When it comes to buying or selling a house there is lots of jargon and ‘realtor-speak’ that is simply befuddling—short sale, blockbusting, cap rate, and so on. Then there are the words you think you know but actually have an entirely different meaning, like customer and client.
This actually is the biggest misconception in real estate – understanding when you are a client and when you are a customer. Here’s all the information you need to know to understand these two concepts throughout the process.
Client versus Customer
Most of the time when we think of the terms client and customer we assume they can be used interchangeably. In fact, Merriam-Webster dictionary defines them as follows:
1: one that is under the protection of another: dependent
2 a: a person who engages the professional advice or services of another
1: one that purchases a commodity or service
Even the dictionary uses them interchangeably; so it’s understandable to think that they are the same thing. However, when it comes to real estate, there are clear distinctions between the two.
1. Your Agreement is the Determining Factor
The differentiation between client and customer depends on the type of agreement signed with the brokerage. There are two different types of agreements that you may sign in a real estate transaction—either a representation agreement or a customer service agreement, both of which are legally binding.
With a representation agreement, your broker has a fiduciary duty towards you. This means that the broker must work to both protect and promote your best interest throughout the entire real estate transaction.
This type of agreement requires the broker to maintain high standards of loyalty and good faith, as well as keep specific obligations and responsibilities. Individuals that sign a representation agreement are considered clients.
Customer Service Agreement
With a customer service agreement, your broker does not have any fiduciary duty towards you. This means the broker is expected to offer you knowledgeable service, analyze factors that can reduce or increase property value, and to be honest, fair, and act with integrity. However, they are not obligated to act with your best interest in mind during the transaction. Individuals that sign a customer service agreement are considered customers.
2. Confidentiality Matters
The amount of information that is shared about you or your home depends on whether you are considered a client or a customer. If you are a client, then you have more confidentiality. What exactly does this mean though?
If you are a buyer that is considered a client, this means that the broker will keep information about you that could potentially hurt the sale confidential while also sharing all the information they know about the seller with you. On the other hand, if you are a buyer that is a customer there is no obligation to maintain confidentiality. This means the broker is able to tell the seller everything they know about you and may give you limited, if any, information about the seller.
If you are a seller that is considered a client, then again your broker would maintain confidentiality and withhold any information that may hurt the sale while telling you everything they know about the buyer. However, if you are a seller that is considered a customer, your broker will tell the buyer everything they know about you as the seller and you may get little, if any information about the buyer.
3. Information Differential
Another important point to realize is that there is a difference in the obligation to share information to clients and customers. With clients, brokers are expected to take reasonable steps to provide all material facts about the property while also providing professional advice. Meanwhile, with customers, brokers are only expected to provide the material facts that they know about the property.
4. Professional Advice
Most brokers have valuable insight into what makes a good real estate deal, the area, comparable pricing, etc. The catch is, it is only available to clients. When you are a client, your broker will give you professional advice based on material facts, the market, trends, insight on pricing, and so forth.
This is all done in the spirit of keeping your best interest at the heart of the real estate transaction. When you are a customer, you are given the bare facts without any of the professional advice or insight from your broker. If you do get any, it is often supporting the other party’s offer or position.
5. Shifting Loyalty
Let’s face it. Broker loyalty is fickle. If you want to make sure that your broker’s loyalty lies solely with you throughout the real estate transaction, you want to make sure that you are the broker’s client.
As a client, your broker negotiates on your behalf, focusing on choices that benefit you and satisfy your needs, tries to resolve problems to your advantage, and aims to protect and guide you throughout the process. On the other hand, as a customer, the broker keeps the attention on the other party, protecting their interests.
So is Being a Client or Being a Customer Better?
Whether you should aim to be a client or a customer really depends on your unique situation. You should carefully sit down and consider what your needs are and which agreement will best meet these needs. This is true regardless of whether you are going to be a buyer or a seller.
Many times (especially for first-time homebuyers or individuals not well-versed in real estate) signing a representation agreement to become a client is the best bet as there is a greater level of protection and your broker is “in your corner.” However, if you are well-versed in the process of buying and selling real estate having a simple customer service agreement may be sufficient.
Regardless of whether you decide to become a client or a customer, do your homework and make sure you understand everything before you sign. This simple step of doing your research and understanding your rights and obligations can save many surprises throughout your real estate journey.