Part I - What Is Transactional Brokerage?

There's no question that the driving trend in real estate is toward reduced broker liability in the form of non-agency client representation. This non-agency is known as transactional brokerage, a means of providing non-fiduciary services to real estate consumers.

Some states such as Massachusetts, under pressure from consumer groups and exclusive buyer's brokerage lobbyists, have failed to pass statutes allowing transactional brokerage as a means of facilitating real estate transactions. Other states such as Texas and Colorado happily co-exist with the concept by providing mandatory agency disclosures up front to potential clients. Some states such as Florida, are taking it one step further - they have not only embraced the concept of transactional brokerage, their lobbyists are working on the state legislatures to eliminate mandatory disclosure of agency relationships to buyers and sellers.

At opposite ends of the spectrum, there are the NAR, the state organizations and traditional brokers promoting the transactional brokerage business model, while some brokers, single agents, and consumer groups decry the concept as anti-consumer and anti-agency. Some brokers feel that transactional brokerage is the only logical way to hold on to the "double dip" while minimizing liability. Other agents and brokers fear that transactional brokerage is an open invitation for consumers to cut Realtors' fees. Why would anyone pay the same fee for less liability and service if they could have an advocate?

No wonder there is a failure of consensus on agency vs. non-agency from state to state. Like complex tax codes that require the interpretation of CPAs and attorneys but are unfathomable to the taxpayer, transactional brokerage may be said to serve big business interests at the expense of the consumer who can win or lose depending on their own understanding and interpretation of the concept. At the least, it is poorly misunderstood by both practitioners and the legislators. So how did it evolve? Who does it serve? Is it good thing or bad thing? For whom? And is it possible to make the concept acceptable, even desirable, to the public?

These are issues that are being vigorously addressed by the National Association of REALTORS® (NAR) through its Presidential Advisory Groups, through The Association of Real Estate License Law Officials (ARELLO,) a voluntary organization of real estate licensing officials, and through industry organizations such as the Real Estate Buyer's Agent Council (REBAC) and NAEBA, as well as consumer protection groups including Ralph Nader's.

What is Transactional Brokerage?

Transactional brokerage is a means of providing neutral third-party real estate services to buyers and sellers with reduced liability to the broker. In most states, transactional brokerage is presented as a non-agency alternative option to single agency. Single agency is a form of licensee service that provides limited real estate services from a fiduciary standpoint. In some transactional brokerage business models, state statutes allow the broker to remain neutral in the transaction, while a seller's agent and buyer's agent within the same office or company act as "designated" or single agents for their clients. An agent, by definition, is loyal only to one party in the transaction.

That is where the controversy begins. Is it possible for designated agents to operate in their respective clients best interests under the same roof? Is it possible for a broker to really remain neutral while a selling agent in the office has listed the home? Is the buyer's agent in the office under pressure to prioritize in-house listings, effectively eliminating true advocacy for their clients? Does the seller/client understand that the listing contract is with a neutral party, not an advocate? How does the seller's agent assert advocacy? How does the buyer/client know for certain that s/he wasn't steered to in-house listings over other available homes in the marketplace? What is the true value of a transaction facilitator in a world where buyers are finding their own homes and loans on the Internet?

On the pro side, transactional brokerage facilitates the transaction. By avoiding advocacy, the transactional broker sidesteps positions that may cause impasses in negotiations. The seller wants to sell, the buyer wants to buy. The only question remaining is how badly. By "getting out of the way" of the principals, the transactional broker is in effect an advocate for the transaction instead of for either party. Unlike most agents, transaction brokers are prohibited from advising their clients on price or some terms. If the principals can agree to a price or terms, all that remains is getting the deal done the best way possible.

How does transaction brokerage reduce liability?

By replacing the common law of agency with statutes passed by state legislatures that clearly define broker and agency relationships, brokers are no longer subjected to court cases in which the common law of agency either has set a precedent or will set a new precedent. Why is common law significant? Common law is the collective group of judicial decisions over the centuries that have resulted from opponents, buyers and sellers going to court against agents and brokers. The danger of common law, according to the NAR findings, is that it differs from state to state, and it can change with each new judicial decision. By encouraging the states to adopt statutes, the duties of brokers and agents are clearly defined within the statutes, eliminating numerous liability issues.

While some claim that transactional brokerage is a clever disguise for dual agency, a non-agency relationship now being eliminated by most states, others say it is the way the industry has always worked. Only now, it has a name.

Part II - The Roots of Controversy: A Brief History of Agency and the Evolution of Transactional Brokerage
Part III - Why Transactional Brokerage Is Here to Stay

Published: June 14, 1999

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.