One of the greatest confusions in the real estate industry surrounds the question of who works for who in a real estate transaction. With that as a starting point, its no wonder that the industry is rife with confusion, and frequently misinformation, which may lead to disillusionment, disappointment, anger and even litigation. The general perception is that realtors are simply in it for themselves and act in a manner consistent and supportive of this perception. This is an allusion I intend to dispel – not by writing on the subject mind you – but in the manner in which I work on a daily basis for my customers and clients. After all, shouldnt it be as simple as walking into a real estate office and hiring someone you like to work for you? Well it should be, but it isn’t.
So the best way to answer this question is to take a few steps back and answer another question. What is brokerage and how does it affect a consumer in the real estate market? In the real estate industry, a broker is any licensed real estate professional who performs transactional services – in other words, a real estate agent. To compound that confusion, they need not hold a brokers license to perform brokerage duties – they need only have a Salesperson’s license and work under a licensed broker. But just because they are working WITH you does not mean that they are working FOR you. And there is a tangible difference, that is really not all that complex.
Regardless of whether you are selling a home or buying a home, the only person who works FOR you is someone with which you have a signed Service Agreement. For a seller, this is your Listing Agreement. For a buyer it is a Buyer Service Agreement (or Buyer Brokers Agreement). They are legally binding contracts that bind the real estate broker to YOU in any transaction. And by binding them to you, I mean that they owe you a full and unadulterated fiduciary alliance.
I keep on the wall of my office two dog-eared pieces of paper, taped and repaired from the hundred(s) or so times I have removed them from the wall to explain what it is that I absolutely OWE someone and what I absolutely do NOT. These are what is referred to in the real estate industry as the 6 fiduciary requirements of real estate professionals – The Fiduciary’s, for short. They are the 6 things that real estate professionals should adhere to professionally as a guiding beacon for how they should conduct business and treat their clients. Yet most real estate professionals would not be able to recite more than two. Many real estate agents don’t know the difference between a client and a customer.
The first scrap of paper reads:
Obedience: As an agent of your client, you must obey their instructions. That’s only if their instructions are not illegal and are in accordance with the contract. An example would be a deal in which you are the agent of the seller. You have two offers to buy their property and they’re almost identical in price and contingencies. Your seller instructs you to accept the offer from Agent B without going back to both buyer agents for further offers because your seller “doesn’t like Agent A”. Though you may feel that it is unfair to Agent A and their buyer, you must obey the instructions of your seller.
Loyalty: As the agent for your client, you must be loyal and keep their best interests ahead of those of any other party, including yourself. How much commission you might make, particularly in competing offer situations, should not be a consideration and would be disloyal to your client. Though confidentiality is discussed separately, it is also a component of the loyalty piece. Disclosing anything about your client without their express consent would not be in keeping with this loyalty requirement.
Disclosure: In many states the law requires a real estate agent, whether in an “agency” capacity or not, to disclose material facts to their client. Material facts are those that, if known by the buyer or seller, might have caused them to change their purchase or sale actions. Beyond that, the fiduciary duty of disclosure would include just about any knowledge the agent had that might benefit their client in the process. If working for the buyer, and you knew the seller was in a financially stressed situation, you would disclose that to help your buyer in the negotiation.
Confidentiality: Your fiduciary duty of confidentiality means that you do not disclose anything that you learn about your client, their business, financial or personal affairs or motivations. This duty survives closing and lasts forever. Only a court instruction to disclose can relieve you of this duty.
Accounting: Accounting for all documents and funds in the transaction is a fiduciary duty. Accurate reporting of the whereabouts of all monies pertaining to the transaction and their ultimate disposition is a fiduciary responsibility.
Reasonable Care: This duty is one to be very careful of. The words “reasonable care” are only finally fully defined in many cases by a judge or jury when it’s too late to change your actions. You, as a licensed real estate professional, are expected to have a certain level of knowledge and be able to advise and guide your client through the process without harm. Whether on the buyer or seller side, you are expected to advise on price, inspections, negotiations, repairs and many other facets of the transaction. If it’s not something you’re expected to know, you are expected to advise your client in how to get the information.
The second scrap of paper on my wall is simply the following definition:
A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.
“A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.”
“A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal“): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.” 
Bristol & West Building Society v Mothew  Ch 1 at 18 per Lord Millett
Breach of Fiduciary Duty Law & Legal Definition. Legal Definitions Legal Terms Dictionary.
If you bothered to read, or even skim these you will find an abundance of information that would cause you to question why you would ever consider entering into a relationship with a person who will handle consequential and sensitive information, without an understanding of what they might do with that information. Because NONE of that information is confidential if you do not have a signed service agreement with that professional. If you sign a brokerage agreement, you become a CLIENT of that real estate agent AND their firm. If you do NOT sign a brokerage agreement, you are an unrepresented CUSTOMER in the marketplace. The realtor owes you nothing but full disclosure of material facts. From a purely technical standpoint, they do not even owe you honesty, although the Realtors Code of Ethics would require that. Thats a blog post for another day.
Now, in the state of vermont, real estate agents are specifically prohibited from practicing Dual Agency – the act of entering into a Fiduciary Relationship with parties on opposite sides of the same transaction. Furthermore, they are required to have an office policy stating what is to happen if a buyer client (that is a buyer in their office under contract) and a seller client (a seller with a Listing Agreement in the same office) end up in a transaction together. Typically the Seller comes first, which means the Buyer would need to be released from their agreement, and remain “unrepresented” in the transaction. Both buyers and sellers may agree in writing that they will release the real estate office from their FULL fiduciary responsibilities, and enter into a Limited Agency Agreement – essentially that both parties agree that they will allow their agent to represent them BOTH on a limited bases, but that he/she may NOT use any information obtained during the course of their relationship with either party to give an advantage to the other party during negotiations. Yikes.
The two Fiduciary’s that I constantly fall back on are Confidentiality and Reasonable Care. These are the two that I stumble on when imagining how I could represent two parties on a LIMITED basis, while still remaining true to the bond of trust between a Principal and a Fiduciary. To act in good faith while not providing favor to one over another. The short answer is you can not. The longer answer is somewhere in the fuzzy area in-between that tends to make real estate agents look bad if negotiations go south. How can you provide reasonable care to get a BUYER the best price, while representing the seller in the same transaction and providing reasonable care to get the SELLER the best price. And if I KNOW that a buyer has a certain ceiling that they cannot afford, and a Seller who will NOT accept anything lower, how can I provide real council without coming into conflict between the duty of confidentiality and Reasonable Care. Or what if I have a seller who is critically ill, needs to sell quickly but also needs money to pay for care. I KNOW that they might take a bad offer, and I know that my buyer is shopping in a much lower price range. How can I truly act in both party’s best interest? I can’t. To navigate these pitfalls and hoops to make a larger commission for myself specifically violates the fiduciary duty of Loyalty – to place the needs of the Client above all others, including and specifically your own.
If you have been in real estate long enough as a professional, you have ultimately been in exactly this situation. I say frequently to buyers in particular, we’ll cross that bridge when we get to it, and I genuinely mean it. What I mean is that in every transaction, no matter how complex or simple, there comes a time when you have to trust the other people in the transaction, whether it be the buyer, the seller or their agent. If you trust the agent you are working with, you should be able to move forward comfortably. If you don’t, you have a much bigger problem. But it is a common problem no-less, and in the end, your fiduciary right to Confidentiality disappears if you do not have, or relinquish your right to representation in a real estate transaction.
So, returning to the original question; what is a Buyer Broker, and why do I need one? A Buyer Broker is someone who owes you the same level of TRUST on the BUYING side as the Sellers Agent (or listing agent) owes the person on the SELLING side of the transaction. In the state of Vermont when you first make contact with a real estate agent – whether it be on the phone, through email or in person – they are required to disclose to you who they work for and that you – the consumer – are currently unrepresented. And this disclosure should inform you, in so many words, that BY DEFAULT, ALL REAL ESTATE AGENTS REPRESENT THE SELLER FIRST, UNLESS YOU HAVE A BUYER SERVICE AGREEMENT WITH THEM. Furthermore, because you do not have a signed brokerage agreement, anything you say to that real estate agent is NOT confidential. Even if the property you are discussing with them is not listed by that real estate agents office. We all represent the Seller until such a time as you enter into a Buyer Service Agreement.
Clear as mud, right? At the end of the day, the confusion and complexity of this issue is the direct result of litigation and the State of Vermont’s effort to make sure that consumers in the real estate market understand their rights. Because most represented sellers are represented by all licensed real estate agents regardless of office affiliation by default, buyers need to be made aware of their rights. And out of this need came opportunity. Opportunity for buyers to have the same level of representation as Sellers in the same marketplace. It’s a right you have when buying real estate. Now why wouldn’t you take advantage of it? It’s only one of the biggest investment you will ever make.