What is a Fiduciary and Why Does It Matter?

I just posted a TikTok video regarding Fiduciaries andhow Real Estate agents, Financial advisors, Attorneys and power of attorney alike all have a fiduciary duty to their clients and the same ones at that. It resonated well with TikTok viewers and it’s important for consumers to understand their rights to a fiduciary, therefore I decided to write this article all around what a fiduciary is and why it’s important to you.

First, What is a “fiduciary”? It is a term that is rarely used nor clearly understood in the public eye, but its taught and should be clearly understood by professionals who are suppose to uphold a fiduciary duty to their client. In simple terms, a fiduciary is someone who works for you, and puts your interests above their own. In other words, if you hire a fiduciary, you are the boss and can tell them to do anything you ask (within the scope of the law and the scope of
their expertise). So for example, a Real Estate agent is a fiduciary that has gotten quite a bad rap over the years. Of course there’s a reason for that. Same with attorneys as both careers have the capability of making a decent amount of money and many times people in those professions have put money above their duty to their clients violating their fiduciary responsibility.

Considering we are a Real Estate company, this article is going to focus on Real Estate professionals and how their fiduciary duties apply to you, why Real Estate has gotten a bad rap and how you can be sure the agent you’re working with is going to offer you full fiduciary representation.

Within Real Estate, money has always talked. Back in the 1980’s and prior, all real estate professionals were a fiduciary to the seller ONLY. In other words, there were no buyer agents and buyers didn’t have a fiduciary when going out to buy a house. Instead, it would be like walking into a used car lot and having the car salesman try to sell you on a car. In the early 1990s, things changed. Some brokers across the county felt that buyers should have representation as well and opened up exclusively “buyer” agencies. At first it was scoffed at by the real estate industry. They would say there’s no money in buying. As a few years passed,  those buyer brokers started becoming very successful. Things were going well and finally both buyers and sellers has fiduciary representation with the largest purchase most people would be making in their lifetime… but like I said; money talks.

As the mid 1990’s rolled around, large real estate companies were catching on to the success of buyer agency and realized they wanted a piece of that pie too. There was just one pesky problem; in order to be a fiduciary, your loyalty to your clients cannot be divided. If brokerages started working with both the buyer and seller in a single transaction, that brokerage would no longer be able to offer the legally required fiduciary representation that consumers have a right to in real estate. Instead of doing what most of the buyer brokers were hoping would happen and start opening their own branches of exclusive buyer and seller brokerages, they took their issue up with NAR (National Association of Realtors) and Congress. After much litigation, it was decided that representing both sides as a fiduciary was ONLY
against the law if both sides were not aware of the conflict of interest. As a result, brokerages got lawyers to write up agency agreements that became quite wordy and included clauses that allowed for dual agency (or compromised fiduciary representation) to happen. They would then gloss over those details and ask consumers to sign their agency agreement legally binding consumers to their agency for a period of time and legally releasing the brokerage of the required level of representation every consumer has the right to have.

 This generally is where real estate brokerages in general stopped looking out for the consumer and started looking out for themselves. Fiduciary representation was essentially gone… however those brokers that started buyer agency chose to continue with Exclusive agency and were able to become extremely successful due to the higher level of representation they were able to offer over other brokerages that now practice dual agency. The allowance of dual agency changed the real estate industry forever, but did not hurt the success of exclusive agencies who fully disclosed how their level of representation could never be met by those other agencies that decided to muddy the waters of real estate representation.

Fast forward to today, Exclusive Buyer Agencies still exist. Buyer’s Choice Realty is one of them. In fact, it is one of the founding Exclusive Buyer Agencies that started back in 1990. The problem is most consumers today aren’t aware of their rights to representation in real estate. The educated home buyer finds us, but our challenge today is informing the general public about their rights to representation and how we’re one of the few agencies that can unconditionally offer it. Just like in a court of law, we don’t think it’s possible for one agent to represent both sides in a transaction. The reason is because when things go wrong and they do often, the agent has to pick a side to advocate for. If your agent is representing you AND the seller and something goes wrong in the transaction, wouldn’t you find peace in knowing the agent you hired is unquestionably going to advocate for you and bend over backwards to make sure the issue is fully resolved in your favor? With a dual agent (agent working with both the seller and the buyer) they just want to sell the house. As a buyer, they’re most likely not going to side with you. In the end, they are going to sell the house, whether it’s to you, or another buyer they have waiting in the wings. Here’s the thing to note. In the end, an agent wants the house to close so they can get paid. A seller agent is going to get paid because they will sell the house. An exclusive buyer agent only gets paid when you close on a house.

When an agent works exclusively with one side, their sole job is to make sure their client is successful. The only way they can get paid is if their client can either sell their house or buy their house. Remember when I said money talks? It still does, and when an agent’s job is representing only you, their motivation to fully represent you rides on you successfully closing on the house you want. Furthermore, the idea of fiduciary representation has become so muddied in real estate, that Exclusive Buyer Brokerage is going to depend on you, their happy client to give them good reviews online AND tell people they know. Most of our business comes from word of mouth and recognition of the next level of representation we can offer. Otherwise, we’re just another agency in the sea of real estate brokerages vying for your
attention.

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Because of our designation as Exclusive Buyer’s Agents, we can represent you in your new home purchase anywhere in the Greater Boston area.