Disclaimer: This article is not intended to be legal advice. Legal advice depends on each and every person’s particular circumstance. If you have a related issue, you should consult with your lawyer who practices law in your state regarding your particular circumstance. This article is for informational purposes only.
He marched into my office after he slammed the door shut behind him.
His face was grim and his fists were balled up. He plopped down in the chair across from my desk, and he took several deep breaths and exhaled slowly. After he calmed down, he looked at me and flashed an apologetic smile.
After a few seconds, he then demanded: “Just who did he represent?! I thought he was representing ME!“
I smiled at him cautiously. Then, I carefully asked him: “Who? Who did you think was representing you?” “The Realtor!” he bellowed. “I was the buyer-and he called himself the buyer’s agent-but he was not representing me! He was supposed to be representing me!”
“What made you believe that he was representing you?” I asked.
“He’s a real estate agent. He was the agent for the buyer-and I was the buyer. That means he was representing me, right? He had to protect my interests over everyone else’s right?”
“It’s… not… that…. simple….” I replied slowly, attempting not to anger him further. “Let me see your contract with your real estate agent and all the disclosures your real estate gave to you.”
After reviewing his paperwork, I replied “No, your real estate agent was a transactional broker-he did not owe you a duty of loyalty. In other words, he did not have to put your interests ahead of his own.”
“You’ve got to be kidding!”
“No. I’m not….”
WHAT IS THE PROBLEM?
Many potential buyers and sellers work with real estate agents. These buyers and sellers hire realtors with the thought that these professionals “represent” them. These buyers and sellers believe that these professionals must protect their best interests over everyone else’s in the transaction.
However, this is simply not the law in states like Florida. In Florida, Florida Statutes §475.278 clearly provides that the presumption is that a realtor acts as a “transaction broker”-and does not owe a fiduciary duty to its client.
Just what is a fiduciary duty?
A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviationfid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. Wikipedia, http://en.wikipedia.org/wiki/Fiduciary
Therefore, generally, since a realtor is not a fiduciary in states like Florida, a Florida realtor (1) is not legally required to be loyal to its customers, (2) can legally put its own interests ahead of its customers, and (3) can legally profit at the expense of its customers.
As we witnessed in the above scenario, since most of the public believes otherwise, a real property transaction can go unexpectedly wrong at the expense of the buyer and/or seller.
WHAT IS THE SOLUTION?
Don’t walk into the transaction confused or misinformed! Often, buyers and sellers believe that have something that they don’t actually have. This mistake in expectation can cause substantial problems in real property transactions. Therefore, know where you stand before deciding on a particular realtor:
- Before working with a real estate agent, understand what the law in your jurisdiction provides about the type of relationship you will enjoy with your real estate agent. In states like Florida, unless you require your realtor to agree otherwise in writing, your real estate may only represent the transaction–and not your best interests.
- Ask your realtor what the applicable state law provides about the potential relationship with him or her. If you don’t understand the real estate agent’s response, consider posing a few hypothetical questions to the real estate agent to attempt to gain an understanding.
- Decide what type of relationship you want to have with the realtor. In many instances, you may want your real estate agent to be loyal to you. However, sometimes, you may not. Your particular circumstances will dictate whether you may want a duty of loyalty from your real estate agent or not.
- Be prepared to negotiate exactly the type of relationship you want with the real estate agent. However, be forewarned: if you want a stronger relationship with your real estate agent, he or she may ask for more compensation. Therefore, be prepared to negotiate all of the terms of your relationship!
- Make sure that your agreement with your real estate agent is in writing. If you negotiate a specific relationship, it is probably a good idea to put it in writing.
- If you are unsure about your relationship and/or contract with your real estate agent, consider consulting with an attorney in your particular jurisdiction regarding the matter. Many attorneys in my jurisdiction charge less than $250 (the cost of a consultation) to review standard real estate contracts and to discuss a party’s rights in such transaction.
- Just because a realtor (1) is not legally required to be loyal to its customers, (2) can legally put its own interests ahead of its customers, and (3) can legally profit at the expense of its customers–doesn’t mean that he or she will! I have worked with many real estate professionals who have put their clients interests ahead of their own interests. Therefore, work hard to find a professional that you can trust one of largest assets with: your home!