Transaction Brokers: What Are They, Who Should Use One?

When you’re selling a house, the thought is always in the back of your mind: there must be a way to avoid paying big realtor commissions.

  • Some sellers try to sell their own home through a FSBO, or “For Sale By Owner.” If you can find a buyer and close the transaction without using a realtor, that can save thousands of dollars (or even more).
  • Others try to lower the amount of commission they have to pay by using a discount broker. For many home sellers, that can be a good decision. They just have to make sure the agent they choose will provide all the services they need, despite the lower payday.
  • And then there are homeowners who decide to sell their house to a cash buyer, paying no commissions and receiving a quick payout. That payout will probably be for less than the home would fetch on the open market – often, a lot less – and selling to cash buyers is an option best used by just certain types of sellers. We’ll have more to say on this later on.

Home sellers might also have heard of people called “transaction brokers,” who charge a lot less than realtors do when a sale closes.

That sounds interesting. But should you think about using a transaction broker rather than a traditional real estate agent?

Probably not. There are one or two very specific situations, though, in which the services of a transaction broker could make sense and save you a lot of money.

Here’s what you need to know about these alternatives to realtors.

What Is a Transaction Broker?

Essentially, a transaction broker is a facilitator rather than a real estate agent.

They ideally have just as much knowledge and experience as a realtor. In fact, many of them have worked as traditional agents. And in most states where transaction brokers operate, they must hold real estate licenses. The biggest difference between these brokers and realtors is that they work for the parties on both sides of the transaction.

A listing agent works for the home seller, and is responsible for helping them get the best possible deal. Similarly, a buyer’s agent only represents the homebuyer, and is responsible for helping them get the best possible deal.

By contrast, a transaction broker works with both sides and must stay neutral. They don’t give advice to either the buyer or the seller; they simply help with communication and paperwork, and ensure that the transaction is handled properly and legally. In formal terms, they have no fiduciary responsibility to either party and can’t be held legally responsible if anything goes wrong.

In short, a transaction broker isn’t trying to get either side the best deal. Their only goal is to broker a fair and successful home sale.

When the deal closes the broker is paid a flat fee from the proceeds, with each side paying half. The fee can often total less than $1,000, which is obviously far less than the amount the seller would have to pay for each side’s realtor commissions in a traditional sale.

You may not have the option of using a transaction broker instead of a real estate agent. Their services are only legal in about 30 states. Transaction brokers are most commonly found in Florida and Colorado, which were the first states to approve the practice. Be sure to understand the legal status of these brokers where you live, before you decide to hire one. Otherwise, you could find out too late that you’re really using a dual agent. Read on.

Bottom Line: A transaction broker has the same knowledge and experience as a realtor, but the two perform very different functions. A realtor represents only one side in a transaction, and is legally required to work on their behalf to get the best deal for them. A transaction broker works for both sides and is a neutral facilitator. The broker doesn’t give advice, but simply handles details that the buyer and seller can’t or don’t want to do themselves. A transaction broker collects a small fee from each side when the sale closes, instead of a commission.

Isn’t Transaction Brokerage the Same as Dual Agency?

Absolutely not. There’s a huge difference.

Dual agency is an enormously controversial subject in real estate. It’s when a single agent represents both the buyer and seller – meaning they keep the entire commission, not just half of it. It’s seen most often when a prospective buyer without a realtor calls an agent to inquire about a home they’re selling, and the agent winds up representing both sides.

Needless to say, dual agency creates huge conflicts of interest. Just one example: the seller wants the highest possible selling price, the buyer wants the lowest possible selling price, and a dual agent – who supposedly advises and represents both sides – is right in the middle. The realtor may be able to negotiate a fair price, but there’s no way they can negotiate the best price for each side.

Inexperienced buyers and sellers may not realize the drawbacks of dual agency, mistakenly thinking their agent is working on their behalf. In truth, the agent has split loyalties and often favors the seller. That’s why some states have made dual agency illegal.

A transaction broker’s job, on the other hand, is to help the two sides complete a home sale without favoring either one. If negotiations are required, it’s up to the buyer and seller to handle them; the transaction broker doesn’t take sides. They simply act as facilitators during the process.

Bottom Line: Dual agents and transaction brokers work with both the buyer and seller during the home sale process, but they each have very different responsibilities. Dual agents legally represent both sides, collect both commissions, and theoretically work to get each side the best deal. That’s a near impossibility, which is why some states prohibit dual agency. Transaction brokers are neutral third parties, who simply help each side reach a deal and close the sale. They receive relatively small fees for their services.

What Tasks Will A Transaction Broker Perform?

Image of Hands signing and passing keys

A reputable transaction broker performs numerous tasks for both the buyer and seller. It’s up to each party, though, to decide when they need assistance and when they can “fly solo.”

Some of the tasks might seem to create a conflict of interest. However, if the broker conducts their business properly there won’t be a problem, since a transaction broker’s primary responsibility is to act fairly and honestly without favoring either side.

Some of the jobs a transaction broker typically does during the home sale process:

  • Helping the seller decide on a competitive listing price
  • Helping the buyer prepare and submit an offer
  • Facilitating communication and negotiations between the two sides (but not getting involved in the specifics of negotiations)
  • Writing the home sale contract
  • Coordinating details like home inspection and appraisal during the contingency period
  • Assisting with necessary paperwork and closing

If either side asks the transaction broker for advice at any stage of the process, it’s also the broker’s job to politely refuse. They’re a neutral third party, simply helping with the often-complicated and confusing details of a real estate transaction.

If an offer seems way too low, or the seller refuses a buyer’s request to make repairs, it’s not up to a transaction broker to intervene. They may use their real estate industry background to help the two sides find common ground, but they cannot take sides. If the deal falls apart, that’s on the buyer and seller, not the broker.

It might seem that a transaction broker won’t provide the help you might need if you’re trying to buy or sell a house. In most cases, that’s true. An experienced realtor can help the seller price their home properly and choose the right offer to accept. An experienced realtor can help the buyer decide how much to offer for a house, and negotiate the best deal. A transaction broker won’t do either.

So why would anyone decide to use one of these real estate professionals?

Bottom Line: The primary duty of a transaction broker is to be fair and impartial as they work for both sides during a home sale. They help with tasks like pricing the house (working with the seller) and submitting an offer (working with the buyer), facilitating communication and negotiations throughout the process, helping with paperwork and assisting at the closing. They don’t take sides, acting as a neutral third party from start to finish.

When Using a Transaction Broker Might Make Sense

Saving on commissions is certainly one reason that some sellers decide to use a transaction broker. In many cases, though, it could be even more costly to choose the wrong listing price, or sell the house for a price that’s too low.

It might seem that buyers would never have a reason to use a transaction broker, since the seller pays their realtor’s commission. It’s essentially “free” for them to use a full-service real estate agent.

So, we ask again: why would anyone decide to use a transaction broker?

There are two cases when it could make sense.

When both the buyer and seller are real estate professionals, or have significant real estate experience, they may not need anyone to “represent them.” They can do that on their own, from determining a listing price or a price to offer, to negotiating a final deal. What they might need is an impartial facilitator to make sure all the communication is done properly and the details are handled fairly. A transaction broker is the obvious choice.

A more common scenario is when someone sells their home to a family member or a friend. They may already have agreed on a fair price for the house, and just need someone to make sure the transaction is handled the right way, with all of the legal i’s dotted and t’s crossed. Again, a transaction broker is perfect for that job – as long as the sale really is an amicable one. If disagreements arise during the process, the broker can’t get involved and there could be fireworks. Otherwise, the sale will be seamless and there will be no big commissions to pay.

But if you’re just an “ordinary” homebuyer or seller, you might want to think twice about using a lower-priced transaction broker. It can be a huge drawback not having an experienced realtor on your side; if the sale starts to fall apart, a transaction broker standing on the sidelines probably won’t be able to save it. And the money you think you’re saving might not be worth it.

Bottom Line: Those selling a house to a friend or family member in an amicable transaction, or real estate professionals, can often benefit from using a transaction broker. Those simply trying to avoid paying big commissions will usually find the savings aren’t worth the potential dangers of a sale falling apart, or winding up with a very bad deal.

Alternative Ways to Save On Commissions

Rapidly-increasing home values have a secondary effect: rapidly increasing realtor commissions. It’s understandable that people would try to find a way to reduce or eliminate the thousands (or tens of thousands) of dollars in commissions they have to pay when selling their house. But as we’ve explained, using a transaction broker is usually not a smart way to do it.

The easiest alternative is to find a discount broker, who may charge only 2%, 1½% or even 1% instead of a traditional 2½-3% commission. That can be the best choice for home sellers who need the services of a realtor.

A FSBO (“For Sale By Owner”) sale can save you from paying a seller’s agent commission, although it’s very difficult to sell your house on your own unless you have substantial real estate experience. Only about 10% of FSBOs actually make it all the way to closing, and you’ll still have to pay the buyer’s agent’s commission.

There’s also the possibility of selling to a home investor, although you probably won’t get the same return as you would be putting the house on the open market. That’s why these options are best used by homeowners in serious financial trouble, those whose houses need repairs they can’t afford, or those who have to move out of the area immediate for family or job reasons.

There are “iBuyers” like Zillow Offers, who purchase homes in good condition in some cities; they don’t charge commissions, but do charge service fees that may be even higher. House flippers like HomeVestors (“We Buy Ugly Houses”) don’t charge fees or commissions, but only want fixer-uppers and pay well below market value for homes. And “new-age” home buyers like pay quick cash for houses in any condition and any location with no fees or commissions, and they often offer the highest prices – even if they’re not quite at market level.

Before choosing any of these alternatives, however, ask yourself one question: “Is saving the commissions really worth the very real chance that I’ll end up making a lot less for my home?” For most sellers, a discount broker makes the most sense.

Bottom Line: There are other ways than using a transaction broker to sell a home without paying commissions. Home investors will make lower offers but pay quick cash with no commission charges (although iBuyers often charge hefty fees), and a FSBO saves the seller’s commission but is difficult for most people to pull off. The safest alternative is finding a discount broker, who will charge a lower commission than traditional realtors.

Transaction Brokers FAQ

Q: How much could I save by using a transaction broker?
A: Let’s take the median sales price of a home in America, which is around $350,000. A traditional sale would cost the seller 5-6% in commissions, or $17,500-$21,000. Transaction brokers’ fees vary by state and by the complexity of the work, but will usually total about $1,000 or less.

Q: So isn’t saving that kind of money a compelling argument to use a transaction broker?
A: It might be, if you’re selling to a friend or family member, the sales price has already been decided, and there’s no chance of disagreements cropping up during the process. However, both the buyer and seller have to agree to use a transaction broker – and the buyer has a lot more to lose. They’re not responsible for paying the commission when using a full-service realtor, who will be trying to find and negotiate the best deal for them. The seller might also lose out, since a realtor often negotiates a selling price that more than covers the cost of commissions.

Q: Dual agency and transaction brokers are both legal in my state. Which is a better choice?
A: Quite honestly, the best choice is to take a step back and rethink those alternatives. A transaction broker is usually only the best choice for a “friendly” transaction when there’s nothing to negotiate, or when one real estate professional is selling the property to another. Dual agency is never a good idea because the realtor has a legal responsibility to both sides, an impossible situation that seldom works out well. If saving on commissions is your ultimate goal, you might want to think about finding a discount broker or selling to a home investor.

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