[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.
A 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.