Client

Definition

A client in real estate is the individual or entity that hires a broker, lawyer, accountant, appraiser, or other professionals to perform services or represent their interests. Unlike a generic customer, a client is usually in a formal, often fiduciary, relationship where the agent has specific obligations and duties toward them.

Examples

Example 1: Broker Relationship

Alice hires a real estate broker to help her sell her property. In this scenario, Alice is the client, and the broker is obligated to act in Alice’s best interest, including ensuring the highest possible sale price for the property.

Example 2: Legal Counsel

Bob is involved in a dispute over property boundaries. He hires a real estate lawyer to represent him in court. In this case, Bob is the client and the lawyer is responsible for providing legal advice and representation specific to Bob’s case.

Example 3: Financial Advisory

Carol hires an accountant to help her manage her real estate investment portfolio. Carol is the client, and the accountant must provide financial advice and planning services to maximize Carol’s investment returns, while also ensuring compliance with legal regulations.

Frequently Asked Questions (FAQs)

1. What is the difference between a client and a customer in real estate?

Client: A client has a formal relationship with a real estate professional who owes them fiduciary duties, including loyalty, confidentiality, and full disclosure.
Customer: A customer may receive some services from the professional but does not have a formal fiduciary relationship. The professional may owe limited duties such as fairness and honesty.

2. What are the fiduciary duties owed to a client?

Fiduciary duties include:

Loyalty: Acting in the best interest of the client.
Confidentiality: Keeping the client’s information private.
Disclosure: Fully informing the client of all material facts.
Obedience: Following the client’s lawful instructions.
Accounting: Properly handling the client’s funds and property.
Care: Using skills and expertise diligently on behalf of the client.

3. How does a real estate professional typically get paid?

Real estate professionals are typically paid through a commission based on the property’s sale price. Unless otherwise specified, the client’s broker, often the seller, pays this commission at the closing of the sale.

4. Can a person be both a client and a customer?

While it’s uncommon in real estate transactions, there might be scenarios where someone initially starts as a customer and later becomes a client when a formal, fiduciary relationship is established. However, it is crucial to differentiate and understand the level of responsibility and services offered in each role.

Broker

A broker is a licensed real estate professional who arranges transactions between a buyer and a seller and is paid a commission. The broker takes fiduciary responsibility when representing a client.

Appraiser

An appraiser is a professional who assesses the value of a property. Clients engage appraisers to get an official property valuation for buying, selling, or refinancing purposes.

Fiduciary

This is the legal obligation of one party to act in the best interest of another. In real estate, professionals such as brokers and agents are fiduciaries to their clients.

Commission

This is a fee paid to a real estate broker or agent for their services, usually a percentage of the property’s sale price.

Online Resources

References

Investopedia. “Client Definition.” Accessed October 18, 2023. https://www.investopedia.com/terms/c/client.asp
National Association of Realtors. “Client vs. Customer.” Accessed October 18, 2023. https://www.nar.realtor/legal/2016-client-vs-customer

Suggested Books for Further Study

“The Millionaire Real Estate Agent” by Gary Keller
- A comprehensive guide to becoming successful in real estate, focusing on the multidisciplinary roles agents must play, including serving clients effectively.
“Real Estate Law” by Marianne M. Jennings
- Essential for understanding the legal aspects of real estate transactions and the nature of the agent-client relationship.
“Your First Year in Real Estate” by Dirk Zeller
- Offers practical advice for new real estate professionals, emphasizing client engagement and service.

Real Estate Basics: Client Fundamentals Quiz

### What role does a client serve in a real estate transaction? - [ ] None, it's another term for a buyer. - [ ] The buyer only. - [x] The individual or entity that hires a broker or other professional. - [ ] Only a seller. > **Explanation:** A client is the individual or entity that hires a broker, lawyer, or other professional to represent their interests in a real estate transaction. ### Which of these duties is NOT considered a fiduciary duty owed to a client? - [ ] Loyalty - [ ] Confidentiality - [ ] Disclosure - [x] Marketing > **Explanation:** Marketing is a service that may be provided but is not considered a fiduciary duty. Fiduciary duties include loyalty, confidentiality, care, and disclosure among others. ### Commonly, who pays the real estate broker's commission? - [ ] The buyer - [ ] The tenant - [x] The seller, unless otherwise specified - [ ] The government > **Explanation:** Typically, the seller pays the brokerage commission, although this can vary depending on the agreement. ### Can a person transition from being a customer to a client? - [x] Yes, with a formal fiduciary agreement - [ ] No, a client and customer are distinct roles - [ ] Only if they switch agents - [ ] Not in real estate > **Explanation:** A customer can become a client once a formal fiduciary relationship is established through an agreement. ### What is the primary difference between a client and a customer? - [ ] Clients get discounts, customers do not. - [x] Clients have a fiduciary relationship, whereas customers do not. - [ ] Customers pay commission, clients do not. - [ ] Clients hire appraisers, customers do not. > **Explanation:** A client has a fiduciary relationship with their real estate professional, which entails a higher level of responsibility and trust compared to a customer. ### To what must a broker always abide when dealing with a client? - [ ] Promotion strategies - [ ] Casual advice - [x] Fiduciary duties - [ ] Weekly updates > **Explanation:** Brokers must always adhere to their fiduciary duties, which include loyalty, care, disclosure, and confidentiality, among others. ### What general type of transaction do clients and brokers engage in? - [ ] Loan agreements - [x] Real estate transactions - [ ] Stock trading - [ ] Business mergers > **Explanation:** Clients engage brokers to represent their interests specifically in real estate transactions, such as buying or selling properties. ### When hiring an appraiser, what role does the hiring party serve? - [x] Client - [ ] Customer - [ ] Associate - [ ] Vendor > **Explanation:** The person or entity hiring the appraiser is considered the client, as they engage the professional's services and enter a formal relationship. ### For a broker to provide recommendations for which properties to buy or sell, what must exist? - [ ] A verbal agreement - [x] A fiduciary relationship - [ ] Only client’s demand - [ ] Simple consultation > **Explanation:** For a broker to provide such significant recommendations, a fiduciary relationship must typically exist to ensure the broker acts in the best interest of the client. ### Which organization is most relevant to a client interested in leveraging real estate investments? - [ ] Federal Reserve - [x] National Association of Realtors (NAR) - [ ] U.S. Census Bureau - [ ] Department of Labor > **Explanation:** The National Association of Realtors (NAR) is directly relevant as it provides resources, guidelines, and regulations essential for those engaging in real estate investments, thus serving clients in the real estate market.