Real estate agents toss industry lingo and buzzwords around like service club members pitching candy to kids at a parade: recklessly, with little thought as to whether anyone will catch any of it. For instance, real estate agents often talk about their fiduciary role in real estate transactions, taking for granted that everyone understands the concept as much as they do.
You deserve transparency and a crystal-clear understanding of everything that your real estate agent is doing on your behalf. In this article I’ll demystify the meaning of fiduciary to make it easy enough that anyone can easily understand the word—and what is at stake in your real estate transaction.
What a Fiduciary Is
When you hire a real estate agent to represent you, that real estate agent has a fiduciary obligation to watch out for your best interests. This is equally true if the real estate agent is working as a Buyer’s Agent (helping in the purchase of a home) or as a Seller’s Agent (helping in the listing and sale of a home).
Fiduciary, another word for trust, is one of the most misunderstood terms in real estate. When you are represented by a real estate agent, your real estate agent is legally required to represent you and your best interests under all circumstances.
The six areas that apply in the world of real estate include:
- Reasonable Care & Diligence
Your Real Estate Agent Has to Be as Loyal as the Day is Long
When you work with a real estate agent, loyalty is vital to your relationship. You’re counting on this person to protect your financial interests. Failure to do so could hurt you financially.
For instance, pretend you’ve approached a real estate agent about selling your home. Recognizing your lack of knowledge about how much your home is worth, your real estate agent lists your home for sale—then immediately buys it and sells it for a quick profit. You'd be angry—and rightfully so. This is one of the reasons fiduciary obligations exist: to protect you from the opportunistic actions of a few unscrupulous real estate agents.
Obedience: Knowing How to Follow Instructions
You’re counting on your real estate agent to be obedient. You may not realize it, but obedience is another example of fiduciary responsibility. The reason is simple: when you convey instructions, you expect them to be followed—to the letter—as long as they are legal. Examples of obedience include things like your wishes pertaining to price, terms, etc.
Real estate agents are often privy to information that could impact the decision to buy or sell a property. If your real estate agent knows something, they have a fiduciary responsibility to share it with you. Maybe it won’t matter to you—maybe it will. You deserve to make the decision armed with all relevant information. The disclosure requirement also means that your real estate agent cannot disclose anything about you that could be harmful to you in negotiations.
Imagine for a second that your real estate agent knows you would sell your home for 10%-15% below market value. This is privileged information—he or she may not share this with other parties in order to help another party’s bargaining position. (This doesn’t mean that your real estate agent can/will help you to conceal the real condition of your property or to otherwise trick someone into buying a property.)
Reasonable Care & Diligence
You have every reason to expect your real estate agent to practice reasonable care and diligence in representing your best interests. After all, this person has a license to practice real estate. The question is, what is “reasonable care and diligence”? The short answer is, anything reasonably related to the sale and/or purchase of real estate. There are limits, though: your real estate agent isn’t expected to have specific knowledge of permitting processes, construction, engineering, etc.
Another major fiduciary responsibility your real estate agent has pertains to accounting. You have every expectation that any competent real estate agent will properly account for every penny of your money in a real estate transaction. In addition, your real estate agent must exercise reasonable care in protecting any property you entrust to them (such as cash/checks, property deeds, and other documents). And it should go without saying that your real estate agent must account for—and disclose to you—a comprehensive list of all costs and fees associated with the purchase or sale of your home.
Other Obligations Also Sometimes Apply
The 6 items I’ve listed above aren't where fiduciary responsibility ends. Fiduciary responsibility can be extended by some of the following:
- Any promises made to you in written agreements with your real estate professional
- Additional disclosures depending on the situation (for example, if your real estate agent is also employed by a mortgage brokerage that he/she recommends for financing)
- Anything else that could negatively impact you financially or that could alter your decision to go through with a transaction
The Luxe Team Obligation to What is Right
At The Luxe Team, we have taken fiduciary responsibility to an all new level. We don’t look for wiggle room or excuses, dodges or reasons to evade. We have an obligation to what is right, regardless of what the law says about it. We’re “on the hook” for only one thing: what is right. Because you deserve nothing but our best.