Craig Franklin Chambers, Attorney at Law

March 4, 2016

How Can a Broker Represent the Buyer and the Seller in the Same Real Estate Deal?

Littleton Real Estate Law and Family Law Blog

(Vol 1. 72)  March 4, 2016 by Craig Franklin Chambers, Esquire.

The Littleton Lawyer

Providing legal representation in all Denver-Metro areas including Denver, Littleton, Lakewood, Conifer, Roxborough Park, South Jeffco, and Highlands Ranch

How can my real estate agent represent both the buyer and seller in the same real estate transaction?

The answer is: he can't. A real estate agent can't represent both the buyer and seller in the same real estate transaction. Any more than a lawyer can't represent a husband and wife directly adverse to each other in a dissolution of marriage.

A real estate agent can function as a transaction broker---in which case he can work with both the buyer and the seller in the same transaction. In that capacity, he is not representing either party as an agent or an advocate. A transaction broker is not an agent for either party.

The relationships and responsibilities of the broker to the consumer have become confusing. Under the common vernacular of real estate, there’s the listing broker and the buyer's broker, the seller's broker and the selling broker, and then there is a buyer's agent, a seller's agent, or a transaction broker. All of these terms have different meanings.

In the '90's the legislature over-hauled the law regarding the relationships between real estate brokers and the public. Prior to this overhaul, both the buyer's real estate broker and the seller's real estate broker in a real estate transaction were fiduciaries of the Seller, and the buyer was entering the transaction, often unknowingly, unrepresented.

Under the current dynamic, a broker can be a Seller's Agent OR  a Buyer's Agent. In either case he has a fiduciary duty to promote the interests of his principal with the utmost duty, loyalty, and fidelity.  He is an advocate and a fiduciary for his principal, either the Buyer or the Seller.

Or as a broker he can act as a transaction broker. As a Transaction Broker, he must use reasonable skill or care in completing the transaction but he is not advocating the interests for either side. A broker can also treat one side of the deal as a Customer in which case he has no brokerage relationship with that consumer. But he can't be a fiduciary for one party, say for the example, the seller, and a transaction broker for the buyer. He is either a transaction broker for both parties or he can only represent and advocate for one side.

This statutory scheme was created to allow real estate brokers, in their limited authority to practice law without a license as professional real estate brokers,  to sell their own listings.

Real estate brokers often prefer to work as transaction brokers because they make more money if they sell their own listing. The real estate commission in the listing agreement is paid to the listing brokerage firm who then pays an agreed-upon portion of the commission to the selling brokerage firm.

When the broker "double-ends" a deal" the broker earns the whole commission---both the listing brokerage firm's and selling broker's portion  of the real estate commission. In addition, as a transaction broker, a real estate broker's duty to the consumer---and therefore his liability to the consumer--is limited as a transaction broker.

Consumers like the option of the Colorado broker to be permitted sell his own listing.  Often as part of the negotiation for the real estate commission for the listing, the consumer is given a discount when a broker brings his own ready, willing, and able buyer.

But if something goes wrong in the deal, it is harder to pursue litigation against a transaction broker than either a buyer's agent or a seller's agent because a transaction broker is not a fiduciary and has less of a duty to the consumer. His liability is often limited to acts of gross negligence, willful misconduct or dishonesty.

Transaction-broker relationships are the default broker-relationship in Colorado. The consumer needs to sign an agreement, establishing and setting forth in detail these higher duties to become a fiduciary.  If  you haven't signed an agreement with your broker either as a buyer or a seller, your broker is acting as a transaction broker. The Colorado Real Estate Commission approved forms explain in more detail the consequences of these options.

For a broker to change his status from a fiduciary relationship to a transaction broker relationship to sell his own listing, both the Buyer and the Seller must consent in writing to the change of status.  A broker can also simply sell his own listing to a buyer as a customer without sacrificing or reducing the quality and level of his services as a fiduciary.

Real estate brokers are required to inform the consumer of these options prior to even working with the consumer. The consumer is entitled to negotiate the scope of the real estate services the broker is providing. If his broker is working as a transaction broker, the consumer has the right to be informed that "his broker" is not his advocate at all.

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    Denver Real Estate and Family Law Attorney

    Licensed to practice law in Colorado since 1997, I have a B.A. from Vanderbilt University and a law degree from the University of Denver.

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