Real Estate Agent or Transaction Broker?

[July 2020 | By Ninah Hunter, Real Estate Editor]

Is your real estate broker your agent or a transaction broker, or are you just a customer? Say what?! Let me explain.

First, in Colorado, the term broker is used for all persons licensed by the State of Colorado to engage in real estate brokerage activities and services, whether they are sole proprietors, employing brokers, managers, supervisors, team members, or associates. However, not all brokers are “agents,” despite the fact that most consumers or lay persons generically refer to them as such.

There are two types of working relationships a Colorado real estate broker can have when working with a buyer or seller: agent or transaction broker. If one or the other relationship exists, the buyer or seller is the broker’s “client.” Transaction brokerage is unique to Colorado and a handful of other states, which is why many consumers, or even real estate brokers in other states, don’t understand it. So, what is it, exactly?

Let’s start with the term agent. Agency is derived from Common Law, which defines agency and dictates an agent’s duties to the principal, i.e., the client. Those duties entail the highest level of trust, loyalty, and fidelity, requiring the broker to place the client’s interests above any other party’s, including the broker’s. An agent represents only one party to the transaction by advocating, directing, and negotiating on the client’s behalf and advising the client as to the benefits and risks of a proposed transaction.

transaction broker (TB), on the other hand, assists in and facilitates the transaction. As defined in the Colorado Real Estate Manual, a TB is “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.”

By analogy, an agent is like a coach, whereas a TB is like a referee. Like a coach, an agent can tell his or her client what they should do and how to best win the game. In real estate terms, an agent can tell the client if a property is over-priced or a good deal, if it’s a risky or sound investment, and the broker may reveal confidential information they have learned about the other party that could be used to the client’s advantage. A TB, on the other hand, is neutral and makes calls consistent with the rules, not favoring one side or the other. Accordingly, a TB may not advise one or the other party about whether they are getting a good or bad deal, tell them what they should or should not do, or reveal confidential information.

The default broker/client relationship in Colorado is TB. The only way a broker may act as the agent of a buyer or seller is by way of a written agreement. If a broker is the agent for one party, the other party is the broker’s “customer” with whom the broker has no relationship and, hence, no obligation, other than to treat the customer fairly and honestly. While a broker may act as a TB for both the buyer and seller, he can never be the agent for both of them in the same transaction. Of course, each party may have another broker acting as their agent.

By analogy, an agent is like a coach, whereas a TB is like a referee.

Because the consumer may assume agency when working with a real estate broker, and because transaction brokerage does not require a written agreement, Colorado law requires that the broker reveal in writing to a prospective buyer or seller at the outset what relationship that broker may have with the party, the duties of that relationship, and the fact a written contract is required for agency.

This disclosure is included in the Colorado Real Estate Commission (CREC) Seller Listing Contract and the Buyer Listing Contract. If the Buyer Listing Contract is not presented to the buyer at the outset, the broker must give the buyer the mandatory CREC Broker Disclosure to Buyer. The broker will ask the buyer to sign the disclosure to confirm its receipt. It is not a contract and does not obligate the party to the broker in any way, a fact that’s spelled out in the form. Brokers need to have proof in their files that they made this disclosure in case they ever get audited by the Department of Real Estate. So don’t be surprised or concerned if you’re presented with this document when you first meet or start working with a broker.

A few other things about transaction brokerage in Colorado to be aware of are as follows:

  1. A broker who, under a written agreement, is an agent for one party 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 client that becomes interested in a property the agent has listed, or an agent representing a buyer later lists a home for a seller client that the existing buyer client wants to buy. The broker is required to give both parties a written notice of the change in status from agent to TB.
  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 doesn’t extend to the other brokers in the office of the company, who retain whatever relationship they may have with their clients.
  3. TBs 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.

There, you have it! It’s clear as mud, right? These are, without question, confusing concepts, especially for those who don’t regularly buy or sell in Colorado. Hopefully you now have a better understanding of how transaction brokerage differs from agency in Colorado as you begin your summer selling and buying adventure. Your Colorado real estate broker will, of course, be happy to explain further and answer any questions you may have as you begin working together.