Prior to the 20th century customer service wasn’t all that important to trade and commerce. Today consumer spending accounts for nearly two-thirds of our GNP but it wasn’t always like that. In the 1800s consumers had a limited selection of goods and services. Products and skilled services were so in demand that those who controlled their distribution could pretty much name their price and delivery schedule. Customers would either purchase retail merchandise available or go without.
Manufacturing and product distribution eventually caught up with the growing consumer demand of an expanding population. Not only was there more of everything but the customer had choices. The increasing affluence of a population, transitioning from an agrarian economy to manufacturing and services, was responsible for increased competition for consumer dollars. Business was beginning to recognize the value of customer service in developing customer loyalty. One enterprising entrepreneur, Marshall Field, Field’s Department Store in Chicago, is credited with introducing two concepts that has plagued business since they were introduced in 1915. The first was the “exchange policy.” The second is now the mantra of every consumer of goods and services. It is the Field rule: “The customer is always right.”
Anyone in the private sector who deals with customers knows that the customer isn’t always right. Quite often they are dead wrong. They may believe they are correct and want an issue resolved in their favor but often they are mistaken, ignorant of the facts or taking unfair advantage of the situation.
In real estate sales agents work toward converting a casual customer into a client/principal relationship. A routine phone call, inquiring about the availability of a property, will hopefully turn into a legally binding representation with the purchase or sale of a property. Agents representing their principals have a higher standard of care with their clients called a fiduciary relationship. They must legally and ethically act in their client’s best interest. But what if the client is wrong? How do agents reconcile the mistaken cultural belief that customer/client is always right when that’s contrary to their best interest?
Normally clients rely on their agents to lead them through the maze of buying and selling real estate. When issues arise a good agent will point out options and offer advice based upon custom or law. Most clients understand they are on unfamiliar ground and follow their agent’s advice. Occasionally, a client believing they are always right will act against their agent’s advice. This can strain the fiduciary relationship between the principal and the agent and breach the agency relationship. How does one obey their client’s instruction when their client is wrong?
It isn’t easy. Often differences of opinions will materialize with property disclosures.
“I’m not going to tell the buyers about my small encroachment problem. I don’t care what the contract says. I need this house sold and you’re going to help me.”
On a chance meeting a neighbor had pointed out an encroachment issue with my seller’s garage that my client conveniently failed to mention when I listed the property. The issue needed to be disclosed to the buyer. Despite my arguments for full disclosure, my client was adamantly opposed. My client was legally and morally wrong. If I disclosed the garage was partially built on the neighbor’s property it would be against my client’s instruction and likely kill the deal. I would be out a commission and a client. If I didn’t disclose it to the buyer I would be guilty of fraud.
“What do you mean I can’t buy this house? You’re my agent write it up.”
The house wasn’t right for Sarah. It was a stately Victorian circa 1880s near downtown Placerville. Although it had been updated several times in the last 100 years it would require more time and money to make the home habitable. This home was the Money Pit. The previous owners had exhausted all their savings attempting to remodel and finally ran out of money before losing the home to foreclosure. I wasn’t going to let Sarah make the same mistake. She saw it differently.
“Look, you either write the offer or I will get another agent.”
Balancing, making a buck and doing the right thing is often difficult. Agents have a duty to exercise loyalty to the principal/client and to use reasonable care to serve and protect their interests. Another element of a principal-agent relationship is the concept of control. Although an agent may conduct their business as an “independent contractor” agency law requires that agents have a duty to reasonably follow the directions of their principal/client. What’s reasonable is often in dispute.
It is best to have these discussions between a client and their agent early in the relationship. Too often agents are more concerned with forms over substance. When listing a home for sale, we focus our attention on correctly completing the plethora of contracts, property disclosures and seller advisories while not spending enough time explaining their ramifications. When working with buyers we often spend more time showing houses than understanding our client’s motivation for buying one.
Clients can make the wrong decisions. When that happens, if their agent is complacent, the agent can be held responsible not only by an injured party but by the agent’s own principal whose directive the agent was following. If an issue can’t be resolved between the agent and their principal, a second opinion from an expert may help. It is better to terminate an agency relationship and lose a client than follow the client over a financial and/or legal cliff.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his website at kencalhoon.com.