When you go to school to become a real estate agent, one of the first things you learn is fiduciary duty. It is a cornerstone of integrity for anyone in business and is discussed over and over again in your continuing education as an agent. It is also a basic component of the Code of Ethics to which all Realtors are bound.
But what exactly is fiduciary duty? Let’s start with a simple acronym: CARLOAD. There are seven principles that define fiduciary duty:
againstconfidentiality-any information revealed by the client is kept in the utmost confidentiality and IS NOT SHARED with anyone. Think of doctors and lawyers.
HASAdvocacy-the agent has the best interests of the client in mind and will do everything possible to ensure the best possible result for them.
Rreasonable care-the agent makes sure that all processes are completed in a timely manner, tracks and traces. Think of your agent as a project manager.
Lroyalty-the agent acts in the best interest of the client; every decision and discussion is made as a representative of the client.
EITHERbedroom– The agent who enters into an agreement with a client agrees to perform according to his agreement. The agent acts (or does not act) following the instructions of the client (within the law, of course)
HASresponsibility-The agent keeps the client informed of all developments in the transaction and keeps the lines of communication open. The agent also double checks all numbers so there are no surprises.
Dclosing-any information within the scope of the transaction is disclosed to the client. ALL offers are presented to the customer, even the “lowballs”.
You will notice that the term CUSTOMER is used throughout the discussion above. Anyone interested in buying or selling a home can be considered a client, and an agent has a general obligation to be truthful and reasonably communicative with them. However, there is no fiduciary duty. A client is a client who has entered into a representation agreement with the agent, either with a Listing Agreement or a Buyer-Broker Employment Agreement. Once this agreement is established, the agent is officially on the client’s team and therefore MUST act as a fiduciary.
An illustration of the value of this is found in the dual agency situation. Suppose Bob and Betty Buyer are driving down the street and see a real estate agency sign in the yard of a house. They decide to call the number on the sign, belonging to the listed agent, Sammy Salesman. During the call, Sammy asks if they are represented by an agent and they say no. This is an opportunity for Sammy to offer his services to Bob and Betty. This can be a problem because Sammy’s fiduciary duty remains with the owner, and it can be problematic for him to provide the same duty to buyers without violating most or all of CARLOAD’s principles; for example, the duty of full disclosure would conflict with the duty of confidentiality. It’s not illegal, but obviously a conflict of interest. Bob and Betty are certainly free to accept it; by doing so they would be accepting limited representation. A much better solution for them would have been to work with a buyer’s agent, who would work in their best interest under the Buyer-Broker Employment Agreement.
It’s hard to underestimate the importance of quality representation, whether you’re buying or selling real estate. By having a professional on your side, you can rest assured that your interests are being taken care of and that the transaction will come to a successful and satisfactory conclusion.