Craig Franklin Chambers, Attorney at Law

June 20, 2013

How Can My Real Estate Agent Represent the Buyer and Seller in the Same Real Estate Transaction?

Real Estate Law Firm and Family Law Law Firm Blog(Vol I.8)

by Craig Franklin Chambers, Esq. The Littleton Lawyer.

As a law firm specializing in divorce law, family law, and real estate law in Littleton, Denver, Highlands Ranch, and Englewood, Colorado and the surrounding areas, I am frequently asked this question: How can my Colorado real estate agent represent both the buyer and seller in the same real estate transaction?

This is the scenario when you list your home with a real estate broker and he brings his own buyer or you are looking at houses with your broker and he sells you his own listing. If during the negotiations of the transaction, the broker knows the Seller will come down on his asking price, and he knows the Buyer will go up on his offer price, where do the broker's loyalties and duties lie? What if the Buyer wants an older furnace replaced, and the Seller refuses?

The answer is: he can't. A real estate agent can't represent both the buyer and seller in the same real estate transaction. Just as a lawyer can't represent a husband and wife directly adverse to each other in a property settlement in a divorce.

It  is a trick question. 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 is 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. In those days, 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 a broker 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 party to the deal as a Customer in which case he has no brokerage relationship with that consumer. He can't be a fiduciary for one party, for 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 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. 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 to sell his own listing.  Often as part of the negotiation for the real estate commission for the listing agreement, the consumer is given a discount when a broker brings his own ready, willing, and able buyer.

As a Colorado real state attorney, 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 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 listing to his own prospective buyer, 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.

    7851 S. Elati St. #101 Littleton, CO. 80120

    303-972-2552

    craig@craigchamberslaw.com