Client or Customer?

What You Should Know about Our Working Relationship

Congratulations on your choice to buy property on the Big Island. You are embarking on an exciting and rewarding adventure.

The purpose of the material on this page is to help you understand how Clark Realty Corporation represents your best interests in selling or purchasing property. We will do everything we can to see that your transaction goes smoothly. Understanding the information presented in this document is a key first step in this process.

The subject addressed in more detail below is “agency.” Hawaii state law requires that the nature of our working relationship be disclosed and agreed to prior to preparing a Purchase Contract. By law, the agency relationship must then be confirmed in writing within the Purchase Contract.

At Clark Realty we believe that is it important to begin such a critically important discussion earlier in your property search. Further, since agency law is substantially different in many states, to protect your best interests we believe you should be informed about Hawaii’s laws early on so that you have an opportunity to get all your questions answered before you are ready to sign a Purchase Contract.

I encourage you to take just a few minutes to read about your options and discuss your agency relationship with your chosen real estate professional.

You have my best wishes for success in your transaction.

With warmest aloha,

Frank Goodale

President, Principal Broker, Clark Realty Corporation

 

Agency

Agency relationships are based on one person/company representing the best interest of another. In Hawaii, real estate agents must be licensed to represent another person or entity in the sale or management of real property. The responsibilities of agents can be found in Hawaii State law, in the general principles of agency law and, for REALTORS®, in the National Association of REALTORS® Code of Ethics (not all real estate agents are REALTORS®).

In Hawaii, the type of relationship formed between an agent and you, the client, is called a fiduciary relationship. This relationship means that the following duties are owed to the client:

  • Loyalty
  • Disclosure
  • Reasonable Care
  • Obedience
  • Confidentiality
  • Diligence
  • Accounting

Under Hawaii law, your agency relationship is formed with the brokerage you choose to work with. The client typically works with one of the agents associated with the brokerage. The agent is also bound to the same fiduciary duties. This is true whether the client is a Seller or a Buyer.

There is one key limitation placed on ALL fiduciary responsibilities of all real estate agents. Real estate agents may not give legal advice or draft legal documents (although filling in pre-designed forms or using approved standard language is acceptable). Should you need legal advice or legal document preparation services we will always recommend you retain an attorney. A similar limitation exists with regard to tax and investment advice.

With regard to brokerage commissions it is important to note that compensation does not by itself determine agency. The commission can be paid by the Seller, the Buyer or by both parties. However, there must be full disclosure regarding who is paying.

Traditional Agency Practices

Prior to the 1980s, nearly all real estate agents represented only the Seller. The Buyer, while he or she may have been working with an agent, was not represented by that agent. The agent who worked with the Buyer was presumed to be a sub-agent of the Seller and no allegiance was owed to the Buyer. These agents were obligated to report all conversations with the Buyer back to the Seller and negotiate in the Seller’s best interest.

Buyer Agency

Clark Realty rejected this sub-agency practice many years ago (as did most other firms in the United States). Today, most buyers insist on some form of Buyer representation and this is now the common practice.

Under Buyer Agency the same fiduciary duties described above are owed to the Buyer client. It is becoming increasingly common to spell this out in a written Buyer’s Representation Agreement. In some states this is required but currently there is no requirement in Hawaii. (It is important to keep in mind that compensation is still a separate issue and that it is traditional--and usually necessary--that the commission to the Buyer’s agent is paid out as part of the Seller’s proceeds. This means that the Buyer does not face any increased costs for an increased level of service.)

A real estate firm traditionally represents multiple Sellers. These Sellers often have similar properties for sale. Likewise, a real estate firm may also represent several Buyers who have an interest in the same property. Whenever we become aware of such a situation or discover circumstances that may compromise the best interests of either client (typically in the case of multiple offers), we will immediately disclose this potential conflict to the parties involved. In these situations, Clark Realty will ALWAYS maintain confidentially of privileged information and will not advance the interest of one client over another.

Dual Agency

It often happens that a particular Buyer who is represented by Clark Realty may be interested in purchasing a property listed by Clark Realty. This situation creates what is called “dual agency.” Dual agency arises whenever the brokerage has a relationship with two clients, one wanting to sell, and the other wanting to buy the same property. Whenever a dual agency is formed, Clark Realty will notify each client.

At Clark Realty we take pride in the fact that we have many of the best properties on the Island listed for sale. When we list a property, an agency relationship is created between Clark Realty and the Seller. In other words, Clark Realty represents the Seller. Throughout the listing period, the agent is obligated to put the Seller’s interest first.

Clark Realty also forms agency relationships with Buyers who usually require some form of representation. These Buyers develop a level of trust in the agent who is obligated to put the Buyer’s interests first. We pride ourselves on having many qualified Buyer clients who trust our reputation. Our Sellers recognize this as a key benefit of listing with Clark Realty. Therefore, these Sellers are willing to sign an agreement that, while limiting our agency obligations to them, allows us to bring these Clark Realty Buyer clients to the bargaining table.

If a dual agency should arise, clients and agents must agree to modify their existing agency relationship. This is usually accomplished when the parties agree to limit the agency relationship and grant permission to proceed. Under this limited agency relationship, the agents agree that they will not disclose information that is confidential or would create a negotiating advantage for either client. The agents may provide all such other property and market information that would normally be provided to the Buyer if he had gone to a “Buyers Agent.” In effect, the conflict of interest created by dual agency limits the role of the agents who begin to act more as facilitators or mediators.

Dual agency situations occur quite often. When they do, the previous agency relationship is modified. However, the agent’s goal remains the same – to assist the Buyer and the Seller in achieving their goals in an efficient and professional manner that is fair to everyone.

The Customer

There are certain situations in which Buyer’s Agency, Dual Agency, or even Seller Agency may not be appropriate. In these cases, the client will have the status of a “Customer.” When we work with you as a “Customer,” we will still provide you with a wide variety of services: we can set up showing appointments, present your offer to the Seller, help you obtain information about financing alternatives and explain real estate terms, forms and practices as well as provide all disclosures as required by law. Upon request, we can also provide you with information from public records about similar properties that have recently closed escrow and their sale prices. We can also show you other properties listed by Clark Realty. As a Customer, you will continue to receive great service and we will assist you in many ways including keeping you informed of other properties in which you have told us you might be interested. However, we will not be acting as your agent with fiduciary duties.

In a case such as this, when you buy one of our listings:

  • We will be honest
  • We will use reasonable skill and care
  • We will disclose all known material facts as required by law

Conclusion

Agency serves as the basis for your relationship with your agent. It is of utmost importance that all parties to a transaction are well informed about this relationship and have agreed to their various roles. State laws govern these agency relationships and many states have very different rules concerning the agency relationship. Therefore, regardless of your past experience, and especially if you are from another state, it is important to review these relationships and ask questions. Upon request, your Clark Realty agent can provide you with a copy of our dual agency form so that you may review it at your leisure or with your attorney. We trust with this understanding of our working relationship you will have a successful transaction and a rewarding relationship with your agent.

 


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