Property is a big, safe, comfortable and risk-free investment strategy, right? Well, there’s more to property than investing your client’s hard-won dollars in bricks and mortar.
There are many different ways to invest in property, and people buy and sell property for a multitude of reasons: steady investment, wealth creation, moving for work, selling a deceased estate, moving to a better school catchment area, upsizing, downsizing.
That’s just a fraction of the 27-odd reasons people buy and sell property. And each will have a different appetite for risk and a different risk profile.
When you’re acting as custodian for your client’s money and interests, it’s vital to understand their risk profile – and your liability if you get it wrong. And if you learn nothing else from this blog post, understand that one size doesn’t fit all.
Fiduciary duty and expensive property purchase or sales mistakes
You wouldn’t want an outsider making rash decisions that would have a detrimental impact on your financial future, would you? You’d want to be dealing with someone who had your best interests at heart, focused on their fiduciary duty.
When you’re dealing with investor clients as a buyer advocate, it’s key that you’ve done all your due diligence, from financial background to getting building and pest inspections on a potential property for purchase or sale. Failure to do so could leave you liable for damages, and cost both your client and you dearly. For homebuyer clients you need to take significant care in understanding their brief and doing the right due diligence for them too.
Fiduciary responsibilities and liabilities
As a buyer or seller advocate, you need to ensure all your dealings with third parties are transparent. You need to understand what your client needs, rather than what they want. Especially if they’re investors, they need to be guided by tailored expertise about growth and yield, and not buy into an unrealistic dream.
Your key fiduciary duty is loyalty to your client.
And as a buyer or vendor advocate, you also need to avoid conflict of interest. This isn’t an issue when you’re a real estate sales agent; you can happily sell two houses next to each other. However, conflicts can occur in property advocacy. As an example, I’ve taken on two clients with different budgets and criteria; subsequently, one client’s budget changed mid brief, and moved closer to the other’s budget and set of criteria. You need to manage this type of issue with kid gloves, as clients can get upset if it doesn’t fall in their favour! This is just one of many little things that present themselves; issues that are never a consideration when working as a selling agent. This is where ex selling agents can fall hard if they don’t have a full-time mentor and the right processes in place to protect themselves. Compliance ‒ and your own risk mitigation ‒ is a big part of being a self-employed buyer and/or vendor advocate.
Penalties for neglecting your fiduciary duty
We need to get it into our heads that we are dealing with what might possibly be the largest financial transaction of a client’s life. Property purchase or sale is emotional. If something should go wrong, we are likely to be the first in the crosshairs for blame. I’ve appeared as an Expert Witness in a case where a client sued his buyer agent who recommended a high-risk investment strategy that turned bad and wasn’t an appropriate strategy for that client. The agent was using a one-size-fits-all approach but as you know, or will learn, this isn’t a wise move. The applicants successfully secured a settlement form the buyer agent.
In another scenario, a client of mine took legal action against another buyer agency firm who provided an ill-considered recommendation to sell multiple local properties so they could buy an interstate property for him. Those local properties then grew in value at an exceptional rate, while the interstate property proved to be a dud. He successfully secured a settlement from them.
Every client is different and we need to fully understand what outcome will be best for each client. We are easy targets unless we’ve devised an appropriate strategy to which our client has agreed, our client has fully understood the implications, and we can prove we’ve done all the due diligence necessary to protect our client and ourselves.
The role of buyer or vendor advocate is far more challenging and risky than being a selling agent, as we provide our clients with advice that they rely upon to secure quantifiable outcomes. It’s not a case of just searching on the internet and bidding at auction to secure a property for a client. It is much more complicated than that, and every newbie into this sector is unknowingly at great risk of making these costly mistakes.
If you think you could make it in the buyer or vendor advocacy world, please get in touch. More experienced advocates make for a much larger collective property advocacy brains-trust.