Agency - Part 1

I was recently interviewed by a reporter for a major national magazine. She was writing an article about mortgage brokers and how a consumer should shop for one. As you know, this is one of my favorite topics so I was delighted to share a few thoughts with her.

At the heart of the issue is one of agency, a word that has a number of meanings. Central Intelligence Agency means something totally different from a Collection Agency. And I'm referring to it from a third angle.

Agency is a voluntary relationship in which one person acts on behalf of, and in the best interest of, and under the control of another person or entity. One example is an insurance agent who is empowered by the company to do conduct business on its behalf and to represent the company to its customers.

A real estate agent is in a different class, and is supposed to represent not their company, but the client, whether buyer or seller. Under the laws of probably all of the states an agent has a fiduciary responsibility to the client, who is referred to as the principal. I'm sure that the lawyers have a highly honed definition of what agent is supposed to do and what fiduciary responsibility means but let me approach it from a common-sense standpoint.

The first is that the agent always acts in the best interest of the client, making any decision as if it impacted the agent himself. His principal has the right to hear the truth and to have all relevant facts disclosed to him. Finally, the principal has a right to know the compensation earned by the agent.

Now if that sounds reasonable to you, it should. That's the kind of person you are looking for whether you want a real estate agent or a mortgage broker, or a lawyer or CPA, for that matter. The problem is that it is never that simple. In spite of their legal obligation and the ethical obligations of their associations, the plain fact of the matter is that many in the real estate agents act in their own best interest, and do not take care of their clients the way they should.

In one poll I saw, real estate agents, along with used car salesmen, were down at the bottom of the list of "trusted professionals," and it's probably justified. There are plenty of stories about real estate agents who act like complete jerks. I have been involved in close to a thousand purchase transactions in my career, so I have had an opportunity to see how perhaps two thousand agents represented their clients. It is a sad story. There are those at the top of the profession that hold to the highest ethical standards and who will, as I like to say, "lie down on the train tracks for their clients."

But there are far more who's first thought is how much money they are going to make. Then they think about how they can make a little bit more off of you now that you have your wallet open. Most of this is out of view of the client, of course, and sometimes it is illegal, such as getting kickbacks from others in allied businesses. But it goes on all the time. In fact what really astonishes me is how some agents even get hired! I find it hard to believe that the buyers or sellers couldn't find someone better.

I've been involved in several transactions where the listing agent was trying to "double-end" a transaction, representing both buyer and seller. That means twice the income, so there was a lot incentive to make it work. So even though my borrower had probably made a better offer, we were never sure if our offer had even been presented.

A final word of warning: there are many sales people who are not nice people, but they can do a good job of appearing to be nice when they think they can make money off of you. As my hero Zig Ziglar kiddingly said, "The secret of success in sales is appearing trustworthy and sincere. Once you can fake that, you have it made!" Sad, but very, very true.

In the mortgage business it is even stranger, a topic we'll discuss next week.

Be careful out there.