In 1994, Colorado created new working relationships for the public in working with real estate brokers.

In 1994, Colorado created new working relationships for the public in working with real estate brokers.

Duane Duggan

Duane Duggan, Realtor and Author RE/MAX of Boulder

In the beginning – before 1994, that is! – life was relatively simple for real estate buyers and sellers concerning their relationships with their real estate brokers. There simply was a Seller Agency. Every broker relationship was a Seller Agency, in other words, the seller paid the broker’s commission, and the seller was represented by the broker in the transaction. The Buyer was not represented at all. It was all caveat emptor or “buyer beware.” A broker would obtain a listing agreement with the seller and market property on the window of his or her office and would place classified ads in the local newspaper. The broker would meet a buyer at the property and work to obtain the best deal for the seller. 

Then brokers began to meet and share their listings with other brokers. They would carry a three-ring notebook, pull out listing sheets of the sold properties and put in sheets for newly available properties.  This process helped them serve their buyers and sellers more efficiently.  

That system evolved into the beginnings of a Multiple Listing Service (MLS). All brokers would place their listings into a book that would be published once a week. On Wednesdays, a “Hot Sheet” would be published in advance of the MLS book, which would speed up the market and transfer of information. Each office would have someone go to the Board of Realtors® office each week to pick up the MLS books for each broker in the office.  

Before the days of electronic lockboxes and mobile phones, brokers had to plan ahead. They made appointments via landlines on dial phones, waited for confirmation of the appointment, drove around and picked up keys from listing offices, then would finally go out and show houses, then return all those keys to the listing offices. It could take a full day to show 3 houses. To write a contract, the brokers had to handwrite and use carbon paper or use a typewriter! A terribly inefficient system.  

Enter the era of the lockbox! Kind of like a hide-a-key. Brokers would save a huge amount of time by eliminating many time-consuming activities. Again, they were able to serve their buyers and sellers much better.  

Even the lock box has evolved. Originally, they were like opening a school locker combination. Now the electronic versions help keep access controlled, allowing for higher security for everyone involved in a home sale.  

Until 1994, all brokers in Colorado were deemed to be either the agent (or sub-agent, if working with the buyer) of the seller. For lots of legal reasons, this exposed both sellers and brokers to unreasonable liability, while providing that the buyer would not be represented in the transaction.

In 1994, Colorado created new working relationships for the public in working with real estate brokers. These include seller’s agent (advocating for the seller), buyer’s agent (advocating for the buyer), dual agent (advocates equally –allegedly – for buyer and seller) and transaction broker (a neutral facilitator who advocates for neither party).

Starting in 2003, the State eliminated dual-agency and sub-agency as allowable working relationships. Today, if a broker has a working relationship with the public, he/she is either the agent or transaction broker of his client. By law, a broker is a transaction broker unless he/she has a separate written agency agreement (called a listing). The working relationship is established with the individual real estate broker, not with the company. The company, however, is still responsible for the supervision of its brokers to ensure a proper transaction.

It became clear that it didn’t matter who paid a commission or fee, it was only the written agreement that established agency and thereby representation. Sellers argued that they were paying the buyer’s broker’s fee out of their proceeds, so it was coming out of the seller’s pocket. Buyers argued that they were bringing all the money to closing and paying more for the property, so the buyers were the ones paying the fee.

I was taught in my professional continuing education classes when buyer agency first came on the scene, that the transaction paid the fee for representation – not an individual buyer or seller.  

Commissions have never been fixed. The marketplace took care of itself. In a hot market, commissions tend to come down. In a slow market, commissions tended to go up. Sometimes a broker will offer a rebate from the commission to lure in business. Many different business models appear and disappear as the market changes. Coop fees (the amount a seller’s broker’s compensation the broker will share with the buyer’s broker) go up and down with the market. In slow market conditions, sellers will tend to offer higher coop fees. In hot markets, coop fees tend to decline. However, sellers need to look at the net proceeds of their transactions. Sometimes, even in a hot market, offering a high coop will yield more buyers looking and offering on a property, in which case a higher sales price can offset the cost of a higher coop fee.

In my next article of this two-part series, I will discuss the different types of agency relationships and buyer agencies.

By Duane Duggan. Contributing editor: Matthew S. Finberg, Esq..
Duane graduated with a business degree and a major in real estate from the University of Colorado in 1978. He has been a Realtor® in Boulder since that time. He joined RE/MAX of Boulder in 1982 and has facilitated over 2,500 transactions over his career. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail [email protected], call 303.441.5611 or visit boulderco.com.