- Posts tagged 6 fiduciary duties owed to a client
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Not knowing can cost you $$thousands! Client vs Customer
In the real estate business, regardless if you are a Buyer or Seller, you can expect any real estate professional you contact to provide you at the minimum:
1. Customer duties of care (provide accurate information)
2. Make no misrepresentation of material facts
3. Be fair and ethical
On the surface that looks pretty good. What more could you ask for? The agent won't lie to you. He'll be fair and ethical and treat you with respect and provide you accurate information. That looks like a bargain. So Buyers have no need to sign a Buyer Representation Agreement (BRA), they can be happy being customers.
But wait... what do clients get that customers don't?
Well... clients get everything that customers get plus.
1. Competence - in agency law- the agent is the "extension of the principal" (client)... the Realtor (agent) must exercise duties of superior skill and knowledge while pursuing the client's affairs.
2. Obedience - an agent is obligated to lawfully obey the clients reasonable instructions even if he doesn't agree.
3. Accounting - an agent is to safeguard and account for all of the documents and monies entrusted to his care and belonging to the client.
4. Loyalty - one of the most important duties of an agent. To place the interests of his client above all else, except the law, in carrying out his duties.
5. Disclosure - an agent must disclose any information relevant to the transaction to his client. Including any facts affecting the value or desirability of the property and all known relevant and material information.
6. Confidentiality - any information provided by the client, in no way shape or form, can be used to cause the client harm or interfere in the clients business now or in the future. This duty should not be confused with the agents professional duties of disclosing "known" material facts about the property to non-clients. This obligation to discloses is based on the professional duties of treating all people fairly and honestly.
Ok... now would you like the duties of a customer or a client?
For the most part, Sellers who list their home and sign a Listing Agreement, are agreeing by contract that the listing brokerage will represent them. By extension the listing agent and the Seller have created an agency relationship and the listing agent owes client fiduciary duties to the Seller. So in almost all cases Sellers are protected. It is the Buyers who choose not to sign a Buyer Representation Agreement (BRA) that leave themselves unprotected and should be concerned.
Example.
1. Buyer calls up real estate agent Joe from XYZ Realty and asks Joe he wants to purchase a house, in Pickering at a $300K price range. Joe asks Buyer to meet up at his office (Tim Hortons). Agent Joe presents Buyer with a copy of Working with a Realtor (which he must do by law) and lets Buyer know about Agency Relationships and the benefits of being a client as to a customer. Buyer says to agent Joe that he won't sign a Buyer Representation Agreement as his needs will be served buy a customer relationship. So Joe shows Buyer a few homes and his buyer likes a home listed by Kim also from XYZ Realty. The home is listed for $300K and Buyer tells agent Joe he'd be willing to pay full price but put an offer of $280K. Agent Joe says great... let me go back to the office and create the paper work and I'll meet up with you later. Meanwhile Joe heads back to the office and calls Agent Kim to tell her that he's going back to the office but he'll be putting an offer on her listing. Kim says great... so how much is it? Joe says, $280K. Kim asks, how much is he willing to pay?
How is Joe obligated to answer Kim? Does he have to disclose to Kim what his Buyer is willing to pay?
Does he have duties to his Buyer and can not reveal this information?
What do you think?
2. What if Joe has a listing that his customer Buyer likes, would Joe have to disclose to his client what his Buyer is willing to pay?
3. What if Joe's customer likes a home listed by agent Jas of Remax Realty. Jas calls Joe up and says that "hey Joe, my client noticed your "client" was really enamored with his property and I was wondering if you can give me some feedback to take back to my client."
Joe: sure
Jas: Ok then, honestly... what do you think of the selling price?
How will Joe answer this question! Can he say his client is willing to pay full price?
Jas: Do you think your client will be putting an offer in?
Joe: Yes, but the Buyer is not my client.
Jas: Joe, out of curiosity, what is he willing to pay for it?
How should Joe answer that?
Would Jas be able to ask this question, if he was Joe's client? Submit your comments below.
Most of these and many other obstacles could easily be circumvented if the Buyer had signed a BRA and been protected with the fiduciary duties owed to a client. Joe would not have had any "dilemmas" to deal with and could never reveal Buyers price point and kept it confidential!
What would it cost a Buyer to sign a Buyer Representation Agreement - Not a single penny!
Just a commitment to work with an agent for a period of time (1 week, 2 month, etc. all negotiable)
What could it cost for NOT signing a Buyer Representative Agreement? Many $1000s
Note: Even though a Buyer may not sign a BRA, a Buyer can create an agency relationship by their actions and words. In legalese an Agency agreement is created "By Implied Authority". So if a Buyer asks Joe to find him a condo in downtown Toronto. Joe spends several weeks showing Buyer condos as per Buyers specification. If Buyer then uses his friend (who is also an agent) to close the deal. Joe will have legal recourse and be able to pursue the Buyer for lost commissions and damages. There are many cases where Buyers are found negligent and pay commissions for trying to defraud agents. I highly recommended both agents and Buyers to sign a Buyer Representative Agreement and work together in good faith and be protected.
If for any reasons, Buyer and Agent no longer get along, Buyers and Agents should sign a mutual release. The agent will still be protected to collect commission on the homes showed to the Buyer (if the Buyer decides to purchase one of those homes) and the Buyer is protected with the 6 fiduciary duties. Buyer could also potentially save thousands by having an agent advocate on their part and Buyers will have legal recourse if Agents are negligent in fulfilling their duties. In most cases, this costs Buyers nothing has Sellers usually pay the Buyers' agents in the Greater Toronto Area.
Ready to Buy or Sell in the GTA
Contact: Jas Jagpal, Remax C: 647-272-6629 Email: jasjagpal@rogers.com
www.jasjagpal.com Blog: 1stoprealestate.ca
