When is transaction brokerage appropriate?

In the real estate industry, agency relationships are the glue that holds it together. In agency, a REALTOR^® has a legal responsibility to offer a client fiduciary duties in the relationship. By this framework, they can provide advice, discretion, and judgment flowing from a career’s worth of experience on behalf of a client who may only buy or sell a few homes in their entire life. So where does transaction brokerage fit into this framework? Let’s take a few moments to consider the appropriate and, by contrast, inappropriate uses of the transaction brokerage option.

Conflict of Interest

Transaction brokerage is a method of managing a conflict of interest. Conflicts arise when the situation changes in a way where the REALTOR^® cannot offer fiduciary duties because the interests of their client conflict with their own or those of another client they represent. For example, if a REALTOR^® has a listing that one of their clients is interested in making an offer on, the REALTOR^® is in conflict since they cannot represent the seller’s best interests and the buyer’s client at the same time.

Since the seller will expect the highest price and the buyer the lowest price, the REALTOR^® can’t resolve the conflict with two sole agency relationships. For this and other reasons, the REALTOR^® needs to manage the conflict of interest by not representing one of the clients, either by one client being willing to represent themselves or by referring one of the clients to someone else for sole agency representation. The alternate option is transaction brokerage, where the parties agree to lay aside full sole agency temporarily. Instead, the REALTOR^® represents neither the transaction nor the client exclusively, effectively “brokering” the transaction.

Facts Over Forms

One critical thing to consider when considering transaction brokerage is that the arrangement is not reduced to a document to solve the problem. Still, the document follows the nature of the relationship and ensures the parties understand it. For example, if the REALTOR^® has been working with the seller for ten years and helped them buy and sell five properties, the relationship would be considered extensive.

Suppose a random buyer called on one of that seller’s clients’ listed properties. Is it appropriate to think that even-handed and unbiased transaction handling between the longtime seller and the unknown buyer is possible? Here it must be understood that simply creating a document that says it will be handled as such does not necessarily make it so in reality. The REALTOR^® must be confident they can treat the parties fairly, or they could attract complaints or legal liability upon themselves and their brokerage.

Too Close For Comfort

Level up. What about if your dear mother wants to sell her home and move into something smaller? As a REALTOR^®, you can list the property for sale with the proper disclosures of the relationship, but when a buyer walks into the open house and wants to write an offer on it, is transaction brokerage a viable option to manage the conflict? Can you represent mom and Mr. X in an even-handed and unbiased manner? Would you be able to convince a judge of the same?

All these questions are rhetorical. Of course, you cannot and should not. Level up again. What about a home owned by a REALTOR^® personally, and a buyer calls from the lawn sign wanting to make an offer? By now, we should all recognize that it is way too close for comfort to offer transaction brokerage to manage that conflict. For these and similar situations, Customer status or referral to another REALTOR^® are the only ways to manage that conflict.

The appropriate use of transaction brokerage is when the REALTOR^® believes they can treat both parties evenly and fairly. Like twins, you can’t treat one differently from the other, and all information is passed freely between the parties except for the price and motivation of the parties. Additionally, the parties need to clearly understand the relationship change and consent to it before moving forward.

This shift to representing the transaction means the REALTOR^® will promote neither party’s interests but the interests of the transaction, which is to find common ground between the parties while maintaining transparency for all. Because situations vary so much, discussing the situation with your broker is always a good idea to determine if transaction brokerage is appropriate. As a rule of thumb, if you need to ask the question, it is likely for a good reason.