In the United States, real estate transactions are subject to varying rules regarding the representation of buyers and sellers in each state. Colorado played a pivotal role in pioneering the concept of buyer agency, aimed at enhancing buyer protection in complex real estate transactions, ensuring their dedicated representation, and providing clarity on the roles of agents for both buyers and sellers.
Before 1994 in Colorado, agents acted solely on behalf of the sellers, including buyer’s agents who technically served as sub-agents for sellers. This arrangement gave rise to numerous legal complexities, exposing sellers and agents to potential liabilities while leaving buyers without adequate representation in transactions. Buyer agents, functioning as sub-agents for sellers, had a fiduciary duty to the sellers, not their buyer clients. This setup also exposed sellers to significant risk due to vicarious liability for any negligent actions by both agents involved in the transaction.
In 1994 Colorado introduced new frameworks for the public to interact with real estate brokers, offering more distinct roles: seller’s agent (dedicated to the seller’s interests), buyer’s agent (representing and advocating for buyers), and transaction-broker (an impartial facilitator.) Dual agency, which allowed representation of both the buyer and the seller, was still permissible at that time.
In 2003, Colorado abolished dual agency and sub-agency, also mandating that all agents complete more education and become brokers. Presently, when a broker interacts with the public, they are designated as either an agent for the seller or buyer or a transaction broker. Transaction brokers are authorized to work with both parties in a transaction but cannot advocate for either side. Their role is to ensure the smooth progress of the transaction and relay information as instructed by the buyers and sellers to facilitate a successful closing. By default, brokers are considered transaction brokers unless they establish a separate written agency agreement.
Consumers can choose to forego assistance from an agent or broker altogether by becoming what is known as a “customer.” For instance, a for sale by owner would be a customer to the agent representing a buyer. Similarly, a buyer who directly engages with a listing broker to make an offer without using transaction brokerage, who specifies their desired terms and handles tasks like lending, inspections, and title review, would also be classified as a customer. This can be a precarious position for consumers unless they’re very experienced at real estate contracts and the nuances of transactions.
The concept of buyer agency in Colorado is designed to benefit both buyers and sellers, promoting transparency, ethical conduct, and equitable transactions. It aims to ensure that real estate dealings result in mutually satisfactory outcomes, with both seller and buyer interests represented. For more in-depth information on agency laws in Colorado, you can visit the Colorado Real Estate Commission’s website or consult your Kentwood broker.
Written by Kentwood Real Estate CEO, Gretchen Rosenberg