What Kind of Advice Is That?
Ah, the 1980’s. Every agent in the residential real estate business represented the sellers. There was only seller agency; no buyer agency. But in the late 80’s and early 90’s, through efforts of the National Assn. of REALTORS®, the state Associations and the local Boards/Associations of REALTORS® buyer agency, aka buyer representation, began to take hold. Buyers were able to choose whether they wanted representation, thereby becoming clients, or not to have representation, i.e., staying customers. Clients get fiduciary duties. Customers get honesty, disclosure of material facts, market information such as sales prices, assistance in writing an offer (not advice), presenting the buyers’ offer (however, not advocating), assistance with financing, accounting of money received and paid out, and competence in dealing with the property and/or services the salesperson provides.
What about the buyer clients who get fiduciary duties? First of all, loyalty is primary, i.e., singularly advancing the client’s interests over anyone else’s, including the agent’s own interest. It means giving advice to the buyer according to the buyers’ needs and requests; it means allegiance to that buyer. Secondly, the duty of disclosure to a client goes beyond the disclosure of material facts that all consumers get. Indeed, disclosure here is any information at hand that would assist the buyers to make a decision about a subject property. It means “going the extra mile” to dis-cover and disclose any information that would be helpful to the buyer clients. And confidentiality is the duty to safeguard anything told to or learned by the agent during the transaction, to protect the clients’ interests. Accounting is the same as for the customer. Reasonable care and diligence requires the agent to protect clients from risks or harm, by recommending qualified experts when it benefits the clients. And obedience requires the agent to always follow the legal instructions of their clients.
When The New York Times reported on January 22, 2008, that a buyer was suing her buyer agent because she believes that she paid too much for her house, blaming the agent for not disclosing information about similar homes in the neighborhood selling for less, it caught the attention of real estate agents and consumers alike.
- Did the agent violate the duty of loyalty by putting his own (commission) interests first?
- What are the obligations of agents when buyers are buying in a volatile market?
- What does saying: “good value” or “good buy” mean?
- Is that a form of marketing or a misstatement of fact?
- How much information is enough for buyers to make intelligent choices?
- How much research should be left to the sophisticated buyers?
- Does that answer differ for non-sophisticated buyers?
- Are real estate agents supposed to be appraisers?
- Is value strictly numerical, or does it have to do with buyers’ lifestyle and strong desires?
“The stand you take depends upon where you sit” someone once said. That certainly applies here.
- When someone pays “too much” for a property and complains later on, is that “sour grapes”?
- Or, is there strict liability for an agent/salesperson to making claims?
- If the consumer feels that a licensed agent didn’t fulfill his fiduciary duties, viz., loyalty, disclosure and reasonable care and diligence, just how much liability does the agent and the brokerage company he works for incur?
- And, does the agent and brokerage company have enough errors and omission insurance to pay for supposed misstatements?
The real estate industry will be watching this case carefully because there are a lot of disgruntled homeowners out there who feel that they never would have bought the property they did if the real estate agent had done due diligence. Many in the industry feel that the decision to purchase was not made by the agent, who provided information to the buyers, but by the buyers themselves, who were certainly aware of the market conditions at the time of searching for their new home.
In light of this case, what should a prudent brokerage company do to protect itself and its agents? Without a doubt, disclose “anything” that may have an impact upon whether buyers would buy, or the price they pay, for a contemplated property purchase. What is “anything?” Comparables sales, such as in a market analysis. And, as an agency representing the buyers, give them detailed interpretation of the analysis and whatever advice they require before proceeding with the purchase.
Lastly, this article dealt only with buyer representation. If there is a scenario like the one described in this article, wherein the buyer’s agent/agency is also representing the seller, thereby creating dual agency, then the necessary disclosures and informed consent must be given and received. Buyers and sellers have to understand and give an “ok” for the buyer agent and seller agent to withhold full representation, i.e., the disclosure of confidential information of the opposite party, and the advice and advocacy that comes with undivided loyalty. The same applies if there are two buyer clients offering on the same property, thereby triggering dual representation and the requirements above.
© Joseph Marovich, 2008
(Joseph Marovich is the owner of Marovich Business Institute and regularly facilitates designation courses for the NAR’s affiliates (ABR,GRI,PMN,SRES)as well as teaches workshops and seminars for Boards, Associations, and companies. Licensed for 36 years, he is a recognized agency expert and often acts as an expert witness in agency, misrepresentation, and other cases. You can contact him for customized workshops/seminars at Joe@MarovichBusinessInstitute.com, or 732 961-9618)