What Are The Fiduciary Responsibilities of Real Estate Agents?
A real estate agent acting on behalf of, or in the capacity of either a seller or buyer in brokering the sale or purchase of a real estate property in Hong Kong has a legal mandate duty or responsibility to represent the best interests of either clients. The capacity of the agent to represent the interests of the buyer or seller in the investment transactions is referred to as a fiduciary responsibility or duty while the relationship is referred to as a fiduciary relationship. In such a relationship, the buyer or seller is usually referred as the agent's clients, which emphasis on the broad issue of representation on behalf of the client, rather than agent's customer.
Ideally, if you are a licensed agent, you are required by law to represent your client in the transactions by providing all the vital information required to complete the transactions. Moreover, you are liable of protecting your seller's privacy and any information that is confidential unless you are compelled to divulge such information under an oath in a court of law located in the area of jurisdiction that the said property is situated.
Generally, fiduciary relationships help to protect clients from real estate agents because agents control almost all the roles and responsibilities involved in the transactions and that could be detrimental to a client if an agent decided to use the opportunities to one's advantages. This can be mirrored in the medical profession where doctors are more knowledgeable and in health problems or in the legal profession where law attorneys are experts than their clients. In such relationships, there must be regulations that safeguard the interest of clients from abuse by agents who are representing them. Fiduciary laws are meant to protect clients by forging the boundaries that limit the roles and duties of agents.
Additionally, most clients who are not experts in are estate investment may not be able to ascertain all the roles that the agents are supposed to perform. In such a situation, the client might be vulnerable and just accept the word of the realtor which is equally detrimental.
Reasons Why Realtors Should Be Fiduciaries
- Risk of Abuse
Clients face a risk of abuse when a realtor represents both parties in the transactions. For instance, if a realtor is representing both the buyer and seller in a transaction, the realtor may be at crossroads and may be forced to favor one party, most likely the seller, because of the amount of commissions that one gets. It is common knowledge that even though both parties will be paying commissions to the realtor, the largest commission is usually gained by maximizing the sale value. In such a situation fiduciary laws helps to protect the buyer from abuse from the realtor.
- Handling Money
Money has been known to easily create betrayal, envy, and jealousy among people. In real estate industry, an agent can be entitled to handle huge sums of money belonging to the clients. There is the need for a safeguard to be put in place to ensure that the agent does not try to squander the clients’ money.
- Best Interests of Clients
Fiduciary responsibilities help to hold realtors accountable for their actions and roles in the transactions. For instance, if a realtor has been mandated to locate and purchase a commercial property in a perfect location but ends up purchasing an undesirable property for the client, the client can challenge the realtor's results and sue the realtor for failing to represent the client's best interests.
Additionally, fiduciary laws exist so that they impose deterrence on realtors who would otherwise take advantage of their experiences and expertise in the industry to the detriments of the clients.
Realtors are supposed to uphold utmost loyalty when representing clients. They have a fiduciary duty to represent the clients’ interests above their own interests or any other interest that may be involved. A realtor shall be held accountable in the event that one breaches the loyalty owed to the client. For instance, if an agent decides to purchase a property that his/ her client was selling, and after the purchase, the agent flips the profits for a profit shortly after, then there is a breach of loyalty. Essentially, the conduct of the agent was inappropriate and in breach of loyalty because the agent benefited by getting the profit that rightfully was supposed to be gained by the client.
The fiduciary duty of loyalty means that the agent is supposed to act in every manner possible to enable a client gain an advantage. The realtor should disregard any competing offers that might negatively affect the advantage of the client that one is representing.
The realtor has a duty of obeying all lawful instructions that one gets from a client promptly and efficiently provided that the instructions conform and further the objectives of the agent-client relationship. It should be clear that the agent should only obey instructions that are not illegal and do not discriminate against the rights and privileges of the general public. For instance, instructions by a property seller to an agent not to list property to a subset of people based on their religion, race or social status are illegal and should not be obeyed.
An agent has the duty of disclosing to the client all material information that is relevant to all the transactions and activities involved in their relationship. Material information regards any information that could induce the client to change mind. It involves all circumstances and facts that may affect the value of the profit and hence its desirability. The information also regards the identity of rival potential buyers, information that could enable the property to be sold at a higher profit as well as the bargaining position of the other parties to the transaction.
Confidentiality regards the duty of the realtor to safeguard any information pertaining to the client. The agent is bound not to disclose any information that one learns about the client including the client's motivation to invest, business affairs, personal affairs and financial information that may have a negative impact on the bargaining position of the client. For instance, if an agent is representing a seller, one is bound not to disclose any information to the buyer that might affect the value of the transactions involved or weaken the seller's bargaining power by giving the buyer an upper hand in the negotiations. However, the agent is not obligated to withhold any material information about the condition of the property or provide a misrepresentation of the condition of the property that may affect the bargaining power of the buyer.
- Due Diligence and Reasonable Care
In law, reasonable care is a regarded as an acceptable standard that can be used to determine whether a duty was fulfilled accordingly and satisfactorily. It is the duty of an agent to exercise a certain degree of caution, concern, and diligence when representing a client. The agent is supposed to be rational and prudent as expected of a professional realtor when representing a client. It is assumed that by being licensed, the realtor is endowed with adequate skills, experiences, and expertise necessary to handle real estate affairs competently than an average person.
The realtor is compelled to deploy the skills, knowledge, and expertise when representing the client under the scope of the dealings involved. However, it should be noted that the realtor is not obligated to be held accountable for any services that should be performed by other skilled professionals in the industry such as home inspection, investment management etc. However, the realtor should advise a client accordingly, to seek assistance from skilled professionals in handling any matters outside the scope of the realtor's field of expertise.
All financial records, documents, cash and cash equivalents that an agent handles on behalf of the clients should be accounted for appropriately. An agent has the duty to correctly account financial transactions and the disposition of all financial agreements reached. Moreover, the agent also has a duty to safeguard any money, financially records and documents that are entrusted to one for the purposes of representing the client in the investment transactions.
Realtors' Roles in Real Estate Transactions
Potential investors, especially those with little knowledge about the undertaking of real estate investment in Hong Kong clearly benefit from being represented by a professional realtor in the investment dealing.
Choosing the right agent to represent you in property investment helps in saving time and money as well as in acquiring a prime property in a suitable area. Therefore, it is critical to ensure that you decide on being represented by a professional agent who has good knowledge of property investment in the region that you'd love to acquire property. Yet, it can be hectic to find the best agent to represent you.
Investment in real estate is a primary role of real estate brokers and agents. This is because they have better knowledge and information pertaining to buying and selling of homes in areas where they believe will be profitable in future. In Hong Kong, Kowloon and Victoria City are some of the cities that have been experiencing massive growth in the real estate industry of late. Therefore, for people who want to invest in real estate in Hong Kong, it is always paramount for an investor to contact the most reliable agent/ broker who has immense information about real estate investment in these regions.
- Listing Property Available for Sale
A person looking to sell a home usually consults agents with their intention to flip the home. A realtor has to explain to a homeowner the services of listing the home as well as other services of selling the home and the commissions to be charged. If the seller comes into consensus with a realtor, they would then sign a listing agreement and other documents that allow the realtor to represent the homeowner in selling the home.
The realtor will then have to market the home. This is usually done through listing the home and collaborating with other agents in within the region. Listing a home enables other agents to seize the opportunity in case they have a buyer who wants to buy the home. If the cross-realtor is interested in the home and contacts the buyer about the home being sold, then an arrangement can be made to view the home to ensure that it is in a satisfactory condition that pleases the buyer.
- Selling the Home
If there is a consensus, your broker either may accept the offer or may enter into negotiations that may end up resulting in a contract of sale. The contract may be prepared by an attorney or by your realtor. The contract becomes binding when all parties into the sale agree and append their signatures.
The contract includes a provision enabling the buyer to obtain a mortgage financing and a provision inviting a qualified inspector or engineer to inspect the home. In addition, a title deed must be included in the contract of sale to enable passing of ownership from the seller to the buyer. A title of ownership is important to show that proper search and documentation has been done to authenticate the ownership and transfer of ownership from one party to another.
- Negotiating the prices of the property
Realtors have a duty of negotiating the prices of the property. It is within their mandate to ensure that you either sell the property at a reasonable price. Consequently, if you purchasing property, it is their duty to ensure that you are able to acquire property at a considerable cost. It is also important for the agent to ensure that you acquire a quality property in a desirable action. Always engage the agent so that you can reap maximum benefits in the Hong Kong real estate market.
- Info on Stigmatized Real Estate Property
There are cases when some property may be stigmatized. For instance, a property where a gruesome murder took place may not be ideal for most people to live in. There are people who may feel uncomfortable living in such a home. These are some facts that you may not know but can be disclosed by a reliable agent who has good knowledge of property in a certain region. This can help you reconsider your decision to purchase the property.
- Detecting Property which is illegal or involved in Fraudulent Activities
There are also many situations when the property being sold may be illegal such as property developed in grabbed land, or property that has a pending case in court. It is the duty of an agent to perform a proper investigation to ensure that an investor does not purchase property which is undesirable because of ownership problems. This helps to safeguard you from future litigations that could be costly or have a devastating impact on your investment.
- Transferring Title of Ownership
If all the provisions of the contract of sale are satisfactorily completed, then the transfer can be completed and the sale closed. In most cases, agents involved are paid after the sale of the home. Where multiple agents are involved, then sharing of the commissions is done according to the agreements reached by both parties when they commenced negotiating the sale of the house.
You need to engage a licensed agent who has experience in real estate investment and have a record of helping investors acquire quality property. Local agents have the best information of prospective buyers as well as the marketplace information of the real estate operations in a particular location. Therefore you need to engage an agent who knows the local market extensively. This will eventually help you to invest in a quality property that will yield substantial equity and provide profitable returns on investment.