When you elect representation in a real estate transaction as either a home buyer or a home seller your agent will owe you several fiduciary duties. Each individual fiduciary duty is something you should understand early in the process.
When you first start to work with a real estate agent they should introduce you to a document called Agency Relationships in Real Estate Transactions.
This document is only a disclosure, but it is important. It spells out the options you have while working with your realtor and assigns their duties to you.
If you chose to have representation then your agent will owe you the following 6 important fiduciary duties. In this article each fiduciary duty is explained so you can make an informed decision when hiring an agent as your representation.
What is a fiduciary duty?
Well lets do a quick internet search and see what we find. “Under the U.S. legal system, a fiduciary duty is a legal term describing the relationship between two parties that obligates one to act solely in the interest of the other.” It is a legal relationship involving ethical behavior with regard to the other parties assets. Your Realtor, your stock broker and your insurance agent all have a fiduciary duties to their clients. The focus in this article is on the 6 Fiduciary duties your Realtor has to you as their client they represent.
The easiest way to remember the 6 fiduciary duties is by using the acronym OLD CAR. In this article we will go through what each letter in OLD CAR stands for and why each duty is so important to your financial health in any real estate transaction.
The Fiduciary Duty of Obedience
Obedience is our first Fiduciary duty in the list. Obedience is defined on the Agency Relationships in Real Estate Transactions disclosure as the broker carrying out all of the clients lawful instructions.
Yes, this means that your agent must do as you ask but there are limitations.
You can not ask your agent to do anything that is illegal and expect them to follow your direction. You also can not expect or ask your agent to do anything that violates the Realtor Code of Ethics.
On being Obedient and following the law
What is meant by obedience is if you say you want to make an offer of $150,000 on a listing that is priced at $200,000 your Realtor is contractually obligated to listen. However, the agent might inform you that there are several other offers and give you an alternative based on their experience. In a multiple offer situation coming in with an offer that is 75% of the asking price a buyer can expect to be turned down by the seller while they accept a higher than full price offer.
Your agent might even inform you that the house is, based upon comparable listings actually worth 230,000. This might be an instance where the seller is offering the home for 200,000 with the hopes of getting several offers all at once. This method can help them get a closing scheduled quickly and avoid a month or 2 of showings. This is can be a very good option for busy families who want to move quickly and do not have the ability to keep leaving the house for showings in the middle of dinner or with all the kids activities.
The Fiduciary Duty of Loyalty
Loyalty as a party in a real estate transaction you want to know that the person you hired to represent your interests in going to be loyal to you. In the disclosure this is stated as the broker/sales person will only act in their clients best interest. It really doesn’t get much more simple than this to explain. You want your real estate agent to have your back.
Disclosure As a Fiduciary Duty
Disclosure means that the real estate broker and real estate agent will inform you, the potential home buyer, of any and all material facts that might reasonably affect your, the potential home buyers enjoyment of the home. This is limited to the items that the real estate agent has knowledge.
Please remember real estate agent can only be expected to inform you about the items which they know about. It is important to have a home inspected. A home inspection many times will bring to light items and or issues that neither the home owner or sellers real estate agent knew about.
Really, Realtors are human too…
Could you imagine a world where real estate agents could see into the future? You would get a door knock 5 months prior to your new job promotion asking to list your house and trying to sell you the bigger one down the street. Also as an interesting disclosure fact, in Minnesota, ghosts are not on the list of things that need to be disclosed.
Real estate agents should be expected to examine the potential home along with you and use their expertise to help you see items that might need to be further investigated. Asking the neighbors about the home you like is always advisable. The neighbor might know about the chimney fire that the seller forgot to list on the disclosures. This is also the kind of thing that might make a difference in your interest on a property but your real estate agent might have no way of knowing.
The Fiduciary Duty of Confidentiality
Confidentiality states the real estate agent/broker will hold in confidence items shared with them unless they are required to disclose it by law. If you are getting a new job in another state and want to have the house sold asap. You want to be moved for the new job. That information can affect the offer you as the seller would receive, especially if the buyer would have rather waited a month to close.
Money and time both play an interesting role in negotiating a Real Estate Transaction. If one party needs to close earlier, it has value to them to negotiate that into the deal. People can sometimes reap nice benefits by changing their schedule to accommodate the other party in a real estate transaction. Especially if they are on a strict timeline. Motivation should always be closely guarded in a negotiation.
The Fiduciary Duty of Accounting
Accounting as a fiduciary duty is also simple to understand. The real estate agent/broker representing the client must account to their client for all money and property received in the transaction. If you give your real estate agent a down payment check to go along with an offer, your Realtor needs to be able to tell you where those funds are at all times. Your real estate agent is to be accountable to you.
Property is mentioned in case someone uses a physical item like gold or Jewelry as earnest money. This is not advisable and is something I have not seen but it has happened and therefore must be spelled out on the disclosure. I would bet this was more common when people were prospecting and hit a big strike and wanted to buy more land.
Reasonable Care as a Fiduciary duty
Your real estate broker/agent is to use reasonable care in performing their duties representing you. They are working for you and should be careful. A Real Estate Agent should not to leave your earnest money unattended, notes about your motivation out for others to see, etc… Generally they are to be mindful of the set of responsibilities they have and to take precautions to protect their clients.
Why the OLD CAR acronym matters
The acronym OLD CAR works well to help new real estate agents remember this list of very important duties they owe to each and every one of the people they represent in a real estate transaction.
This list is important for clients to know too. Your agent has signed a contract with you and has these fiduciary duties they owe you.
It is part of the agreement you made when you hired them to do the job or representing your interests in the real estate transaction.
By the time a real estate agent has completed a few transactions a good agent will have OLD CAR imprinted permanently. It is should become part of the mental process when working on every transaction. You hire a Realtor to help guide you through the process and to make sure you are informed and protected while you complete your transaction.
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