What is a real estate agent, after all, but a salesperson?
Those well-dressed folks behind the counters selling million-dollar bling at Tiffany’s are salespersons too. So are the glad-handing folks bounding after consumers in automobile showrooms. If I were to wander into a yacht brokerage, I imagine I would find a salesperson or two there as well.
But as my friend, lawyer and real estate broker Scott Forcino, observed during the last monthly dinner meeting of the Lucky Strikers Social Media Club, only real estate agents and brokers bear the burden of fiduciary responsibility to their customers and clients.
I never noticed that oddity, let alone how much of an anomaly it is.
You probably appreciate that “fiduciary” means a position of trust. Or so says New York Real Estate for Brokers by Marcia Darvin Spada, who warns that real estate licensees should not take lightly their fiduciary responsibilities. In her words:
A breach in fiduciary duties can jeopardize an agent’s commission as well as render the agent liable for her or his acts or omissions.
That is, we brokers and agents can lose our licenses, become respondents in lawsuits or lose a ton of money in lost commissions, legal fees and fines.
Our fiduciary responsibilities — I won’t explain all of them unless begged — encompass obedience, loyalty, disclosure of information, confidentiality, accountability, and reasonable care, skill and diligence. So we’re just like jewelry, auto, yacht and a host of other personnel selling a host of expensive things. Right!
Because violating any aspect of a fiduciary duty could doom us, allow me to consider briefly just two that are easily explained — disclosure of information and loyalty.
Let’s say that I am representing a buyer and come across some information that materially affects the value of a property — for example, the building has bedbugs, neighbors have complaints about the restaurant downstairs or a friend in the building has told me about a mold issue. Let’s also hypothesize that I don’t inform the person whom I am representing.
Obviously, the listing broker and I have not met the standard of full disclosure. Neither am I being loyal to my buyer, whose best interests I am charged by statute to serve diligently.
In every state, we brokers must exercise fiduciary responsibility because we are defined as agents of the buyers and sellers.
At the same time, the transaction can be just about as important to the buyer as the consumer of expensive baubles, boats and high-powered sports cars. If that is the case, does it make sense to limit fiduciary responsibility to real estate agents? Why exclude the individual selling a diamond ring who fails to mention its flaws or the car salesman who doesn’t tell you how often he has seen a particular model brought in for repairs?
Equally hard to explain is why real estate agents especially in New York should be held to a higher standard than other salespersons (though I fully embrace the standard).
The difficulty stems from the role that New York agents play in contrast to those in other states. In many, if not most or all, other jurisdictions, lawyers are little involved in real estate transactions.
Elsewhere, contracts are boiler-plate, and agents fill in the blanks. That’s how I operated in D.C., Maryland and Virginia, where an offer is presented as a draft contract. When it’s signed, the deal is done, frequently the same day and occasionally within hours of a buyer’s seeing a property.
The only time buyers ever have anything to do with a lawyer often is at the closing, over which a lawyer presides.
Here, all an agent does of any importance — it’s not nothing — is negotiate the price after having looked at comparable sales and active listings and drawing on his or her experience in the market in general and the building in particular.
Then, lawyers get involved representing buyers and sellers alike. It is they who dig into the details, where, as you know, lies that fellow with horns on his head. Negotiations over terms get intense, debates ensue, pages of addenda are crafted and the scrutiny begins of offering plans, building rules, board minutes and so on.
It is at that point an attorney’s responsibility to his client is fundamental to the buyer’s protection, long after an agent escorts a client to a property and provides counsel on an offer. What New York brokers actually do by comparison either with the lawyers here or with agents in others states pales in relation to the broad sweep of their fiduciary duty.
“Salesperson and fiduciary are as different as oranges and orangutans,” says my friend Scott, the broker and lawyer who runs Westchester Real Estate Advocates. He asks:
How can two such disparate roles be reconciled? The only answer is the Law of Agency, but how did it happen that real estate agents were placed in a different category from everyone who sells anything else?
Don’t for a minute think that I advocate abolition of fiduciary responsibility for real estate agents. I have railed against those I all too often encounter who fail to meet the standard, and I will continue to do so.
But it’s curious how the states view us so differently from everyone else who sells things that easily can cost far more than an apartment or a house. Don’t you agree?
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022