Washington, D.C. – Today the Consumer Federation of America (CFA) released a new report on transactional brokerage in Florida – Does Transaction Brokerage in Florida Serve the Interest of Home Buyers and Sellers? – which is practiced by most real estate agents in the state. The report concludes that this agent role:
- greatly limits broker responsibilities and liability,
- is not disclosed and therefore is not understood by most consumers,
- consequently exposes consumers to risks related to the sale price – and for buyers, quality – of the property,
- greatly limits consumers in obtaining redress if treated unfairly,
- despite less responsibility and liability, charges customers the same commission rate charged by fiduciary agents, and
- appears to survive in part because many transactional brokers break the law by providing some of the representation required of fiduciary agents.
Transaction brokerage under various names is practiced in 17 states, but only in Florida is it not disclosed to customers. “Florida law helps perpetuate the erroneous, widespread belief that most transaction brokers work as totally loyal representatives not just as facilitators,” said Stephen Brobeck, a CFA senior fellow and the report’s author.
The report quotes Florida agents who acknowledge that Florida consumers “generally assume that their brokers are working exclusively for them.” This assumption is supported by a survey, commissioned by CFA and undertaken by IPSOS, an international research and marketing firm. In December 2021, the firm asked a representative sample of 286 Florida consumers online which interests most agents usually represent. Only 35 percent responded (to a multiple choice question) that most agents “legally represent the interests of neither buyer nor seller but just facilitate the sale.”
Yet, most agents in Florida sales work as transaction brokers, not as single agents. That dominance of transaction brokerage is widely recognized, as the report shows. And it is supported by the fact that 76 percent of the listing agents, in 500 recent consecutive home sales in Jacksonville, indicated that they were serving as transaction agents. Only 20 percent reported that they were serving as single agents (fiduciaries).
Why Florida Does Not Require Disclosure of Transaction Brokerage
The report reveals that a Florida law enacted in 1998 did require this disclosure, yet a decade later, the law was quietly amended to establish transaction brokerage as the default agent role with no disclosure required. The report explains the attraction of the new law to the real estate industry in terms of three factors:
- Agents usually find it easier and quicker to make home sales as a transaction agent rather than as a single agent (fiduciary). Florida transaction agents are not required to obtain cumbersome disclosures nor are they required to disclose the absence of total agent loyalty.
- Transaction brokerage facilitates double-dipping (or double-ending) where one firm or agent works with both seller and buyer, retaining the entire commission. For firms, it is much simpler and less risky for all their agents to function as transaction agents, allowing these agents to work with each other having fewer conflicts and hurdles to overcome. For individual listing agents, who also find a buyer, there is no need to persuade the seller to allow the agent to change their status from fiduciary to facilitator.
- Most importantly, transaction brokerage greatly limits the legal liability of agents and brokers. As the report explains, attorneys are reluctant to sue transaction brokers because as one expert noted: “The extra step of proving ‘implied’ agency just isn’t worthwhile for them to pursue.”
How Lack of Disclosure Creates Significant Risks for Consumers
Florida law does not require “loyalty,” complete “confidentiality,” obedience,” and “full disclosure” from transaction brokers, only from single agents. Florida home sellers and buyers who think their agent is their loyal representative are exposed to numerous risks related to the quality and/or price of the property sold.
- Legal restrictions providing information and advice: Transaction brokers cannot legally provide their customers with any information or advice that could potentially harm the other party in the sale. Florida law specifically prohibits these brokers from disclosing that the seller will accept a price less than the listed one, that the buyer will pay a price greater than that submitted in a written offer, or the motivation of either party for selling or buying. These restrictions make it illegal for transaction brokers to effectively negotiate the price and terms on a home sale on behalf of their customers.
- Risks when the other party to the sale is represented by a fidicuary: Customers of transaction brokers who obey the law are at a great disadvantage when doing business with the clients of fiduciaries.
- Severely limited legal remedies when wronged: As noted above, customers of transaction brokers will even have difficulty securing the services of an attorney.
To an extent, some of these risks are mitigated by illegal agent practices. The report cites evidence of transaction brokers acting somewhat like fiduciaries, especially when the other party is represented by a single agent. As one real estate attorney noted: “It is extremely difficult not to interject your advice in a transaction.”
Consumers Are Overcharged for Transaction Broker Services
Transaction brokers should be receiving lower compensation than single agents because these brokers have fewer legal responsibilities and less liability. In the past the industry expressed fears that transaction brokers would not be able to charge commissions as high as those charged by fiduciary agents. However, CFA researched 2,000 recent sales in Florida – 500 consecutive sales in Jacksonville, Orlando, Naples, and Miami – and found that in 98 percent of these sales, the same compensation was offered transaction agents (facilitators) as single agents (fiduciaries). In a large majority of these sales, the buyer commission rate was either 2.5 percent or 3.0 percent. (Multiple listing service rules require that sellers offer buyer agents a set commission then pay it after the sale. Typically, all or most of this commission is added to the sale price of the house.)
“Real estate agents who are fiduciaries have received much criticism recently that their rates are too high,” noted CFA’s Brobeck. “However, they are far more deserving of these rates than are agents who are facilitators,” he added.
Florida Consumers Should Be Told the Truth About Transaction Brokerage
The report notes that transaction brokerage can benefit some consumers if it is effectively disclosed, drives down transaction costs considerably, and these cost savings are shared with consumers. If a transaction broker is a facilitator, it makes little sense for two transaction brokers to be involved in a sale, greatly increasing transaction costs.
However, transaction brokerage in Florida bears no resemblance to this ideal system. Said CFA’s Brobeck: “Florida consumers should be told the truth about the State’s transaction brokerage. The Florida legislature should re-establish the disclosure provisions of the 1998 legislation. And the State’s Department of Real Estate should take responsibility for informing consumers about the different roles of real estate agents.”
CFA recommends that Florida home buyers and sellers discuss the role of their agent before signing any agreement to work with that agent. CFA also recommends that if buyers or sellers choose to work with a transaction broker, they hire an attorney to ensure that their interests are protected.
Contact: Stephen Brobeck, email@example.com