, it is also suggested not to attend the home inspection but simply read from the report. However, I disagree with that and attend all of my home inspections. It's a lot easier to see what a problem is and be able to address it in an Addendum or Request For Repair form. Plus, having been on the Listing end, I highly resent a realtor opening the door, leaving and having a home inspector and gads of other folks roaming through my seller's home. I believe that the realtor who has used that lockbox has a duty to my seller to be present whenever they open that door.
All you are doing is giving your clients sound referrals, in a world of somewhat questionable folks that they might end up unfortunately choosing. At no time did I read that you were giving them financial advice but simply referring them to a vendor who has proven their track record with you.
Now I think we are making some headway. I have a follow up question for Steve Holcomb and am asking him to put his JD hat on.
Am I correct to say that the only function they should be reviewing is to see if an estimated HUD (or pre-audit) is reasonably accurate with the pre-disclosed good-faith-estimate (and TIL) or should the Realtors be commenting on the terms of the loan?
My opinion is that Realtors, by commenting on the loan terms (without knowledge of a client) are effectively practicing financial advisory which is out of their scope as a fiduciary agent.
That's the rub here. I don't think that Lenn and I are far off on this. I believe that certain agents practice financial advisory or a act as a sub-agent when they steer an agent to a preferred lender. The lender is "preferred" because of his/her ability to close a transaction "on-time" and with the least amount of headaches.
Acting as a sub-agent for the "preferred lender" is not acting in a fiduciary capacity because you are putting your interests (closing the deal when it is scheduled) above your clients instead of letting them shop for the best terms. Most of the time, those interests, getting the right loan and closing on time, are consistent goals when the Realtor, acting as the sub-agent refers to a lender that is "preferred".
There are times when agents pressure clients to change lender midstream because they aren't comfortable with "what they are hearing". I know because I'm one of the lenders who will drop a pipeline for a quick close for a Realtor. I can tell you that it is not always in the best interest of the buyer but serves the best interests of my sub-agent (The Realtor) who breached their capacity as a fiduciary agent .
Before you jump on me for getting terms that weren't competitive, I never said I was competitive in that short period of time; just fast.
Can you see the interesting slope we're sliding down here?
At no time did I indicate that I play lender, financial advisor or anything other than a buyer's agent with a written agreement which gives me the duty of fiduciary to my buyer / client.
I'm perfectly comfortable with any lender that a buyer comes with. I have met some good lenders through my buyers. I don't try to switch them, UNLESS something is going wrong; the lender isn't communicating, the lender doesn't provide the written commitment within the dates specified in the contract, or the lender is switching instruments on MY buyer and a red flag goes up that we need to compare them with others. If the buyer is happy with their lender, then so am I. If the buyer is having problems with a lender, we will introduce them to alternatives. It's their decision.
But, there's a catch here. If the lender isn't performing and the buyer isn't considering options then the contract is in jeopardy. At that time, the buyer must be advised, by GUESS WHO, that they can lose their earnest money if they are not diligently pursuing viable financing.
As for commenting on loan terms without the knowledge of the client. That isn't done. In fact, NOTHING is done without the knowledge of the client.
A buyer's agent, as a fiduciary, can't be like the three monkies. Lenders may not be comfortable when we are fully involved in every aspect of our buyers' transaction, but, shucks, that's our job.
In fact, since our BA Agreement provides that one of the duties of the buyer is to provide the agent with necessary financial information to assist in the transaction, if a buyer was pursuing financing (or not) and wouldn't provide us with information sufficient that we could make sure they would be able to close, we would not represent that buyer. We can't do our job in the dark.
I never suggested you engage in lender directing or financial consulting. I explained that it happens a lot. I felt we were closer in philosophy this afternoon than we were this morning. Our mutual comments clarified some unclarified statements we had about each other in the morning.
Today was good fun for me and extremely educational. It promulgated reserach about an old idea who's time has come. I blogged about it just a few minutes ago and publicly capitulated to your thought that you (the Realtor) are ultimately responsible for the financial decisions your buyers make in the real estate transaction and that we are beholden only to the whims of our companies.
I appreciate your patience with me. I am sometimes slow on the uptake.
Ok Brian and Lenn, You know I have just gone back and read all of the posts related to this topic. And what's clear to me is that you two are actually in agreement! You both seem to agree that it is the LO job to handle the loan and the Realtors job to recommend a competent LO and then step back.
Lenn, having been in this business for awhile, is probably a little more hands on than a newer Realtor but also I am sure way more qualified to dish out "limited" financial "suggestions". It used to be common and expected for Realtors to do a financial prequalification on a buyer. We even did debt ratio and could pull credit. Now of course we normally leave this to the pros, as we should. If Lenn was working in a fiduciary capacity with her Buyer and noticed something "wrong" on the GFE it would be negligent of her not to mention it to her client.
If Mr. New Realtor, who has never been qualified in prequalifying a buyer, did the same it would be negligent on his part for interferring in something he is not knowlegeable about. Especially if it was for the sole purpose of getting the buyer to switch to his "prefered" lender.
I think the discussion the two of you are having is realy about where the line is drawn. This in my opinion is a very subjective "line" depending on the Realtors qualifications. Where I think you both agree is that Realtors should not be steering/guiding buyers to particular LOs for the sake of a relationship when it may not be in the best interest of the client.
But hey, I just made all this up and could be completely off base;)
In this state your responsibility in a BBA is to provide the client with the tools to make INFORMED Decisions. Not to make decisions for them. Therefore, we provide them with vendors who in our experience perform quality services. Typically, the vendors are presented in groups of three. We suggest the kind of questions they may wish to pursue in "INTERVIEWING A PROSPECTIVE VENDOR". Afterall, if they are making the decision they needt o be actively involved and not rely solely on me to tell them what to do. In giving them options the legal responsibilities fall on their shoulders and not mine. Afterall performing your due dilegence in providing a selection is all that is required not the selection itself. And this has held up in multiple court cases here in Georgia.
Wow.... 2 days later, I am done reading this. Okay... I sometimes have a habbit of not making statements the politically correct way, right Brian Brady..... ;o) Sometimes I am just to direct, so please don't take my comments personally.
Lenn.....this is a great topic and like Broker Bryant said....there is a fine line. I am trying to remember everything I read. But from what I see Lenn is that you do have your favorites. May it be the home inspector, possibly a title person, or a lender. And that is great because that is how some of us get our clients.
But what gets me is when a realtor steps in asking or directing the client that the fees, rates, pts and such seem out of line. Like I tell everyone. EVERY client is different with different situations. That client could have told you from day one that they have good credit. Define good credit. But then you say...why is their rate higher, costs...etc etc. Again...every client is different and that's if the loan officer is doing their job correctly.
Lenn... I guess what struck me was your 2nd paragraph that nobody really touched upon. You are talking about home owners or buyers that shouldn't get recommendations from their financial planners or advisors in regards to a lender. And then you go on to say.."Maryland and Virginia home buyers do not usually use the services of these financial professionals. " And what struck me here is your word of "usually". That means more than 75% and that would be a large number. Everyone has an opinion.....but mine is that these individuals who watch over their clients money might be the best at recommendations and referring them. The main reason is that they know all about their clients history of their money. Who to be better???? You did go on to list 4 experiences that you had. Maybe it was just bad timing? It does happen. It doesn't allows average out.
Then you go on to say that in a 2nd paragraph, but under the same sub title..... that "and their stockbroker is usually an on line discount stock brokerage like E-trade." Again...usually? E-Trade and like companies only represent 15% to 25% of these clients. And even those clients that use such services, also have more of their portfolio with the real stocker brokers. And I did a lot of research on this in regards to numbers. So I am just not spitting out numbers. Overall though, you do make a good point. Many of these people do not know what they are doing or give sound advice. But the sad thing is that this could be said for any one of these groups: financial advisors, financial planners, LOAN OFFICERS....but also REALTORS.
And after reading many of the comments... Brian Brady, Jeff Dowler, & Robert Ashby made some good points. But most of all, I think Steve Holcumb summed it up best in his comment. Poeple over stepping their role.
The other thing that I wanted to point out that I see in so many blogs and comments is that each state or region can be different also. Not only in how business is conducted, but how things are viewed. And my problem here is that people are narrowed minded and use these as their examples....when the fact is that we are making these comments to the general public, nationally. If it was a region thing, then this should be directed to the regional section or checked off as regional. Again.... examples and opinions are great.....but people need to either explain better why is it that way or just keep an open mind.
Lenn...good topic....but these are also opinions unless you can bring facts into the discussion. And sure, your experiences can count as facts...but not when we are dealing with 100's of 1000's of people out there. It's like me saying, "the majority of my clients last month were 90% sub prime". Then go on to say.... "all people have bad credit" and make this statement as a fact. "I know that there are....or... Usually, most of these loans nowadays are sub-prime loans." But this would be so untrue, because this is just my experience or opinion and not an actual poll or concrete numbers done by a service.
Sorry if I bounced around...but so much said in this. Overall....as someone said in here. Because people are sue happy.... by the realtor taking on this Fiduciary responsibility, it could turn into a law suit....and it has happened and will continue to grow as more clients realize this and can use it as an out or to get better deals or more money. It comes down to giving opinions or several names.....
Excellent points of discussion from both communities. I think this is what Elaine Reese envisioned when she encuraged the Loan Officers to start contributing here.
And Lenn? I look forward to the day I can include you in a transaction with one of my DC clients. You would definitely be someone to whom I would refer. That is, if their stockbroker said it was okay...
Excellent post Lenn. Once again you have inspired a healthy discussion!
Our office Policy is to show a list of anything that the Buyer needs, be it Mortgage brokers, Inspections, Lawyers, Title companies, and let him/her choose.
Obviously we would not include in that list companies with bad reputations.
The final choice is the Buyers.
This all sounds fine until you have buyers that are completely "in the dark" about everything, and want you to choose.
However, this is still what we need to do (show the list and let them pick). The reason for this is solely due to not being sued, for having given advice on any of these matters. Your E&O insurance would not cover you if you recommended anyone.
Your Fiduciary duty is to make sure you have a good list of qualified people to show your buyer.
I understand what you are saying Lenn, but we are not supposed to be doing it. (at least in my State, things may be different in other states and probably are)
One of the differences in how we handle recommenations for lenders, home inspectors, title companies, etc. is whether or not we have been hired as a BUYER'S AGENT with a written agency agreement in place.
So are you saying that with a written agency agreement, and working as a Buyer's Agent, we can do this? I am really interested to know, because I do work as a Buyer Rep a lot and I have always been told not to. I have one right now that I want to really help, but thought I couldn't.
With a written agency agreement and working as a Buyer's Agent, we can do WHAT?? You can do what every your buyer requests you to do to help them within the written agency agreement and broker policy.
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Posted by 
All this reminds me of a discussion I had with another agent about client service. I told him that I had gone to city hall and was told that the extension of the sewer line would be $x/sqft. I said that I had told my client this and the other agent's response was: "are you crazy? What if this information is wrong and the cost will be higher? If your client buys the home and it costs more he may sue you." So what should I have done, I asked? "Go with your client to City Hall. Then, let him ask the questions at the panning department and find out for himself."
;)
;)
