Transaction Broker Do's and Don'ts

Here are two scenarios, based on actual cases, that are violations of the Brokerage Relationships in Real Estate Transactions Act (“BRRETA”), and have caused disciplinary actions to be taken against the licensee.

SCENARIO ONE
Frank is a salesperson working at Big Jim’s Realty. As supervising broker, Jim set a policy that requires all of his agents to do their personal and investment business through the firm. Frank formed a corporation with three unlicensed friends so they could try to make some money for their children’s college education. Frank knows Jim is going to require him to list and buy through the firm, so after having fixed up a property for resale, Frank listed it with Big Jim’s Realty. A sale was consummated, and the closing came off without a hitch.

Months later, an auditor from the Real Estate Commission arrived at Big Jim’s to perform an audit. In reviewing the files, the auditor came across Frank’s property sale. The contract in the transaction file contained a disclosure to the buyers that Frank was one of the sellers and that he had a real estate license. The brokerage relationship disclosure section of the contract reflected that the listing agent was functioning as a transaction broker and the selling agent was functioning as a buyer’s agent. The closing statement indicated that a 3 percent commission was paid to the co-oping real estate firm that produced the buyer, and 3 percent was paid to the listing firm.

Should the auditor have written this file up as a violation?
Yes.

Was there any violation in the disclosure of licensure status to the buyer?
No. K.S.A. 58-3062(a)(16) and K.A.R. 86-3-19.

What is the violation?
Frank claimed to have been acting as a transaction broker in the transaction and disclosed in the contract that, as the listing agent, he functioned as a transaction broker. This is not possible. K.S.A. 58 30,113(a) states that a broker engaged as a transaction broker is not an agent for either party. K.S.A. 58-30,102(s) defines “transaction broker” as a broker who assists one or more parties with a real estate transaction without being an agent or advocate for the interests of any party to the transaction. Due to Frank’s financial interest in the property, it is not possible for a licensee to be acting as both a licensee and a principal and not be representing himself or herself.

Would the answer be different if Frank had been the buyer in the same type of scenario?
No. The answer is the same.

What should Frank have done to be in compliance with the BRRETA?
Frank should have taken the listing as a seller’s agent or if named by his broker, as a designated seller’s agent. The disclosure in the contract should have reflected the listing agent was functioning as a seller’s agent or designated seller’s agent, and Frank should have acted in that capacity.

Is the only way Frank could buy or sell a property is if he were to act as an agent?
Yes, given Jim’s policy.

How would the scenario have to change for it to be possible for Frank not to have to act as a buyer’s agent or a seller’s agent?
First – Jim would have to change his policy and allow his agents to purchase and sell properties without requiring them to run it through the firm.
Second – Frank would have to take off his licensee hat and put on his member of the public hat. This would also mean that Frank could not participate in any compensation derived from a transaction. This not only includes commission, but any form of compensation other than the sales price that Frank might seek to receive as a buyer or seller.

If Frank acted as a private citizen and not as an agent, Frank would have to disclose his licensure status in writing in the contract. Frank would not be disclosing his brokerage relationship position in the contract, because he has no brokerage relationship with anyone. He has no brokerage relationship as a licensee with himself as the buyer or seller, because he is not using his license and is not acting as a licensee.

SCENARIO TWO
Sally is an associate broker in Green River Realty. Sally took a listing with an owner to act as a seller’s agent. Two weeks after the listing date, Sally ran into a potential buyer. Sally provides the buyer with the brokerage relationships brochure, explains her firm’s policies and the types of relationships offered. The buyer tells Sally that he doesn’t mind not having an agent working in his behalf, but it sure bothers him that, since she is an agent working for the seller, she will also be working against his best interests. He prefers that Sally act as a transaction broker so that she is not working in the best interest of anybody. Sally tells the buyer not to worry; she will just go to the seller and get her to agree to give up the agency in favor of transaction brokerage. Sally also tells the buyer, after all, the seller’s agency agreement includes an agreement to convert to transaction brokerage should the contingency arise.

Sally approaches the seller, explains she might have an interested buyer and gets the seller to sign a Transaction Broker Addendum. The buyer writes an offer, a contract is executed and closing occurs.

Has Sally violated the license law and/or BRRETA?
Yes.

Is there more than one violation?
Most likely, yes.

Why is the answer “most likely,” and what is the possible violation?
When the buyer asked Sally to act as a transaction broker, Sally should have responded that she is a seller’s agent and cannot function as a transaction broker for the buyer. Sally’s duty is to act in the best interests of her client. Stated another way, Sally should ask herself “for the benefit of my non-client/customer, is it proper for me to approch my client and talk them into giving up their agency relationship?”

Even Sally gets the seller to agree, did the seller give actual “informed consent” to give up the agency and allow her to function as a transaction broker? Would the seller say that she was informed, knew what was happening and agreed, or would she say she felt she had no choice but to give in to Sally to get the sale?

What is the actual violation?
Sally used a TBA form to accomplish her goal of fulfilling the wishes of the buyer in violation of K.A.R. 86-3-27.

A TBA form is required to be used when the agent has an agency agreement on both sides of the transaction. It is by definition, used to obtain the informed consent of a buyer client and a seller client to act as a transaction broker in a contemplated transaction. No one in Sally’s firm, including Sally, had a buyer’s agency agreement with the buyer.

BRRETA requires the agency agreement to include any potential for the agency agreement to change. K.S.A. 58-30,103(g) & (h). It is contemplated that the seller may be required to change to transaction brokerage because someone in the firm may have an agency agreement with some future, potential buyer – not because a non-client wants you to stop working for your client.