The vast majority of Florida real estate agents are facilitators that can’t offer homebuyers or sellers loyal representation but are nonetheless paid the same as those that do, according to a Consumer Federation of America (CFA) report.
According to the report titled “Does Transaction Brokerage in Florida Serve the Interest of Home Buyers and Sellers?,” 15 U.S. states allow transaction brokerage — where the real estate agent is a neutral facilitator for the sale rather than a fiduciary looking out for the best interests of the buyer or seller — but only in Florida is transaction brokerage considered the default agency relationship and not required to be disclosed to buyers or sellers.
“Transaction brokers cannot legally provide their customers with any information or advice that could potentially harm the other party in the sale,” the report said.
It continues, “Florida law specifically prohibits these brokers from disclosing that the seller will accept a price less than the listed one, that the buyer will pay a price greater than that submitted in a written offer, or the motivation of either party for selling or buying. These restrictions make it illegal for transaction brokers to negotiate the price and terms on a home sale on behalf of their customer.”
“Florida law does not require ‘loyalty,’ complete ‘confidentiality,’ ‘obedience,’ and ‘full disclosure’ from transaction brokers, only from single [fiduciary] agents,” the report added.
According to the report, buyers and those who work with a transaction broker while the opposite party has a fiduciary are especially at risk. “If [buyers] do not receive information and advice they expect from their transaction broker, they are at risk of overpaying for a property that has not been adequately inspected,” the report said.
Since 2008, Florida has only required brokers to disclose when they are acting as a “single agent” with fiduciary duties to their client — even though buyers and sellers are most likely to think that their agent is a fiduciary. A December 2021 online survey commissioned by the CFA and conducted by global market research firm Ipsos founded that, of a representative sample of 286 Florida consumers, 48 percent thought that most homebuyers and sellers in the state work with an agent who legally represents their best interests.
Just over a third, 35 percent, thought most buyers and sellers work with an agent who “legally represents the interests of neither buyer nor seller but just facilitates the sale.”
“Florida law helps perpetuate the erroneous, widespread belief that most transaction brokers work as totally loyal representatives not just as facilitators,” said Stephen Brobeck, a CFA senior fellow and the report’s author, in a statement.
The report points out three reasons why the real estate industry in Florida prefers transaction brokerage:
- easier and quicker home sales because “Florida transaction agents are not required to obtain cumbersome disclosures nor are they required to disclose the absence of total agent loyalty.”
- easier commission double-dipping because “[f]or firms, it is much simpler and less risky for all their agents to function as transaction agents, allowing these agents to work with each other having fewer conflicts and hurdles to overcome. For individual listing agents, who also find a buyer, there is no need to persuade the seller to allow the agent to change their status from fiduciary to facilitator.”
- greatly reduced legal liability for agents and brokers. “[A]ttorneys are reluctant to sue transaction brokers because as one expert noted: ‘The extra step of proving “implied” agency just isn’t worthwhile for them to pursue.'”
The report highlights one factor that does mitigate the risks of transaction brokerage for consumers, though not their agents: many transaction brokers appear to act somewhat like fiduciaries by negotiating on behalf of their customer — which is against the law.
CFA called for the Florida Legislature to once again require “early and effective disclosure of all agent roles — single agent (fiduciary), transaction broker (facilitator), and non-representative.”
The nonprofit also called for the Florida Real Estate Commission, which is supported by the Florida Department of Business and Professional Regulation, to educate consumers about the different roles of real estate agents. Inman reached out to the department and will update this story if and when we hear back.
Florida Realtors is the largest trade association in the state with more than 250,000 members. Asked whether Florida Realtors would support requiring disclosure of transaction brokerage, CEO Margy Grant told Inman that the current system has “worked very well.”
“Florida Realtors has long worked to empower our members to transparently and efficiently serve home buyers and sellers in achieving the American dream of homeownership,” Grant said in an emailed statement.
“Under Florida law, as administered by the Florida Department of Business and Professional Regulation, Division of Real Estate, brokers and consumers have three different options in determining the agency relationship that is right for them and the transaction they are contemplating. This system has worked very well in advancing homeownership in Florida for many years.”
For the report, the Consumer Federation of America examined a total of 2,000 Florida home listings sold in late 2021 — 500 consecutive sales of single-family, condo or co-op listings recorded in four multiple listing services in Orlando, Jacksonville, Miami and Naples. The nonprofit hired Derek Eisenberg, a Realtor and broker at Continental Real Estate Group, as a consultant to research and send recent MLS sold residential listings in specific cities.
Of the four MLSs, Jacksonville’s is the only one that requires listing agents to state their own agency status on their listings. Out of 500 consecutive sales in the city in late August and early September 2021, CFA found that 76 percent of listing agents identified their agency status as transaction broker while only 20 percent reported their status as single agent. The rest (21 sales, or 4 percent of sales) “listed their status as non-representative, perhaps because they were assisting a for-sale-by-owner,” the report said.
All four of the MLSs have data fields where listing agents state how much they’re offering buyer brokers based on agency status. In virtually all of the sales with listed compensation —98 percent — listing brokers offered the same compensation to transaction brokers that they did to single agents, typically either 2.5 percent or 3 percent, according to the report. The compensation offered only differed in 24 of the 2,000 sales examined.
“Transaction brokers should be receiving lower compensation than single agents because these brokers have fewer legal responsibilities and less liability,” CFA said.
“Real estate agents who are fiduciaries have received much criticism recently that their rates are too high,” CFA’s Brobeck added. “However, they are far more deserving of these rates than are agents who are facilitators.”
According to CFA, “transaction brokerage can benefit some consumers if it is effectively disclosed, drives down transaction costs considerably, and these cost savings are shared with consumers. If a transaction broker is a facilitator, it makes little sense for two transaction brokers to be involved in a sale, greatly increasing transaction costs.”
The nonprofit recommended that Florida buyers and sellers discuss their agent’s role before signing any agreement to work with them and that if buyers or sellers decide to work with a transaction broker, “they hire an attorney to ensure that their interests are protected.”