Last week I discussed ignorance vs. stupidity. This week I am going to give you an example. Many people are ignorant about how agency, fiduciary responsibility works ESPECIALLY when it comes to new construction on site agents. So I will explain it and then tell a story. May be a long read but should be worth it.

Let me start with a few caveats.

1) This is not about right or wrong. It is about contractual obligations. Right or wrong can vary from person to person and can be somewhat fluid. Contractual obligations are not fluid.

2) Not every person that bears the titles I am going to talk about acts the same. We are discussing humans and thus a continuum of behavior. I am not indicting any one person either. The story is to illustrate my points. 

3) Also because this concept is about human behavior, results will vary. This is one story out of thousands. The concept is the same though. 

Fiduciary, Noun, (investopedia.comA fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interests ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.

When we sit down and sign a representation agreement–listing or buyer–we create a fiduciary relationship and a responsibility on my part to be your fiduciary. This means that I expend any and all of my knowledge, resources, talents, time to serve your best interests. It is my responsibility to find out what your best interests are–your goals, dreams, hopes, needs, desires, etc.– and come up with a game plan to make that happen. Sometimes it is at a cost to myself. That is a choice I can make before I establish that relationship but if I do establish it, I am bound to it. You owe me the duty of telling me the truth and conveying what those goals are and I owe you the duty of moving hell to get it done, no matter my personal outcome. I take this responsibility very, very seriously. 

What many people don’t understand (or are ignorant to) is the fact that Sales People are NOT fiduciaries to you. IF they are REALTORS (many on site agents for the huge companies are not, btw), they subscribe to a code of ethics that binds them to telling the truth but apart from that, they owe you nothing. And they only really have to tell you the truth IF you ask the right questions. They do not have the duty to tell you things you might encounter or to give you multiple solutions to choose from. In fact, their fiduciary responsibility is to the builder and they owe the builder the obligation to do what is right for the builder. This doesn’t mean they are bad. Doesn’t mean they are right or wrong. It is simply a fact. Their responsibility is NOT to you. Period. 

This shows up, typically, in the demands set forth in contracts and the single path frequently offered. This is where the story starts. 

Let’s take your average single mom home buyer. Let’s call her Linda. Linda walks into a model home for a very large, national, corporate home builder. She meets a really nice on site agent, let’s name her Phyllis (I just love that name). Phyllis is very accommodating. She has all the answers about availability, pricing, completion dates, etc. Phyllis then starts laying out the process. Her process is very easy. Just follow it exactly and you will get into your new home. She uses “your” when referring to the new house. She purposely talks about “we” need to talk to the lender and “we” need to get your house under contract. “We” are all in this together and “we” will make this happen. Phyllis maybe doesn’t ask if Linda has an agent. Maybe she does (state law says she is supposed to). Even if she does, she kinda plays it down. 

–Side note here– some of that is my colleagues’ fault as there are MANY agents that take a client to a model home, get clients under contract and then peace out till closing day and let the new construction agent do all the work. I would say those folks are not holding up their fiduciary responsibility either, btw–

Anyway, back to the story. Phyllis informs Linda that her company does not, as a rule, accept a contract on a new build if the buyer has a home to sell (home sale contingency) in order to buy. She also tells Linda that, basically, she has to use their in-house lender and title company. She can use someone else but there is a laundry list of enticements to keep that business in the company and it will just flow better anyway. Also, Linda can bring in her buyer agent but the company only pays a very small flat fee commission so the buyer agent may not even want to get involved. Finally, since they don’t take home sale contingencies, the builder has worked out a deal with a giant home buyer company to make offers on houses and conveniently take away that contingency. It will be so easy! No showings, no hassle. And btw, if you decide to sell the house on the open market, you can just walk away from the other contract, no problem.

Thankfully Linda knows a great real estate agent. Let’s name him Julius. Linda calls Julius and he gets involved. Julius has worked with Linda in the past and wants to help her. He signs the representation agreement with Linda and starts getting caught up. First thing is he asks the right questions. Phyllis is somewhat indignant that Julius is involved. She tells him how long she’s been in the industry and that he should just trust her. He clarifies the arrangement with the big home buyer and says, ok fine, we will do that but we feel pretty confident that Linda can get substantially more money on the market. Julius also tells Phyllis that he needs to be included in messages and conversations with Linda. She can’t even believe that he would want to do that. 

Meanwhile, Julius tells Linda to contact a couple other lenders to see if she can do better. Because of the enticements, she cannot. She is now obligated to the builder and to the lender that is owned by the builder. AND to the big national home buyer that has an agreement with the builder. 

Fast forward several weeks. Home construction has begun. Julius has consulted Linda on preparing her home for sale. He has also looked at comparable properties and determined that big home buyer’s contract is around $40,000 low. Timing dictates when Julius wants to list the house (remember Phyllis said that is no problem). He also communicates very clearly what Linda’s timeframe is in the listing. Linda understands. The day comes for the listing. Linda contacts big home buyer and Julius puts the house on the market. Within an hour, Phyllis calls Linda and interrogates her. Linda says to call Julius. Phyllis does and threatens pulling the contract because Linda’s financing is contingent on Linda’s house being under contract. Julius tells Phyllis that is not, in fact, contingent on that. It is contingent on Linda not having to sell her house in order to finance the new house. So any number of things could happen. Linda could win the lottery. The house could already be sold. Linda could have a couple hundred thousand in cash. Lots of things. Phyllis tells Julius that she is going to have to see if the builder will stay in contract or not. Julius reminds Phyllis of the information she shared at first. Phyllis asks what the listing price is. He tells her and she scoffs and in a snotty tone, says, well, we will see I guess. Julius says, well, we already have 5 showings scheduled. 

Approximately 48 hours later, the house is under contract for about $30,000 more than the contract with big national. The buyer is going to close early and allow Linda to stay in the house rent free until the new one is completed. They are doing a pass/fail inspection and have waived appraisal. Linda will put about $16,000 more in her pocket when all is said and done. And it is done. There is no waiting. Peace of mind for 7 weeks.

The path that was taken was NEVER presented as a viable option to Linda by Phyllis. IN fact, it was discouraged, even with Julius, a very experienced agent, in the picture. Julius knew this was the right path for Linda and proved it with very little doubt and even less hiccups. 

The moral of the story is simple. Get your own agent that has an obligation to you. Make sure that agent knows the laws, knows what it means to be a fiduciary and knows your options. Most importantly, make sure that agent knows how to and is willing to, truly be your fiduciary. Make sure they are your bulldog.

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