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April 16, 2014
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Mountain Law: What is the difference between an agent and a transaction-broker?

This week’s column is about the difference between an agent and a transaction-broker. Any buyer, seller, landlord or tenant in a real estate transaction will encounter these distinctions when a real estate broker is involved.

To begin with, agency has deep roots going back to the master-servant relationship under English common law. A servant owed absolute loyalty to the master, putting the interests of the master above the servant’s own interests and those of others. Servants also owed fiduciary duties to the master, including care, obedience, accounting, loyalty (including confidentiality), and disclosure. These duties are more or less the same that an agent owes today.

It is said that no man can serve two masters, meaning here that the same agent cannot represent two different clients in the same transaction. Colorado law refers to this impermissible arrangement as “dual-agency.” The concept is clear enough, but, in practice, it can become confusing for a buyer and seller (or landlord and tenant), particularly when there is only one real estate broker involved in a transaction. Who does the broker really work for and what duties does the broker owe each side?

Before getting to the duties, it is important to note that Colorado is among a handful of states that allow a broker to act as a transaction-broker. The transaction-broker is not an agent for either side, but is merely a facilitator of the transaction. You can think of a transaction-broker as the referee in a sports game helping the game along but indifferent to who wins and loses.

In contrast, an agent is like the coach of one of the teams and is working to bring about the best result for that agent’s side.

Under Colorado law, both agents and transaction-brokers owe their clients the duty to exercise reasonable skill and care, including, generally, to honor contracts, present all offers in a timely manner, disclose adverse material facts known by the broker, advise the client, account in a timely manner for all money received, keep the client informed, and not disclose confidential information without permission. While these duties bear resemblance to the fiduciary duties of a servant, they are not, strictly speaking, fiduciary duties, but are rather statutory requirements. Where a broker is acting as an agent, the broker owes additional duties to promote the client’s interests and counsel the client about the material benefits and risks of the transaction.

Unless a broker agrees in writing to act as an agent, the broker is considered a transaction-broker under Colorado law. It is possible for a broker to start out as the agent for the seller or buyer (or landlord or tenant) and then become a transaction-broker for both sides as needed to avoid becoming a dual-agent. It is also possible for a broker to continue acting as an agent in a transaction and treat the other side as a “customer” with whom the broker has no brokerage relationship. Brokers are required to disclose their status to all clients and customers.

It may seem at first that a consumer would always want the broker to be an agent because the consumer then benefits from the additional duties owed by an agent.

However, that may not be true in practice. For example, if a broker is a seller’s agent and the buyer is a customer, the buyer may not feel comfortable disclosing any confidential information to the broker because the broker must then tell the seller.

In contrast, if the same broker were acting as a transaction-broker for the buyer and seller, the broker could not disclose confidential information to either side without permission (and the buyer might be more trusting). I will expand on this discussion in a future column.

Contact Noah Klug at Noah@TheKlugLawFirm.com.


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The Summit Daily Updated Apr 16, 2014 11:02AM Published Apr 16, 2014 11:02AM Copyright 2014 The Summit Daily. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.