Working with a real estate agent brings its many perks. As professionals in the industry, they are educated on market trends and can provide buyers and sellers with opportunities they may have missed on their own. For example, buyers may be privy to off-market opportunities when working with a real estate agent.

However, what many buyers and sellers do not understand is that there are two different types of relationships they can have with their agent: They can either be their agent’s customer or their agent’s client. Although they sound similar, they differ significantly in the agent’s responsibilities towards the individual. Let’s review.

Who is a Client Verse a Customer?

Simply put, a client has a contractual relationship with an agent, which implies that the agent must adhere to specific client representation guidelines. This is known as an agent’s fiduciary duty, which obliges a real estate agent/real estate broker to act in their client’s best interest.

On the other hand, a customer is a buyer or seller who has not entered into a contract or agreement with an agent.

What fiduciary duties does a real estate agent owe a client?

Understanding the term “fiduciary duty” can provide individuals a better grasp of why it is crucial to be a client versus a customer. According to the National Association of Realtors, real estate agents are responsible for upholding six fiduciary duties:

  1. Loyalty: A duty of loyalty is one of the most fundamental fiduciary duties owed by an agent to his principal. This duty obligates a real estate broker to act at all times solely in the best interests of his principal to the exclusion of all other interests, including the broker’s own self-interest.
  • Confidentiality: An agent is obligated to safeguard his principal’s confidence and secrets. Therefore, a real estate broker must keep confidential any information that might weaken his principal’s bargaining position if it were revealed.
  • Disclosure: An agent is obligated to disclose to his principal all relevant and material information that the agent knows and pertains to the agency’s scope.
  • Obedience: An agent is obligated to obey promptly and efficiently all lawful instructions of his principal.
  • Reasonable Care and Diligence: An agent is obligated to use proper care and diligence in pursuing the principal’s affairs.
  • Accounting: An agent is obligated to account for all money or property belonging to the principal that is entrusted to him. This duty compels a real estate broker to safeguard any money, deeds, or other documents entrusted to him that relate to his client’s transactions or affairs.

When a real estate agent breaches their fiduciary duty, a real estate agent may be required to forfeit their commission or pay for damages incurred by their client. In some cases, the principal (buyer or seller) could ask the courts to rescind the contract and restore them to their status before entering the agreement. This could involve the property’s return to the seller and a refund of the purchaser’s money. 

What About A Customer?

If you are a customer, your agent does not have a fiduciary duty towards you; however, they are expected to treat all customers with honesty, integrity, and fairness.

Information a Real Estate Agent Must Share with their Client

When an agent represents a client, they are obligated to divulge specific information to their clients – This information is not required to be shared with customers. What information must be shared depends on if the agent is representing a buyer or seller:

Representing buyer, an agent must share…

  • The willingness of the seller to accept a lower price, if known.
  • Any facts relating to the urgency of the seller’s need to dispose of the property, if known.
  • The broker’s relationship to, or interest in, the seller of the property for sale.
  • Any facts affecting the value of the property.
  • The length of time the property has been on the market and any other offers or counteroffers that have been made relating to the property.
  • Any other information that would affect the buyer’s ability to obtain the property at the lowest price and on the most favorable terms.

Representing a seller, an agent must share…

  • All offers to purchase the seller’s property.
  • The identity of all potential purchasers.
  • Any facts affecting the value of the property.
  • Information concerning the ability or willingness of the buyer to complete the sale or to offer a higher price, if known.
  • The broker’s relationship to, or interest in, a prospective buyer.
  • A buyer’s intention to subdivide or resell the property for a profit.
  • Any other information that might affect the seller’s ability to obtain the highest price and best terms in the sale of his property.

Binding Client-Agent Agreements

The agreement you enter into with your agent will vary depending on if you are buying or selling a home.

If you are selling your home, you will sign a listing agreement, also known as a seller representation agreement. This agreement establishes the relationship between an agent and a seller and provides detailed information on the property being sold. It includes the listing price, broker’s compensation, seller and broker duties, terms of mediation, and more, depending on the listing agreement used.

If you are buying a home, you will sign an exclusive buyer’s agent agreement. This agreement establishes the relationship between an agent and a buyer – The details of the agreement can vary depending on negotiations. However, most exclusive buyer’s agent agreements will outline buyer-broker exclusivity, terms of the buyer-broker contract, broker compensation, and details regarding the type of property a buyer is interested in acquiring.

Benefits of Becoming a Client

As you can see, an agent has more responsibility towards their clients than their customers; they have a legal obligation and can face the consequences if they misrepresent them. As a result, clients are often better represented in their marketplace and provided more opportunities compared to customers. 

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