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Buyer Beware! Pitfalls of Colorado Agency Law

In 2003 the Colorado Real Estate Commission introduced “Designated Brokerage”, giving parties in a real estate transaction two choices in service.
1. An “Agency” relationship; either as a “Seller’s Agent” or “Buyer’s Agent”.
2. A “Transaction-Brokerage” relationship.
Buyers need to be aware of the differences, and potential shortcomings of each, before engaging the services of a real estate broker. The following are the definitions for each relationship as set forth by the Colorado Real Estate Commission:
Seller’s Agent
A seller’s agent (or listing agent) works solely on behalf of the seller to promote the interests of the seller with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the seller. The seller’s agent must disclose to potential buyers all adverse material facts actually known by the seller’s agent about the property.
Buyer’s Agent
A buyer’s agent works solely on behalf of the buyer to promote the interests of the buyer with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the buyer. The buyer’s agent must disclose to potential sellers all adverse material facts actually known by the buyer’s agent including the buyer’s financial ability to perform the terms of the transaction and if a residential property, whether the buyer intends to occupy the property.
Transaction-Broker
A transaction-broker assists the buyer or seller or both throughout a real estate transaction by performing terms of any written or oral agreement, fully informing the parties, presenting all offers and assisting the parties with any contracts, including the closing of the transaction without being an agent or advocate for any of the parties. A transaction-broker must use reasonable skill and care in the performance of any oral or written agreement, and must make the same disclosures as agents about all adverse material facts actually known by the transaction-broker concerning a property or a buyer’s financial ability to perform the terms of a transaction and if a residential property, whether the buyer intends to occupy the property. No written agreement is required.

In simplest terms, a “Seller’s Agent” clearly represents the seller in a transaction, while a “Buyer’s Agent” represents a buyer, and the “Transaction-Broker” merely facilitates a transaction. This seems clear enough on the surface, but it’s important to understand the nuances and shortcomings inherent in each relationship that we find can complicate a transaction:
Common Pitfall #1
When a buyer contacts a listing broker on a property of interest (the agent on the “For Sale” sign or advertisement), that broker will already have a “Seller’s Agent” or “Transaction-Broker” relationship established with the seller.

As a “Seller’s Agent”, they could designate a broker within their office to assist the buyer. Alternatively, they may ask the seller if their relationship could be changed into a “Transaction-Brokerage”, whereupon all fiduciary duties of the broker (now a non-agent) cease. As a “Transaction-Broker”, the broker can now concentrate on selling his listing, and also reduce his liability by simply facilitating the transaction. Of course, the upside is to the broker who will often receive a double commission (selling-side and a buying side). The downside is that the buyer has no representation.
Common Pitfall #2
If a buyer contacts a broker who has no relationship with the seller of the property the buyer initially has interest in, they could enter a “Buyer’s Agent” agreement. However, buyers need to keep in mind that property interests may and often do change, and could suddenly find that the perfect property is listed by the “Buyer’s Agent” (in traditional real estate offices, agents will take on both buyers and sellers at any given time).

Should this situation arise, the broker would have the option of changing to a “Transaction—Brokerage” relationship (offering no fiduciary duty to either the seller or the buyer, and possibly doubling his commission), or may terminate one of his agency relationships altogether.

The downside is that up to this point, the buyer has been disclosing personal and financial motivations to his former agent, but now the real estate broker is a salesperson (the agency relationship no longer exists), and the buyer has compromised his/her negotiating power.
Common Pitfall #3
Buyers should also be aware of a recent evolution in Designated Agency, which can give a buyer a false sense of security. Successful listing brokers are now employing a “Buyer Broker” to represent buyers of their listings. The pitfalls of this relationship should be obvious, considering why the “Buyer Broker” was hired in the first place, along with the sharing of office, staff and equipment.

In principle, Designated Agency was an attempt (albeit weak) to pacify the consumer advocacy movement. However, it was ultimately drafted to satisfy traditional offices so they can continue to receive both selling and buying side commissions.

In practice, Designated Agency shows little respect for the buyer. It has given traditional offices the ability to pass around real estate buyers in an impersonal and self-serving way, giving their right to full representation and protection to the urge of the salesperson, consequently making buyers vulnerable with one of the biggest monetary decisions of their lives.

Although Designated Agency was developed by lawmakers, it is interesting that in the legal field, one attorney cannot represent both parties in a dispute, and further, attorneys within the same firm can’t represent opposing sides due to conflicts-of-interest. Ironically, lawmakers feel that this practice is acceptable in real estate, a “Buyer’s Agent” can represent a buyer on an officemate’s listing!

Alarmed and confused? You are not alone, but there is a better option which leaves nothing to chance...
Exclusive Buyer’s Agent
A genuine and straightforward agency relationship does exist for buyers, guaranteeing a fiduciary relationship at all times with no conflict-of-interest. Committed to this ideal is a breed of real estate professionals, small in numbers but passionate for consumer advocacy. Exclusive Buyer Agents and their offices never list property for sale. They focus their efforts solely on the interests of their buying clients, granting without limitation, their experience, judgment and knowledge every step of the way.
At Buyer's Resource Real Estate of Steamboat, our core values are different than all other Steamboat Springs area offices. Our belief is that we can only serve one client at a time, and that we want to avail our clients to all of our knowledge on any property they desire to own. We do not believe that a real estate broker can fairly serve a buyer and seller on the same transaction. Nor do we believe a real estate broker should be able to treat a real estate buyer as a impersonal commodity and the salesperson should be able to determine for themselves the type of relationship they want to have with a customer, which typically is the one that will make the salesperson the most money. We simply want to work with each client on a personal basis, creating happy and satisfied clients and friends.