What are the Problems with Transaction Brokerage?

by | Aug 4, 2016 | Legal Tips

In the last two posts we examined transaction brokerage. Transaction brokerage will be allowed in South Carolina starting January 1, 2017. This change is pursuant to the revised real estate law that becomes effective at the new year.

Transaction brokerage is defined as “a real estate brokerage firm that provides customer service to a buyer, a seller, or both in a real estate transaction.  A transaction broker may be a single agent of a party in a transaction giving the other party customer service. A transaction broker also may facilitate a transaction without representing either party.”  Transaction brokerage is a departure from traditional single agency.  Many articles have been written over the past few years decrying transaction brokerage as more states move to allow this brokerage.  Many consumer advocates maintain that it is detrimental to the consumer while brokers believe it will drive prices down. So what exactly is the downside to transaction brokerage?

For many years real estate agents were the gate-keepers of information. Without a real estate agent the consumer did not have information readily available.  Unless the consumer wanted to drive around town or read small print newspaper ads the real estate agent was the best source of information concerning available properties and prices.  With the growth of  real estate websites such as Trulia and Zillow the consumer often has as much information as the agent. The consumer can research a neighborhood and quickly learn the number of houses for sale, properties that have sold, the average dollar per square foot and much more.  If an agent is no longer the gate-keeper of information what role does a real estate agent play?  A real estate agent’s primary value today is their knowledge and expertise in advising, counseling and advocating for their client. The consumer expects a real estate agent to provide professional guidance on the houses that best suit their needs. The agent is expected to advise on price, earnest money and repairs as well as fight for them in negotiations.  Under transaction brokerage an agent cannot give advice, counsel or advocate for the consumer. The agent is a neutral party who does not represent any party.  So if the real estate agent is not providing these services, what value does the consumer realize?  The consumer already has the information available to them on the internet. Consumers advocacy groups recognize this and argue that the consumer loses in transaction brokerages because they get less service.

If the agent is no longer providing the most important services, then it only seems natural that the consumer would not be willing to pay as much for the services rendered. Many brokerages feel that transaction brokerage is a way for low rate brokerages to better compete in the market by driving prices down.  Brokers believe that some agents will try to talk the consumer into using their lower priced transaction services without ever explaining what the consumer is forfeiting. Consumers will choose the lower price option not realizing it may not be in their best interest.  Again, this may not be in the best interest of the consumer and it seems to be detrimental to the full service agent.

Moreover, when providing customer services it is very difficult for an agent to act without accidentally providing client services. The natural inclination for a consumer is to ask “what do you think?”  Unless you have client agency the agent cannot opine as that would be considered giving advice. Under transaction brokerage it will remain improper for an agent to provide client services without a written and signed agency agreement. The agent is prohibited from providing advice, counsel or advocacy.  It is extremely difficult not to interject your advice in a transaction. It is even harder to tell a consumer you cannot answer their question because that would be providing a client service. The risk of crossing the line into client services without agency is very great.

Lastly, there is great concern as to how is this will affect the compensation of agents that have signed agency. If the seller is using a transaction broker and the buyer has entered into single agency, how will compensation be handled? We will continue to look into this issue in the upcoming months.

Historical Fact: The City of Cayce is the birthplace of the Midlands. For more than 12,000 years, Cayce was home to Native Americans. In 1540 Hernando de Soto reached the area and found a large Indian Village on the banks of the Congaree Creek. In 1718, the English built the first permanent fort on the banks. This fort was the first permanent structure in the Midlands. Therefore, Cayce is arguably the birthplace of the Midlands. The Town was later incorporated in 1914 and was named for local business man, William J. Cayce. William’s house still stands today at 517 Holland Avenue. The house is listed on the National Register of Historic Places.


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