Director's Corner
Brokerage Expectations: Compliance and Guidance
We are noticing a few compliance issues when Division staff is conducting brokerage audits. This article will address a few of the issues to provide some guidance to the brokerage community regarding the Real Estate Commission’s expectations.
Brokerage relationship disclosures – when and how they need to be made
If a real estate broker (“broker”) does not accept or elicit confidential information prior to entering into an Exclusive Right to Sell, Buy or Lease, one of these listing contracts is sufficient to disclose brokerage relationships. If the broker does receive confidential information prior to entering into an Exclusive Right contract, the broker needs to make a brokerage relationship disclosure. §12-10-408(2)(a)(II), C.R.S., requires a transaction broker to make a written disclosure that contains a signature block for the buyer, seller, tenant or landlord to acknowledge receipt of such disclosure. This disclosure, by itself, does not constitute a contract with the broker. Additionally, the office policy manual must identify and describe the relationships offered to the public by the broker. Brokers are not required to provide or engage in all of the brokerage relationships set forth in the license law, i.e. seller agency, landlord agency, buyer agency, tenant agency, or transaction brokerage. However, if a buyer, seller, landlord or tenant request information or ask about a brokerage relationship not offered by the broker, the broker is required to provide the person with a written definition of the brokerage relationship.
The Real Estate Commission (the “Commission”) has promulgated forms to aid brokers with making these disclosures.
Standard forms – attorney drafted forms
As a result of the Real Estate Commission’s Sunset Review in 2016, there was legislation passed in 2017 that modified and expanded the statutory language regarding a broker’s use of standard forms. The law still requires a broker to use a Commission-approved form when such form exists and is appropriate for a transaction. However, there are various other forms that now fall within the definition of a standard form, including forms that are drafted by a licensed Colorado attorney. As Division staff reviews transaction files during brokerage audits, we are regularly seeing attorney drafted forms that were created by attorneys not licensed in Colorado and that are unfamiliar with the requirements set forth in §12-10-403(4)(b), C.R.S. and Commission Rule F-1. Attorney drafted forms that are created for use by a broker, employing broker, or brokerage firm, must contain the name of the attorney or law firm and the name of the broker, employing broker, or brokerage firm for whom the form was prepared. The form must also contain a statement that “This form has not been approved by the Colorado Real Estate Commission”. Failure to include this information may result in discipline of a broker’s license regardless of the legal advice provided by the attorney that created the form.
4 CCR 725-1.pdfTransactions involving brokers as sellers, landlords, buyers or tenants
While the Commission does not have a definitive rule or regulation that states that on every occasion that a broker acts on his own behalf in a real estate transaction, the broker must represent himself as a single agent, they have consistently made disciplinary decisions to this effect. As a result, we expect to see an Exclusive Right to Buy, Sell, Lease or Exclusive Tenant Contract anytime a broker is transacting real estate on his own accord. The form needs to be retained in the transaction file for four years as required by §12-10-217(1)(k), C.R.S.
Short term rentals
Short term rentals or occupancy agreements do not require a broker’s license in order to procure the guest or negotiate the terms of the accommodation. A short term rental essentially gives an individual a license to use the property and when managed appropriately, are not considered lease agreements. A short term rental may be viewed as a “public establishment” as defined by §6-25-101, C.R.S. The definition of a public establishment includes a boarding house, hotel, motor hotel, motel, and rooming houses where the rental is less than a monthly basis. Brokers that choose to engage in short term rentals are subject to the requirements of §12-10-217(1)(h), C.R.S. The law requires that brokers “account for and remit, within a reasonable time, any moneys coming into the licensee’s possession that belongs to others, whether acting as real estate brokers or otherwise”. The law also requires brokers to keep records relative to such moneys, as required by the Commission. Commission Rule E-1 requires that “money belonging to others” be kept in a “trust” or “escrow” account (the two terms are synonymous for real estate regulation in Colorado). The rule also requires that brokers use the “cash basis” of accounting for all escrow or trust accounts, unless there is a written agreement authorizing the broker to use the “accrual basis” of accounting. Based on the audits conducted by the Division on the Commission’s behalf, it appears that many brokers use the accrual basis of accounting for short term rentals and the cash basis of accounting for leasing or property management. This is acceptable as long as the broker has written authorization from the landlord to use the accrual basis of accounting. Brokers should also contact their errors and omission insurance carriers to determine whether their short term rental practices are covered under their existing insurance policies
Director Marcia Waters
About the Director
Marcia Waters has been with the Colorado Division of Real Estate since August 2005. Marcia started with the Division as a Criminal Investigator for the Real Estate Commission and was promoted to Chief Investigator in 2006. In 2007, she was promoted to the position of Investigations and Compliance Director. In that capacity, she managed the investigatory and settlement programs for the Division. On October 15, 2010, she was promoted to the position of Division Director. The Division of Real Estate licenses and regulates approximately 50,000 real estate professionals. Ms. Waters serves as the administrator for the Real Estate Commission, the Board of Real Estate Appraisers, the Board of Mortgage Loan Originators, the Community Association Manager Program and the HOA Information and Resource Center. Ms. Waters manages the Division’s $6.5 million budget, oversees a staff of approximately 57 full-time employees, and establishes the direction of Division programs based on market and industry trends.