Client vs customer: Know the difference?
Who is looking out for me?
January 21, 2022
Do brokerages owe clients a higher level of service and obligation than they do customers?
At the Hillis group, when we first meet a new client, a big part of our communications is about agency relationships. And what each means. In our blog titled, “are you being fully represented”, we have attempted to show your choices matter. How you choose can affect your real estate transaction.
Regardless of whether you are a seller or a buyer, taking the time to discuss and have a solid understanding will help you. Having knowledge about the type of contractual agreement you have entered into, will give you greater peace of mind.
Choices – client or customer
Early in the buying and selling process, whether you are a client or customer knowing the difference is key. The terms are used synonymously in most businesses, but mean different things in all real estate transactions. They also can have separate implications for a potential buyer and seller.
Mandatory agency disclosure gave way to buyer representation.
Until the mid-1990s.
Realtors helped buyers find the home, helped with financing, would draft the offer and negotiate the transaction! Or did they really? In my professional opinion, the actions implied.
When mandatory disclosure became the law in the mid-1990s everything was more regulated. At least with the paperwork! The agent, (at the earliest opportunity) was to explain what were the choices and what the difference meant. And how it would affect the consumer either positively or negatively with their real estate transaction.
Old School Choice #1: We can help you, (the buyer), find the ideal home, but at the end of the day, we represented the seller. or
Post disclosure mid-1990’s #2: We can enter into a buyer representation agreement.
Best of all, we will represent you and can provide all the fiduciary obligations. Best of all, the BRA authorizes us (as your agent) to collect our fee at closing from the seller.
Yes, represent your highest and best interests.
If you are like 99% of consumer homebuyers, when given the choice, you want the agent to “work for you”.
Have the talk
Are you a Client or a customer?
The real difference to understanding the definition of your choice today is the terms client vs customer. In my 30 plus years of professional experience, agents still have a challenge explaining the difference.
Client vs. Customer. Very very soon, the choice will be made clear and less confusing.
What is the difference?
Two types of legally binding agreements.
- a (client) representation agreement or
- b (customer) service agreement).
If you choose to be a “client”, the brokerage is your champion.
If you choose to be a customer, the brokerage provides you with “some” or limited service. But the brokerage is not necessarily looking out for your best interest. Customer-level service does not obligate the agent or the brokerage to any fiduciary obligations.
What are fiduciary obligations
These are: To negotiate favorable terms, including but not limited to maintaining confidentiality. It is critical you get all information. It is further critical your agent maintains the utmost loyalty. The agent also must disclose any conflicts of interest. Being accountable and disclosing all profits are all part of the obligations. In other words, acting and conducting themselves in a way that promotes and protects your highest and best interest.
FYI: As a customer, the brokerage is only required to exercise care, skill and ensure honestly. These are very narrow, general, and limited obligations.
Knowing this, it really comes down to you assessing which relationship with the brokerage would best meet your needs.
If you’re highly knowledgeable about real estate and comfortable making decisions on your own, you could opt for a limited customer relationship, if beneficial. That said, I am not sure why you would choose to be a customer. At The Hillis Group, we only represent the consumer as a client. We do not enter into agreements with consumers as customers unless they want to buy one of our listings. However, we strongly recommend they hire their own agent. We also recommend and urge all consumers to sign with the brokerage as a client.
You might be questioning the imbalance between customer and client relationships, as have RECO (Real Estate Council of Ontario) and many others in the real estate sector.
The Ontario government’s recent proposed legislative changes would eliminate the customer relationship. With this proposed change in place, it would be clear that a buyer or seller would either be a client or self-represented.
What about multiple represention.
Even if you’re a client, you could be interested in buying a property whose seller is also a client at the same brokerage as you. This would trigger multiple representations. Multiple representations really need to be defined and explained how they can and will affect your real estate transaction.
Many transactions are successfully completed each year with multiple representations.
For example, many brokerages have a large number of agents. One agent lists a property (seller client) and one of the brokerage’s other agents has a buyer (buyer client) for the same property. Many times the agents within the same brokerage will list and sell to the brokerage’s clients. That seems to be the way agency is formed. Agency is with the brokerage and not the agent. The client will still need to approve the multiple representations. We could talk about several other scenarios but it would get confusing.
There are expections that cant be avoided
Small rural towns find they are in this scenario several times. Because they are carrying a large inventory Buyers will call the listing brokerage. In this case, the agent will act more as a facilitator between the buyer and seller. This means the Agents can’t promote the interest of one client over that of the other.
Regardless of whether you choose to be a customer or a client, make sure you thoroughly review and understand all documents you receive from the brokerage. Assess your needs, ask questions, and consult with your agent.
If you have a question for Joe about the home buying or selling process, please email firstname.lastname@example.org.