Throughout the year, the Division performs various types of compliance audits on behalf of the three boards housed within the Division. The license renewal season is directly related to a few of the audits that the Division performs. This article will describe the different compliance audits that we conduct to better assist our licensees in complying with the regulations. Conducting audits is one of the Division’s ways of being proactive about ensuring compliance with the state laws that govern the licensed practice of real estate. It allows us to catch issues before a consumer complaint is filed.

Continuing Education (“CE”) Audits

Mortgage Loan Originators (“MLOs”):

MLOs are required to complete at least eight (8) hours of continuing education, which must be reviewed and approved by the Nationwide Multistate Licensing System & Registry (“NMLS”), or by a company contracted by the NMLS (Board of Mortgage Loan Originators Rule 3.1). The completion of continuing education by mortgage loan originators is essentially audited through the license renewal process with the NMLS. To renew your MLO license, you must first renew it on the NMLS. If you haven’t completed the required CE, you won’t be allowed to renew on the NMLS which will then prevent you from renewing your license in our database, eLicense.

Real Estate Appraisers (“Appraisers”):

Appraisers who were issued an initial license prior to July 1st are required to complete fourteen (14) hours of CE as a condition of renewing their license. Appraisers who were issued an initial license on or after July 1st are not required to complete any CE in order to renew their license (Board of Real Estate Appraisers Rule 7.1). Appraisers with a two-year license cycle are required to complete 28 hours of CE in order to renew (Board of Real Estate Appraisers Rule 7.2). Within the 28 hours of required CE, each appraiser must complete a 7-hour National USPAP Update Course (Board of Real Estate Appraisers’ Rule 7.19). In addition to the CE courses approved by the Board of Real Estate Appraisers, there are alternative options available to appraisers for CE credit (see the Chapter 7 rules of the Board of Real Estate Appraisers).

We conduct two separate CE audits of the appraisers. At the time of renewal, we audit all renewing appraisers to ensure that they have completed the 7-hour National USPAP Update Course within the immediate cycle of the license that is being renewed. If you renew on or before December 31st and you have not completed the 7-hour National USPAP Update Course, you will be required to pay a compliance fee, in addition to the renewal fee, for failing to complete the mandatory course. If you are late renewing and do not do so until on or after January 1st, and you did not complete the 7-hour National USPAP Update Course, we will audit you for the full 28 hours of mandatory CE. In order to renew, you will be required to pay a compliance fee, in addition to the renewal fee, and complete any missing hours of CE.

Within 60 days of the renewal cycle, we will initiate a CE audit of a sample of the renewing appraisers to audit for the full 28 hours of mandatory CE. We are required to conduct this audit due to the Appraisal Subcommittee’s Policy Statements. CE audits are faster and easier to process if your CE is based on Board approved education. If you seek credit based on one of the alternatives afforded by the Board rules, it will take us longer to process and there is no guarantee that the alternative CE credit will actually be approved. Non-approved courses, which are included as an alternative, require submission of detailed course outlines and/or other course materials to determine their eligibility. If it is determined that you do not have the required 28 hours of CE, you will be required to pay a compliance fee and make up any of the missing CE hours. These hours will not carry over as CE credit for your new license cycle.

We have a list of Board of Real Estate Appraisers’ approved education that can be found here. To verify the status of a course, you may access the Division of Real Estate Approved Continuing Education Course List and use the Course Title to filter down to a specific course. Once on that filter, type the course title into the search bar and then check the applicable boxes. This will display all courses affiliated with the selected provider's name. This same process may be applied to any of the available filters to view the desired results. You are encouraged to verify that any CE classes you are considering taking have been approved by the Board of Real Estate Appraisers.

Real Estate Brokers (“Brokers”):

Brokers who are in their initial license cycle, meaning that the license expires on December 31st of the year that it was issued, are not required to complete CE in order to renew their license. All other brokers are required to complete 24 hours of CE, 12 hours of which are required to be the Annual Commission Update Course and the remaining 12 hours are elective courses that have been approved by the Real Estate Commission (“Commission”). A broker cannot take the same version of the Annual Commission Update Course more than once for CE credit. There are alternatives to completing the 24 hours (see Commission Rule 4.2), but most brokers seek to just do the requisite hours to comply with the requirement.

We perform broker CE audits on a quarterly basis and we audit the most recently completed license cycle. Brokers are selected for an audit based on a randomly selected sample. The number of brokers audited may vary based on the workloads of Division staff. If you are audited and you do not have enough hours of approved CE, or you do not qualify for one of the alternatives, you will be required to pay a compliance fee and complete any missing hours. The CE hours that you are required to take cannot be used as CE for your current license cycle.

We have a list of Commission approved education that can be found here. To verify the status of a course, you may access the Division of Real Estate Approved Continuing Education Course List and use the Course Title to filter down to a specific course. Once on that filter, type the course title into the search bar and then check the applicable boxes. This will display all courses affiliated with the selected provider's name. This same process may be applied to any of the available filters to view the desired results. You are encouraged to verify that any CE courses you are considering taking have been approved by the Commission.

Errors and Omissions (“E&O”) Insurance Audits

All three of our licensure programs have a mandatory E&O coverage requirement. As we move into renewal season, the state-approved insurance carrier starts sending notifications to all licensees about the E&O coverage requirement and the need to purchase a new policy for the upcoming calendar year. There are multiple notifications sent out starting at the end of September or beginning of October and continuing through the end of January. Since renewals may carry over into January, we start verifying E&O coverage with the different insurance carriers in February. The insurance providers supply us with a data feed of those licensees who have purchased a policy of E&O coverage. We match that data with what is in our licensing database. For the licensees that did not purchase a new policy of E&O insurance, we start the process of inactivating licensees. Due to the insurance requirement, you are not allowed to maintain an active license or practice without a current E&O policy. In 2021, we inactivated 1,200 licensees because they did not have a current policy of E&O insurance. If we inactivate your license for E&O, you will be notified by email of the change in your license status. It is really important that you update your email address with us because that is the primary form of communication that we use to communicate changes with you. We also receive several complaints throughout the year about licensees who are performing licensed duties when their licenses are inactive. Your respective Board or Commission can discipline your license for practicing without an active license.

Individual and Brokerage Business Account Audits

These audits are specific to brokers and brokerage firms because Colorado law places the duty on the Division Director, or the Director’s designee, to conduct audits of the business accounts of the licensees regulated by the Real Estate Commission (§12-10-207(2), C.R.S.). We also have the authority to audit the business accounts of the subdivisions registered with the Real Estate Commission. Generally, the brokers or brokerage firms are selected randomly, although an audit may stem from a complaint filed with the Commission or as the result of a disciplinary action.

If you are selected for an audit, we will send written notification of the audit, including an Affirmation and Questionnaire for you to complete. This document asks a variety of questions about your licensed practice and information about any trust accounts that you maintain. This allows us to determine the scope of the audit that we will conduct. After we receive your responses, we will request specific documents, such as transaction files and/or trust account records. These audits tend to be more engaging than the other types of audits we conduct because the financial examiner (or “auditor”) will have follow up questions regarding the files and account information provided for review. The auditors will ask about any potential changes you have made during the course of the audit, such as policy revisions or modifications made to any attorney drafted forms that you use. We have limited authority to address potential deficiencies at the staff level. If there are concerns identified during the audit, it is not uncommon for the audit findings to be presented to the Commission, who can then determine what, if anything, needs to be done to correct the issues. You can find more information about the audit process and the forms the auditors use here. We also have information about what documents you should maintain in your transaction files and the applicable Commission regulations here. The transaction file checklist is to serve as a guide. Not everything listed on it will necessarily apply to the different transactions in which you are involved.

Finally, if you are selected for an audit, whether it be for CE or business accounts, remain calm and provide the documents requested. If you don’t have the documents, don’t manufacture them. This will just cause any potential issues to snowball. Make sure you are responsive to Division staff because ignoring an audit can just exacerbate the issue. Overall, the audit outcomes demonstrate that a majority of our licensees are compliant with their license requirements.