Law gives buyers, sellers equal support

A recent change in Colorado’s real estate law has created a new way of doing business for both commercial and residential real estate brokers — one that appears to give clients more thorough representation in a transaction than Colorado’s law previously allowed.

It’s called the Designated Brokerage Law. Among other things, it allows brokers and agents working at the same real estate firm, be it commercial or residential, to fully represent both the buyer and the seller in a single transaction.

The new law is aimed at tidying up so-called in-house real estate transactions. As simply put as possible, before the passage of this new law, if you hired a real estate agent, you essentially hired the agent’s entire firm. As a result, agents in firms that represented both the buyer and the seller in a transaction were legally unable to advocate for the best financial deal they could get for either of their clients. They had to become what are called transaction brokers. That is, brokers who must work in the best interest of the deal, not of either client.

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But since the law was passed Jan. 1, if you hire an agent to represent you in a deal, that agent can continue to work in your best interests, regardless of whether his or her firm also is representing the other party in the deal.

Full representation

The change is an all-around win, says Marc Painter, a real estate attorney with the Boulder office of Holland & Hart.

“Before, when people in the same firm were representing the buyer and seller of the same property, somebody would have to shift from being an agent to being a transaction broker. The clients thought they had the broker on their side, asking the questions they didn’t know to ask.

But what would happen if the deal was properly done was that the broker had so say, ‘now I can’t be our advocate. I have certain duties of good faith and honesty, but I can’t advocate for you,’ ” Painter explains.

That’s tough for the broker. “It goes against human nature,” Painter says. And it’s tough for clients. If a deal is done within the letter of the law, both the buyer and the seller walk away less than happy.

The old law almost invited disregard. Painter uses a hypothetical circumstance to explain.

“Let’s say I’m a broker representing Boston Market, and I’m trying to negotiate for space, and I work for the Staubach Co. The property I finally get interested in happens to be listed by a broker other than me, but he also works for the Staubach Co.

“Now, I’m doing all sorts of deals for Boston Market. I know where my bread is buttered. I’m highly unlikely to shift to a neutral (transactional broker) position. It’s against human nature.”

In residential real estate, the new law also insures that both sides in a deal get full representation when the transaction is done within one firm. Interestingly, that has been the way clients traditionally have perceived their relationship with a real estate agent — regardless of the law, says Carol Richmond, of Prestige Real Estate Group’s Flatiron Crossing office. Richmond was a member of the task force that recommended the new law to the Colorado Legislature.

But for a good number of clients, until this year, that perception has been wrong. Here’s why.

About 30 percent of all residential real estate sales are in-house transactions, Richmond says.

“Under the old law, if one agent had a listing and another (in the same office) had a buyer, they could not continue to represent their clients wholeheartedly. They had to fall back to being a transaction broker. Seventy percent of the public got the relationship they signed up for, but 30 percent didn’t.”

Both commercial and residential real estate professionals say the new law is especially necessary to fully represent clients’ interests because of the trend toward real estate firm consolidation.

That trend points to the chances that deals made within the same firm will become more likely.

The new law clearly requires changes in the way real estate firms do business.

“Brokers are going to have to be more careful about sharing confidential information, particularly regarding the motivations of buyers or sellers,” says Charles Gee, a broker associate with Gibbons-White in Boulder. “Now brokers are going to have to be more diligent. It makes the way we conduct our business that much more professional.”

Painter agrees. He says Monday morning sales meetings will have to be more formal as a result of the new law. “Now you almost have to treat everyone in your office as if they are in some other office,” he says.

Painter and Gee also say firms would do well to have office policies that protect the confidentiality of documents. Painter recommends designating teams within the firm that work on one side of a transaction.

The new law also eliminates what was called in the previous law vicarious liability on the part of clients for any wrongful or illegal behavior by their real estate agent or broker. Now, buyers and sellers, tenants and landlords, are no longer responsible for the wrongful acts of their real estate brokers or agents.

Ultimately, Painter says, the new law allows for more professionalism in the profession and more protection for the public.

Ken Hotard, senior vice president of the Boulder Area Realtor Association, says it does that and more. “Frankly, it gives consumers more choices.”