I’m taking on the Consumer Federation of America’s (CFA) report that questions whether transaction brokerage serves the interest of buyers and sellers in Florida. In the first part, I challenged the notion that a transaction broker provides little to no representation in the buying and selling process. Now, I’m debunking their incorrect assumptions with regards to compensation, conducting due diligence, negotiation and confidentiality.
The notion that transaction brokers should be compensated less than a single agency has no basis. The buying and selling process is the same no matter if it is handled by a transaction broker or single agent and the transaction broker owes all of the duties required by law to the consumer.
To state that less effort is required because an agent is a transaction broker is false. They don’t simply unlock a door to show a home, shrug their shoulders and answer every question asked with “Sorry, because I’m representing you as a transaction broker I can’t help you with that.” No matter the kind of representation provided, it is ok not to know the answer to every question, but the agent should offer to assist with getting questions answered or point the consumer to a source who can help.
When it comes to listing a property, transaction brokers don’t put a sign in the ground and have the seller accept the first offer that comes in (unless that’s what the seller wants to do). That’s especially true in this market, where multiple offers are the norm, not the exception. The purchase agreement used is the same by a transaction broker and single agent as are most addendums, except some brokerage-specific ones.
Many people think buyer agreements are only for “buyer’s agents” which is typically considered single agency. Florida also has transaction brokerage buyer agreements as well as buyer agreements that account for the ability of an agent to transition from single agency to transaction brokerage. These buyer agreements (no matter what kind of agency is used) do allow an agent to seek compensation from a buyer for their services.
With regard to the claim in the report that transaction brokers are paid too much, the compensation offered by listing brokers to selling brokers in the MLS listings largely has no regard as to the type of representation the agent is functioning as when they write an offer. Determining the amount offered largely depends on the total commission being charged and split in accordance with that brokerage’s policy, if a policy should exist. Some require the commission to be split equally and in some cases the agent has more discretion on how they choose to split the commission.
I have seen some situations where single agency was involved on the listing side and less commission was offered to the selling brokerage side. This information became apparent once the closing statement was provided and the breakdown of the commission was shown.
Nevertheless, it is no secret that commissions have been trending downward over the last few years, especially in the current market climate. Builders have reduced selling commissions substantially or are no longer offering to cooperate with selling agents at all.
The idea raised in the report that single agents spend more time and effort gathering due diligence vs. a transaction brokerage agent is utterly false. The CFA report references “cumbersome disclosures.” The seller’s disclosure format utilized in Florida is a form document provided by the local board or some use the Florida Association of Realtors form.
In the area where I practice in northeast Florida, our board’s seller disclosure form is six pages. While the form addresses all components of the home in an efficient format it does not constitute a “cumbersome disclosure,’ yet this form is widely used no matter the representation involved.
I’ve never encountered any single agent pushing back on the disclosure form used, claiming it wasn’t sufficient or providing a different form they wanted the seller to complete if I was on the listing side. Many disclosures and recommendations about further investigation of certain things by the buyer are made on the state association and local board purchase agreements with regard to mold, flood insurance, airport notice zones, historic districts and homeowners associations. Many boards also have separate addendums with regard to these items.
This report goes further to state that a transaction broker agent doesn’t engage in any cumbersome disclosures so they can avoid any information that could tarnish a transaction. This couldn’t be further from the truth.
I have never worked with an agent that didn’t facilitate questions on behalf of buyers or ask their own questions, because buyers oftentimes don’t know what they don’t know about something. Information on a seller’s disclosure may not be clear and the buyer needs more information. Transaction brokerage does not equate to the ostrich approach of sticking your head in the sand and asking questions is not a violation of this kind of representation.
With regard to limited confidentiality, this report implies that a consumer is harmed by this in a transaction brokerage scenario. If you revisit what this duty states, it deems that any information that is requested to remain confidential cannot be shared. This duty does not override the agent’s requirement to disclose all facts that are materially known that could affect the value of the residential property.
In the real world, most buyers and sellers don’t discuss at what price they would buy or sell for in advance. In a crazy seller’s market, to try to predict this would be pointless. The way a buyer feels today may not be the way they feel tomorrow, particularly if they have made numerous strong offers but got outbid for various reasons.
They may have the ability to get very aggressive and feel more comfortable making a bolder offer than they previously have. In all the markets that I’ve been through, I have not had a seller state what price they would sell for, but they’ve certainly made it known what price they would not sell for when a low offer was presented. Again, there is no sense in trying to predict any of this ahead of time as it may discourage interest and offers.
As far as motivations for why a buyer is buying or selling, sometimes the parties do not want that information to be shared, such as in a divorce. If a seller is in a financial situation such as bankruptcy, pre-foreclosure, foreclosure or doing a short sale, that information has to be disclosed and identified in the MLS listing.
Those are legal situations that can absolutely impact the ability of the seller to deliver clear title and may be subject to third-party approval such as a court or bank. That disclosure is never subject to whether a seller is working with a single agent or transaction broker.
There is nothing to prevent a transaction brokerage agent from asking the listing agent the question as to why a seller is selling, and if a buyer wants them to ask, they can do so. At the same time, the listing agent, no matter the representation, doesn’t have to share that information if the seller doesn’t want that disclosed.
The claim that transaction brokerage makes it easier to facilitate a sale between a buyer and seller is hardly the truth. It is never easy, no matter what kind of representation is involved. I have walked away from these kinds of situations when I sensed the buyer was simply trying to take advantage of me as the listing agent by expecting a discount. There are always buyers who intentionally want to use the listing agent because of a perceived deal.
Lastly, the notion in the report that transaction brokers won’t stand up for buyers or sellers to negotiate the best deal is ridiculous. Let’s consider the current market we are in. What is considered a “deal?’’
Getting a deal equates to the fact that a buyer’s offer won out because two weeks later another home in the same area is coming on the market for more money. With inventory plunging to all-time lows, this trend is likely to continue for quite some time.
In more balanced markets before the pandemic, sellers would negotiate within reason but would not accept a lowball offer from a buyer that wouldn’t counter to show the seller they were serious. Then again, there are always overpriced sellers in every market who, no matter how much persuading their agent does, regardless of how they are represented, simply refuse to reduce their price or negotiate within reason.
Despite the hot market, if a home needs a new roof and the buyer cannot obtain insurance without it, is a transaction broker just going to shrug that off and say, “Oh well”? Again, skill, care and diligence are needed to work with the listing agent to solve this problem.
Three anecdotal quotes by brokers and an attorney in this report unfairly frame transaction brokerage agents as stepping outside their boundaries in negotiations. Based on my experiences, there are some situations when, no matter the representation involved, agents overstep their bounds on behalf of the buyer or seller and don’t take the communication or request from the other agent to the party they are representing. No agent should ever be making decisions on behalf of a buyer or seller unless they have something in writing directing them to do so.
Is there room for improvement for how the various forms of agency are handled with regard to Florida real estate? Sure. Perhaps more consumer education is needed, which would avoid misleading pieces like this report being written. Having the appropriate agency disclosure(s) made as part of an offer package along with more explanation as to what they mean and do not mean would be of great benefit to buyers and sellers.
As times change and real estate evolves, states should continually review their forms, processes and procedures. However, to make false generalizations as a result of analyzing a small sampling of MLS data harms not only the reputation of brokerages and agents functioning as transaction brokers in Florida but unnecessarily scares consumers who may draw the wrong conclusions from a surface level piece that doesn’t lay out all the facts.
Want to know more? Read part one of this series.