PAUL A. HARSCH III
‘Makes perfect sense’
For nearly 30 years, real estate broker Paul A. Harsch III has represented home sellers and occasionally homebuyers in northern Berkshire County.
In the early 1990s, Harsch heard about a practice in Colorado that enabled real estate agents to act as transactional brokers in a real estate transaction, seeing that the deal is completed while representing neither the buyer nor the seller in a fiduciary sense.
The more Harsch learned about the practice, the more he came to believe it was the most logical approach to serving consumers in the real estate industry. “The only relationship that makes sense in the typical real estate transaction is transactional brokerage,” said Harsch, who is president of Harsch Assoc., with offices in Williamstown and Bennington, Vt.
Under agency practices, Harsch explained, a Realtor must advocate for and have undivided loyalty toward a client. Harsch likens agency to the relationship a lawyer has with a client. But in reality most real estate agents act more like “deal makers” and “middlemen,” according to Harsch.
“If you understand agency and what it requires, you would be drawn to the conclusion that 98 percent of all [real estate] licensees are actually performing like transactional agents,” said Harsch.
In Berkshire County, a few Realtors like Harsch saw that some of the homebuyers and sellers they were encountering – especially consumers who were well accustomed to the buying and selling process – didn’t feel they wanted or needed representation or the risk and liability associated with having an agent work specifically for them. So they pushed for the local Realtor board and its multiple listing system to recognize transactional brokerage.
Today, Harsch’s company and a handful of other firms in the Berkshires are offering the option of transactional brokerage to buyers and sellers. The practice could catch on statewide if the Massachusetts Association of Realtors is successful in implementing a legislative or regulatory initiative designed to clarify agency relationships in the state.
The trade association is supporting a proposal with several components, one of which would specifically identify transactional brokerage – sometimes referred to as “facilitation” or “non-agency” – as a real estate practice that agents and consumers could utilize.
Currently, transactional brokerage is not expressly prohibited or permitted in Massachusetts because there is no specific legislation guiding agency relationships. Several other states, however, including Colorado and Florida, permit transactional brokerage by law.
At least 21 states employ non-agency practices, according to the Association of Real Estate License Law Officials. In some states with non-agency, real estate agents are called “intermediaries” or “facilitators.” In others, they are referred to as non-agents, limited agents or transaction coordinators/brokers.
Some states even have transactional brokerage as the default position unless there is a specific agreement or contract for agency representation.
“In other parts of the country [transactional brokerage] is practiced quite a bit,” said Charles Sawyer, president of the Berkshire County Board of Realtors and a Realtor with Dayspring Realtors in Pittsfield. “I have not used it and I don’t think the great majority of our board members use it.”
Joseph L. Carini, president of Wheeler & Taylor Real Estate in Great Barrington and Stockbridge and a supporter of transactional brokerage, agrees that the practice isn’t very common in the Berkshires. “I’m not seeing a wellspring of interest being expressed for transactional brokerage,” he said.
But Carini said he believes “there’s a very, very strong need for the adaptation of transactional brokerage as a much more common form of representation or business practice than what is currently in place.”
Accepted Practice
In an interview last week, Carini said he and Harsch and at least one other local Realtor hired real estate attorney Robert Kutner about a year ago to discuss transactional brokerage and how to introduce it to consumers in Berkshire County.
Kutner drafted several forms and came up with a number of ways to introduce the practice. Last year, the Berkshire County Board of Realtors’ multiple listing system approved use of the forms and bought the copyright for the forms, paying the attorney for the work he did.
Now, Realtors can – but are not required to – use a disclosure form that informs consumers about the transactional brokerage option. For those who choose to use transactional brokerage, there is also an agreement document that can be presented to buyers and sellers.
Even though the option now exists in the Berkshires, Carini said his company has used transactional brokerage sparingly. Agents in his company function mostly as seller agents or subagents, and occasionally offer buyer agency.
“The reason we haven’t made a big push toward transactional brokerage is because MAR is currently pursuing its legislative initiative to have designated agency and facilitation better defined by statute,” he said.
Designated agency – the practice enabling a real estate broker to designate one or more in-house agents to represent a buyer and one or more in-house agents to represent a seller in the same transaction – is another component of MAR’s agency initiative. Today, agents from the same firm who are dealing with a buyer and seller in the same transaction operate as dual agents and must disclose that to both parties.
Even if MAR is successful with its agency initiative, however, some Realtors are doubtful that transactional brokerage will become the most popular choice.
“I look at it as simply another way that we Realtors can deal with the public,” said Sawyer. “I don’t think one [relationship] precludes the other.”
Said Harsch, “Will it [transactional brokerage] replace single agency? Will it become the agency of choice? I doubt it.”
Instead, Harsch predicts that designated agency will become the more common choice in metropolitan areas like Boston and Worcester where large real estate firms have significant market share and want to keep both sides of the transactions in-house.
So far MAR’s legal counsel has cautioned association members that if they choose to practice facilitation or transaction brokerage, they “must first seek advice from outside legal counsel.” Further, if agents choose to act in that role, “MAR legal counsel states that you do so at your own peril.”
Harsch maintains that transactional brokerage is not widespread because there is still a lot of “misunderstanding and misinformation” about it. “When people understand it properly, unless they are philosophically sold and committed to the concept of single agency, it makes perfect sense,” he said.
Harsch is currently working as a transactional broker for a doctor and his wife who are trying to sell their home, priced at about $700,000. The sellers chose transactional brokerage after Harsch explained both seller agency and transactional brokerage to them.
“The single strongest deciding factor in their mind was the protection against the liability exposure that exists vicariously under an agency relationship,” he said.
Some critics argue that transactional brokerage – while limiting the liability and risks that consumers face – also protect Realtors from being sued and narrow the ability of buyers and sellers to sue real estate agents when something goes wrong.
But Harsch explained that agents operating as transactional brokers are still accountable for their actions and for anything they say, or fail to disclose, about a property. The fact that they are transactional brokers doesn’t eliminate their responsibilities as licensed real estate agents, said Harsch.
“Our exposure hasn’t changed one iota,” he said.
Transactional is the “most honest” description of the relationship that licensees have with the consumer, Harsch said. Agents who represent either buyers or sellers are supposed to find out everything about the opposing party to be used for the benefit of their client, he explained.
“I question, quite frankly, how many agents are doing that,” he said.
Carini offers this straightforward explanation: “Brokers have always been motivated by the transaction Â… no one gets paid unless the transaction goes forward.”
So while agents can say they are representing the buyer or seller, or acting as disclosed dual agents, the bottom line is that they don’t get paid unless the transaction happens. “The goal is to have a successful transaction,” Harsch said.
“It’s been a mystery to me why more brokers are not operating as transactional brokers,” when at the core that’s essentially what they are, he said.
