Real Estate Brokers And Fiduciary

Real estate brokers and sales people are not all created equal. The glaring difference between the two is the difference in licensing. A broker is licensed to negotiate the sale of real property and represents the principal (seller or buyer). A sales person works solely for the broker, representing the respective principal under the guidance and license of the broker. But even aside form the technical licensing issues, it’s important to realize who’s representing you.

In our article titled, Real Estate Agents Must Have These Qualities, we pointed out many of the characteristics of a good real estate agent. In this article, we’re showcasing the real estate broker’s legal fiduciary duties. Many real estate investors talk about “finding a good real estate agent,” or one who is familiar with investment properties. That’s certainly recommended within real estate investing circles, as it should be.

However, there’s one thing that many real estate investors or even regular home buyers do not take into account and that is the fiduciary responsibilities of the real estate broker. Most real estate brokers generally represent sellers because that’s where the majority of the money lies. Sellers own the real property and want to sell, most buyers have many hurdles to overcome and don’t own anything.

So when we look at “finding a real estate agent” to locate properties, do “comps”, etc., where do we stand, as the investor/buyer? Unless you have a Buyers Agency with the real estate broker, no matter what they tell you or what type of information they obtain, the most important question remains, “where do their fiduciary responsibilities lie?”

Let’s take that one step further and use “comps” as an example. As a broker or sales person who represents sellers, even other agents listings, their loyalty always remains with the sellers. If you’re working with a sales person and they’re pulling comps for you, they will present information and it is up to you, the investor, to make the final judgments about what to buy and not to buy. No one is forcing you to buy a property. So, the real estate sales person you’re working with shows you comps, but unless their a buyers agent, at the end of the day, they work for the seller.

So you ask them a question like, “Can you find out how much the sellers owe on the property?” This sort of question will depend on the agents fiduciary responsibilities, or it should. As a real estate sales agent, they cannot lie to either party or misrepresent or hide information from either party in the transaction if it would be detrimental. However, a real estate agents loyalties will certainly play a part when it comes to a question like this. If they have an agency with the seller, if the seller does not wish to have this information known to buyers, then the real estate agent will not obtain this information.

Many real estate investors will work with buyers agents, meaning that a real estate broker will work directly with or will have one of his/her sales agents work with a buyer. In this case, a buyers agency means that the broker or sales agent working under the broker has a principal relationship with the buyer, rather than the seller. This situation does represent some stickiness for the broker because how can a broker represent both sellers and buyers? Many brokers avoid this exact situation for this reason. However, there are many brokers that work to represent buyers.