On January 1, 1994, a Colorado state law was enacted which helps clarify real estate liability, while at the same time protects both buyers and sellers. The law defines real estate agency relationships and mandates certain practices by real estate professionals.
Historically, sellers have typically been responsible for the actions of their real estate agent, as well as for any other person (subagent) involved. This law requires that real estate brokers develop a written office policy detailing the types of relationships and services offered by their office. The law is designed to keep consumers informed by requiring agents to disclose the relationship choices available and explain them to interested parties.
The following are the definitions of each relationship as approved by the Colorado Real Estate Commission:
- Seller’s AgentSeller’s Agent – The seller’s agent works solely on behalf of the seller and owes duties to the seller which include utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the seller. The seller is legally responsible for the actions of the agent when that agent is acting within the scope of the agency. The agent must disclose to potential buyers or tenants all adverse material facts about the property which are actually known by the broker.
- Seller’s Subagent – The subagent owes the same duties to a seller as a seller’s agent including utmost good faith, loyalty and fidelity. Subagents must make the same disclosures to buyers concerning adverse material facts about the property. A subagent will negotiate and act as an advocate for the seller, who is legally responsible for the acts of the subagent acting within the scope of the subagency.
- Buyer’s AgentBuyer’s Agent – A buyer’s agent works solely on behalf of the buyer and owes duties to the buyer which include the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the buyer. The buyer is legally responsible for the actions of the agent when that agent is acting within the scope of the agency. The agent must disclose to potential sellers all adverse material facts concerning the buyer’s financial ability to perform the terms of the transaction, and must disclose whether or not the buyer intends to occupy the property. A separate written buyer agency agreement is required which sets forth the duties and obligations of the parties.
- Transaction Broker – A transaction broker assists the buyer or seller or both, throughout a real estate transaction with communication, advice, negotiation, contracting and closing, without being an agent of or an advocate for any of the parties. A transaction broker does, however, owe the parties reasonable care in the performance of any oral or written agreement. A transaction broker must also make the same disclosures as are required of agents about adverse material facts concerning a property, a buyer’s financial ability to perform the terms of a transaction and whether or not the buyer intends to occupy the property.
This law has changed the appearance of real estate transactions, and consumers are the real benefactors.