Transaction Brokerage in Colorado--What the Heck is That?!!

By
Real Estate Agent with Ridgway Real Estate 40037375

 

Most people have some concept of agency, although a lay person may not understand completely the legal definition and ramifications of agency.  To confuse the issue, many people refer to a licensed real estate professional as a real estate agent, without considering or appreciating the legal significance of the term "agent."

In Colorado, not all real estate brokers or sales associates are agents.  There are 2 relationships a real estate broker can have when working with a buyer or seller, that of agent or transaction broker.  Transaction brokerage is unique to Colorado and a handful of other states.  Actually, I know of only one other state, Florida, that has transaction brokerage.  There may be others, so please inform us if some of you are in states that recognize this legal status.  Also, just to clarify, in Colorado, "broker" is used for all real estate professionals licensed to engage in real estate brokerage activities and services, whether they be owners, managers, employing brokers, supervising brokers or associates (called "broker associates' or "associate brokers").  Still, the public or consumer generically and broadly refer to all real estate brokers as "agents," which adds to the confusion.

So, what the heck is a transaction broker? Well, let's start with agent, whose duties are derived from Common Law.  An agent "represents" only one party, either a buyer or seller, by advocating, directing, negotiating on the client's behalf and advising the client as to the benefits and risks of a proposed transaction.  The agent represents the interests of the client above the interests of the other party. If an agency relationship exists, then the buyer or seller is the real estate brokers "client."

A transaction broker, on the other hand, "assists" a buyer or seller.  Taking the definition directly from the Colorado Real Estate Manual, a transaction broker "means a broker who assists one or more parties throughout a contemplated real estate transaction with communication, interposition, advisement, negotiation, contract terms and the closing of such real estate transaction without being an agent or advocate for the interests of any party to such transaction.  In other words, a transaction broker assists a party or both parties to the transaction without representing either of them or being their agent.  A buyer or seller that has a transaction brokerage relatinship with a broker is also a client.  There, that's clear as mud, isn't it?

I think the best analogy I've heard to help distinguish between an agent and a transaction broker ("TB") is that an agent is more like a coach whereas a transaction broker is more like a referee.  A coach can tell his or her client what to do or what they should do.  A TB is a neutral, observer, and just interprets the rules and calls the shots without any obligation on the part of either side.   In the situation of a real estate transaction, a TB will give out information, explain procedure, supervise and facilitate the transaction, while assisting one of the parties or both, without taking sides.

If a real estate broker is an agent for a party, then the broker has no relationship and, hence, no obligation toward the other party, who is considered to be and referred to as a "customer."  So, if a real estate agent or broker calls you a customer, then you know that the broker has no professional or working relationship whatsoever with you, and hence no duties or obligations, and that the broker will be acting on behalf and protecting the interests of his or her buyer or seller only.

In Colorado, the default relationship is that of TB.  The only way a real estate broker can become an agent for a buyer or seller is under a written contract.  So, unless you, the consumer (buyer or seller), is willing to enter into a written contract (usually the listing agreement or buyer agency agreement), or you've been advised that you are just a customer and the broker is the agent for the other party, then the relationship you will have with that broker is one of transaction brokerage. 

Because the consumer may be confused or assume agency when working with a broker, Colorado law requires that the broker reveal to the buyer or seller at the outset what relationship that broker has with the buyer or seller.  This is done in writing, as either set forth in the proposed written contract (e.g., listing agreement) or by way of a mandatory disclosure form promulgated by the Colorado Real Estate Commission (CREC).  Click here to view the broker disclosure to buyer/tenant form.  There is a separate, similar disclsore form for sellers selling their home by owner (FBOSs) or bank or REO sellers who do not use the CREC listing agreement.  The broker will ask the buyer or seller to sign the disclosure just to confirm its receipt.  It is not a contract and does not obligate the party to the broker in any way, which fact is spelled out in the form.  so, if you are asked to sign such a disclosure form, don't be afraid of it.  We need to have proof in our files that we made this disclosure to our prospective buyers, tenants, sellers and landlords.

A few other things to keep in mind about transaction brokerage in Colorado are as follows: 

  1. A broker who, under a written  agreement, is an agent, may change his or her status to that of a transaction broker if the broker has or enters into a transaction brokerage relationship with the other party.  The ability to change status will be specified in the written listing or agency contract.  This usually happens when an agent has a buyer that becomes interested in a property the agent has listed, or an agent representing a buyer later gets a listing that the existing buyer client wants to buy.  If that happens, then the broker is required to give both parties a written notice of the change in status.
  2. A broker within a multi-person company who is designated to assist or represent the buyer or seller is the only one that has the defined  relationship with the client.  It does not extend to the other brokers in the office of company. 
  3. TB's and agents share certain "uniform duties" with their clients, including, among other things, not to share confidential information that has to do with the other party's motivations or willingness to accept a certain offer.  Click here for a fuller explanation from the Colorado Real Estate Manual about these duties and the different brokerage relationships.

So, now the question is, who decides what relationship a broker and buyer or seller may have?  Well, it's negotiable between the consumer (buyer or seller) and the broker.  However, some brokerage companies have a policy establishing the relationship they will have with a buyer or seller.  Most of the time, it's transaction brokerage.  That's because most real estate companies work with both buyers and sellers and, also, because they believe there is less liability involved as a TB than as an agent.  That may be true, unless a TB acts like an agent.  If a company has a policy, it doesn't mean they can't make exceptions, but if they don't, then the buyer or seller will not have the option for agency with that company or one of its broker associates, even with a written contract.

This is unquestionably a confusing concept, especially for those that do not regularly buy and sell in Colorado, whether you are a consumer or real estate broker.  I hope, however, that this post helps explain and clarify what is transaction brokerage and how it differs from agency in Colorado.  Your Colorado real estate broker will, of course, be happy to explain further and answer any questions.

 

Posted by

NINAH HUNTER, REALTOR®

(970) 318-0086
Ninah@RidgwayLiving.com
RidgwayLiving.com

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Comments (7)

Anonymous
Jennifer Arbach

We (the Strategic Planning Committee of the Greater Binghamton Association of REALTORS) found your blog post as we searched for a definition of Transacitonal Brokerage. You did an excellent job of defining it. As we are in the beginning phases of discussing this as a result of it coming up at the state level (New York) I am curious as to how well agents can change their mindset when they have been acting as agents all along. Was TB always practiced in Colorado? If not, how well were you and fellow agents able to adapt when being used to offering full fiduciary duties to clients? Were consumers able to understand the difference and did they care? I know this may seem rudimentary but this is a new concept to me.

Jan 27, 2010 02:09 AM
#1
Ninah Hunter
Ridgway Real Estate - Ridgway, CO
REALTOR®

It is not rudimentary at all, Jennifer.  The reason I wrote about Transaction Brokerage is because it IS difficult to understand, both the for consumer and real estate broker.  This status came into being in Colorado about 1994 (I'll have to confirm that), with some modifications since then.  I didn't start practicing in real estate in Colorado until 2004.  My concept of "agency" is founded in my legal background as an attorney.

Based on what I know now, I don't think it is any more difficult or problematical than dual agency or sub-agency.  And I think it makes a lot more sense than the latter relationships.  Dual agency is a blatant conflict of interest.  Sub-agency is contraintuitive for both the buyer and agent working with the buyer.

Transaction brokerage is probably very difficult for a consumer to understand.  Some do get it, others don't and never will.  Some care.  Some don't.  The Colorado Real Estate Commission wants us at least to disclose and make an attempt to advise buyers what our relationship is.

The bigger problem is getting the concept completely understood by real estate brokers (I use that term as understood in Colorado, which encompasses broker owners, employing brokers, managing brokers, broker associates, sales associates, or whatever else they are called across the states.  I'm avoiding the common, generic term "agent" to refer to all real estate professionals because "agent" in the legal sense, i.e., as a "fiduciary," has a different meaning). 

If real estate professionals understand it, then the next hurdle is ensuring their behavior is consistent with their status.  If you are a TB, you cannot be acting, advising, and advocating like an agent (in the legal sense).  That's where brokers get into trouble.  The buyer or seller will expect you to act as an agent, but it is up to the real estate broker to ensure his or her behavior is consistent with that of a TB and to advise his or her client what he/she cannot do or say as a TB. In some cases, a party may need to be referred to another broker or attorney for advice they seek form an agent.

It can be difficult to switch from the mindset of an agent when the situation calls for a change in status from agent to TB when assisting both parties to a transaction.  But that's a question of education with your client at the outset, at the time you enter into your agency agreement with a buyer or seller that provides you can change your status. 

Again, I don't think it's any more difficult for a buyer or seller to understand the concept of TB or changing status from agent to TB than it is for the consumer to understand dual agency (and its inherent conflict) or dual agency (i.e., that although you're helping the buyer, in fact, your a sub agent for the seller).  The greater challenge is ensuring the real estate professional understands it and conducts himself/herself accordingly.

Most real estate brokers/associates work with both buyers and sellers, for which reason I support the concept of transaction brokerage.  But there are definitely situations in which you cannot be a TB, as Colorado law recognizes.  Those situations include when you represent a spouse, family member, intimate friend, or long term client with whom you've previously acted as agent and done multiple transactions.  In that case, you should not, and cannot under the law, purport to be acting as a TB.  Tricky thing in Colorado is that you cannot serve as an agent without a written contract.  So, that means we need to get our spouse, sibling, or child, or intimate friend or business colleague to sign a written agency contract before we proceed in representing them. 

In sum, I support transaction brokerage, but it is crucial that a the real estate professional understand it and know the circumstances under which he/she cannot be a TB, that a written contract is required before the broker may proceed as an agent (in the legal sense of the word), and how to behave as a TB and not an agent without that written agency contract. 

I haven't done much indpendent legal research of cases in which TB's got into trouble acting like agents when they shouldn't have done so, but I've heard the war stories.  My suggestion is to discuss these issues with legal counsel, and especially attorneys who have some experience in real estate law in states that have transaction brokerage (Colorado, Florida).

I hope this helps.  If there are any others of you out there in states with transaction brokerage, your input would be very helpful and instructive.

Jan 28, 2010 02:38 PM
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Jun 20, 2015 10:57 AM
Danny Skelly
Orson Hill Realty - Evergreen, CO
Luxury Real Estate Agent Colorado and Florida

Hey Nina! Great post! I always try to explain transactional brokerage to my clients and sometimes there is a blank look over their faces. It is hard to wrap your head around someone being able to "play on both teams" without advising one. It is always a slippery slope when you are a transaction broker for sure. 

May 15, 2018 10:57 AM
Ninah Hunter
Ridgway Real Estate - Ridgway, CO
REALTOR®

Thank you, Danny.  It's nice that you found this reather old post of mine and that it is still relevant to the real estate community.  I actually retired from real estate 5 years ago to pursue mortgage lending, then retired from that last year.  I've actually been contemplating re-activating my real estate license, so your comment was rather timely.  Lets me know I may still be relevant.  I truly enjoyed my real estate career.  Good luck to you in yours!

May 16, 2018 12:09 PM
Anonymous
Jo Wyatt

Is it ethical for my agent to purchase my home and act as transaction broker too. What would be a fair % fee? He wants 4%

May 02, 2020 08:35 AM
#6
Ninah Hunter
Ridgway Real Estate - Ridgway, CO
REALTOR®

A real estate licensee (licensed real estate broker) may ethically purchase your home.  The commission is always negotiable.  I presume your home is listed with him, or about to be.   If that is the case, if a buyer other than your agent were to buy your home, you probably would owe the listing brokerage firm a commission.  If it would be, say, 6%, then 4% for your agent, who will be preparing all the paperwork and facilitating the transaction, might be reasonable, but again, that's negotiable.  Keep in mind he'll most likely have to split it with his real estate company.  His real estate company may or may not require he pay a certain minimum fee or commission to the company for the sale.   You may, of course, have any proposed contract reviewed by your own attorney, and you should consult one if you have any further questions about this proposed purchase of your home by your agent.

May 07, 2020 01:15 PM