Colorado Contracts and Regulations
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Chapter1.docxC.R.S. 12-10-Part 1 - Brokers
12-10-301. Definitions. The most important part of this section defines a real estate broker as one who on behalf of another person, for any form of compensation, does, or tries to do (or even thinks of) negotiating, listing, selling, exchanging, buying, renting, leasing, auctioning or dealing in options in, real estate or any interest therein. This includes a business opportunity involving an interest in real estate; or provides available rental information to prospective tenants. This includes performing any of these acts as a paid employee.
This definition pretty much covers the waterfront. Most of these actions requiring a license are self-explanatory except perhaps for dealing in options.
An option is a speculative, unilateral contract in which one person, (the optionee) offers money now for the future right to buy a certain property. The optionee may elect to "exercise" or carry out the purchase, or may choose to let the option expire, but the landowner (the optionor) must sell if the option is exercised by the contract end date.
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C.R.S. 12-10-Part 1 - Brokers
12-10-201(6) identifies persons NOT needing a real estate license, including:
a. Any person or legal entity acting on its own behalf as a principal. (This includes regularly salaried employees and officers of corporations.)
b. An uncompensated attorney-in-fact appointed under a recorded power of attorney.
c. Public official performing official duties.
d. Trustee, administrator, executor, guardian, etc., performing authorized duties.
e. A person or legal entity dealing in oil and gas or other mineral leases or certain rights-of-way.
f. A regularly salaried on-site manager of an apartment or condominium building or complex.
g. An attorney-at-law, but only when representing clients in the practice of law.
h. A real estate broker licensed in another state who co-brokers a transaction with a Colorado broker.
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C.R.S. 12-10-Part 2 - Brokers
12 10-103 License Application & Qualification. This is the longest section in the Part 1 and covers everything from an applicant's age to E&O insurance requirements. We've shortened it considerably here.
In order to qualify for a Colorado real estate license, a person must be 18 years old, and of good moral character. The Commission can require proof if there is doubt.
Next, an applicant must complete pre-license QUALIFYING EDUCATION as follows:
Brand new applicant: Must complete a 168-hour pre-license education program including Real Estate Law and Practice (48 hours), Colorado Contracts and Regulations (48 hours - this course), Real Estate Closings (24 hours), Trust Accounts and Recordkeeping (8 hours), Current Legal Issues (8 hours) and Practical Applications (32 hours).
OR have earned a college degree with a major course of study in real estate.
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C.R.S. 12-10-Part 2 - Brokers
SINGLE LICENSING: Every active Colorado real estate licensee is a BROKER. Unlike many other states that require basic education to apply for a salesperson license, and later qualify as a broker after some experience and advanced education, Colorado only licenses individuals as brokers.
Why?
1. In the early 1990's, the Commission observed that the public was little concerned with (and even less aware of) the distinction between salesperson and broker, but wanted a high degree of competence and service from whomever they chose as their real estate licensee.
2. The nature of the real estate business itself does not protect those with little experience from complex transactions. A licensee's most complex transaction may occur at the beginning of a career.
3. When a complaint was filed against salespersons with extensive experience, it was not unheard of for the salesperson to claim ignorance of certain requirements supposedly known only to brokers. So Colorado requires all the education needed to broker real estate from day one.
Public Protection: A new licensee, however, is poorly equipped to practice real estate independently. There is only one broker license, but three levels of performance. An inexperienced broker must practice as an associate broker for two years. This includes attorneys.
A Colorado broker may apply to engage in independent brokerage after two years active licensed experience under a high level of supervision. Since the original education and exam were at the broker level, no further qualification is required. There is no required activity or transaction level.
A Colorado broker desiring licensure as an employing broker, must in addition to the experience requirement, complete the 24-hour "Brokerage Administration" course.
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C.R.S. 12-10-Part 2 - Brokers
Previously licensed salesperson: Must complete 120 hours in Colorado Contracts and Regulations (48), Real Estate Closings (24), Trust Accounts and Recordkeeping (8), Current Legal Issues (8) and Practical Applications (32).
Previously licensed broker: Must complete 72 hours in Colorado Contracts and Regulations (48) and Real Estate Closings (24).
Currently licensed salespersons or brokers from other states: Colorado participates in bilateral license recognition agreements with many other states. These agreements allow an applicant who has been licensed for two years in a license recognition state to apply for a Colorado broker license with limited education and passing just the Colorado part of the broker licensing exam (partial recognition), or no additional education and no exam (full recognition), provided the other state reciprocates. See the current list of participating states on the Commission Website at Real Estate Broker License Partial Recognition Agreement & Reciprocity .
Attorney applicants, active at any bar, must only complete a 12-hour course entitled Trust Accounts, Recordkeeping and Real Estate Closings and pass both the national and Colorado parts of the broker exam.
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C.R.S. 12-10-Part 2 - Brokers
In addition to the education, applicants must pass a standardized BROKER LICENSING EXAM. The exam is in two parts, national and Colorado.
All previously unlicensed applicants must complete both parts of the exam. Applicants reinstating an expired license and some license recognition applicants, among others, may only require the state portion of the exam or no exam.
The best source for determining this information is Real Estate Commission's website .
Details on taking the exam are provided in the " Candidate Information Bulletin " published by PSI, the Exam Vendor.
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C.R.S. 12-10-Part 2 - Brokers
Rule A-16: Applicants for an initial license must submit a set of fingerprints to the Colorado Bureau of Investigation (CBI) and Federal Bureau of Investigation (FBI) for the purpose of conducting a state and national criminal history record check prior to submitting an application for a license. Fingerprints must be submitted to the CBI for processing in a manner acceptable to the CBI. Fingerprints must be readable and all personal identification data completed in a manner satisfactory to the CBI.
Fingerprints to meet this requirement may be taken at PSI test centers, Arapahoe Community College in Littleton, CO, and at some law enforcement agencies. PSI and Arapahoe Community College take prints digitally – a much more legible and reliable form of printing when compared to hand-rolling prints in ink.
NOTE: If you have prior legal involvement, see Commission Rule A-12 in the next section regarding a free procedure for obtaining a “Preliminary Advisory Opinion” before taking the exam and applying for a license.
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C.R.S. 12-10-Part 2 - Brokers
In addition to licensing individuals, the Commission also licenses real estate firms organized as corporations, limited liability companies, and partnerships.
Sole proprietorships are not licensed separately as the individual and the proprietorship are one and the same.
A broker qualified at the employing level is responsible for compliance and supervision within the firm. The law permits issuing a temporary license to a qualified employing broker in a corporation/LLC or partnership for 90 days (with one extension) to cover broker succession emergencies. Unlike individual licenses, licenses of firms do not require renewal.
The broker acting for a firm is personally responsible for any mishandling of trust account money.
An individual broker associate must be licensed under his or her real name, under only one name, and under only one employing broker. A woman may elect to be licensed under her maiden name.
(We warned you this Section 103 was the longest...)
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C.R.S. 12-10-Part 2 - Brokers
12-10-203(5)(c) Broker Transition. In 1993 when Colorado elected single licensure, they created a 24-hour "Broker Transition" course to qualify for upgrade from salesperson to (permanent) associate broker. Although the license law changed in 2008 (after 15 years) to require inactive salespersons to start over from the beginning, this course is still active for one-time use as continuing education.
12-10-204 Errors and Omissions (E&O) Insurance. In 1998 the Commission mandated E&O insurance for every active individual and firm license, except attorney-brokers who maintain their own malpractice insurance.
The Commission seeks bids and selects a group provider. Licensees may also obtain coverage independently, and must do so if the Commission is ever unable to secure a reasonable group policy.
Unlike license renewals which occur every three years on the anniversary of initial issuance, E&O insurance policies run for one calendar year and must be renewed each January 1.
Commission Rule D-14 implements this section of the license law.
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C.R.S. 12-10-Part 2 - Brokers
12-10-206 The Real Estate Commission. The Governor appoints five commissioners to 3-year terms to administer the license law and set the course for the practice of real estate state-wide. Three commissioners must be brokers with at least 5 year's experience. One commissioner is a non-real estate person representing the public.
No broker license may be denied, suspended or revoked without a commission majority vote.
The Commission has rule-making authority delegated by the Colorado General Assembly.
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C.R.S. 12-10-Part 2 - Brokers
12-10-207 The Division of Real Estate. Do not confuse the 5-member appointed commission with the civil service Division of Real Estate. The Division is one of 10 in the Department of Regulatory Agencies and employs a director and several dozen staff members that administer the day-to-day activities and direction of the Commission.
12-10-208 Non-resident Licensees. A broker in another state doesn't have to maintain a residence in Colorado to hold a Colorado broker license, but must agree to jurisdiction of Colorado courts in any lawsuit brought in Colorado.
12-10-209 Master File. The record of licenses is public information. Anyone may determine the name, address, license number, brokerage firm, date of original licensure, last renewal date and record of disciplinary actions on the Commission Website. https://www.colorado.gov/dora/division-real-estate
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C.R.S. 12-10-Part 2 - Brokers
12-10-211 Changes of license status. Licensees must notify the commission of any change in business location or employment. The law stipulates that it is a joint duty of both the employing broker and associate to notify the commission of the severance of the employment, and requires the party giving notice to so state in writing to the other.
12-10-213 License Renewal and Reinstatement. An initial individual license is issued for three years. Failure to renew on time, (with E&O insurance in place) automatically renders a license inactive upon expiration. While no activities requiring a license may occur (and no commissions may be earned), the law permits reinstatement of an expired license within 31 days without penalty.
From 32 days up to one year after expiration, a reinstatement fee is $579.00.
From one year and a day up to three years, the reinstatement fee is $771.00.
If the employing broker's license expires, is suspended, or revoked, all employed associate broker licenses automatically become inactive until the Commission is notified of resolution of the problem.
12-10-213 Continuing Education. Before renewing every 3 years, activating or reinstating a broker license to active status, each broker requires 24 hours of continuing education. 12 of the required hours must be met by taking the 3 different annual versions of the 4-hour "Commission Update Course." (See also Commission Rule B-2a.) Continuing legal education real property law courses meet this update requirement.
The law lists 21 subjects in which real estate continuing education may be taken.
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C.R.S. 12-10-Part 2 - Brokers
12-10-216 Record Retention. The commission is not required to preserve license history records for more than seven years.
12-10-217 Commission Investigative Authority and License Law Violations. The commission may investigate the activities of any licensee, and must investigate complaints received from the public in writing. After a public hearing in front of an administrative law judge, the commission has the authority to:
a. Assess a fine of up to $2,500 per offense. (Fines may be "stacked" for multiple occurrences of the same offense.)
b. Censure a license. (Publish the licensee's name publicly)
c. Place a licensee on probation and set the terms.
d. Temporarily suspend a license.
e. Permanently revoke a license. (Licensee may not re-apply for one year and payment of any fines not yet paid.)
f. Assess a fine in the amount of any improper payment under affiliated business arrangement law.
g. Refer investigative results to other criminal justice or law enforcement authorities as implicated.
Short of the above formal disciplinary actions, the commission may issue a letter of admonition, which a licensee may either accept, or reject in favor of formal disciplinary proceedings.
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C.R.S. 12-10-Part 2 - Brokers
Violations of the license law include:
· Knowingly making any misrepresentation or false or misleading advertising.
· Influencing, persuading or inducing another person with false promises.
· Knowingly misrepresenting or making false promises through agents, advertising or otherwise.
· Violating the " Colorado Consumer Protection Act," Title 6, Article 1 C.R.S.
· Acting for more than one party in a transaction without the knowledge of all parties.
· Representing more than one employing broker without that broker's consent.
· As an associate, not depositing trust funds with the employing broker as soon as possible .
· Failure to account for or remit trust funds.
· Misuse (Conversion, Diversion or Commingling) of trust funds; failure to keep trust funds in an escrow account.
· Failure to provide a purchaser/seller a closing statement.
· Failure to maintain possession of Commission prescribed documents for a period of four years.
· Paying a commission to an unlicensed person for performing real estate activities (except for a broker licensed in another state).
· Violating the Colorado or Federal Fair Housing laws.
· Failure to exercise reasonable supervision over the activities of broker associates.
· Receiving any secret or undisclosed amount of compensation.
· Causing any payment to be made from the recovery fund.
· Failure to retain proof of completion of continuing education requirements for 4 years.
· Violating any part of the affiliated business arrangement law in 12-10-218, including authority for the commission to assess a penalty equal to the amount of any improper incentive.
A license may also be disciplined for violating any of Part 2 (Brokers) or Part 4 (Brokerage Relationships) of the license law, being convicted of or pleading no contest to certain major crimes, failing to notify the commission in writing of such a conviction, applying for a license by fraud or deceit, having had a license revoked elsewhere, demonstrating unworthiness or incompetence or acting in a manner that constitutes dishonest dealing.
Brokers must, upon commission request, supply copies of documentation of any legal proceeding connected to their license.
The commission may suspend or revoke a firm's license whether or not the employing broker's license is disciplined.
A rental location agent must give each prospective tenant a receipt or contract featuring the address and telephone number of the commission.
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C.R.S. 12-10-Part 2 - Brokers
Violations of the license law include:
· Knowingly making any misrepresentation or false or misleading advertising.
· Influencing, persuading or inducing another person with false promises.
· Knowingly misrepresenting or making false promises through agents, advertising or otherwise.
· Violating the " Colorado Consumer Protection Act," Title 6, Article 1 C.R.S.
· Acting for more than one party in a transaction without the knowledge of all parties.
· Representing more than one employing broker without that broker's consent.
· As an associate, not depositing trust funds with the employing broker as soon as possible .
· Failure to account for or remit trust funds.
· Misuse (Conversion, Diversion or Commingling) of trust funds; failure to keep trust funds in an escrow account.
· Failure to provide a purchaser/seller a closing statement.
· Failure to maintain possession of Commission prescribed documents for a period of four years.
· Paying a commission to an unlicensed person for performing real estate activities (except for a broker licensed in another state).
· Violating the Colorado or Federal Fair Housing laws.
· Failure to exercise reasonable supervision over the activities of broker associates.
· Receiving any secret or undisclosed amount of compensation.
· Causing any payment to be made from the recovery fund.
· Failure to retain proof of completion of continuing education requirements for 4 years.
· Violating any part of the affiliated business arrangement law in 12-10-218, including authority for the commission to assess a penalty equal to the amount of any improper incentive.
A license may also be disciplined for violating any of Part 2 (Brokers) or Part 4 (Brokerage Relationships) of the license law, being convicted of or pleading no contest to certain major crimes, failing to notify the commission in writing of such a conviction, applying for a license by fraud or deceit, having had a license revoked elsewhere, demonstrating unworthiness or incompetence or acting in a manner that constitutes dishonest dealing.
Brokers must, upon commission request, supply copies of documentation of any legal proceeding connected to their license.
The commission may suspend or revoke a firm's license whether or not the employing broker's license is disciplined.
A rental location agent must give each prospective tenant a receipt or contract featuring the address and telephone number of the commission.
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C.R.S. 12-10-Part 2 - Brokers
12-10-218 Affiliated Business Arrangements. This part of the law was enacted in 2006 to mandate broker responsibilities under the Federal RESPA law and to regulate broker connection to services other than real estate brokerage.
An affiliated business arrangement is defined as an arrangement in which a provider of settlement services is related to or has a beneficial relationship with another provider of settlement services, and they refer business or influence the selection of providers in favor of each other.
This refers to any service, not just title companies. The law specifies 19 affiliations, including home inspection, appraisals, attorneys, even pest and fungus inspectors.
The law prohibits a licensee from 1) requiring the use of an affiliated business as a condition of using the licensee's brokerage services, and 2) giving or receiving anything of value for referring clients to another settlement service provider. The law requires disclosure by brokers in two ways:
a. To all parties involved at the time of a transaction.
b. To CREC when a licensee enters into, or changes any arrangement, and annually.
The following are NOT violations or prohibited by the statute:
a. Payment to an attorney, title company or lender for settlement services actually rendered.
b. Salary or regular compensation to any person for real goods or services connected to closing.
c. Cooperative brokerage or referral splits among brokers.
d. Requiring buyer to pay for service providers chosen by lender representing lender's interests.
e. An attorney representing a law client who issues or arranges for title insurance.
License law specifically requires CREC to adopt H.U.D. rules, policies and guidelines under the Real Estate Settlement and Procedures Act (RESPA).
C.R.S. 12-10-Part 2 - Brokers
12-10-219 Hearings for Denying, Suspending or Revoking a License. Licensees faced with license denial, suspension, or revocation are entitled to a public hearing conducted by an administrative law judge (ALJ). The commission must notify employing brokers of such pending action against broker associates. After a hearing, and the issuance of a "finding of facts and initial decision" by the ALJ, a licensee has 30 days to appeal the findings. Whether appealed or not, the case goes back to the commission for a final vote on whether or not to uphold, modify or repeal the disciplinary action. Only the commission may deny, suspend or revoke a license.
12-10-221 Payment to Employed Licensees. A broker associate may receive commission or payment for activities requiring a license only from his or her employing broker (firm). C ommission disputes between an associate and an employing broker are resolved by legal action, not by CREC.
12-10-222 Employing Broker Liability Limited for Acts of Employees. An employing broker shall NOT be subject to discipline for unlawful acts of associates unless the employing broker had actual knowledge of the violation or was negligent in supervision.
12-10-223 Penalties for Acting without a License. Performing acts requiring a license without holding a valid, active license is subject to a fine of $500 ($5,000 for corporations) and/or six months imprisonment. For a second offense the fine limit is $1,000 and /or six months imprisonment.
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C.R.S. 12-10-Part 2 - Brokers
12-10-224 to 12-10-226 Commission Powers and Penalties. The commission has the power to subpoena witnesses to attend hearings and to produce documents and records. They may also petition to the courts for injunction or restraining order to stop broker action that may be in violation of the license law.
Criminal law ( public wrongs) and Tort law ( private wrongs) control the behavior of individuals for activities conducted outside the purview of the license law. CREC enforces only license law, NOT ethical behavior. A Code of Ethics is voluntarily adopted and imposed on members of professional organizations. Members of The National (and State and Local) Association of REALTORS® are subject to such a code.
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C.R.S. 12-10-Part 3
TITLE 12, ARTICLE 10, PART 3 - BROKER COMMISSIONS
12-10-301 When Entitled to a Fee. A commission is not earned until closing or until the seller states intent not to close or actually does not close.
12-10-302 Failure to Close due to Title Defect. No commission is earned and no buyer must close a transaction in the face of title defects, unless owner corrects the defects.
12-10-303 When Owner must Perfect Title. An owner is not required to begin clearing up any title defect absent a written contract binding the buyer to close when title defects are cleared.
12-10-304 Referral Fee Interference. No person may demand a referral fee from a broker absent "reasonable cause", meaning a pre-existing referral or cooperative brokerage agreement exists that led to an actual introduction of a client and a closed transaction.
NOTE: Also see C.R.S. 12-10-410 - Compensation.
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C.R.S. 12-10-Part 4
RECOVERY FUND
This part of the License Law is in the process of being phased out. For many decades the commission maintained a "Recovery Fund" to help natural persons who had obtained a court judgment resulting from being harmed by a licensee's actions, but was unable to collect on that judgment. The fund was replenished with a surcharge on license renewal fees whenever it dipped below $300,000. However, with the advent of errors and omissions insurance, the fund was not used and grew into a sum too large for the General Assembly to ignore. The fund was swept of approximately 1.5 million dollars in 2004, and is no longer open to new claims. The following few salient facts pertain to claims not yet settled. Upon payment of the last claim, the Director of the Division of Real Estate must notify the General Assembly and the account will be finally closed.
Limitation on Payments. Payment could only be made for judgments based on negligence, fraud, willful misrepresentation or conversion of trust funds.
Payment could only be made for direct out-of-pocket loss, court costs and post-judgment interest. Specifically prohibited were payment for pre-judgment interest, pain, suffering or mental anguish.
At the time it was closed to new claims, the fund limited payouts to $50,000 per transaction and $150,000 per licensee. Attorney fees were limited to 25% of direct out-of-pocket losses paid in any claim.
A payment from the Recovery Fund resulted in the automatic revocation of the real estate license involved. Reinstatement could only occur after one year and re-payment of the amount paid back to the fund, plus interest.
This article was repealed in 2013.
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C.R.S. 12-10-Part 5
TITLE 12 ARTICLE 10 PART 5 - SUBDIVISION LAW
The complexity of subdivision development is beyond the scope of this course. However, a basic understanding of subdivisions statute and rule is required for licensure.
12-10-501 Definitions. Colorado defines a subdivision as any real property, divided into 20 or more interests offered for residential use. This includes condominium conversions of an existing building, residential timeshare development and proprietary leases in a cooperative housing corporation.
Specifically excluded from the definition are:
a. Campground memberships;
b. Bulk land sales between developers;
c. Property used for new home development when the purchase price includes both the land and the home;
d. Sales by public officials (e.g. foreclosure by the public trustee); and
e. Lots which, at the time of sale or lease occupancy, are subject to county planning oversight or that have streets in place, feasible water and sewer plans, and installed telephone and electricity systems.
12-10-502 Subdivision Registration. Subdivision developers subject to registration are not required to hold real estate broker licenses. In fact, many hire brokers when the time comes to sell their lots. They must, however, hold developer certification before lots are reserved, negotiated for sale or sold by anyone, including a licensed broker.
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C.R.S. 12-10-Part 5
12-1-507 Violations. Subdivision developers are subject to the same type of violations laundry list as brokers with one important addition. A developer must honor a buyer's request to cancel a time-share or subdivision purchase contract if the request is made by telegram, mail or hand delivery within 5 days of signing the contract.
As a broker, here are some Commission cautions concerning subdivisions and land use regulation:
a. The sale of a portion of a seller's land divides it into two parcels and creates a subdivision. Even though it may not be subject to Commission registration, municipal or county oversight will most likely be required.
b. A property within an area zoned for horses may not be large enough to actually maintain and water horses. Always check with municipal and county agencies when listing or offering to purchase "horse" property.
c. Even though an area is zoned for home business, it may have covenant or ordinance prohibiting customer or employee traffic.
Local government may impose restrictions on future availability of utilities such as water or electricity. A licensee must never represent future services, zoning, development, etc.
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Miscellaneous Colorado Revised Statutes
Although not part of the license law, there are several areas of Colorado statute that deal directly with real estate brokerage.
TITLE 38 ARTICLE 32 - ESTATES ABOVE THE SURFACE. Authorizes creation of estates, right and interests in areas above the surface (i.e. air rights)
TITLE 38, ARTICLE 33 - CONDOMINIUM ACT. Only select parts of this act remain in force, primarily defining timeshare terms, ownership provisions and notification to tenants prior to converting an apartment building to a condominium. No lease may be superseded or terminated by a conversion notice without tenant concurrence.
TITLE 38, ARTICLE 33.3 - COLORADO COMMON INTEREST OWNERSHIP ACT. This act is commonly referred to as CCIOA, (pronounced ki-o-wa). It became effective July 1, 1992, was updated in 2006 and 2007 and superseded most of the Condominium Act above. The act covers approximately 63 pages of text in the real estate manual and covers in extreme detail the types, creation, management, meetings, lien authority of common interest communities - even down to the size of political signs that may be displayed in a unit, for example.
Since common interest communities include both multi-family and single family developments with by-laws and homeowner associations, (perhaps as much as 50% of all residential properties) this law may cover the majority of Colorado urban dwelling residents. A more thorough reading of this statute should be a prerequisite to selling property in a common interest community - or perhaps before even residing in one.
TITLE 38, ARTICLE 33.5 - COOPERATIVE HOUSING CORPORATIONS. In the pre-licensing Law and Practice course, Co-ops are studied in detail as part of forms of combined ownership. This part of the Colorado Revised Statutes simply extends that general definition to more specific Colorado requirements.
It contains provisions for the management of stock and stockholder rights. It provides that not less than 80% of gross income of the Co-op must be derived from tenant-stockholder payments, and that tenant stockholders must be credited with their individual fair share of property taxes and loan interest paid in any given year.
Every proprietary lease or right-of-ownership document of a tenant-stockholder must prohibit subleases of more than one year without lender approval, and that tenant-shareholder default in loan payments are treated the same as defaults secured by real property (as opposed to defaults in stock purchase). It also makes Co-op sales certificates and shares exempt from Colorado securities law.
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C.R.S. 12-10-Part 9 HOME WARRANTY CONTRACTS.
New home construction in Colorado is protected for 1 year by an implied warranty inherent in the contractor's license. For previously occupied residences, however, no such warrant exists unless specifically purchased for the transaction. Home Warranties are readily available from several vendors. Such a warranty may protect everything from the structure to the furnace to the appliances depending on the warranty company and the premium paid.
12-10-902 Home Warranty Not Compulsory. No one (including the lender (12-10-905)) may require a buyer or seller to purchase a home warranty.
NOTE: Home warranties must be debited/credited on the settlement statement provided at the time of closing, regardless of who purchases the policy.
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C.R.S. 12-10 Part 6
TITLE 12, ARTICLE 10, PART 6 - REAL ESTATE APPRAISERS. (Note: Most of the appraiser part of the license law will not apply to your practice of real estate. The following few salient points are important. The entire Part 7 may be found in Chapter 11 of the Colorado Real Estate Manual.)
12-10-602 Definitions. Real Estate Appraiser means any person who provides for a fee or a salary an estimate of the nature, quality, value or utility of an interest in, or aspect of identified real estate, and includes one who estimates value and who possesses the necessary qualifications, ability and experience to execute or direct the appraisal of real property.
Real Property Appraiser does NOT include a licensed real estate broker who provides an opinion of value that is not represented as an appraisal and is not used for purposes of obtaining financing (e.g. a competitive market analysis or CMA).
12-10-606 Levels of Appraisers. There are four appraiser levels rising in complexity of qualifications and experience from:
· Licensed - An appraiser possessing additional education and 2,000 hours of experience over at least one year.
· Certified Residential - An appraiser possessing substantial education, 2,500 hours of experience over at least two years; can appraise "complex" residential properties.
· Certified General - An appraiser possessing extensive education, 3,000 hours of experience over at least 2 1/2 years, including 1,500 hours of non-residential appraisal; may perform appraisal of one-of-a-kind properties such as a church or golf course, etc.
· Licensed ad valorem - for county assessor or taxation employees.
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C.R.S. 12-10- Part 6
12-10-616 Unlawful Acts. The license law forbids an appraiser from accepting an appraisal assignment that is contingent upon a pre-determined estimate of value. As a broker, you may certainly offer suggested comparable properties or improvements you feel may be overlooked in the appraisal. You must refrain, however, from coercion or demands that the appraiser establish a certain, predetermined value.
12-10-623 Scope of Article. The appraiser license law does not apply to an appraisal relating to a real estate related transaction or loan made by a financial institution or affiliate if the transaction or loan is excepted from regulations established by the primary federal regulator and the appraisal is performed by a licensed real estate broker with whom the financial institution has contracted for the performance of the appraisal.
Such an excepted appraisal may be deemed an "appraisal" ONLY by the said financial institution, the regulatory agencies of the financial institution, and any secondary markets that purchase loans secured by real estate.
There must be a disclaimer in any such appraisal, the wording of which is specified verbatim in Appraisal Board Rule 15.2:
"NOTICE: The preparer of this appraisal is not licensed as a real estate appraiser under the laws of the State of Colorado."
The format of any such notice is specified in Board Rule 15.3 and must appear on the first page, on each copy, clearly show on any photocopy and not be smaller than the type size of the body of the appraisal.
NOTE: Since most loans are sold on the secondary market, and secondary market rules prescribe the use of licensed or certified appraisers, this exemption is very rarely used.
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C.R.S. 12-10-Part 4
TITLE 12, ARTICLE 10, PART 4, BROKERAGE RELATIONSHIPS. NOTE: Colorado is unique in its brokerage relationships with the public. Colorado law overrides the common law of agency that you studied in the Real Estate Law and Practice (General) course or experienced in other states. This part of the license law is critical to your passing the state broker examination and to your understanding the actual day-to-day practice of real estate. Keep in mind that the following is paraphrased from the official statute language for ease of comprehension. Because this topic is so important to your career and because it is abbreviated here, we strongly recommend that you read Chapter 15 of the Colorado Real Estate Manual, "Brokerage Relationships" in concert with your review of the following material.
12-10-402 Definitions.
· Customer: a party to a real estate transaction who has not hired or engaged a broker and is therefore NOT a party to a brokerage relationship.
· Designated Broker: An employing or employed broker in a multiple-licensee firm required to be appointed in writing to serve each seller, buyer, landlord or tenant in each real estate transaction. Colorado is a designated brokerage state. This means that the required designation (appointment) of a broker in writing on every side of every transaction actually severs (cuts off) the employing broker and the firm from the brokerage relationship.
It is useful to think of designated brokerage as an umbrella, or arch which overlies all broker real estate transactions in Colorado. It precedes and is NOT the same as a brokerage relationship of which there are only two allowed in Colorado, i.e. agency or transaction brokerage. Note that designated brokerage law does not apply to single person brokerage firms.
12-10-403 Relationships between Brokers and the Public.
1. The designated broker may be either an agent or a transaction-broker. The option is determined first by the employing broker's office policy as to which he or she prefers, and then by the desires of the seller, buyer, landlord or tenant.
2. The designated broker is a non-agent, transaction-broker by default, even absent any listing contract. In order to be an agent, there must be a written employment (listing) agreement.
3. A brokerage relationship must be independently established for each transaction side, for instance serving as a listing broker for a seller, and then serving as a buyer broker that same person who is now seeking a replacement property.
4. A broker may prepare approved printed forms without the assistance of an attorney. This is the statutory extension of Colorado's bedrock case law known as Conway-Bogue. In this 1959 case, the Colorado Supreme Court determined that brokers could prepare these forms even though they constitute the practice of law. The law requires the broker to advise the parties that the forms have important legal consequences, and that the parties should consult legal counsel before signing such forms. Although both of these admonitions are pre-printed in Commission-approved standard forms, they should also be emphasized in any dealings with the public.
5. A broker may contract (in writing) to perform additional duties beyond those contained in the Commission-approved forms.
6. a. This paragraph is the actual requirement, in every firm with more than one licensee, to appoint a designated broker in writing for every side of every transaction. More than one designated broker may be appointed to serve a single seller, buyer, landlord or tenant. The employing broker may appoint him or herself as a designated broker. In this case the employing broker may elect to supervise his or her own transaction or may delegate supervisory authority to an associate broker. b. The brokerage relationship does NOT extend to the employing broker, any other broker in the firm, or to the firm itself. This is the BIG difference between Colorado and common agency law in which the seller, buyer, landlord or tenant hires an agent as a package including their chosen broker, his or her firm and every licensee in the firm. Under common agency law, confidential knowledge is "imputed" to (legally presumed to be shared by) all of these persons whether or not they possess actual knowledge. In the Colorado model, only the specific designated broker is deemed to know, and is required to protect confidential client information. The brokerage relationship is only between the individual designated broker and the seller, buyer, tenant or landlord. The listing itself belongs to the employing broker/firm. Paragraph 1 of the listing contracts states: "Seller/Buyer/Landlord/Tenant and Brokerage Firm enter into this ..." Note also this part of the license law. This means that if you leave to work for another brokerage firm, or start up your own, the listings remain the property of your previous employing broker/company. c. An employing broker may designate one broker for a seller, and another broker for the buyer in the same transaction. d. When working for both sides of a transaction, one broker may establish a transaction-broker relationship with both sides, OR may work as agent for one side and treat the other as a "customer," but may never be an agent for both sides. e. A single broker may be designated to a seller/landlord in one transaction and a buyer/tenant in another.
7. The public is NOT liable for broker actions that they have not approved, directed, or ratified.
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C.R.S. 12-10-Part 4
12-10-404 (Seller/Landlord Agent), -405 (Buyer/Tenant Agent) and -407 (Transaction-Broker) duties. Colorado has adopted "uniform" duties that are expected of every broker and spelled out in every Commission-approved listing contract and disclosure. Regardless of whether acting as an agent or a transaction-broker, every licensee owes the following duties in every transaction.
a. Perform the terms of any written (or for transaction-broker - oral) agreement.
b. Exercise reasonable skill and care (relative to professional education and experience).
c. Present all offers and counteroffers in a timely manner - even if the party or property is under contract or subject to a letter of intent.
d. Disclose all adverse material facts actually known by the broker, including title problems, physical condition defects, environmental hazards, inability to financially perform the contract and intent of buyer to occupy (or more importantly, to not occupy) the property as a principal residence.
e. Advise to seek expert advice when material matters are beyond broker's expertise, (e.g. engineering, flood plains or complex zoning issues).
f. Account in a timely manner for all money and property received.
g. Keep your party (or if Transaction-broker for both sides - both parties) fully informed regarding the transaction.
h. Comply with this license law and commission rule.
i. Comply with applicable federal, state and local laws or regulations, including fair housing and civil rights.
As far as protecting confidential information, again it makes no difference whether you are an agent or a transaction-broker. Without the specific informed consent of the affected party a broker may NOT disclose:
a. That a party will accept less than the list price or pay more than the offered price.
b. How motivated the seller is to sell or the buyer is to buy the property.
c. That either party will agree to financing terms other than those offered.
d. Any material information about any party unless disclosure is required by law or withholding the information would constitute fraud or dishonest dealing.
e. Any facts or suspicions about psychological impact (e.g. murder, suicide, serious felony, HIV-AIDS or other non-communicably diseased occupants etc.).
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C.R.S. 12-10-Part 4
So, if every broker must live up to the above services and protect the above confidential information, what is the difference between transaction-brokerage and AGENCY? Glad you asked! In addition to the above levels of service expected of all brokers, an AGENT must:
a. Promote the interests of the client with the utmost good faith, loyalty and fidelity. These keywords represent the "fiduciary" duties inherent in agency. In practice it means that the broker is not neutral but is an advocate for the client.
b. Seek price and terms most favorable and acceptable to his or her client. An agent must be more skilled as a negotiator, fighting for the optimum advantage for the client, whereas a transaction broker would simply convey offers/counteroffers between the parties.
c. Counsel the client as to the material benefits or risks in the transaction. An agent must afford the client the full benefit of his or her experience, even suggesting possible outcomes. A transaction-broker remains steadfastly neutral, assisting the parties in complying with the obligations that the parties have independently arrived at via their own negotiations.
d. Tell the client that he or she has no vicarious liability for broker actions not approved, directed or ratified. (This, too, is printed in the appropriate employment/listing agreements.)
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C.R.S. 12-10-Part 4
Duties NOT owed by the Broker:
A seller/landlord agent has no duty to the buyer/tenant to investigate the property, nor to verify statements made by the seller or inspector concerning the property. (NOTE: "No duty to inspect" does not mean you may overlook material defects you actually see or may come to know.)
A buyer/tenant agent has no duty to the seller to investigate the buyer's financial condition, nor to verify statements made by buyer or independent inspector. (NOTE: Again, "no duty" means you do not have to go out of your way to find out. It is just plain wrong to present an offer from a buyer you know cannot complete the terms of the offer.)
A buyer/tenant agent likewise owes no duty to the buyer to independently inspect the property, nor to verify statements made by the seller/landlord or independent inspector - but must, of course, disclose adverse material facts that are known.
A transaction-broker is not obligated to inspect the property, the buyer/tenant's financial condition, or to verify accuracy or completeness of statements made by either side. By its very nature and definition, a transaction broker is a non-agent, non-advocate, neutral, impartial real estate service provider.
A transaction-broker has no imputation of knowledge, that is, he or she is not presumed to know any confidential information not actively transmitted to him or her. An agent, on the other hand, is presumed to have imputed knowledge about the client and transaction.
Note: We've discussed imputed knowledge twice, the severing of the employing and other associate brokers from the relationship and the designated broker's sole responsibility to protect confidential information. So what happens when the licensee needs guidance involving these issues to keep a transaction on track? While not in the license law, the Commission has enacted a rule (E-45) to allow for sharing of confidential information with a "supervising" broker when necessary, if authorized by the client. We'll present this in the chapter on Commission Rules and again in the consideration of the listing contracts.
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C.R.S. 12-10-Part 4
Parallel Brokerage Activities Allowed:
A listing broker may list properties other than owned by the seller for sale or lease, and may show competing properties to buyer/tenant prospects.
A selling or cooperating broker is the one who brings the buyer to the transaction - as opposed to the listing broker. Statewide, in very few instances does the listing broker also find the buyer, and therefore also become the selling broker. A selling broker may show the same property to multiple buyer/tenant prospects with no conflict of interest.
A broker may serve as a designated broker for the same or a different party in another real estate transaction.
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C.R.S. 12-10-Part 4
12-10-406. A broker shall not establish dual agency (agent for both seller and buyer in the same transaction).
Subagency: Subagency, a broker acting as agent for another broker, is also effectively outlawed since it is denied to both single agents and transaction brokers by the license law.
C.R.S. 12-10-Part 4
12-10-408 Broker Disclosures.
· 1 (a) Every broker shall adopt a written office policy that identifies and describes the brokerage relationships offered to the public. (NOTE: There are only two: either agency or transaction brokerage.)
· 1 (c) If a seller, buyer landlord or tenant asks about a brokerage relationship NOT offered by the firm, the broker must provide the CREC definition of that brokerage relationship. This is normally accomplished by providing the Commission-approved form: "Definitions of Working Relationships."
· 2 (a) (I) Prior to engaging in activities requiring a license, a transaction-broker must disclose his or her transaction-broker status in writing.
· 2 (a) (II) The transaction-broker disclosure form is not a contract. If the buyer, seller, tenant or landlord refuses to sign, just annotate the refusal on a copy and keep it in the transaction file.
· 2 (a) (III) Any duties additional or different than those listed in the disclosure or employment contract must be agreed to in writing by both the transaction broker and the seller, buyer, landlord or tenant.
· 2 (b) A written employment agreement is required to establish an agency brokerage relationship.
· 2 (d) An agent of a seller/landlord intending to work with a buyer or tenant as a customer (no brokerage relationship) must disclose the agency status to the buyer. He or she must also disavow agency for the customer, must list the tasks that the broker will perform for the customer, and must advise the customer that he or she is not liable for the acts of the broker not approved, directed, or ratified. Since these disclosures are not contracts, the customer may refuse to sign, in which case the broker simply annotates that fact on the disclosure and retains it in the transaction file.
· 2 (f) A broker must advise other potential parties or their brokers of existing brokerage relationships at the earliest reasonable opportunity.
12-10-409 Duration of Relationship
a. A brokerage relationship continues until performance of the contract OR the earlier of:
a. The date of expiration in the contract or agreed to by the parties.
b. Any termination by either party.
c. One year after the date of the contract.
b. After the contract expires, terminates, or is completed, an agent owes no further duty to the principal except:
ii. Accounting for all money and property.
ii. Maintaining confidential information unless disclosure is approved in writing by the principal, required by law, or is released by someone other than the broker.
c. After the contract, a transaction-broker only has the duty to account for all money and property.
12-10-410 Compensation.
1. A brokerage firm may be paid (all or in part) by the seller, buyer, any third party or by splitting of the fee between brokerage firms. REALTORS®, through their Multiple Listing Service, offer to split the listing commission with selling or cooperating brokers. This allows the buyer to know at the time of writing a purchase offer how much the buyer agent/transaction-broker will receive from the transaction proceeds. Depending on buyer agreement, an adjustment can be made to the amount a buyer may be obligated to pay. The buyer could get a refund after closing if the "split" to the buyer broker is greater than that in the Exclusive Right-to-Buy Contract. You will learn how compensation obligations are set forth in the various contracts later in this course.
2. Compensation by itself never creates a brokerage relationship.
3. A seller, landlord, buyer or tenant may agree that their broker shares earned commissions with any other broker.
4. A buyer or tenant agent must first secure written approval of the principal before proposing to share in any compensation offered by the seller or landlord.
5. Before entering any brokerage or listing agreement or contract to buy, sell or lease, the identity paying any broker compensation shall be disclosed to all parties.
6. A broker may be compensated by more than one party in a single transaction provided the parties have agreed in writing prior to entering into a buy, sell, or lease contract.
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C.R.S. 12-10-Part 7
TITLE 12, ARTICLE 10, PART 7 - MORTGAGE LOAN ORIGINATORS
12-10-702 Definitions.
· Mortgage loan originator - an individual who, on behalf of a borrower, negotiates or originates a residential loan that will be funded by a mortgage lender. Mortgage brokers often "shop" loans among various lenders to secure the best terms for the borrower.
· Mortgage Lender - the payee on the promissory note for the loan, the person or entity whose money actually funds the loan.
· Originate - Submit a loan application to the lender or loan underwriter.
12-10-705 Registration required. Effective January 1, 2011, each mortgage company is required to register with the nationwide mortgage licensing system and registry, unless exempted by rule by the board, and required to renew its registration each calendar year. (Note: Registration is not as stringent as licensing. Registration does not require prescribed education or examination.)
12-10-717 Bond Required: Before receiving a license, an applicant must post a bond prior to registration in an amount prescribed by the board by rule.
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Summary
This concludes Chapter 1. Below is a brief summary which you can review before taking your quiz.
Colorado laws are called Colorado Revised Statutes (C.R.S.). The license law exists to protect the public by setting a standard for competency and integrity.
A real estate broker, on behalf of another person, for any form of compensation, negotiates in real estate or any interest therein.
An option is a speculative, unilateral contract in which the optionee offers money now for the future right to buy a certain property.
Persons not needing a real estate license:
· Any person or legal entity acting on its own behalf as a principal.
· Public official performing official duties.
· Trustee, administrator, executor, guardian, performing authorized duties.
· A person or legal entity dealing in oil and gas.
· An attorney-at-law, but only when representing clients in the practice of law.
· A real estate broker licensed in another state who co-brokers with a Colorado broker
Part 1 - License Application & Qualification
A person must be 18 years old and of good moral character.
· Brand new applicant: 168-hour education program or college degree with a major in real estate.
· Previously licensed salesperson: 120 hours in education programs.
· Previously licensed broker: 72 hours in education programs.
· Attorney: 12-hour Trust Accounts, Recordkeeping and Real Estate Closings course.
An inexperienced broker must practice as an associate broker for two years.
A broker may apply to engage in independent brokerage after two years active licensed experience under a high level of supervision.
A broker desiring licensure as an employing broker, must complete the 24-hour "Brokerage Administration" course.
Colorado participates in bilateral license recognition agreements with other states.
In addition to the education, applicants must pass a standardized broker licensing exam (National and Colorado).
Rule A-16: a set of fingerprints must be submitted for a criminal history record check.
Unlike individual licenses, licenses of firms do not require renewal.
The Real Estate Commission
· Five commissioners with 3-year terms.
· Three must be brokers with at least 5 years’ experience.
· One is a non-real estate person representing the public.
Licensees must notify the commission of any change in business location or employment.
Failure to renew license on time automatically renders a license inactive upon expiration. The law permits reinstatement of an expired license within 31 days without penalty.
· If the employing broker's license expires or revoked, all employed associate broker licenses become inactive.
· Before renewing every 3 years, activating or reinstating a broker license to active status, each broker requires 24 hours of continuing education.
Violations of the license law include:
· Acting for more than one party without the knowledge of all parties.
· Representing more than one employing broker without consent.
· Not depositing trust funds with the employing broker as soon as possible .
Affiliated business arrangement - a provider of settlement services is related to another provider and they refer business the selection of providers in favor of each other.
The law prohibits a licensee from
· Requiring the use of an affiliated business as a condition of using the licensee's brokerage services
· Giving or receiving anything of value for referring clients to another settlement service provider.
Licensees faced with license revocation are entitled to a public hearing conducted by an administrative law judge. Only the commission may deny, suspend or revoke a license.
A broker associate may receive commission only from the employing broker (firm).
Criminal law ( public wrongs ) and Tort law ( private wrongs ) control the behavior of individuals for activities conducted outside the purview of the license law.
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