Colorado contracts and regulations

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HERE IS a 100 questions homework for real estate in Colorado,

attahced is all the reference material most have a 85/100


Colorado Contracts and Regulations

1. When holding an open house for a seller, a prospective buyer shows real interest and asks detailed questions of the broker. The first question the broker should ask is:

A. Have you ever purchased a home before?

B. Will you have to sell another home in order to purchase this one?

C. Do you have a written, unexpired contract that grants to another licensee an exclusive right-to-buy?

D. What would it take to get you to make an offer on this home today?

2. If a licensee desires to reinstate an expired real estate broker license 18 months after expiration, the cost of the reinstated license will be:

A. the regular license fee plus a 25% penalty.

B. the regular fee plus a penalty equal to the regular 3 yr. license renewal fee.

C. the regular license fee.

D. a license cannot be reinstated that long after expiration.

3.A licensee who intends to purchase one of his own listings must:

A. continue to serve the seller-owner under the terms of the listing agreement.

B. renounce any right to a commission on the sale.

C. add the cost of his own commission to the purchase price.

D. the Commission to place his license on inactive status.

4.When a promissory note is received as earnest money, the seller must be informed by identifying the note in the contract and _____ .

A. attaching a “Disclosure of Promissory Note” to the contract.

B. recording the note in the county office.

C. giving the seller a post-dated check drawn on the buyer’s account.

D. stating the due date in the contract or attaching a copy of the note.

5. In order for a broker to operate as a seller’s limited agent, _____ .

A. the seller must check the transaction brokerage box on the Exclusive B. right to Sell form.

B. the broker must sign as a principal on the Exclusive Right to Sell form.

C.the seller must check the seller agency box on the Exclusive Right to Sell form.

D.the seller must give verbal permission to the broker to so act.

6.In Colorado, a broker must retain transaction records for Commission inspection for:

A.36 months.

B.48 months.

C.60 months.

D.72 months.

7.The commission-approved Square Footage Disclosure is used to:

A. show the square footage the broker obtained when measuring the house.

B. prove that the square footage measurement is accurate.

C. state that real estate agents do not measure square footage.

D. disclose the source, date, and standards used for any square footage represented.

8.Failure by either party to pay “cash at closing” at the time of closing under a Contract to Buy and Sell Real Estate shall:

A. render that party in default.

B. delay closing until the funds are available.

C. be prima facie evidence of broker’s failure to properly anticipate problems in the transaction.

D. automatically trigger the mediation clause of the contract.

9.The listing period on a commercial property listing agreement:

A. must have a definite termination date.

B. be stated as “until sold.”

C. is not required (space may be left blank).

D. is set by state law.

10.
Errors and Omissions insurance is:

required for every individual and entity licensee in the state.

optional for new licensees in the first year of their original license.

unnecessary in Colorado because of the commission’s self-insurance program.

unnecessary and redundant in Colorado because of the Real Estate Recovery Fund.

10.Errors and Omissions insurance is:

A.required for every individual and entity licensee in the state.

B. optional for new licensees in the first year of their original license.

C. unnecessary in Colorado because of the commission’s self-insurance program.

D. unnecessary and redundant in Colorado because of the Real Estate Recovery Fund.

11.Under the inspection resolution deadline clause in the Contract to Buy and Sell Real Estate, the contract terminates if the parties cannot agree in writing to settle the buyer’s objections:

A. immediately.

B..on or before the inspection resolution deadline.

C.on the day both parties receive the inspection report.

D.one day following seller receipt of buyer’s notice to terminate.

12.If the Colorado Real Estate Commission takes disciplinary action that is confirmed by an administrative law judge in a public hearing, a broker has how many days to file written objections to that disciplinary action before it becomes final?

A.10 days

B.20 days

C.30 days

D.60 days

13.Failure of an employing broker to renew his or her individual broker license prior to expiration:

A. has no effect on employed licensees.

B.automatically inactivates every employed broker’s license and creates a gap in everyone’s E&O coverage.

C. automatically generates a fine against every employed broker.

D. requires a $200 renewal penalty plus $10 for every licensee employed.

14.Of the following, which information should NOT be divulged in the presence of other brokers in the same office?

A buyer’s inability to qualify for a mortgage loan

B. seller couple’s decision to file for divorce

C. The list price of the property

D. That the basement leaks only during heavy rains

15.If a seller’s broker rebates a portion of earned commission to his or her seller client, _____ .

A.it is NOT a violation of the license law.

B.it is always a violation of the license law.

C,it violates the license law unless the buyer gives permission.

D.it violates the license law unless an equal rebate is given to the buyer.

16.According to the Contract to Buy and Sell Real Estate, personal property is conveyed by the:

A.financing statement.

B.bill of sale or other applicable legal instrument.

C.deed of trust.

D.chattels security agreement.

17.
The requirement for electronic or paperless transactions is that they must be:

A.generated on computers using Windows® operating systems.

B.maintained on computers that are networked if more than one PC is in an office.

C.backed up daily with backups stored off-site.

D.in a format that can be legibly printed on Commission request.

18.Under an Exclusive Right-to-Sell Listing Contract, if a seller is contacted directly by a prospective buyer or buyer’s agent, the seller is obligated to:

A.schedule a showing, but not discuss any confidential information.

B.refer the buyer or agent to the listing broker.

C.immediately avoid any form of communication with prospective buyer or agent.

D.answer questions as thoroughly as possible and report the contact to the listing broker.

19.The purpose of the Colorado license law is to:

A.create fees and charges for real estate transactions.

B.protect the public.

C.insure coordination among lending, appraising, and brokerage industries.

D.control real estate transactions.

20.Notification to the Colorado Real Estate Commission of termination of employment between an employing broker and an associate is the responsibility of the:

A.both the employing broker and the associate.

B.the employing broker alone.

C.the terminating associate alone.

D.the brokerage firm’s registered owner alone.

21 of 100Under the Commission-approved Exclusive Right to Sell contract, the seller promises to:

A.pay the broker a commission even if no buyer is procured.

B.accept any reasonable offer.

C.pay a commission to any cooperating brokers who bring in qualified buyers.

D.conduct all sale-related negotiations through the broker.

22.
The Contract to Buy and Sell Real Estate allows the buyer to do a walk-through of the property:

A.with three days’ notice at any time before the inspection deadline.

B.without notice 24 hours before closing.

C.without notice at any time.

D.prior to closing with reasonable notice.

23.
Which of the following is NOT good funds that may be used to pay cash due at closing in a Colorado real estate transaction?

A. A personal check drawn on a bank in the same city as the closing.

B. A cashier’s check from an out-of-state bank.

C. Electronic funds transfer.

D. An out-of-state teller’s check.

24.
The Commission-approved Exclusive Right to Sell Listing Agreement contains all of the following EXCEPT:

A. inclusions and exclusions.

B .a section requiring entry into the MLS.

C. seller’s name, property address and legal description.

D. price and terms.

25.
If earnest money will be held by a title insurance company under a Contract to Buy and Sell Real Estate, the closing instructions for the transaction must be signed and delivered to the title company:

A. before the offer is presented to the seller.

B. not later than the title objection deadline.

C. at or before delivery of the earnest money to the title company.

D. with the inspection report.

26.When brokering properties for a lending institution or government agency that uses its own listing contracts, a Colorado licensee must _____ .

A.have the client sign a backup listing contract that complies with Colorado standards.

B.refuse to sign the listing form and proceed without a signed contract.

C,prepare and provide an addendum disclosing brokerage duties to the seller.

D.decline to use the agency’s listing contract and refuse the assignment.

27.When an employed broker signs a settlement statement, _____ .

A. the statement is invalidated.

B. the employing broker is relieved of any supervisory responsibility.

C. the employing broker must be present at the closing.

D. the statement must be delivered to the employing broker immediately after closing.

28.With respect to designated brokerage, an employing broker in a firm with only two associates is allowed to:

A. choose not to appoint any designated brokers for a transaction.

B. appoint only one designated broker per client.

C. appoint him- or herself as a designated broker.

D. appoint designated brokers only in cases where there is an agency agreement.

29.The Colorado Real Estate Commission requires subdivision registration for all of the following EXCEPT:

A. residential time-shares.

B. residential apartment-to-condominium conversions.

C .bulk land sales between developers.

D. properties subdivided into 20 or more residential lots.

30. The practice of designated brokerage does NOT apply to real estate firms:

A.with only one licensed natural person.

B.located in rural areas.

C.licensed as limited liability companies (LLC).

D.with more than 50 licensees.

31.
The Commission has the power to:

A.National fair Housing Laws

B.incarcerate licensees who violate the broker section of the license law.

C.subpoena witnesses to attend hearings.

D.issue restraining orders against licensees.

32.To what does the phrase “vacated streets and alleys” refer in the Contract to Buy and Sell Real Estate?

A.Land that was taken under eminent domain laws.

B.A neighborhood that is in a state of decline

C.Platting that was never built or that was abandoned, now affixed to the subject property

D.Land that the seller must vacate before transferring the subject property

33.Property taxes are known as ________________ taxes

A.Flat

B.percentage

C.ad valorem

D.adjudicated

34.
If a Contract to Buy and Sell Real Estate fails and the parties dispute the disposition of the earnest money held by a Colorado broker, the broker’s options include all of the following EXCEPT:

A.await the resolution of the issue via mediation.

B.“interplead” the disputed funds to the courts.

C.notify the parties that earnest money will be returned to buyer if broker is not advised of a lawsuit filing within 120 days.

D.decide who is most entitled to the money and disburse it accordingly.

35.
Which of the following cases is one where the broker has NOT earned a commission, according to the Exclusive Right to Sell contract?

A. A buyer makes a full-price offer during the automatic 30-day extension period.

B. A person with whom the broker negotiated during the listing period, but whose name was not submitted to the seller, buys the property during the holding period.

C .A broker other than the listing broker finds a ready, willing and able buyer during the listing period.

D. Another brokerage firm, acting under an exclusive agreement entered into during the holdover period, effects a sale, but the “Shall owe a commission” box was checked on the original exclusive agreement.

36.
person who is paid to sell a business opportunity in Colorado will be considered a broker requiring a license if the sale includes:

A.corporate stock.

B. an interest in real estate.

C. business inventory.

D. chattels.

37.
The Colorado “Brokerage Disclosure to Seller (FSBO)” is designed to:

A.notify a “For Sale By Owner” seller of a broker’s relationship with a buyer.

B.take the place of an agreement to guarantee payment of commissions to brokers.

C.disclose the seller’s willingness to work with the buyer.

D.obtain an open listing agreement from the seller.

38.
The Mediation section in the Contract to Buy and Sell Real Estate establishes that:

A.the disputing parties must agree in writing before any solution is binding.

B.the decision of the mediator is final and binding on the disputants.

C.mediation is an option only up until the time of the closing.

D. the party on the losing end of the mediator’s decision has to pay the costs of the mediation.

39.
When a real estate broker is a party to any criminal or civil lawsuit involving the sale of a property in which the broker acted for either party, the broker must:

A.refrain from conducting any activities requiring a license.

B.upon request, supply the Commission a copy of the initiating complaint and the answer filed.

C.put his or her license on inactive status pending the outcome of the lawsuit.

D.refrain from any communications involving the details of the lawsuit until it is settled.

40.Which of the following, if any, is exempt from the Colorado Real Estate License Law?

A. An option dealer

B . A person offering only leasing services

C. An out-of-state broker acting without a co-broker in Colorado

D. An entity or person acting on its own behalf as a principal

41.The Contract to Buy and Sell Real Estate requires the buyer to:

A. tender the earnest money deposit along with the contract unless an alternative earnest money deadline has been agreed upon.

B. provide a copy of an earnest money check or promissory note along with the contract.

C. tender the earnest money deposit within three days of signing the contract.

D. tender the earnest money deposit and wait for the check to clear before submitting the contract to the seller.

42.Absent a written Commission-approved employment agreement with the “Agent” box checked, Colorado real estate license law presumes a licensee is acting in a transaction as a _____ .

A.designated agent.

B.single agent.

C.sub-agent.

D.transaction-broker.

43.Funds belonging to others received pursuant to a property management agreement or lease must be deposited in an escrow account not later than:

A. the close of business on the day of receipt.

B. 5 calendar days following receipt.

C.5 business days following receipt.

D. 1 business day following receipt.

44.If an employing broker elects to offer “agency” as the only form of brokerage relationship with the public, a prospective client who inquires about transaction-brokerage status must be:

A. given the Commission-approved Definitions of Working Relationships form.

B. referred to another brokerage firm.

C. accommodated as an exception to the policy.

D. referred to the employing broker.

45.Which of the following does NOT need a Colorado real estate broker’s license to assist in a real estate transaction?

A. A person who receives a fee for selling option contracts for another person

B. A salaried person who manages several apartment complexes for a single owner

C. A person receiving advanced fees for referring prospective tenants to available rental properties

D. A public trustee conducting a foreclosure sale

46.Colorado law requires an employing broker to:

A. appoint, in writing, a designated broker for every side of every transaction.

B. act as the designated broker for every side in every transaction.

C. appoint a designated broker for a buyer in a transaction only if the buyer has no other representation.

D. allow the parties to a transaction to choose who they will have as their designated agents.

47.The Definitions of Working Relationships form is:

A. optional in any given transaction.

B. required if a prospect inquires about brokerage relationships not offered by the firm’s written office policy.

C. used only for “agency” brokerage relationships.

D. used only for “transaction-broker” brokerage relationships.

48. The Licensee Buy-out Addendum to the Contract to Buy and Sell Real Estate:

A. allows the seller to pay an amount to the listing broker to get out of the listing contract.

allows the seller to pay an amount to the buyer in place of making required repairs to the seller’s house.

allows the buyer to pay an amount to the seller to get out of the purchase contract.

assures an owner that the broker will buy the owner’s house if it fails to sell through the broker’s efforts.

49. Information on all registered well permits contain:

A.allowable uses of the well

B. the original permit application

C. any available well construction and pump installation records

D. each of the above

50.Which of the following is NOT an “agency duty” required of agents over and above those “uniform duties” required of transaction brokers?

A.Counseling the client as to benefits or risks in the transaction

B.Seeking a price acceptable to the client

C.Fiduciary duties

D.Marketing the property more aggressively, including via Internet

51. Errors and omissions insurance policies issued by the state-endorsed vendor in Colorado are renewed:

A. concurrently with each license renewal.

B.annually as of the anniversary date of original issuance.

C.annually as of January 1.

D.biannually as of January 1.

52.Which of the following is the first step in a foreclosure in Colorado?

A.The lender files a notice of election and demand for sale with the public trustee.

B.The public trustee mails a combined notice to everyone on the lender’s mailing list.

C.A court order authorizes the foreclosure.

D.the public trustee publishes a notice of the foreclosure in a general circulation newspaper.

53.According to the Closing Instructions that are provided to the title company along with the Contract to Buy and Sell Real Estate, a title insurance company is relieved from any further duty, responsibility or liability in connection with a failed closing:

A. returning all documents, monies and things of value to the depositing party.

B. destroying all transaction specific documents, monies and things of value.

C. storing all documents, monies and things of value in its archive for 7 years.

D. returning all documents, monies, and things of value to the listing broker.

54.When the holder of the debt on a property files a notice of intent to foreclose, who has the responsibility of advertising the foreclosure?

A. The holder of the debt

B. Any registered lienholder

C. The foreclosed owner

D. The public trustee

56.Which of the following would be considered acceptable as the “good funds” that must be produced at a closing in Colorado?

A. Personal IOU

B. Promissory note

C. Cashier’s check

D. Personal check

57.Errors and omissions insurance does NOT:

A. require annual proof of insurance to the Commission.

B. provide any coverage for property transactions over $400,000 in value.

C. cover multiple claims against an individual licensee within the same policy period.

D. cover any fraudulent acts by a licensee.

58. If a change needs to be made in a listing during the listing term, such as changing the listing price, the broker should:

A. wait for the original listing to expire and then ask for a new agreement.

B. cancel the original listing and negotiate a new agreement.

C. use the “Agreement to Amend/Extend Contract with Broker” form.

D. write the changes directly on the original contract.

59.A Colorado real estate broker who does not maintain escrow accounts, but places funds of others solely with title insurance companies:

A.is violating the license law.

B.has direct control over access to the funds.

C.is relieved of responsibility for the money.

must have closing instructions signed by the buyer and seller and title company before turning over the earnest money.

60.
Colorado escrow accounts must be in an FDIC-insured Colorado depository. Which of the following “fiduciary elements” is not a requirement for an escrow account?

A. in the name of the licensed individual broker or if an entity, in the name of the employing broker and the entity

B.List all employed brokers as authorized to make withdrawals

C.Be labeled by the type of funds held in the account

D.Be the responsibility of the employing broker

61.A licensee with an inactive Colorado broker license sells a neighbor’s house as a favor. The broker’s commission is the responsibility of:

a. the employing broker.

B. the neighbor seller.

C. the buyer.

D. nobody.

62.The Colorado Real Estate Recovery fund:

A. is no longer open to new claims.

B. ceased to exist after 2004.

C. will consider all claims against licensees based on fraud or negligence.

D. has a claim limit of $250,00 per transaction.

63. Colorado’s Fair Housing Act adds four (4) protected classes to the Federal Fair Housing act. Which is NOT a Colorado added protected class?

A. Creed

B. Ancestry

C .Marital status

D. Age

64.The Colorado Real Estate Commission may NOT do which of the following?

A. Suspend a license

B. Impose a $2500 fine per violation of licensing law

C. Impose a 30-day jail sentence

D. Revoke a license

65.The Colorado Real Estate Commission may NOT do which of the following?

A. Suspend a license

B.Impose a $2500 fine per violation of licensing law

Impose a 30-day jail sentence

Revoke a license

66.By default, a designated broker in Colorado is:

a single agent.

a listing agent.

a seller’s or buyer’s agent.

a transaction broker.

66.When listing residential property, a licensee must _____ .

A. accurately represent the source of any square footage measurement used.

B. personally measure the square footage of the living area in the home.

C. disclose that the licensee is not a registered home inspector.

D. use the square footage as shown in the county assessor’s tax records.

67.According to Colorado’s landlord-tenant law, a warrant of habitability:

A.exists only on new construction for up to one year.

B. exists on rental property unless any reason for being unfit for habitation is caused by the tenant.

C. does not exist.

D. does not exist unless it the reason for being unfit gives immediate proximate cause for vacating the premises.

68. Which of the following sales requires a Colorado real estate broker’s license?

A.A medical practice consisting of equipment and patient lists only

B.A book store consisting of inventory and a two-year balance of a 10-year lease

C. An auction of personal property of a deceased broker’s estate

D, A flower shop consisting of inventory, trade fixtures and two vehicles

69.
The Colorado Real Estate Recovery Fund:

A. by law, can never be closed.

B. is closed to any new consumer claims.

C. protects licensees against frivolous lawsuits.

D. is available only to consumers hurt by sub-prime loans.

70. The seller’s property disclosure form:

A. guarantees the accuracy of the information disclosed.

B. advises the buyer to inspect the property.

C. establishes whether an item is included or excluded from the sale.

D. makes a property survey unnecessary.

71.
Continuing education requirements may be met by Colorado licensees:

A. successfully completing the Colorado portion of the broker licensing exam.

B. taking 24 hours of coursework by a provider of their own choosing.

C. only by taking courses offered via personal in-classroom attendance.

taking the 8-hour annual Commission Update Course each year.

72.Broker A may demand a referral fee of Broker B for helping in a transaction if:

A. Broker A assisted at the closing.

B. Broker A introduced a buyer to the seller.

C. the brokers had a referral or cooperative brokerage agreement prior to the closing.

D. the brokers have traded commission splits in the past.

73. After a foreclosure sale, a Colorado homeowner has _____ .

A. 110 days to redeem the property.

B. 230 days to redeem the property.

C. no right to redeem the property.

D. the right to request a redemption period.

74.Which of the following protected classes does Colorado Fair Housing law add to those protected by federal law?

A. Family status

B. Employment

C. Economic hardship

D. Sexual orientation

75.Payment of a portion of a commission to a broker licensed out-of-state is restricted to:

A.brokers who are licensed in both states

B. transactions in which the seller authorizes the referral.

C.transactions in which the out-of-state broker does all the negotiating and contracting.

D.brokers who reside in, and maintain an office in, the other jurisdiction.

76.Colorado Real Estate Commission Rule E-35 requires disclosure of existing brokerage relationships before:

A. collecting a commission

B. scheduling or holding an open house.

C. qualifying a prospect.

D. meeting with a prospect.

77.
A seller and real estate broker must disclose known previous use of a residential property as a methamphetamine laboratory unless:

A. the property was remediated to state standards and other requirements are fulfilled.

B. the meth lab use was more than 2 years ago.

C. the prospective buyer does not have any minor children.

D. the property has been certified as hazard-free by a licensed pharmaceutical firm.

78. Which of the following is NOT required by Colorado subdivision law?

A. Real property that is divided into 20 or more interests must be registered.

B. The subdivision must have public water and sewer.

C. Commercial and industrial property, as well as residential, must be registered.

D. A five day cancellation period is required after the execution of any contract.

79.
The reasonable level of supervision an employing broker is expected to exercise over experienced licensees includes:

A. tracking the licensee’s working hours to insure productivity.

B. preparing contracts for the licensee.

C. monitoring transactions from contract to closing.

D. reviewing executed contracts.

80.
Every broker must have a written office policy concerning _____ .

A. employee vacation policy.

B. brokerage relationships offered to the public.

C. commissions and fees charged to the public.

D. fair housing.

81.
Unless otherwise specified in the lease, the Landlord Tenant Act requires a landlord to return a tenant’s security deposit within ____ of the termination of a lease.

One week

10 days

21 days

One month

82. What is the meaning of “time is of the essence” in the Contract to Buy and Sell Real Estate?

A. The seller and buyer agree to complete the transaction as quickly as possible.

B. Failure to perform according to the deadlines specified may lead to cancellation of the contract.

C. The contract has an expiration date.

D. The deadlines named in the contract cannot be altered.

83. What type of deed is specified in the Transfer of Title section of the Contract to Buy and Sell Real Estate?

A. Master Deed

B. General Warranty

C. Bargain and Sale

D. Good and sufficient

84. Who decides how the buyer will take title to a property that is the subject of a Contract to Buy and Sell Real Estate?

A. The seller

B. The title company

C. The buyer

D. The county

85.
The Exclusive Right-to-Sell Contract includes:

A. a clause allowing the owner to sell the property without owing the broker a commission.

B. an automatic power of attorney for the broker to sign for the seller.

C. compensation to be paid to brokers outside the brokerage firm.

D. A right to sell without any time limit.

86.In the standard Contract to Buy and Sell Real Estate in Colorado, an item will be included in the purchase price as a fixture if it is:

A. heavy and difficult to remove.

B. an amenity that was described in the advertisements.

C. on the premises on the date of the transfer.

D. attached to the property on the date of the contract.

87.
On the date an applicant has passed both parts of the broker licensing exam, he or she must apply for a license _____ or must retake the exam.

A.within 1 year.

B. within 6 months.

C. within 30 days.

D. within 3 months.

88.A Colorado licensee can be disciplined for:

A. providing a rental contract that features the phone number and address of the Commission.

B. being accused of a misdemeanor.

C. paying a commission to a broker licensed in another state.

D. having had a license revoked elsewhere.

89.
Rule-F allows brokers to make which of the following modifications to a commission-approved form?

A. Change the language of any clause

B. Pre-print the firm name on the form

C. Make insertions in the same font as the rest of the form uses

D. Block out any words to be replaced with a substance such as “White-out”

90.
A broker may maintain which of the following fund types with a nationally accredited credit union?

A. Property management security deposits.

B. Sales earnest money deposits.

C. Brokerage firm operating funds.

D. Property management owner funds.

91.Under the Contract to Buy and Sell Real Estate, if the buyer is going to execute a promissory note to the seller, the buyer must:

A. obtain a subordination agreement from other lenders making this loan the senior loan.

B. provide a current credit report before the Buyer’s Credit Information Deadline.

C. agree to pay the sellers closing costs.

D. complete a Commission-approved credit application.

92. Prior to engaging in any brokerage activities, a broker intending to act as an agent for a seller must _____ .

A. explain the brokerage’s fee structure to the seller.

B. establish an escrow account for funds into and out of the transaction.

C. obtain a written employment agreement naming both seller and broker.

D. inspect the property for any latent deficiencies.

93.
Unless a longer period is specified in the lease, a Colorado landlord must return a departing tenant’s security deposit within _____ .

A. one week.

B. one month.

C. 45 days.

D. 90 days.

94.Colorado’s Conway-Bogue case law:

A. sets the degree to which real estate brokers may practice law.

B. prohibits real estate brokers from advising sellers about the legal effects of contracts.

C. allows brokers to charge for each contract they prepare.

D. requires brokers to fill in blanks on contracts using only standard and approved entries.

95.
n Colorado, which of the following items does NOT need to be in writing to be enforceable in court?

A. A mineral rights lease

B. A contract for sale of vacant land

C. A six-month apartment lease

D. A sale-leaseback agreement

96. If a transaction fails to close because of a title defect, _____ .

A. the seller owes the broker a commission.

B. no commission is earned.

C. the seller must use the earnest money deposit to correct the defect.

D. the broker may retain part of the earnest money as commission earned.

97.
Under the Exclusive Right-to-Buy Contract, the buyer may choose to have the buyer agent paid by any of the following EXCEPT:

A.the buyer.

B. the seller.

C. the listing brokerage firm.

D. the lender if the broker referred the buyer to that lender.

98.
Which of the following statements about the Commission-approved Lead-Based Paint Disclosure (Sales) form is FALSE?

A. It is to be attached to the Contract to Buy and Sell Real Estate when applicable.

B. It must be prepared and presented before an offer to purchase is presented.

C. Absence of the buyer’s signed acknowledgement can void the contract.

D. It applies to all properties without exception.

99.
The Acceptance Deadline Date and Acceptance Deadline Time in the Contract to Buy and Sell Real Estate represent the moment when:

A.the contract expires if all terms and conditions have not been met.

B. the transaction closes unless either party objects.

C. the proposal or offer expires unless signed by buyer and seller.

D. the buyer can no longer require the seller to make any repairs to the property.

100. The Colorado Contract to Buy and Sell Real Estate provides for a “walk-through” of the property prior to closing for the purpose of:

A. identifying any last-minute seller repair items.

B. confirming square footage measurement.

C. verifying that the property is in move-in condition.

D. verifying that the property and inclusions comply with the contract.

Introduction

By now, most students will have come to an appreciation of the complexity of even a simple real estate transaction, and of the special privilege afforded by the Colorado Supreme Court in the Conway-Bogue decision allowing brokers to practice law in a limited fashion. 

There are a few remaining forms that may or may not ever be used in your real estate practice that we will cover in this chapter. This chapter will then also look at some remaining subjects in Colorado statute or Commission rule or process that have not been covered elsewhere. 

By the end of this unit, you will be able to:

· Explain the various types of Promissory notes and Deeds of Trust

First, a look at available promissory notes and deeds of trust.

·
A promissory note is “a promise to pay” at some future date. It is often called “evidence of the debt,” meaning it is the document that proves a debt exists.

·
Promissory notes are negotiable – meaning they may be assigned the same as cash or a check. Therefore, a buyer should only sign the original, and any photocopies should have the signature blocked out and clearly be marked as “COPY.”

·
There are three distinct Commission-approved promissory notes. They are presented here in summary form without headings and signature blocks. Just the facts, ma’am.

 

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Earnest Money Promissory Note

Click here to open the 

Earnest Money Promissory Note

Just as it states, this form may be used by a buyer who wishes to make an offer to purchase without putting actual money immediately at risk.

U.S. $ _____________________________________, 

___________________________ Date:_____________

City State 

FOR VALUE RECEIVED, 

Name(s) of Maker(s), Address (The “Maker(s)” is/are the person(s) promising to pay, i.e. the buyer(s)) jointly and severally, 
(This means the buyers agrees that both are liable and if one doesn’t pay the other one is liable for the whole enchilada.) promise to pay to the order of: 
(seller or broker) the sum of ___________ Dollars, with interest at ___ per cent per annum from ___________until paid. 

Suggest the interest rate be comparable to the current financial market for short-term loans, and the date entered here is the date from which interest on the sum will be calculated. It is often marked n/a by the buyer, although it seems reasonable for the Seller to expect some interest as compensation for delaying receipt of his or her earnest money.

Both principal and interest are payable in U.S. dollars on or before___________, 

This is the date the note is due and payable. For the buyer, this would ideally be at closing. For the seller, this is ideally at the time of contract acceptance. In fact, a broker working with the seller ought to have the seller consider a counterproposal if this amount is not due until late in the transaction. While it is still a form of legal tender, it is not the same as having money in the escrow account.

At ________________or at such other address as note holder may designate. Presentment, notice of dishonor, and protest are hereby waived. If this note is not paid when due, I/we agree to pay all reasonable costs of collection, including attorney’s fees. 
Presentment, notice of dishonor and protest are procedural safeguards in the world of debt collection. They are not important here as the buyer waives these protections.

This note is given as earnest money for the contract on the following property: 
Include the legal description and street address here.

You’ve received the Counterproposal from the Sellers on Main Street in Colorado Springs on October 26. In it, the sellers require an additional $10,000 earnest money deposit. Since the Buyers would face a penalty on immediate withdrawal of that sum, they suggest an Earnest Money Promissory Note be prepared. You are back in the role of the Buyer Agent and prepare the form for their signature. As it will be due and payable 10 days before closing (November 20th) you do not include an interest rate. 

 

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Earnest Money Promissory Note

Click here to open the 

Promissory Note
.

The other two forms of promissory note are designed for use with Commission-approved deeds of trust when the broker is drafting the finance paperwork for seller financing. Obviously, since they are Commission-approved forms, any broker may fill in the blanks and use them in a transaction. May we suggest, however, that because of the infrequency of their use, the complexity of their content and the amount of money/risk involved, a broker is well advised to personally possess or actively seek expertise in the preparation of these notes and deeds of trust!

U.S. $ ______________

1. FOR VALUE RECEIVED, the undersigned (Borrower) promise(s) to pay ___________________ (Holder) or order, the principal sum of _________ Dollars, with interest on the unpaid principal balance from _____________, until paid, at the rate of _______ percent per annum. Principal and interest shall be payable at _____________________, or such other place as Note Holder may designate, in _______ payments of ________________________Dollars (U.S. $ __________), due on the ____ day of each __________, beginning _____________________. Such payments shall continue until the entire indebtedness evidenced by this Note is fully paid; provided, however, if not sooner paid, the entire principal amount outstanding and accrued interest thereon, shall be due and payable on __________.

This is the promise to pay. It is very similar to the earnest money promissory note with the addition of the periodic payment schedule.

1. Borrower shall pay to Note Holder a late charge of _____ % of any payment not received by Note Holder within ________ days after the payment is due.

2. Payments received for application to this Note shall be applied first to the payment of late charges, if any, second to the payment    of accrued interest at the default rate specified below, if any, third to accrued interest first specified above, and the balance applied in reduction of the principal amount hereof.

3. If any payment required by this Note is not paid when due, or if any default under any Deed of Trust securing this Note occurs, the entire principal amount outstanding and accrued interest thereon shall at once become due and payable at the option of Note Holder (Acceleration); and the indebtedness shall bear interest at the rate of ________ percent per annum from the date of default. Note Holder shall be entitled to collect all reasonable costs and expense of collection and/or suit, including, but not limited to reasonable attorneys’ fees.

This is the “acceleration clause.” It accelerates the entire balance of the loan from whatever the original paid-in-full date to today(!) because a payment was late. Can anyone define “reasonable attorneys’ fees?”

 

Promissory Note (continued)

1. Borrower may prepay the principal amount outstanding under this Note, in whole or in part, at any time without penalty except:

This is the lender’s choice. Free comment: Since I would refuse a commercial loan with a prepayment penalty, it seems right that as a lender, I wouldn’t impose a penalty for getting paid back early.

Any partial prepayment shall be applied against the principal amount outstanding and shall not postpone the due date of any subsequent payments or change the amount of such payments.

2. Borrower and all other makers, sureties, guarantors, and endorsers hereby waive presentment, notice of dishonor and protest, and they hereby agree to any extensions of time of payment and partial payments before, at, or after maturity. This Note shall be the joint and several obligation of Borrower and all other makers, sureties, guarantors and endorsers, and their successors and assigns.

Similar to the earnest money promissory note, the borrower waives these self-protections and allows the lender to pursue payment of the debt post-haste. 

Any notice to Borrower provided for in this Note shall be in writing and shall be given and be effective upon (a) delivery to Borrower or (b) by mailing such notice by first class U. S. mail, addressed to Borrower at Borrower’s address stated below, or to such other address as Borrower may designate by notice to Note Holder.

3. Any notice to Note Holder shall be in writing and shall be given and be effective upon (a) delivery to Note Holder or (b) by mailing such notice by first class U.S. mail, to Note Holder at the address stated in the first paragraph of this Note, or to such other address as Note Holder may designate by notice to Borrower.

The indebtedness evidenced by this Note is secured by a Deed of Trust dated ___________, and until released said Deed of Trust contains additional rights of Note Holder. Such rights may cause Acceleration of the indebtedness evidenced by this Note. Reference is made to said Deed of Trust for such additional terms. Said Deed of Trust grants rights in the following legally described property located in the __________ County of ___________________, State of Colorado:

known as No. _________________________________ (Property Address).

(CAUTION: SIGN ORIGINAL NOTE ONLY/RETAIN COPY)

KEEP THIS NOTE IN A SAFE PLACE. THE ORIGINAL OF THIS NOTE MUST BE EXHIBITED TO THE PUBLIC TRUSTEE IN ORDER TO RELEASE A DEED OF TRUST SECURING THIS NOTE. 

 

Promissory Note (UCCC – No Default Rate)

Click here to open the 

Promissory Note (UCCC – No Default Rate)
.

UCCC stands for Uniform Consumer Credit Code, a federal statute regulating credit transactions and affording certain protections to the borrower. It is identical in form and content to the promissory note just presented with the exceptions of paragraphs 4 and 5 with the differences shown in bold face below.

1. If any payment required by this Note is not paid when due, the entire principal amount outstanding and accrued interest thereon shall become due and payable at the option of Note Holder (Acceleration) 
twenty days after notice of Acceleration has been given. This time period shall run concurrently with the right to cure, if any, allowed by the Uniform Consumer Credit Code. Such notice of Acceleration shall specify the amount of the nonpayment plus any unpaid late charges and other costs, expenses and fees due under this Note. Until the expiration of said twenty-day period, Borrower may cure all defaults consisting of a failure to make required payments by tendering the amounts of all unpaid sums due at the time of tender, without Acceleration, as specified by Note Holder in such notice. Cure restores Borrower to Borrower’s rights under this Note as though defaults had not occurred. Any defaults under this Note occurring within twelve months after Note Holder has once given a notice of Acceleration, entitles Borrower to no right to cure, except as otherwise provided by law. Note Holder shall be entitled to collect all reasonable costs and expense of collection and/or suit, including, but not limited to reasonable attorneys’ fees.

2. Borrower may prepay the principal amount outstanding under this Note, in whole or in part, at any time 
without penalty. Any partial prepayment shall be applied against the principal amount outstanding and shall not postpone the due date of any subsequent payments or change the amount of such payments.

Remember in the previous note, the lender had the option of collecting a prepayment penalty.

Having compared the deed of trust to a mortgage in the Real Estate Law and Practice Course, you know that the deed of trust is commonly used as the security instrument in Colorado – whether it is a commercial loan or a seller or third party loan.

Security instrument means it is the lender’s security for the promise to pay. If the borrower cannot pay, the lack of a security instrument means the lender is left holding an empty money pouch. With the security instrument, failure to pay is backed up by loss of the property to the lender.

There are three different Commission-approved Deeds of Trust. As with the promissory notes we’ll cover the simplest one first and note the differences in the other two.

 

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Deed of Trust (Due on Transfer – Strict)

All three Colorado Commission Approved Deeds of Trust were changed to reflect some changes in the foreclosure laws.  There is a new “Expedited Foreclosure” statue in Colorado (HB10-1249).  Should a borrower qualify and wishes to proceed to an Expedited Foreclosure under this law the form change eliminates the specific statement of the number of times publication of the foreclosure is required. The change merely requires the Lender to publish the number of times the law requires the Notice to be published.  This general statement will allow for the expected additional changes to the statute in the next year. This change of language also drops the word “advertise” in favor of the more correct “Notice.” As a result state changes will not continue to require changes to the forms since the language is now more general.

Click here to open the 

Deed of Trust (Due on Transfer – Strict)
.  
Due on Transfer – Strict means that the loan is not transferable under any circumstances. Because of the length and complexity of the forms, we will summarize each of the paragraphs below. This level of familiarization will suffice until you first need to prepare one of these – which as we’ve already suggested – should never be attempted without competent expertise.

As a reminder, the three parties are the 
borrower or trustor (who is giving this deed of trust), the 
public trustee who will receive it and either foreclose in the event the borrower defaults or release when it is paid off. The public trustee holds this deed of trust for the benefit of the 
lender or beneficiary. 

1.
Property in Trust. 
Defines the property being offered as security.

2.
Note: Other Obligations Secured. 
Repeats all the rates and dates from the promissory note.

3.
Title. 
Borrower warrants having clear title to the security property.

4.
Payment of Principal and Interest. 
Borrower shall pay on time.

5.
Application of Payments. 
1st to escrow for taxes and insurance, 2nd to anything protecting lender’s interests (Paragraph 9) and 3rd in accordance with the promissory note.

6.
Prior Mortgages and Deeds of Trust; Charges; Liens. 
If any exist, borrower promises to pay them off to preclude any other liens having higher priority over this loan.

7.
Property Insurance. Borrower promises to keep the property insured. No lender will accept the risk of a fire or tornado destroying the property and not having the loss insured.

8.
Preservation and Maintenance of Property. 
Borrower promises to keep the property in good repair and not to permit “waste, impairment or deterioration.”

9.
Protection of Lender’s Security. 
If Borrower defaults in any of the above requirements, lender may step in at borrower’s expense and correct the default. For example, the lender may pay a missed insurance premium, or a prior lien and the expense is added to borrower’s indebtedness under this deed of trust.

10.
Inspection. Many people don’t understand this clause common to most trust deeds. The lender reserved the right, with proper notice, to inspect the premises. Few lenders, if any, have the time or resources to do this – unless the borrower presents problems. 

 

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Deed of Trust (Due on Transfer – Strict) (continued)

11.
Condemnation. 
If the property is condemned, the lender gets the proceeds.

12.
Borrower not Released. 
From original terms even if payment or amortization schedules are modified.

13.
Forbearance by Lender Not a Waiver. 
Just because the lender lets the borrower slide once, it doesn’t set a precedent that the lender will let any borrower default go a second time.

14.
Remedies Cumulative. 
The lender may pursue one, any combination or all of the remedies cures allowed in this trust deed.

15.
Successors and Assigns Bound; Joint and Several Liability; Captions. 
Any heirs or successors are bound by this trust deed. If multiple borrowers, all or each individually are liable for the terms herein. The bold-faced captions are for convenience and are not legally binding.

16.
Notice. 
The methods of notice delivery are defined.

17.
Governing Law; Severability. 
Colorado law applies. If any provision of this trust deed or the note conflict with the law, they may be severed from the document and all of the rest remains in full effect.

18.
Acceleration; Foreclosure; Other Remedies. 
In the event of borrower breach of any covenant or default in any payment, lender has the option to accelerate all sums due right now, and may sell the property to collect such sums.

19.
Borrower’s Right to Cure Default. 
If borrower pays any delinquent payments or fees by the date allowed by foreclosure law, this deed of trust remains in full force as if acceleration had not occurred.

20.
Assignment of Rents; Appointment of Receiver; Lender in Possession. 
Borrower assigns post-acceleration rent (if any) to lender. Lender is entitled to a court-appointed receiver if necessary. Lender may reenter and take possession of the premises after acceleration.

 

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Deed of Trust (Due on Transfer – Strict) (continued)

21.
Release. 
Upon final payment, this deed of trust must be released. Lender must furnish original promissory note.

22.
Waiver of Exemptions. 
Borrower waives homestead and any other exemptions for property. Otherwise, borrower could receive full loan funds, default and only be liable for amount borrowed minus the homestead exemption ($45,000).

23.
Escrow Funds for Taxes and Insurance. 
22 lines of how to set up escrow for the lender to pay taxes and insurance premiums.

24.
Transfer of the Property; Assumption. 
This is the clause that gives this version its title: Due on transfer – Strict. It defines what constitutes a transfer.

· The 
following events shall be referred to herein as a “Transfer:

i. a transfer or conveyance of title (or any portion thereof, legal or equitable) of the Property (or any part thereof or interest therein),

ii. the execution of a contract or agreement creating a right to title (or any portion thereof, legal or equitable) in the Property (or any part thereof or interest therein),

iii. or an agreement granting a possessory right in the Property (or any portion thereof), in excess of 3 years,

iv. a sale or transfer of, or the execution of a contract or agreement creating a right to acquire or receive more than fifty percent (50%) of the controlling interest or more than fifty percent (50%) of the beneficial interest in Borrower,

v. the reorganization, liquidation or dissolution of Borrower.

· Not to be included as a Transfer are:

2. the creation of a lien or encumbrance subordinate to this Deed of Trust,

2. the creation of a purchase money security interest for household appliances, or

2. a transfer by devise, descent or by operation of the law upon the death of a joint tenant.

· At the election of Lender, in the event of each and every Transfer:

3.
All sums secured by this Deed of Trust shall become immediately due and payable (Acceleration).

3. If a Transfer occurs and should Lender not exercise Lender’s option pursuant to this paragraph 24 to Accelerate, Transferee shall be deemed to have assumed all of the obligations of Borrower under this Deed of Trust including all sums secured hereby whether or not the instrument evidencing such conveyance, contract or grant expressly so provides. This covenant shall run with the Property and remain in full force and effect until said sums are paid in full. Lender may without notice to Borrower deal with Transferee in the same manner as with Borrower with reference to said sums including the payment or credit to Transferee of undisbursed reserve Funds on payment in full of said sums, without in any way altering or discharging Borrower’s liability hereunder for the obligations hereby secured.

3. Should Lender not elect to Accelerate upon the occurrence of such Transfer then, subject to (b) above, the mere fact of a lapse of time or the acceptance of payment subsequent to any of such events, whether or not Lender had actual or constructive notice of such Transfer, shall not be deemed a waiver of Lender’s right to make such election nor shall Lender be estopped therefrom by virtue thereof. The issuance on behalf of Lender of a routine statement showing the status of the loan, whether or not Lender had actual or constructive notice of such Transfer, shall not be a waiver or estoppel of Lender’s said rights.

25. Borrower’s Copy. 
Borrower has a copy of the note and deed of trust

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Deed of Trust (Due on Transfer – Creditworthy)

Click here to open the 

Deed of Trust (Due on Transfer – Creditworthy).

Once again, the Commission-approved deed of trust forms are set up in very similar fashion, so that once you know the “Due on Transfer – Strict” version previously covered, you only need to deal with a few small changes to understand the other two types of trust deeds.

This “Due on Transfer – Creditworthy” version simply permits the borrower to transfer title to another party who will assume the loan, only after the lender has approved the credit rating of the new party. The following is the only paragraph that changes.

1.
(a) Borrower shall, upon Lender’s request, submit information required to enable Lender to evaluate the creditworthiness of the person (“Transferee”) who is, or is to be, the recipient of a Transfer, as if a new loan were being made to Transferee. If Transferee is reasonably determined by Lender to be financially incapable of retiring the indebtedness according to its terms, based upon standards normally used by persons in the business of making loans on real estate in the same or similar circumstances, then all sums secured by this Deed of Trust, at Lender’s option, may become immediately due and payable (“Acceleration”). 

Click here to open the 

Deed of Trust (Assumable – Not Due on Transfer)
.

This version is even more lenient, possibly used by a lender who is not too concerned with the return on their investment or for a property expected to change ownership often. It allows the buyer to transfer the loan without the seller’s permission.

In this version, Paragraph 24 is simply omitted, and the acknowledgment of buyer having received a copy of this and the promissory note moves up from #25 to #24. 

 

Deed of Trust (Assumable – Not Due on Transfer)

Given the formidable array of Commission-approved contract forms, it is understandable that students may be less than comfortable with their detail. 

One mechanism to deal with this seeming overload is to simply ignore the forms, or skim them too quickly. DO NOT BE FOOLED! These are your bread and butter. You must know both what forms are published – as they are the only ones you may use – and you must know the purpose and general content of every form.

Obviously some forms will have more of an impact on your success as a real estate professional than others. Presumably you will have an intimate familiarity with the exclusive property and buyer listing forms, and the four (4) Contract to Buy and Sell Real Estate forms. Others you may encounter rarely after licensure.

Regardless of your opinion of their future utility, the Real Estate Commission requires you to demonstrate mastery of the contract forms as a prerequisite to licensure. We have required you to fill out and submit some of the more commonly used forms following some hypothetical transaction scenarios to make sure you are on track. But you must be able to fill out any of them as the need arises. 

A “Hyperlink” to the Commission Website has been provided for each form. If it is easier to study the forms chapter of your Colorado Real Estate Manual, then do so (although by necessity the print is painfully small). But remember that your instructor may require you to submit additional completed forms if it is evident that you failed to understand facets in previously submitted samples.

 

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Student Advisory

This concludes Chapter 9. Below is a brief summary which you can review before taking your quiz.


promissory note is a negotiable “promise to pay” at some future date.

Earnest Money Promissory Note

Promissory Note

· Periodic payment schedule.

· Acceleration clause.

· Borrower may prepay the principal amount outstanding under this Note, in whole or in part, at any time 
without penalty.

· The borrower waives self-protections and allows the lender to pursue payment of the debt post-haste. 

· Any notice to Borrower shall be in writing and shall be given and be effective upon delivery to Borrower.

Promissory Note (UCCC – No Default Rate)

·
Notice of Acceleration shall specify the amount of the nonpayment plus any unpaid late charges and other costs, expenses and fees due under this Note.

· Any
 defaults occurring within twelve months after a notice of Acceleration, entitles Borrower to no right to cure.

· Borrower may prepay the principal amount outstanding under this Note, in whole or in part, at any time 
without penalty.

Deed of Trust (Due on Transfer – Strict)

The loan is not transferable under any circumstances. The three parties are the 
borrower or trustor, the 
public trustee and the 
lender or beneficiary. 

· The property being offered as security.

· Borrower warrants having clear title to the security property.

·
Application of Payments – 1st to escrow for taxes and insurance, 2nd to anything protecting lender’s interests (Paragraph 9) and 3rd in accordance with the promissory note.

· Borrower promises to keep the property 
insured.

· If Borrower 
defaults, lender may step in at borrower’s expense and correct the default.

· The lender reserved the right, with proper notice, to 
inspect the premises.

· If the property is 
condemned, the lender gets the proceeds.

· In the event of borrower 
breach, lender has the option to accelerate all sums due right now, and may sell the property to collect such sums.

· Borrower assigns post-acceleration rent (if any) to lender.

· Borrower waives 
homestead and any other exemptions for property.

Deed of Trust (Due on Transfer – Creditworthy)

· Permits the borrower to transfer title to another party who will assume the loan, only after the lender has approved the credit rating of the new party.

· Borrower shall, upon Lender’s request, submit information required to enable Lender to evaluate the creditworthiness of the person who is the recipient of a Transfer.

Deed of Trust (Assumable – Not Due on Transfer)

· Possibly used by a lender who is not too concerned with the return on their investment or for a property expected to change ownership often.

· Allows the buyer to transfer the loan without the seller’s permission.

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 

Chapter 9 Summary

You have completed Chapter 9. You must now complete the Chapter 9 Quiz with a score of 80% or better before moving on to the next (and last!) chapter — Chapter 10.

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Introduction

Foreclosure is the process of the lender taking title to the property from the owner because some default in complying with the terms of the security instrument – usually delinquent payments.

Foreclosure is cyclical, normally following the business cycle, i.e. good times = low foreclosure and hard times = higher rate of foreclosure.

Foreclosure does not happen immediately. It is normally the lender’s last resort. Lenders do not like to be property owners. First there will be one or a series of missed, partial or late payments. The lender will respond with varying degrees of warnings and may offer to reconstruct the loan to make payments lower. But at some time, when it becomes either painfully obvious that the debt is a lost cause or the lender loses patience, foreclosure will be initiated.

The first step in foreclosure is the
 lender (beneficiary in the deed of trust)
 filing a notice of election and demand for sale with the public trustee. Along with the filing, the lender furnishes the original promissory note, original trust deed, a “combined notice” and a mailing list of persons who appear to have an interest in the property (including the owner and occupant). The lender has 60 days to update this list. The public trustee may require a money deposit (max $500) along with the filing to help defray the costs of processing the foreclosure.

LAW READING ASSIGNMENT

Click here to read the following section in the 

Colorado Revised Statutes

:

· CRS 38-40-103 

By the end of this unit, you will be able to:

· List and explain the various types of liens

· Explain the purpose of Errors and Omissions Insurance

· Discuss Water Rights

· Recognize the provisions of the Landlord Tennant Act 

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Foreclosure

The public trustee must 
record the notice within 10 working days of filing, and within 20 days 
mail the “combined notice” to everyone on the lender’s mailing list.

“Combined” refers to the notice containing the announcement of the intent to foreclose, the proposed date of the foreclosure sale, the borrower’s right to cure (pre-sale), and the lien holder’s right to redeem (post-sale) all in the same notice. This notice, and adjustment of the sale date, must be re-mailed each time the lender provides an updated list of persons of interest.

The public trustee must also 
publish the notice in a general circulation newspaper once per week for 5 weeks, and must review the actual publication for accuracy.

Meanwhile, the lender must seek a court order for the foreclosure to be authorized. This is known as a 
Rule 120 hearing (so named for being held under Rule 120 of the Colorado rules of civil procedure). At this hearing, the borrower has the right to present any extenuation or reason the foreclosure should not be authorized. In the real world, the borrower often chooses to not participate in this hearing.

The 
court order must be dated at least 16 days prior to the date of sale, and the lender must deliver the court order resulting from the hearing to the public trustee not later than 12:00 noon two business days prior to the scheduled sale date. 
A sale held without a court order is invalid.

End

 

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Foreclosure (continued)

In Colorado, different from other states, the owner has 
no right or period to redeem the property after the foreclosure sale. Rather, the borrower has an extended time to cure the default prior to the sale.

For urban property, the right to cure time was extended from 45-60 days up to 110-125 days. This time extension was intended to give the borrower more time to square things with the lender. For agricultural property, the time to cure is 215-230 days after filing the notice of election and demand for sale. 

If the property owner intends to cure the default, he or she must notify the public trustee of said intent not later than 15 days prior to the set sale date, AND deliver the payments in full by 12:00 noon one business day before the sale date.

After the foreclosure sale, only lienors of record as of the filing date of the notice of election and demand for sale may redeem the property. Anyone lienor intending to do so must notify the public trustee within 8 days after the sale.

At the end of the process, the public trustee sets up a schedule of lienors who have met the 8 day filing deadline, from junior to senior. Each successive lienor has 5 days in which to redeem the property from the previous lienor, with the first mortgage lender usually being last in line. When all of these claimants have exercised their rights to redeem, the public trustee issues a 
Confirmation Deed.

As you can tell, the foreclosure process is complex and lengthy. The Colorado Foreclosure Protection Act permits real estate brokers to assist homeowners without being categorized as foreclosure consultants. However, that assistance must not harm the owner/borrower. Make sure your client has competent legal counsel whenever working with foreclosures.

 

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Liens and Encumbrances: General Property Taxes

Property taxes for the previous year are an 
annual lien against property as of January 1 each year. If delinquent, they are a perpetual lien against the property until sold. Property taxes are known as “ad Valorem,” Latin for “according to value” – as opposed to being a flat fee or established by another measure.

Real estate property taxes are imposed by taxing “entities” or “districts” 
at county and local levels of government. Examples of these include school districts, fire protection districts, etc. Normally, the county treasurer collects all the taxes due and then divides the money among the multiple entities.

There are no federal property taxes as the U.S. Constitution prohibits such a tax. The federal government does tax income received from real property operations and profits obtained when a property is sold. The federal government may also impose a 
federal tax lien against real and personal property for failure to pay any other federal tax when due.

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Liens and Encumbrances: General Property Taxes (continued)

State governments do not usually levy property taxes, but may impose tax liens for failure to pay real property taxes delegated by the state to the county or local government. State government sets the assessed value of property, currently at 7.96% (residential) and 29% (commercial, agricultural, etc.) of the last two year’s actual value. 

County and local governments then set a 
mill levy (one thousandth of a dollar or .001) which is a multiplier used with the assessed value to calculate the actual tax dollars owed. 

Assessed Value x Mill Levy = Tax Liability (AV x M = T)

The tax rate is usually expressed in terms of the mill levy; (Move the decimal point 3 places to the left: 61 mills = .061)

However, it may also be expressed as:

·
Percentage (Move the decimal point two places to the left: 6.1% = .061)

·
Dollars per $10 of assessed valuation (Divide the assessed value by 100 to get the rate per $1: $6.10 per hundred dollars = $6.10 ÷ 100 = .061)

·
Dollars per $1,000 of assessed valuation (Divide the assessed value by 1,000 to get the rate per $1: $61.00 per $1,000 equals $61 ÷ 1,000 = .061)

 

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Liens and Encumbrances: General Property Taxes (continued)

Last year’s property tax may be paid without penalty according to one of two schedules at the taxpayer’s choice.

a.
Pay the entire tax bill before April 30, OR

b.
Pay ½ on or before the last day of February, and the remaining balance in full by June 15.

Tax penalties at the rate of 1% per month begin to accrue the day after the due date. For example, 
a delinquent 1st one-half payment accrues interest at 1% per month beginning March 1st and continues until paid, unless paid in full by April 30th.

Delinquent property tax sales begin with a warning mailed to delinquent owners on September 1 each year.

The county treasurer then 
publishes a list in a newspaper of general circulation of the delinquent properties and the amounts owed on each. The list must be published no later than 4 weeks before the 
sale date, which is the second Monday in December each year. (You may have seen this. In the city and county of Denver it is often larger than the paper itself!)

At the tax sale, the highest bidder over the taxes due receives a 
certificate of purchase. After three years of current tax payments, during which the delinquent taxpayer may redeem by paying the tax bill plus a set rate of interest, the highest bidder may apply for a 
treasurer’s deed and has free and clear ownership of the property.

The same County Commissioners that determined the mill levy meet as the 
County Board of Equalization to hear appeals filed with the county assessor by property owners who feel their tax assessment was unjustified.

The State Board of Equalization receives higher-level tax protests, but primarily reviews assessments statewide in an effort to make assessments fairly applied.

 

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Liens and Encumbrances: Other Liens


Lien Types

A lien is the right to have an obligation settled by sale of the debtor’s property. Real property tax liens take priority and are paid first over all other types – including IRS federal tax liens. 


Voluntary v. Involuntary

A person voluntarily creates a lien by taking a mortgage secured by real estate. 

An involuntary lien is one placed against a property through a legal process adverse to the property owner.


Statutory v. Equitable

Too easy, but a statutory lien is involuntarily imposed by law, for example, an estate tax lien.

An equitable lien is also involuntary, but is imposed by court order – for example: a judgment lien placed on all of the owner’s personal and real property to secure payment of a monetary judgment.


General v. Specific

A general lien is one placed against all property of a debtor, regardless of location.

A specific lien is placed against a named single property item, such as a conventional mortgage lien placed on the secured property only.


Mechanic’s Liens


A mechanic’s lien is voluntary, specific, and equitable. 

It is placed to secure payment for labor and materials used in improvements to real property.


Vendee’s Lien

: voluntary, specific, and equitable. This is also known as a purchaser’s lien and is filed against a specific real property to secure return of moneys due to the purchaser after a seller defaults on a buy/sell contract.


Vendor’s Lien: 

Secures a purchase money mortgage – a seller carry-back used to finance the sale of a property. Also known as a seller’s lien.

 

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Errors and Omissions Insurance

Colorado is one of a dozen or so states that requires “errors and omissions” (E&O) insurance in order to hold an active real estate license.

Commission Rule D-14 sets out the minimum requirements for coverage of all acts requiring a license.

The Real Estate Commission enters into a contract with an insurance provider to provide a group policy throughout the state. 

Insurance is required for both individual and entity licenses. For example: a single broker with his or her business organized as a Subchapter S corporation or an LLC, must have TWO (2) E&O policies – one for the broker and one for the company.

Licensees may obtain E&O insurance independent of the state’s group policy from any insurance provider as long as it meets the minimum requirements in the rule.

New licensees should always check with the employing broker as to the method of securing E&O insurance within the firm.

Neither E&O insurance nor any type of insurance can protect against illegal activities.

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Land Descriptions – Surveys and Improvement Location Certificates (ILC’s)

Surveys and ILC’s are the most desirable method of determining accurate property boundaries. Surveys tend to grow in importance with the size and rural nature of the property. 

Surveys are known also as 
pin and stake surveys, for the fact that the surveyors place permanent pins or stakes in the ground to permanently mark the boundaries of the property.

A survey is a complete measurement and diagram or plat of a property. It is far more thorough than an improvement location certificate, which only shows the approximate placement of the major improvements on the property with respect to the boundaries. For the additional detail and measurement, a full survey is also far more expensive than an ILC.

An ILC is almost always the minimum required by any lender in a residential real estate transaction.

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Water Rights

It is safe to say that water is the most precious commodity or natural resource in Colorado. Its scarcity and essential nature are often worth far more than gold.

Just like with a survey, the importance of water to an individual real estate transaction increases with larger and rural properties. 

In Colorado, all of the natural surface water (streams, rivers, ponds) belongs to the citizens of Colorado. If you have a pond on your property, you may or may not have a 
water right to use that water, but you don’t own the water itself. A water right is a prescribed and limited right to use – not ownership. This right is considered a 
real property right. As such it:

· Is subject to the State statutes of Frauds and Limitations.

· Is subject to taxation, and may be mortgaged separately from the land, and will pass as real property under a will.

Water use in Colorado is allocated under a 
doctrine of prior appropriation as set forth in the state constitution. This doctrine appropriates water rights on each flowing water system (stream, river, etc.) to senior users over junior users based on the date and intended beneficial use of the water as determined by a system of water courts.

Because it is stand-alone real property,
 water rights do not automatically pass with title to the land

 

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Water Rights (continued)

Water is 
not an appurtenance. If the parties intend to transfer a water right in a real estate transaction,
 the right must be specifically mentioned in the deed (or separate deed). One of several logical exceptions to this principle is the law presumes that a domestic or household use well and water right do pass with title to a country house under the 
principle of constructive annexation.

Water rights are appropriated (adjudicated) by the courts, and thereafter enforced by the State Engineer for tributary water. The 6 huge ground water basins that lie under Colorado are administered by the Colorado Ground Water Commission.

The State Engineer’s office maintains records for all wells in Colorado. Each real estate transaction involving a well places a burden on the buyer to report the transfer of that well to the State Engineer’s office. This is normally done at closing.

Each seller in a real estate transaction must also disclose the source of potable (drinkable) water to the buyer. This disclosure is built into (and was covered in) the Commission-approved Contract to Buy and Sell Real Estate, and Seller’s Property Disclosure.

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Financing – Equity Skimming

Equity skimming is a felony offense in Colorado and a federal offense if an FHA or VA loan is involved. 

Here is a sample of how equity skimming would work:

A person purchases a property by assuming a loan or perhaps having the seller carry-back the financing. The goal is to purchase with little or no down payment. Then after closing, the investor makes one payment on the loan – causing the lender to “close the file,” assuming that the loan is on track and out of mind. The investor continues to collect rents and absconds with the security deposits, leaving town long before any foreclosure is complete.

Purchasing a property with no money down is not illegal, and in fact is the common practice for many shrewd investors. But, it should at least raise a cautionary flag to the brokers involved with respect to the buyer’s stability, financial history, etc.

 

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Financing – UCCC (State Usury Statute)

Almost every state has a usury statute that limits the interest rate that may be charged to individuals borrowing money within the state. In Colorado, the Uniform Consumer Credit Code (UCCC) protects the borrower.

The UCCC has provisions relating to disclosure and the borrower’s right of rescission similar to the Federal Regulation Z. 

UCCC usury provisions pertain to:

·

Seller Financing:
 
If the seller is not a creditor and carries back some of the purchase price for the buyer, the maximum interest rate graduates. It runs from 21% for a loan of $3,000 or less to 45% for a loan amount over $3,000. If the seller has arranged prior to closing to sell the loan to a 3rd party, the maximum rate is 21% regardless of the loan amount.

·

Supervised Lenders and Creditor Sellers:
 
Creditors are those who lend money more than 5 times in a year. They are limited to 21%. If the loan is a first mortgage for the acquisition or construction of the borrower’s personal residence, including mobile homes, the maximum interest rate is 45%.

·

Broker Commissions: 

If a broker takes a commission by way of a promissory note and deed of trust on the sale of a residence, the maximum interest rate allowable is 21% for $3,000 or less and 45% for more than $3,000. If the broker is a creditor, the maximum is 21% regardless of the amount financed. The UCCC also restricts any security interest that may be retained by the broker.

 

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UCCC (continued)

Other Provisions of the UCCC relevant to brokers:

Confession of judgment clauses in a 
cognovit note (whereby the lender can obtain a speedy judgment against a defaulting borrower through an affidavit filed by an attorney, but without legal proceedings) are prohibited.


Right to refinance: 

at the then prevailing interest rate is a borrower’s right provided:

·
The note is secured by a second or lower priority note.

·
There is a provision for a balloon payment.

·
The borrower qualifies under the lender’s or creditor seller’s normal credit standards.

The lender is still in the business of making loans at the time.


UCCC Financing Statements and Security Agreements 

If anyone, including a seller, finances part of a sale that includes personal property, these documents must be filed with the Colorado Secretary of State.


Security Agreement is the modern day version of a chattel mortgage. It places a lien on the personal property (inventory, furniture, fixtures) as security for funds loaned.

A
 Financing Statement is filed to give constructive notice of debt. It discloses the address(es) of the borrower and the secured party (normally the lender/seller), a description of the property, and the maturity date of the obligation. It is signed by both parties.

 

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Financing – Standards of Mortgage Servicing

Mortgage servicing is the collection of payments and crediting same to the borrower’s account. It usually involves all of the related bookkeeping, such as escrow analysis and management, payoff notices, etc. Servicing may or may not be done by the original lender. Many lenders contract out this function. 

C.R.S. 38-40-103 contains many restrictions on mortgage servicing providers.

·
Within 20 days of transferring servicing or collection rights to another entity, the borrower must be provided with the new payment and address information.

·
The borrower may continue to use the old payment information, and the servicing agent must forward any payments received until the borrower receives new payment information.

·
Loan servicers must respond in writing within 20 days to any written request for loan information from the borrower, and must include the telephone number of the servicer.

·
Servicers must provide an annual loan statement including the total amount of principal and interest paid in the preceding year.

·
If the servicer fails to remit the taxes due from the escrow account in a timely manner, the servicer is responsible for any late fees or penalties imposed by the taxing authority.

 

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Financing – Loan Fraud

We’ve already covered equity skimming, which is a form of loan fraud. Here are a couple of others. Brokers need to be alert for signs of these occurrences. They are more prevalent than one might expect and responsible for much of the housing finance meltdown of 2007-2010.


False Appraisals: 

This involves some combination of lenders, appraisers, buyers, sellers and/or real estate brokers conspiring to convince the loan funder to provide more money than a property is worth, or even more than is prudent.


False Buyer Qualifications: 

If your buyer or lender indicates intent to misrepresent the amount of the buyer’s income, savings, debts, or anything else, walk – no run – away from the deal – immediately after calling the Real Estate Commission enforcement section. This one can sometimes appear to be mildly innocent. Forgetting the illegality for a moment, a perfectly innocent buyer might look at this as helpful or a “good deal.” The buyer cannot foresee that the feeling won’t be the same when the inability to make the payments comes around – and statistics prove that it most certainly will.


Dual Contracts: 

The seller and buyer write two separate contracts, one for the real terms of the transaction, and one for a higher price to be given to the lender to trick the lender into a higher loan (lower down payment).

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Landlord Tenant Act (C.R.S. 38-12-101 et seq.)

Property management is a specialty within the real estate business. Property managers represent owners who cannot or choose not to manage their own properties.

A property manager must hold a real estate license and is not the same job as an on-site manager for an apartment or office complex for which a licensing exemption exists in the license law.

The brokerage relationships between the owner and the manager are formalized by a document known as the 
management agreement.

The broker’s primary duties are normally marketing, maintenance, and financial management.

The 
primary objectives of the manager are:

·
To obtain the highest income stream for the owner.

·
To protect the owner’s capital investment while preserving a good owner-manager-tenant working relationship.

Under Colorado statute, landlords in Colorado and by extension, brokers acting for landlords under management agreements must follow the Colorado Landlord-Tenant Act.

 

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Landlord Tenant Act (continued)

Security deposits must be returned to the tenant within one month, unless specified longer in the lease – which can never exceed 60 days. Security deposit funds cannot be held back for normal wear and tear.

When the security deposit is returned, the landlord must furnish an accounting for any withheld amounts and the reason for the withholding (e.g. nonpayment of rent, damage to the property, etc.).

Failure to provide this accounting within the above time limits causes the landlord to forfeit any right to any part of the security deposit.

Willful unsupported retention of a security deposit also makes the landlord liable for triple the amount of the security deposit wrongfully withheld, plus court costs and attorney fees – provided the tenant gives the landlord 7 days advance notice of intent to file a lawsuit. In any such instance, the landlord carries the burden of proving that any withheld amount is not wrongful.

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Landlord Tenant Act (continued)

When a landlord changes property managers or otherwise divests of an interest in the property, the tenant must be notified of the name and address of the new security deposit holder. 

Gas Hazard: When a gas company serviceperson advises a tenant in writing of a hazardous condition in the provision of natural gas to a residence and the tenant in turn notifies the owner in writing, the owner has 72 hours (excluding Saturdays, Sundays, or legal holidays) to have the condition professionally repaired.

If not repaired within 72 hours, tenant may vacate and the lease is null and void and tenant is entitled to receive any applicable security deposit refund within 72 hours. If not done in this case, the tenant is entitled to receive twice the amount of the security deposit (not triple the amount wrongfully withheld) plus attorney fees.

Rent Control: This method of county or municipal regulation of the amount of rent that may be charged is illegal in Colorado. 

Domestic Violence or Abuse: 
A landlord may 
not, and a tenant 
may terminate a lease when the tenant is a documented victim of domestic abuse or domestic violence. If the tenant provides such documentation and vacates the premises, then tenant is responsible for one month’s rent after the vacation, payable within 90 days. The landlord may retain the security deposit until such payment is received.

Warrant of Habitability:
 Colorado now has its first warranty of habitability. That is, the landlord is now considered to guarantee that any residential rental is fit for human habitation. There are two exceptions: It is 
not a breach of this warrant if the condition was caused by the tenant, or if the cause was the result of domestic abuse or violence against the tenant.

If the warrant of habitability is breached, the tenant may vacate the premises after giving the landlord notice dated between 10 and 30 days after the breach, and giving the landlord 5 days to repair the condition. A landlord may not retaliate against a tenant for claiming such a breach of warranty of habitability.


Eviction:

 A landlord may not remove or exclude a tenant from a dwelling unit without a court process unless the property is a meth lab, or there is reasonable evidence of vacation or abandonment.

These provisions do not apply to short term hotel-type rentals, assisted living properties and similar properties, AND occupancy of property under a contract of sale when the occupant is the seller or buyer. 

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Landlord Tenant Act (continued)

This concludes Chapter 10. Below is a brief summary which you can review before taking your quiz.

Foreclosure 

The first step is the lender 
filing a notice of election and demand for sale with the public trustee.

The lender furnishes the original promissory note, original trust deed, a “combined notice” and a mailing list of persons who have an interest in the property.

The public trustee may require a money deposit (max $500).

The public trustee must 
record the notice within 10 days of filing, and within 20 days mail the
 combined notice.

The public trustee must 
publish the notice once per week for 5 weeks.

A sale held without a 
court order is invalid.

The owner has 
no right to 
redeem the property after the foreclosure sale.

When claimants have exercised their rights to redeem, the public trustee issues a 
Confirmation Deed.

Liens and Encumbrances  

Property taxes for the previous year are an annual lien against property as of January 1 each year.

Real estate property taxes are imposed by taxing “entities” or “districts” 
at county and local levels of government.

The federal government may impose a 
federal tax lien.

County and local governments set a 
mill levy (one thousandth of a dollar or .001). 

· Assessed Value x Mill Levy = Tax Liability (AV x M = T)

Last year’s property tax may be paid without penalty according to one of two schedules at the taxpayer’s choice.

· Pay the entire tax bill before April 30.

· Pay ½ on or before the last day of February, and the remaining balance in full by June 15.

Tax penalties at the rate of 1% per month begin to accrue the day after the due date.

The county treasurer 
publishes a list in a newspaper of general circulation of the delinquent properties and the amounts owed on each.

The list must be published no later than 4 weeks before the 
sale date, which is the second Monday in December each year.

At the tax sale, the highest bidder over the taxes due receives a 
certificate of purchase.

A person 

voluntarily
 creates a lien by taking a mortgage secured by real estate. An 

involuntary
 lien is one placed against a property through a legal process adverse to the property owner.



statutory
 lien is involuntarily imposed by law. An 

equitable
 lien is involuntary but imposed by court order.



general
 lien is one placed against all property of a debtor, regardless of location. A 

specific
 lien is placed against a named single property item.

A
 mechanic’s lien is voluntary, specific, and equitable. 

Vendee’s Lien: filed against a specific real property to secure return of moneys due to the purchaser after a seller defaults on a buy/sell contract. 
Vendor’s Lien: Secures a purchase money mortgage.

Colorado requires 
errors and omissions insurance in order to hold an active real estate license.

Surveys and 
ILC’s are the most desirable method of determining accurate property boundaries. Surveys tend to grow in importance with the size and rural nature of the property. 

Water Rights 

A water right is a prescribed and limited right to use – not ownership. This right is considered a 

real property right
.

As such it:

· Is subject to the State statutes of Frauds and Limitations.

· Is subject to taxation, and may be mortgaged separately from the land, and will pass as real property under a will.

Water use in Colorado is allocated under a 
doctrine of prior appropriation as set forth in the state constitution.

Water rights do not automatically pass with title to the land. 

Water is 
not an appurtenance.

The right must be 
specifically mentioned in the deed. 

Principle of constructive annexation.

Equity skimming is a felony offense in Colorado and a federal offense if an FHA or VA loan is involved. 

Uniform Consumer Credit Code (UCCC)

The UCCC protects the borrower. Its usury provisions pertain to:

·
Seller Financing

·
Supervised Lenders and Creditor Sellers

Broker Commissions

Confession of judgment clauses in a 
cognovit note are prohibited.

Right to refinance – at the then prevailing interest rate is a borrower’s right provided:

· The note is secured by a second or lower priority note.

· There is a provision for a balloon payment.

· The borrower qualifies under the lender’s or creditor seller’s normal credit standards.



Security Agreement
 places a lien on the personal property as security for funds loaned. A
 
Financing Statement 
is filed to give constructive notice of debt.

Mortgage servicing is the collection of payments and crediting same to the borrower’s account.

· Usually involves all of the related bookkeeping.

· Servicing may or may not be done by the original lender.

· Many lenders contract out this function. 

Loan Fraud 

·

False Appraisals

·

False Buyer Qualifications

·

Dual Contracts

Landlord Tenant Act 

A property manager must hold a real estate license. The primary objectives of the manager are:

· To obtain the highest income stream for the owner.

· To protect the owner’s capital investment while preserving a good owner-manager-tenant working relationship.

Security deposits must be returned to the tenant within one month. Security deposit funds cannot be held back for normal wear and tear.

Failure to provide accounting within time limits causes the landlord to forfeit any right to any part of the security deposit.

When a landlord changes property managers, the tenant must be notified of the name and address of the new security deposit holder. 

·
Gas Hazard: If not repaired within 72 hours, tenant may vacate and the lease is null and void.

·
Rent Control: illegal in Colorado. 

· A landlord may 
not, and a tenant 
may terminate a lease when the tenant is a documented 
victim of domestic abuse or domestic violence.

· A landlord may not retaliate against a tenant for claiming a breach of 
warranty of habitability.

·
Eviction: A landlord may not remove a tenant without a court process unless the property is a meth lab.

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 

Chapter 10 Summary

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Sales Contract Related Forms

Just when you thought you had completed the contract forms, you find that even writing a purchase offer sometimes requires more than the 
Contract to Buy and Sell Real Estate. We will go over some of the addenda and forms related to the sales contract. While this will cover these forms in a more summary fashion than the line-by-line review of the Contract to Buy and Sell Real Estate, the knowledge of the forms is essential to both getting your license and the practice of real estate.

By the end of this unit, you will be able to: 

· Recognize and explain the various Addenda to the Sales Contract

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Earnest Money Receipt

Click here to open a copy of the 

Earnest Money Receipt
.

This form is used when delivering the earnest money deposit to a title company or closing entity for deposit in lieu of the broker holding the earnest money in his or her own trust account. The receipt for the buyer turning over the earnest money to the broker is contained within the bottom section of the Contract to Buy and Sell Real Estate.

Earnest Money Holder, acknowledges receipt of the Earnest Money in the amount of $_________ in the form of _________ , to be held by Earnest Money Holder in its trust account on behalf of both Seller and Buyer pursuant to the Contract to Buy and Sell Real Estate described below:  Until Closing Instructions have been signed by Buyer, Seller and Earnest Money Holder, § 24 (Earnest Money Dispute) and § 25 (Termination) of the Contract will apply to the holding of the Earnest Money by Earnest Money Holder.

Seller

Buyer

Date of Contract

Date of Closing Instructions

This is for the sale and purchase of the Property described in the Contract and is known as (No. Address, City, State).

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Licensee Buy-Out Addendum To Contract To Buy And Sell Real Estate

Click here to open the 

Licensee Buy-Out Addendum
. This form is used in three limited circumstances as noted in the footnotes to the Forms Index. They are when a broker enters into a contract to purchase property:

1. Concurrently with a listing.

2. As an inducement or to facilitate the owner’s purchase of another property, or

3. Under an existing listing and continues to market the property.

All of the above are known as “guaranteed buyouts.” In effect they tell an owner: “List with me, or Buy this new home, and if yours doesn’t sell, I’ll buy it from you for this amount.” 

If you are intending to purchase a home as your own residence, you should do so before you list it or cancel your listing. Under designated brokerage, an Owner whose home is listed with another broker is protected by that broker. It is improper for you to buy your own listing for your own benefit without first severing the listing. 

The Licensee Buyout Addendum is tilted totally in favor of the Seller:

1. The buyer’s free out if the property doesn’t appraise is deleted. This means you better know the value before making the buyout offer.

2. The offer is specific performance against the buyer/broker with liquidated damages being deleted AND there are no specific performance damages against the Seller, who may cancel at any time. (If the Seller cancels the buyout, he or she must reimburse the broker for any expenses made in expectation of closing, i.e. inspection, etc., up to an agreed upon limit.)

A final note on this form. There is a signature block for the offering broker and an optional second block for the employing/supervising broker. It is preceded by a (yup – you guessed it – a bold-faced all caps) warning that says:

NOTICE TO SELLER: THIS CONTRACT IS BINDING ONLY UPON THE BUYER (LICENSEE) WHO PERSONALLY SIGNS ABOVE, UNLESS THE SUPERVISING BROKER OF THE BROKERAGE FIRM WORKING WITH SELLER SIGNS HERE.


Note:  This form was updated (effective January 1, 2011) with the current formatting modifications to be consistent with the other new Contract forms and updated to reflect the updated Section numbers of the Contract to Buy and Sell Real Estate.

 

Exchange Addendum to Contract to Buy and Sell Real Estate

Click here to open the 

Exchange Addendum
. This rarely used form is essential when one or both of the parties will conduct a tax-deferred exchange of like-kind properties under Internal Revenue Code #1031. This may be a simultaneous exchange between the two, or it may be a sale with assignment made to a financial intermediary who will hold the proceeds until the original seller identifies a replacement property (45 days). Even more than usual, such an exchange requires tax counsel.

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Source of Water Addendum to Contract to Buy and Sell Real Estate

Click here to open the 

Source of Water Addendum
. The purpose of this form is to enable the buyer to investigate the long-term prospects of water availability for the property. One more reason to use great care when gathering listing data on other than urban property.

The disclosure of the source of water is published as an addendum to the Contract to Buy and Sell Real Estate, and as a paragraph within the Contract to Buy and Sell Real Estate, as well as in the Seller’s Property Disclosure form. It should properly be prepared and placed in the property as part of the listing/showing materials and attached as an addendum to any future Contract to Buy and Sell Real Estate. 

The form provides for the Seller to choose one of three disclosures:

1. There is a Well (with Well Permit # furnished or not furnished)

2. The contact information for the Water Provider is furnished.

3. There is neither a well nor a provider. Water comes from:_____

This form is needed in residential transactions. Using the data in your offer to purchase the 1234 Mains Street Property, and knowing that it is urban real estate deriving its water from the Colorado Springs Utility Division, prepare the form as the listing broker would.

 

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Counterproposal

Due to the rearrangement of the various Sections of the Contract to Buy and Sell Real Estate, the Dates and Deadlines Section was revised which required this Counter proposal form to be changed in order to coincide with the new Section numbers as well as changing a number of the Captions/Deadline names due to the large number of additions and changes to the forms. In addition, the Counterproposal and the Amend/Extend to Contract (which can be seen below) created 2 new columns.  The first column is entitled “No Change” and the second column is “Deleted”.  This was done in order to avoid an accidental “deletion” of the very important Section by inserting “N/A”(a common practice).Unfortunately, completion with N/A has the effect of deleting the corresponding provision in the Contract from.  To avoid this problem each date line now requires a check mark or insertion of a revised date or deadline in the respective column.

Remember you learned that there are three possible responses to an offer to purchase. They are acceptance, rejection, or a counterproposal. People look at counterproposals in two ways. Some say it is a form of acceptance: “We accept most of your proposal, except (xxxx).” Others hold that any counter is actually a form of rejection: We will not accept your offer unless (xxxx) is changed. 

From a contract law standpoint it is a form of rejection, and makes the offeree (seller) the presenter of a new offer called a counterproposal. Now the buyer has those same three options, acceptance, rejection or counterproposal, EXCEPT: One exchange of an offer and a counterproposal is the maximum proper. If it comes to this – and it may especially if the brokers have negotiated or communicated poorly – it is best to start over with a brand new Contract to Buy and Sell Real Estate and make a new offer. This eliminates any confusion over dates and deadlines and exactly what was countered when. Click here to open a 

Counterproposal form
 and we will discuss some of the points:    

1. This Counterproposal shall supersede and replace any previous counterproposal. This Counterproposal amends the proposed contract dated ____________(Contract), between ________________(Seller), and _____________________(Buyer), relating to the sale and purchase of the following legally described real estate in the County of ______________, Colorado:

The Dates and Deadlines Grid, and the Purchase Price and Terms Grid are identical to the Contract to Buy and Sell Real Estate, but either grid may be omitted if not applicable.

6. ACCEPTANCE DEADLINE. This Counterproposal shall expire unless accepted in writing by Seller and Buyer as evidenced by their signatures below and the offering party to this document receives notice of such acceptance on or before ____ (Date and Time) ______.

While the Contract to Buy and Sell Real Estate should allow the Seller a reasonable time to thoughtfully consider a complex and detailed offer, the time allowed the buyer to accept a relatively simple and straightforward counterproposal can be somewhat more restrictive; for instance, one day.

If accepted, the Contract, as amended by this Counterproposal, shall become a contract between Seller and Buyer. All other terms and conditions of the Contract shall remain the same.

So now, instead of conversion from an offer to a contract at the time of seller’s acceptance, such a conversion occurs at buyer’s acceptance.  

Note: When this Counterproposal form is used, the Contract is 
not to be signed by the party initiating this Counterproposal. Brokers must complete and sign the Broker’s Acknowledgments and Compensation Disclosure portion of the Contract.

Following through with your ongoing transaction, the Sellers of the Main Street Property (Robert D. Graham and Margaret A. Graham) are excited to get Mr. and Mrs. Buyer’s offer. However, considering that it is for less than the list price, they would like to have an additional $10,000 in earnest money. They would also like to close on the property a week later (December 7th) to enable them to host their planned Thanksgiving gathering without the worry of packing and moving.

Prepare the Counterproposal as the listing broker would to send back to you and Mr. and Mrs. Buyer.

 

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Agreement to Amend/Extend Contract

All of the changes mentioned above in the 2015 Counterproposal are the same in the Amend/Extend to Contract 2015 form.

If you know the Counterproposal, you also know this agreement to amend/extend. It is your job to make sure both parties sign this agreement before any date in the Dates and Deadlines grid of the Contract to Buy and Sell Real Estate expires (unless, of course your party doesn’t want the contract to continue). There is no purchase Price and Terms grid in this form, and it specifically says that: “All other terms and conditions of the Contract shall remain the same.” 

One final reminder. While the broker was a party to the listing contract and any Agreement to Amend/Extend with Broker, the broker is not a party to this contract and amendments/extensions must be intended only by the principals to the contract. 

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Agreement to Amend/Extend Contract
.

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Inspection Notice

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Inspection Objection NTC43-9-12 (Revised for 2017) 

A. BUYER’S NOTIFICATION OF UNSATISFACTORY PHYSICAL CONDITION.

1.1.  Buyer gives notice to Seller that  the Property or Inclusions are unsatisfactory.

1.2. Description of what is unsatisfactory that Buyer requires Seller to correct:

If more space is required, attached is/are _____________additional pages.

NOTE: Resolution of inspection or other items agreed to by the parties may alter the terms of the Contract and require disclosure by Buyer to Buyer’s lender. Buyer is encouraged to consult Buyer’s lender prior to entering into a final resolution on inspection as well as other matters as the resolution may (1) have a detrimental impact on the Buyer’s ability to get the loan; (2) cause delays in the lender’s processing and funding of the loan by Closing; and (3) require further inspections and repairs. Communication with the lender should be in writing.

1.3. A copy of the inspection report ___ 
Is ___Is Not attached.

Pursuant to § 10.4 of the Contract, items set forth in § 1.1, or otherwise in this document, shall be paid by Seller.

If Buyer and Seller have not agreed in writing to a settlement of the above matters on or before the Inspection Resolution Deadline, the Contract will terminate unless Seller receives written notice from Buyer withdrawing this Inspection Objection on or before expiration of the Inspection Resolution Deadline.  

Buyer:                                                                                                   Date:_________________

2. BUYER’S WITHDRAWAL OF INSPECTION OBJECTION NOTICE.

Buyer withdraws this Inspection Objection and elects to proceed with the Contract.

 

Buyer________________________________Date:_____________________________

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NEW FORM: Inspection Resolution (NTC43R-6-16 Revised for 2017)

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Inspection Resolution
 form.

INSPECTION RESOLUTION

 (Amendment To Contract To Buy And Sell Real Estate)

 

Date:

This Inspection Resolution amends to the Contract dated _______________, between(Seller) and (Buyer) relating to the sale and purchase of the Property known as:

Terms used herein shall have the same meaning as in the Contract.

2. RESOLUTION OF UNSATISFACTORY PHYSICAL CONDITION. Pursuant to the Inspection Resolution provision in the Contract, Buyer and Seller agree that Seller, on or before, will do the following to resolve Buyer’s Inspection Objection Notice:

3. SELLER’S COST. Pursuant to the Damage, Liens and Indemnity provision in the Contract, correcting or resolving the unsatisfactory physical condition set forth in this document, will be paid by Seller.

4. SURVIVAL. If any agreed upon correction requires action after Closing, the obligations agreed upon survive Closing.

Note: This document amends the Contract. Buyer must provide a copy of this Inspection Resolution to Buyer’s Lender.

Buyer Date Buyer Date

Seller Date Seller Date

This is 
not 
a mandatory form unless there have been complex negotiations back and forth between the parties in order to get to a final resolution.  It is to be used when the parties have been negotiating back and forth on how to resolve the Inspection Objection, following a Buyer’s inspection of the property. If there is a counter and a counter to the counter, to avoid confusion of what the parties agreed the ultimate “resolution” to be, the Inspection Resolution form allows the parties to set forth their “resolution” in one place (avoiding the problem of making clear the back and forth and what the parties ultimately have finally agreed to accept.

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Notice to Terminate

There only one way to leave your lover (terminate a Contract to Buy and Sell Real Estate) — a one-page Notice to Terminate which may be used by either party and provides a checklist of reasons for the termination.

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Notice to Terminate
.

BUYER’S NOTIFICATION OF UNSATISFACTORY CONDITION.

Buyer notifies Seller that the Contract is terminated (§ 25 Contract) because the following are unsatisfactory to Buyer:

Broker shall make the appropriate box(es) on behalf of the Buyer and have the Buyer sign and date in order to legally terminate the Contract.

SELLER’S NOTIFICATION OF UNSATISFACTORY CONDITION.

Seller notifies Buyer that the Contract is terminated (§ 25 Contract) because the following are unsatisfactory to Seller:

Broker will again mark the appropriate box(es) on behalf of the Seller and have the Seller sign and date in order to legally terminate the Contract.

It should be pretty obvious that this contract provides numerous opportunities for the buyer to terminate and get his or her earnest money back.

Click here to open the 

Seller Warning form
.
 It doesn’t fit neatly in any other category as it is used only in a Foreclosure scenario to emphatically inform the seller that the buyer will NOT be paying off any of the seller’s debts.

 

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Closing Instructions

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Closing Instructions form
.  
These instructions should be done and delivered to the title company, along with a copy of the Contract to Buy and Sell Real Estate immediately after mutual execution of the contract. 
Title company 
is not 
to accept your Contract for processing and closing without full executed closing instructions.

1. PARTIES, PROPERTY. _______________, Seller, and ____________Buyer, engage _______________, Closing Company, who agrees to provide closing and settlement services in connection with the Closing of the transaction for the sale and purchase of the Property known as (No. Street Address City State Zip) and more fully described in the Contract to Buy and Sell Real Estate, dated, including any counterproposals and amendments (Contract). All terms of the Contract are incorporated herein by reference. In the event of any conflict between this Agreement and the Contract, this Agreement shall control, subject to subsequent amendments to the Contract or this Agreement.

The selection of the closing entity is a negotiable item in the Contract to Buy and Sell Real Estate. However, since the Seller will most likely purchase and furnish the owner’s title insurance to the buyer from the same company, by tradition the seller chooses the title company, per RESPA the Buyer has the right to choose their own title company to provide the Buyer’s title insurance. There is a difference in premium amounts among title companies. Also be aware that if the property is being transferred within 5 years, there may be a reduced title insurance premium rate available from the previous issuer. 

2. TITLE COMMITMENT, EXCEPTIONS AND POLICY. Closing Company Agrees Does Not agree that: upon completion of a satisfactory title search and examination, it will furnish a Title Insurance Commitment; and it will issue a Title Insurance Policy provided that all requirements have been fulfilled. Closing Company Agrees Does Not agree to furnish copies of Exceptions

3. INFORMATION, PREPARATION, CLOSING, RECORDING. Closing Company is authorized to obtain any information necessary for the Closing. Closing Company agrees to prepare (excluding legal documents), deliver and record all documents (excluding legal documents), required or customarily recorded, and disburse all funds pursuant to the Contract that are necessary to carry out the terms and conditions of the Contract.

Remember that Conway-Bogue precludes the preparation of legal documents by title companies or closing service providers) that are necessary to carry out the terms and disburse all funds pursuant to the Contract that are necessary to carry out the terms and conditions of the Contract.

This Section 2 of the Closing Instructions has new language that clarifies that any disbursement made by the Closing Company must be made as call for in the Contract (which would include any amendments to the Contract). 

4. CLOSING FEE. Closing Company will receive a fee of $_____ for providing these closing and settlement services (Closing Fee). 

5. RELEASE, DISBURSEMENT. Closing Company is not authorized to release any signed documents or things of value prior to receipt and disbursement of Good Funds, except as provided in §§ 9, 10 and 11.  

6. DISBURSER. Closing Company shall disburse all funds, including real estate commissions, except those funds as may be separately disclosed in writing to Buyer and Seller by Closing Company or Buyer’s lender on or before Closing. All parties agree that no one other than the disburser can assure that payoff of loans and other disbursements will actually be made.

 

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Closing Instructions (continued)

7. SELLER’S NET PROCEEDS. Seller will receive the net proceeds of Closing as indicated: 

___ Cashier’s Check, at Seller’s expense 

___ Funds Electronically Transferred (wire transfer) to an account specified by Seller, at Seller’s expense 

___ Closing Company’s trust account check. 
 

8. CLOSING STATEMENT. Closing Company will prepare and deliver an accurate, complete and detailed closing statement to Buyer and Seller at time of Closing.

9. FAILURE OF CLOSING. If Closing or disbursement does not occur on or before Closing Date set forth in the Contract, Closing Company, except as provided herein, is authorized and agrees to return all documents, monies, and things of value to the depositing party, upon which Closing Company will be relieved from any further duty, responsibility or liability in connection with these Closing Instructions. In addition, any promissory note, deed of trust, or other evidence of indebtedness signed by Buyer shall be voided by Closing Company, with the originals returned to Buyer and a copy to Buyer’s lender. 

10. RETURN OF EARNEST MONEY. Except as otherwise provided in § 11, Earnest Money Dispute, if the Earnest Money has not already been returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder shall release the Earnest Money as directed by the written mutual instructions. Such release of Earnest Money shall be

made within five days of Earnest Money Holder’s receipt of the written mutual instructions signed by both Buyer and Seller, provided the Earnest Money check has cleared.

11. EARNEST MONEY DISPUTE. In the event of any controversy regarding the Earnest Money (notwithstanding any termination of the Contract), Earnest Money Holder shall not be required to take any action. Earnest Money Holder, at its option and sole subjective discretion, has several options (1) await any proceeding, (2) interplead all parties and deposit Earnest Money into a court of competent jurisdiction and shall recover court costs and reasonable attorney and legal fees, or (3) provide notice to Buyer and Seller that unless Earnest Money Holder receives a copy of the Summons and Complaint or Claim (between Buyer and Seller) containing the case number of the lawsuit (Lawsuit) within one hundred twenty days of Earnest Money Holder’s notice to the parties, Earnest Money Holder shall be authorized to return the Earnest Money to Buyer. In the event Earnest Money Holder does receive a copy of the Lawsuit, and has not interpled the monies at the time of any Order, Earnest Money Holder shall disburse the Earnest Money pursuant to the Order of the Court

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Closing Instructions (continued)

12. SUBSEQUENT AMENDMENTS. Any amendments to, or termination of, these Closing Instructions must be in writing and signed by Buyer, Seller, and Closing Company. 

13. CHANGE IN OWNERSHIP OF WATER WELL. Within sixty days after Closing, Closing Company shall submit any required Change in Ownership form or registration of existing well form to the Division of Water Resources in the Department of Natural Resources (Division), with as much information as is available, and the Division shall be responsible for obtaining the necessary well registration information directly from Buyer. Closing Company shall not be liable for delaying Closing to ensure Buyer completes any required form.

14. WITHHOLDING. The Internal Revenue Service and the Colorado Department of Revenue may require Closing Company to withhold a substantial portion of the proceeds of this sale when Seller either (a) is a foreign person or (b) will not be a Colorado resident after Closing. Seller should inquire of Seller’s tax advisor to determine if withholding applies, or if an exemption exists. 

15. ADDITIONAL PROVISIONS. (The following additional provisions have not been approved by the Colorado Real Estate Commission.) 

16. COUNTERPARTS. This document may be executed by each party, separately, and when each party has executed a copy, such copies taken together shall be deemed to be a full and complete contract between the parties. 

17. BROKER’S COPIES. Closing Company shall provide, to each broker in this transaction, copies of all signed documents that such brokers are required to maintain pursuant to the rules of the Colorado Real Estate Commission.

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Closing Instructions (continued)

18. NOTICE, DELIVERY AND CHOICE OF LAW.

18.1. Physical Delivery. Except as provided in § 18.2, all notices must be in writing. Any notice or document to Buyer is effective when physically received by Buyer, any individual buyer, any representative of Buyer, or Brokerage Firm of Broker working with Buyer. 

Any notice or document to Seller shall be effective when physically received by Seller, any individual seller, any representative of Seller, or Brokerage Firm of Broker working with Seller. 

Any notice or document to Closing Company shall be effective when physically received by Closing Company, any individual of Closing Company, or any representative of Closing Company.

18.2. Electronic Delivery. As an alternative to physical delivery, any signed documents and written notice may be delivered in electronic form by the following indicated methods only: ¨ 
Facsimile ¨ 
Email ¨ “
Internet” 
No Electronic Delivery. Documents with original signatures shall be provided upon request of any party.

18.3. Choice of Law. This contract and all disputes arising hereunder shall be governed by and construed in accordance with the laws of the State of Colorado that would be applicable to Colorado residents who sign a contract in this state for property located in Colorado. 

(TO BE COMPLETED ONLY BY BROKER AND CLOSING COMPANY)

__________________________________________(Broker) 

 

_____Working with Seller

_____Working with Buyer

engages Closing Company as Broker’s scrivener to complete, for a fee not to exceed $_________ at the sole expense of Broker, the following legal documents: 

 

___Deed

___Bill of Sale

___ 
Colorado Real Estate Commission approved Promissory Note

___Colorado Real Estate Commission approved Deed of Trust

 

Closing Company agrees to prepare, on behalf of Broker, the indicated legal documents pursuant to the terms and conditions of the Contract. 

The documents stated above shall be subject to Broker’s review and approval and 
Broker acknowledges that Broker is responsible for the accuracy of the above documents. 
(Emphasis added) 

Date: 

Brokerage Firm’s Name: 

Broker’s Name:

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Earnest Money Release

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Earnest Money Release
.  
Finally, in Chapter 8 we will look at two optional use forms with which you must be familiar, the Earnest Money Release and the Real Property Transfer Declaration. 

1. Parties, Property, Contract, Earnest Money Deposit:

1. Seller

2. Buyer

3. Property

4. Date of Contract

5. Earnest Money $

2. Buyer and Seller agree that the Contract is terminated. Buyer and Seller agree that the Earnest Money will be distributed as follows:

1. $ payable to: ____________

2. $ payable to:  ___________

3. Other:

If the Contract required the Earnest Money to be placed in an interest bearing account, the interest shall be disbursed as follows: ____________________ 

This Earnest Money Release may affect legal rights or claims of the parties. Buyer and Seller are advised of their right to obtain legal counsel.

This form is optional because there is no requirement to obtain signatures to return earnest money as a matter of contract termination. However, there may be circumstances when money is returned upon settlement of a dispute or any other time the broker might wish to document the parties’ concurrence in the return. See Commission Position Statement #6.

 

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Real Property Transfer Declaration (TD-1000)

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Real Property Transfer Declaration

While this form is called optional and is not prepared by the broker, it is used at virtually every real estate closing for the benefit of the county assessor – and for every appraiser seeking truly comparable properties. The buyer (or seller if buyer is not present at closing) will be asked to complete the form at the closing table and the broker should be prepared to offer advice as to how it is done. 

General Information

Purpose: The Real Property Transfer Declaration provides essential information to the county assessor to help ensure fair and uniform assessments for all property for property tax purposes. Refer to 39-14-102(4), Colorado Revised Statutes (C.R.S.).

Requirements: All conveyance documents (deeds) subject to the documentary fee submitted to the county clerk and recorder for recordation must be accompanied by a Real Property Transfer Declaration. This declaration must be completed and signed by the grantor (seller) or grantee (buyer). Refer to 39-14-102(1)(a), C.R.S.

Penalty for Noncompliance: Whenever a Real Property Transfer Declaration does not accompany the deed, the clerk and recorder notifies the county assessor who will send a notice to the buyer requesting that the declaration be returned within thirty days after the notice is mailed.

If the completed Real Property Transfer Declaration is not returned to the county assessor within the 30 days of notice, the assessor may impose a penalty of $25.00 or .025% (.00025) of the sale price, whichever is greater. This penalty may be imposed for any subsequent year that the buyer fails to submit the declaration until the property is sold. Refer to 39-14-102(1)(b), C.R.S. 

Confidentiality: The assessor is required to make the Real Property Transfer Declaration available for inspection to the buyer. However, it is only available to the seller if the seller filed the declaration. Information derived from the Real Property Transfer Declaration is available to any taxpayer or any agent of such taxpayer subject to confidentiality requirements as provided by law. Refer to 39-5-121.5, C.R.S and 39-13-102(5)(c), C.R.S.

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Real Property Transfer Declaration (TD-1000) (continued)

1. Address and/or legal description of the real property sold: Please do not use P.O. Box numbers.

2. Type of property purchased:

· Single Family Residential

· Townhome

· Condominium

· Multi-Unit Res

· Commercial

· Industrial

· Agricultural

· Mixed Use

· Vacant Land

· Other __________________

3. Date of closing:      Month Day Year 
Date of contract if different than date of closing: Month Day Year

4. Total sale price: Including all real and personal property. $_____________

5. Was any personal property included in the transaction? Personal property would include, but is not limited to, carpeting, draperies, free standing appliances, equipment, inventory, furniture. If the personal property is not listed, the entire purchase price will be assumed to be for the real property as per 39-13-102, C.R.S. ___ Yes ___ No 
If yes, approximate value $___________  Describe____________ 

6. Did the total sale price include a trade or exchange of additional real or personal property? If yes, give the approximate value of the goods or services as of the date of closing.___ Yes ___ No      
If yes, value $_______________ If yes, does this transaction involve a trade under IRS Code Section 1031? Yes  No 

 

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Real Property Transfer Declaration (TD-1000) (continued)

7. Was 100% interest in the real property purchased? Mark “no” if only a partial interest is being purchased.
___ Yes ___ No If no, interest purchased __________%

8. Is this a transaction among related parties? Indicate whether the buyer or seller is related. Related parties include persons within the same family, business affiliates, or affiliated corporations.
___ Yes ___ No

9. Check any of the following that apply to the condition of the improvements at the time of purchase.
___ New ___ Excellent ___ Good ___ Average ___ Fair ___ Poor ___ Salvage.
If the property is financed, please complete the following.

10. Total amount financed. $______________

11. Type of financing: (Check all that apply)

· New

· Assumed

· Seller

· Third Party

· Combination; Explain

12. Terms:
___ Variable; Starting interest rate _____%
___ Fixed; Interest rate _____%
___ Length of time _________years
___ Balloon payment Yes No. If yes, amount $_________ Due date__________ 

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Real Property Transfer Declaration (TD-1000) (continued)

For properties other than residential (Residential is defined as: single family detached, townhomes, apartments and condominiums) please complete questions 14-16 if applicable. Otherwise, skip to #17 to complete.  

14. Did the purchase price include a franchise or license fee?
___ Yes ___ No
If yes, franchise or license fee value  $___________

15. Did the purchase price involve an installment land contract?
___ Yes ___ No
If yes, date of contract: _____________

16. If this was a vacant land sale, was an on-site inspection of the property conducted by the buyer prior to the closing?
___ Yes ___ No
Remarks: Please include any additional information concerning the sale you may feel is important.

17. Signed this day of _______, 20___.
Enter the day, month, and year, have at least one of the parties to the transaction sign the document, and include an address and a daytime phone number. Please designate buyer or seller. 
Signature of Grantee (Buyer) ___ or Grantor (Seller) ___ 

18. All future correspondence (tax bills, property valuations, etc.) regarding this property should be mailed to: (normally the property or, if applicable, the investor’s address)

It is essential that appraisers have realistic amounts available upon which to base future appraisals of this property and from which to draw comparables for future appraisals on other properties. This cannot happen if a fully furnished property is compared to one sold without any personal property included. Similarly, a property sold by a parent to an adult child may be seen as a more favorable price than that same transaction conducted “at arm’s length.” It is ultimately to the brokerage community benefit to reflect accurate data on this form.

 

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Earnest Money Receipt

The revision to this form now clarifies that the Earnest Money shall be held in a “trust” account. With the advent of third party closing companies, it is necessary to assure that the provider be able to confirm that the money will be placed in a “trust” account. 

THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.

EARNEST MONEY RECEIPT

Date:

Earnest Money Holder, on the date set forth above, acknowledges receipt of the Earnest Money in the amount of $______________________, in the form of __________________ , to be held by Earnest Money Holder in its trust account, on behalf of both Seller and Buyer pursuant to the Contract to Buy and Sell Real Estate described below: Until Closing Instructions have been signed by Buyer, Seller and Earnest Money Holder, § 24 (Earnest Money Dispute) and § 25 (Termination) of the Contract will apply to the holding of the Earnest Money by Earnest Money Holder.

Seller:

Buyer:

Date of Contract:

Date of Closing Instructions:

 

This is for the sale and purchase of the Property described in the Contract and is

known as No. _________________________________________________________________.

                    Street Address      City            State                Zip

 

Earnest Money Holder:__________________________________________________________

By:_________________________________________________________________________

      Signature                        Title                                                    Date

 

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Additional Colorado Real Estate Commission Forms

POST-CLOSING OCCUPANCY AGREEMENT (Seller Rent-Back Agreement) PCO70-6-16)

This document creates Commission approved terms and condition for a “Seller rent back” when the Seller is not conveying possession on day of closing. Since this common practice has led to a number of legal concerns this form was created to give Brokers the appropriate form to follow in these circumstances. Whenever the Seller is allowed to remain in the property following closing this form must be used to cover the “Seller rent back” in addition to the other required contract documents.

Note:  This form is to be used only for short-term residential occupancy for a term not to exceed 30 days.  A residential lease shall be used for a term longer than 30 days.

Covered in this form are the following topics:

1. Names of all parties.

2. Legal Description.

3. Property Address.

4. Length of short-term rent back.

5. Seller requirement to maintain property condition.

6. Buyer requirement to cover major mechanical and structural items of the property.

7. Buyer’s ability to access the property for inspection of condition.

8. Rental Rate.

9. Who is responsible for water and sewer, electric and gas service.

10. Insurance coverage on behalf of both the Seller and the Buyer.

11. Amount of security deposit, if any. 

 

Additional Colorado Real Estate Commission Forms (continued)

SHORT SALE ADDENDUM (Contract to Buy and Sell Real Estate) (SSA38-10-11)

SHORT SALE ADDENDUM (Seller Listing Contract) (SSA39-10-11)

There are two (2) forms. The information is similar, but the 
SHORT SALE ADDENDUM (Contract to Buy and Sell) contains a much more in depth discussion of the entire process with sections addressed to both Buyer and Seller. Now we have a Commission approved forms that must be attached to the Seller Listing Contract at the time of listing, when the Broker and the Seller first discuss the possibility of pursuing a Short Sale Transaction.  The second document is a form that the Broker working for/on behalf of the Buyer must explain and attach at the time an “Offer to Purchase” is being written at the direction of the Buyer on a potential Short Sale Transaction. There will not be both Buyer and Seller signatures on the form attached to the Listing Contract, but the goal should be to get signatures of both Buyer and Seller on the Short Sale Addendum attached to the Contract to Buy and Sell.  It is essential that all parties to the transaction have full knowledge of the potential legal ramifications of completing a Short Sale Transaction.

 

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Additional Colorado Real Estate Commission Forms (continued)

SHORT SALE ADDENDUM (Contract to Buy and Sell Real Estate) (SSA38-10-11)

1, ADDENDUM TO CONTRACT. This Short Sale Addendum (Addendum) is made a part of the Contract to Buy and Sell Real Estate between Seller and Buyer (Contract) dated _______________________ relating to the sale of the Property known as (Property).

_________________________________________________________________________________

Street Address                City                                       State                             Zip

This Addendum shall control in the event of any conflict with the Contract. Except as modified, all other terms and provisions of the Contract shall remain the same.

2. PURPOSE AND DEFINITIONS.

2.1. Purpose of Addendum. Seller has debts secured by one or more liens on the Property. The Purchase Price may not be enough to cover payment for all the liens and costs of sale. If so, for the Closing to occur, the affected Lien Holders (§ 2.2 below) must agree to a Short Sale (§ 2.3 below).

2.2. Lien; Lien Holder. A Lien is a recorded claim or lien against the Property, including, but not limited to, a mortgage, deed of trust, mechanic’s lien, judgment or tax lien (Lien). A title insurance commitment may be used to show the Liens against the Property. A Lien Holder is a creditor who has a Lien and agrees to release its Lien in a Short Sale (§ 2.3 below).

2.3. Short Sale. A Short Sale (Short Sale) is a transaction in which any Lien Holder releases its Lien against the Property and (1) accepts an amount less than the full amount Lien Holder claims is owed or (2) treats the debt secured by the Lien differently than as originally provided for in the evidence of debt (such as promissory note). Before a Short Sale can occur, Buyer, Seller, and each Lien Holder (except those creditors that are to be paid the full amount claimed) must consent to the terms of the sale. Sometimes, a Lien is released but the Lien Holder does not agree to release Seller from liability or reduce the unpaid portion of the debt, and the Seller and any guarantors will remain liable after Closing for that unpaid portion, despite the release of the Lien against the Property at Closing.

2.4. Short Sale Acceptance. Short Sale Acceptance (Short Sale Acceptance or SSA) is when Seller receives one or more written statements, signed or approved by each Lien Holder, that specify the terms and conditions of the Short Sale.

 

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Additional Colorado Real Estate Commission Forms (continued)

3. MANDATORY DISCLOSURES TO SELLER AND BUYER.

3.1. Lien Holder is not required to agree to a Short Sale. Even if a Lien Holder agrees to a Short Sale, a Lien Holder is not required to forgive repayment of the debt secured by the Lien or release Seller and any guarantors from liability unless Lien Holder’s claim is paid in full. Seller acknowledges that Lien Holder may or may not agree to release Seller or any guarantors from liability to Lien Holder. If not released, Seller and any guarantors will remain liable to Lien Holder for any amount that remains unpaid after the Short Sale. To be binding, any release of liability by Lien Holder must be in writing, must be executed by Lien

Holder, and must provide that Seller and all guarantors are released from liability.

3.2. Lien Holder may condition its agreement on Seller doing any or all of the following to obtain a Short Sale Acceptance: (1) make a cash payment, (2) sign a new promissory note, (3) continue to owe the Lien Holder the unpaid portion of the debt and (4) agree to other requirements made by Lien Holder.

3.3. If the Lien Holder accepts less than full payment, Seller understands that Seller may incur federal and state tax liability due to a Short Sale and understands that Lien Holder is required to file all required 1099 Forms with the Internal Revenue Service with respect to this transaction. Seller is strongly advised to seek tax advice regarding the potential adverse tax consequences to Seller of a Short Sale.

3.4. Seller acknowledges that a Short Sale Acceptance by the Lien Holder will not necessarily repair or rehabilitate Seller’s credit rating and Lien Holder has no obligation other than to fairly report this transaction to any credit rating agency.

3.5. Release of the Lien against the Property does not by itself release Seller or any guarantors from liability for the debt.

3.6. Buyer acknowledges that the Short Sale Conditions (§ 4 below) may lead to termination of the Contract. The Short Sale process may result in delays in the Closing. Buyer is advised to consult with legal counsel about this Addendum and its legal effect.

3.7. Buyer and Seller acknowledge and agree that any Short Sale Acceptance by Lien Holder is made on the condition that none of the terms of the sale shall differ in any material respect from the terms submitted to the Lien Holder on which the Short Sale Acceptance was based. For purposes of the Contract, any change in the date of Closing, Purchase Price, real estate brokerage commissions, concessions or net proceeds to be paid to, or other remuneration to be received by Seller in connection with the proposed Short Sale shall be deemed a material change. Any material change will require that the Short Sale proposal be re-submitted to the Lien Holder for approval, which could result in delays for approval or even denial of the Short Sale.

3.8. This Addendum should be signed by both Buyer and Seller at time of contracting, as most Lien Holders will not consider a Short Sale until a signed contract is received for their review.

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Additional Colorado Real Estate Commission Forms (continued)

4. SHORT SALE CONDITIONS. Notwithstanding anything to the contrary in this Addendum, the Contract between Seller and Buyer, for the benefit of both Seller and Buyer, is conditional upon all of the following occurring:

4.1. Seller has received from each Lien Holder a Short Sale Acceptance that is acceptable to Seller.

4.2. Agreement to Amend/Extend Contract signed by Buyer and Seller, so long as both parties agree, in their sole subjective discretion, to the changes to the Contract required by the Short Sale Acceptance.

5. SELLER DEADLINE FOR SUBMISSION TO LIEN HOLDER. Seller agrees to submit to each Lien Holder a request for a Short Sale and all documents and information requested by Lien Holder, including a copy of the Contract, any Counterproposal, this Addendum and amendments. The initial submission by Seller to each Lien Holder shall be on or before Initial Submission Deadline (§ 5.1 below). Any additional information or documentation requested of Seller by such Lien Holder shall be submitted within five days such request or Buyer may terminate the Contract pursuant to § 8.2 below.

5.1. Seller Submission Deadline. The Seller Submission Deadline shall be as set forth below.

Event  _______________________   Deadline   ____________________    From  ______________

I initial Submission days from MEC (§ 3 of Contract)

______________________________________________________________

5.2. Seller Consents to Lien Holder’s Release of Information. Seller consents that Lien Holder and its representatives may supply and communicate any loan, financial information, or other information of Seller, confidential or otherwise, with any of the following involved in the transaction and their representatives: Seller’s attorney, Broker or Brokerage Firm working with Seller, transaction coordinator, title insurance company, Closing Company, and the following as checked: 
____ Other Lien Creditors _____Broker or Brokerage Firm working with Buyer _____Buyer Buyer’s attorney and their representatives.

End of Page

Additional Colorado Real Estate Commission Forms (continued)

6. DATES AND DEADLINES.

6.1. Revised Dates and Deadlines and Other Terms. Buyer and Seller acknowledge that an Agreement to Amend/Extend Contract (Amend/Extend) is required to revise the Dates and Deadlines (§ 3 Contract) or other terms based on changes required by the Short Sale Acceptance. If both Buyer and Seller, in their sole subjective discretion, agree to the terms of the Amend/Extend, as evidenced by their signatures on the Amend/Extend then the Contract shall be so amended.

7. UNCERTAINTY OF SHORT SALE. Buyer and Seller acknowledge:

7.1. There are no promises or representations regarding: (1) whether Lien Holder will agree to a Short Sale, (2) the terms of any Short Sale Acceptance, or (3) when the Lien Holder will advise of its decision to agree to a Short Sale or provide the written terms and conditions of the Short Sale Acceptance.

7.2. Until Closing of the Short Sale, Short Sale Acceptance by the Lien Holder will not prevent, hinder or delay the Lien Holder from initiating or proceeding with any enforcement action, including but not limited to a foreclosure. In the event Seller loses ownership of the Property through foreclosure, the Contract shall terminate.

7.3. A significant period of time may be required to determine if a Short Sale Acceptance will be granted. Therefore, Buyer should inform Buyer’s lender of this fact for structuring Buyer’s loan, duration of “loan lock”, etc. Additionally, Closing is normally required to be held shortly following the Short Sale Acceptance.

7.4. After a Short Sale Acceptance is given, Lien Holder will normally not agree to any additional changes to the terms of the Contract that differ from the Short Sale Acceptance, to have repairs performed or to reduce the amount it is willing to accept due to the condition of the Property or results of an inspection. Buyer may want to conduct an inspection of the Property before Seller submits its request for a Short Sale to Lien Holder. The Purchase Price should reflect the condition of the Property and results of such inspection. Buyer recognizes the risk that Lien Holder may not agree to the offer submitted by Buyer.

Additional Colorado Real Estate Commission Forms (continued)

8. DEADLINE FOR ACCEPTANCE OF SHORT SALE; TERMINATION. Buyer and Seller must receive written notice of the Short Sale Acceptance on or before Short Sale Acceptance Deadline (§ 8.1 below) or the Contract shall terminate. Seller shall cause Buyer to receive a copy of the Short Sale Acceptance within one day of Seller’s receipt of a Short Sale Acceptance from any Lien Holder or Buyer may terminate the Contract pursuant to §§ 8.2 and 8.3.2 below.

8.1. Short Sale 104 
Acceptance Deadline.

___________________________________________________________________________________

Event                                                                                                 Deadline

___________________________________________________________________________________

Short Sale Acceptance Deadline

8.2. Termination. If any party has a right to terminate the Contract, such termination shall be governed by § 25 of the Contract upon written notice to the other party as described in § 27 of the Contract.

8.3. Additional Rights of Termination.

8.3.1. Seller may Terminate. Seller may terminate the Contract if the terms and conditions from Lien Holder to obtain a release of the Lien are not acceptable to Seller, in Seller’s sole subjective discretion, by Seller’s written notice received by Buyer on or before three days after the Short Sale Acceptance.

8.3.2. Buyer may Terminate. Buyer may terminate the Contract: (1) as provided in § 5 (Seller Deadline for Submission to Lien Holder) by Buyer’s written notice received by Seller on or before Short Sale Acceptance Deadline (§ 8.1) or  (2) if the terms and conditions of any Agreement to Amend/Extend Contract are not acceptable to Buyer, in Buyer’s sole subjective discretion, by Buyer’s written notice received by Seller on or before three days after Buyer’s receipt of Short Sale Acceptance.

8.4. Early Termination

____ 
8.4.1. Not Applicable. This § 8.4 shall not apply.

____
 8.4.2. Applicable. Both Buyer and Seller have the right to terminate the Contract by written notice to the other party so long as it is received on or before Short Sale Acceptance. Additionally, Seller has the right to accept subsequent offers from other buyers prior to Short Sale Acceptance without liability to Buyer.

Note: If no box in this § 8.4 is checked, the provisions of § 8.4.2 shall apply.

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Additional Colorado Real Estate Commission Forms (continued)

SHORT SALE ADDENDUM (Seller Listing Contract) (SSA39-10-11)

Since Sections 1 and 2 of this form are identical to the Short Sale Addendum (Contract to Buy and Sell), we will show only Section 3 through the end of this form

3. MANDATORY DISCLOSURES TO SELLER. 

3.1. SELLER IS ADVISED TO CONTACT THE COLORADO FORECLOSURE PREVENTION HOTLINE 
OPERATED IN COOPERATION WITH THE COLORADO DIVISION OF HOUSING AT 1-877-601-4673 OR THE 
HUD HOUSING COUNSELING AND REFERRAL LINE AT 1-800-569-4287.

3.2. Seller acknowledges that there are alternatives to a Short Sale that may be better for Seller. Seller acknowledges that a Short Sale transaction may result in continued liability of Seller or other persons liable for the debt that could be extinguished through foreclosure, bankruptcy or other loss mitigation options, including but not limited to a negotiated loan modification with Lien Holder. Seller acknowledges that it is the responsibility of Seller to investigate these alternative methods of resolution with Seller’s legal, accounting or financial advisors and with Lien Holder and it is not the responsibility of any real estate broker to undertake any investigation of other options that may be available to Seller.

3.3. Short Sales may have serious adverse legal, tax and economic consequences for Seller and any guarantors. Seller is advised to seek legal and tax counsel to advise Seller of the legal effect and meaning of any Short Sale Acceptance from Lien Holder.

3.4. Lien Holder is not required to agree to a Short Sale. Even if a Lien Holder agrees to a Short Sale, a Lien Holder is not required to forgive repayment of the debt secured by the Lien or release Seller and any guarantors from liability unless Lien Holder’s claim is paid in full. Seller acknowledges that Lien Holder may or may not agree to release Seller or any guarantors from liability to Lien Holder. If not released, Seller and any guarantors will remain liable to Lien Holder for any amount that remains unpaid after the Short Sale. To be binding, any release of liability by Lien Holder must be in writing, must be 54 executed by Lien Holder, and must provide that Seller and all guarantors are released from liability.

3.5. Lien Holder may condition its agreement on Seller doing any or all of the following to obtain a Short Sale Acceptance: (1) make a cash payment, (2) sign a new promissory note, (3) continue to owe the Lien Holder the unpaid portion of the debt and (4) agree to other requirements made by Lien Holder.

3.6. If the Lien Holder accepts less than full payment, Seller understands that Seller may incur federal and state tax liability due to a Short Sale and understands that Lien Holder is required to file all required 1099 Forms with the Internal Revenue Service with respect to this transaction. Seller is strongly advised to seek tax advice regarding the potential adverse tax consequences to Seller of a Short Sale.

3.7. Seller acknowledges that a Short Sale Acceptance by the Lien Holder will not necessarily repair or rehabilitate Seller’s credit rating and Lien Holder has no obligation other than to fairly report this transaction to any credit rating agency.

3.8. Release of the Lien against the Property does not by itself release Seller or any guarantors from liability for the debt.

3.9 Seller acknowledges there are no promises or representations regarding: (1) whether Lien Holder will agree to a Short Sale, (2) the terms of any Short Sale Acceptance, or (3) when the Lien Holder will advise of its decision to agree to a Short Sale or provide the written terms and conditions of the Short Sale Acceptance.

4. MORTGAGE ASSISTANCE RELIEF SERVICES (FTC – DISCLOSURES).

IMPORTANT NOTICE

4.1. You (Seller) may stop doing business with us (the Brokerage Firm and Broker) at any time. You (Seller) may accept or reject the offer of mortgage assistance we (Brokerage Firm or Broker) obtain from your (Seller’s) lender [or servicer]. If you (Seller) reject the offer, you (Seller) do not have to pay us (Brokerage Firm). If you (Seller) accept the offer, you (Seller) will have to pay us (Brokerage Firm) as set forth in Seller Listing Contract for our (Brokerage Firm’s and Broker’s) services.

4.2. Brokerage Firm is not associated with the government, and our (Brokerage Firm’s) services are not approved by the government or your (Seller’s) lender.

4.3. Even if you (Seller) accept this offer and use our (the Brokerage Firm’s and Broker’s) service, your (Seller’s) lender may not agree to change your (Seller’s) loan.

4.4. If you (Seller) stop paying your (Seller’s) mortgage, You (Seller) could lose your (Seller’s) home and damage your (Seller’s) credit rating.

Currently at the Colorado Real Estate Commission, there are a number of complaints that have been filed by consumers against Brokers due to their lack of knowledge regarding Short Sales, their failure to use the required forms, etc. It is imperative that the Broker fully understand this process. In light of the new CP-41 Competency, if a Broker DOES NOT understand this type of transaction they SHOULD NOT take the listing. 

 

End of Page

Additional Colorado Real Estate Commission Forms (continued)

This concludes Chapter 8. Below is a brief summary which you can review before taking your quiz.

Earnest Money Receipt

· For deposits in lieu of the broker holding the earnest money in his own trust account.

· With the advent of third party closing companies, it is necessary to assure that the provider be able to confirm that the money will be placed in a “trust” account. 

Licensee Buyout Addendum is used:

· Concurrently with a listing.

· As an inducement or to facilitate the owner’s purchase of another property,

· Under an existing listing and continues to market the property.

The buyer’s free out if the property doesn’t appraise is deleted.

The offer is specific performance against the buyer/broker with liquidated damages being deleted and there are no specific performance damages against the Seller, who may cancel at any time.

This form is 
binding only upon the buyer who personally sign above, unless the supervising broker of the brokerage firm with seller signs here.

Exchange Addendum is essential when parties conduct a tax-deferred exchange of like-kind properties.

The Source
 of Water Addendum enables the buyer to investigate the long-term prospects of water availability for the property. Needed in residential transactions.

When the 
Counterproposal form is used, the Contract is 
not to be signed by the party initiating this Counterproposal. Brokers must complete and sign the Broker’s Acknowledgments and Compensation Disclosure portion of the Contract.

Agreement to Amend/Extend must be signed before any date in the Dates and Deadlines grid of the Contract to Buy and Sell Real Estate expires.

The 
Inspection Notice Form was revised to provide that the Inspection Resolution must occur prior to the Resolution Deadline requiring a written agreement to resolve the Notice to Correct.

Closing Instructions Form

Closing Company is authorized to obtain any information necessary for the 
Closing.

Closing Company is not authorized to release any signed documents or things of value prior to receipt and disbursement of Good Funds.

If Closing does not occur, Closing Company is authorized and agrees to return all things of value to the depositing party.

Earnest Money Holder shall release the 
Earnest Money as directed by the written mutual instructions.

The IRS may request
 withholding of a substantial portion of the proceeds.

The 
Earnest Money Release may affect legal rights or claims of the parties.

Real Property Transfer Declaration provides essential information to the county assessor to help ensure fair and uniform assessments for all property for property tax purposes. 

· If the completed Real Property Transfer Declaration is not returned to the county assessor within the 30 days of notice, the assessor may impose a penalty.

· Information is available to any taxpayer subject to 
confidentiality requirements as provided by law.

Post-Closing Occupancy Agreement is to be used only for short-term residential occupancy for a term not to exceed 30 days.

Short Sale Addendum (Contract to Buy and Sell Real Estate)

If Seller has debts secured by liens on the Property.

A title insurance commitment may be used to show the Liens against the Property.

Short Sale is a transaction in which any Lien Holder releases its Lien against the Property and:

· Accepts an amount less than the full amount Lien Holder claims is owed;

· Treats the debt secured by the Lien differently than as originally provided for in the evidence of debt.

Lien Holder is not required to agree to a Short Sale.

Seller acknowledges that a 
Short Sale Acceptance by the Lien Holder will not necessarily repair or rehabilitate Seller’s credit rating.

Release of the Lien against the Property does not by itself release Seller or any guarantors from liability for the debt.

Seller agrees to submit to each Lien Holder a request for a Short Sale and all documents and information requested by Lien Holder.

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 

Chapter 8 Summary

 

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Writing a Purchase Offer

Here is where the rubber meets the road. You are now going to learn how to write a purchase offer on a parcel of real estate. Remember that in spite of its title, it is only an offer until it is both accepted by the Seller and acceptance is communicated to the Buyer. Caution #2 is that you are not a party to this contract. It is to be written according to your buyer’s desires – and accepted or countered according to your seller’s desires. 

The printed portions of this form, except differentiated additions, have been approved by the Colorado Real Estate Commission. (CBS 1-6-15) (Mandatory 1-16) 

Notice that this is Form #1. It will most likely be #1 in your heart as well.

By the end of this unit, you will be able to: 

· Describe the information required to complete a Contract to Buy and Sell Real Estate

· Explain the difference between fixtures, personal property and trade fixtures

· Review the Appraisal Condition of the Contract to Buy and Sell Real Estate 

Let’s get started!

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Introduction to the New Forms

The majority of time in this chapter will be spent on CBS1-6-15 Contract to Buy and Sell Real Estate (Residential). The other four forms contain identical information and three of the forms have extensive Due Diligence sections which will be discussed independently.

The new contract forms have been formatted in an attempt to make each version’s layout consistent with the other forms. While much of the actual language found in the new forms is the same as in previous contracts, the reorganization gives the forms a new look with the goal of making them easier to use and understand.  

The forms have various “captions” or titles. The respective items collected in the respective area will be more easily found and will have a more natural progression. 

1.
 Agreement

2.
 Transaction Provisions

3.
 Disclosure, Inspection, Due Diligence

4.
 Closing Provisions

5.
 General Provisions

6.
 Additional Provisions & Attachments

7.
 Signatures

The five forms are:

CBS1-6-15 Contract to Buy and Sell Real Estate (Residential)

The licensee will use this form when writing an offer to purchase on a single family home or a multi-family property (condominium, townhome, etc.) where the buyer intends the purchase to be a principal residence.  This is primarily designed for an owner occupant principal residence purchase.

CBSF1-6-15 Contract to Buy and Sell Real Estate (Colorado Foreclosure Protection Act)

The licensee will use this form when writing an offer to purchase where the following exists:

11. COLORADO FORECLOSURE PROTECTION ACT. The Colorado Foreclosure Protection Act (Act) generally applies if: (1) the Property is residential, (2) Seller resides in the Property as Seller’s principal residence, (3) Buyer’s purpose in purchase of the Property is not to use the Property as Buyer’s personal residence, and (4) the Property is in foreclosure or Buyer has notice that any loan secured by the Property is at least thirty days delinquent or in default. If the transaction is a Short Sale transaction and a Short Sale Addendum is part of this Contract, the Act does not apply. Each party is further advised to consult an attorney.

If the buyer intends to occupy as a principal residence the licensee will use all normal forms (CBS1-6-15)

CBS2-6-15 Contract to Buy and Sell Real Estate (Income-Residential):

The licensee will use this form when writing an offer to purchase for an investor who is buying a property to use as an investment or rental.  The property may be a residential single family up to a 200 unit apartment. The licensee will make the appropriate box on page 1 dependent upon the size of property being covered in the form. The key to this is that the buyer will be a “non-owner occupant”.  The additional reason for the use of this form is the extensive due diligence in Sections 10 and 11,  pages 8, 9, 10 and 11 of CBS2 (Investor-Residential), CBS3 (Commercial) and CBS4 (Land).

CBS3-6-15 Contract to Buy and Sell Real Estate (Commercial):

This is the form the licensee will use when writing an offer to purchase on a commercial property.  The due diligence is Sections 10 and 11, pages 8, 9, and 10.

CBS4-6-15 Contract to Buy and Sell Real Estate (Land):

The licensee will use this form when writing an offer to purchase on a property where the major portion of the value of the property lies in the land.  (
Example: A 360 acre farm/ranch with two homes included would use the Land form with the residential addendum attached to cover the houses). The licensee will mark the appropriate box on the top of Page 1–_____Property With No Residences or ________Property With Residences-Residential Addendum (
RA33-10-12) Attached.

End of Page

§1 Agreement

THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.
 

CONTRACT TO BUY AND SELL REAL ESTATE
(RESIDENTIAL)

Date: __________________


AGREEMENT

1. AGREEMENT. Buyer agrees to buy, and Seller, agrees to sell, the Property described below on the terms and conditions set forth in this contract (Contract).

The parenthetical (Contract) means that from now forward, the word Contract with a capital “C” refers to this document and not some other contract.

End of Page

Agreement: §2 Parties and Properties

2.1. Buyer. Buyer, _________________________________________ will take title to the real property described below as 

 ___ 
Joint Tenants ___
Tenants In Common ___
Other _________________________________________________________.

2.2. 
No Assignability.  This Contract 
is Not assignable by Buyer unless otherwise specified in Additional Provisions.

The Seller may always assign (since the property presumably remains unchanged), but the buyer must have permission to do so (since each buyer’s financial qualifications are different). If either party dies during the executory phase, the contract is still in effect and binding on that party’s heirs.

End of Page

Agreement: §2 Parties and Properties (continued)

2.5. 
Inclusions.  The Purchase Price includes the following items (Inclusions):

·
2.5.1. Inclusions – Attached.  If attached to the Property on the date of this Contract, the following items are included unless excluded under Exclusions: lighting, heating, plumbing, ventilating and air conditioning units, TV antennas, inside telephone, network and coaxial (cable) wiring and connecting blocks/jacks, plants, mirrors, floor coverings, intercom systems, built-in kitchen appliances, sprinkler systems and controls, built-in vacuum  systems (including accessories), and garage door openers including _______ remote controls. ). If checked, the following are owned by the Seller and included (leased items should be listed under 
Due Diligence Documents): _____
None _____
Solar Panels _____
Water Softeners _____
Security _____
Systems _____
Satellite Systems (including satellite dishes). If any additional items are attached to the Property after the date of this Contract, such additional items are also included in the Purchase Price.

·
2.5.2. Inclusions – Not Attached. If on the Property, whether attached or not, on the date of this Contract, the following items are included unless excluded under Exclusions: storm windows, storm doors, window and porch shades, awnings, blinds, screens, window coverings and treatments, curtain rods, drapery rods, fireplace inserts, fireplace screens, fireplace grates, heating stoves, storage sheds, carbon monoxide alarms, smoke/fire detectors and all keys.

·
2.5.3. Personal Property – Conveyance. Any personal property must be conveyed at Closing by Seller free and clear of all taxes (except personal property taxes for the year of Closing), liens and encumbrances, except _____.
Conveyance of all personal property will be by bill of sale or other applicable legal instrument.

·
2.5.4. Other Inclusions. The following items, whether fixtures or personal property, are also included in the Purchase Price: _____ If the box is checked, Buyer and Seller have concurrently entered into a separate agreement for additional personal property outside of this contract.

·
2.5.5. Parking and Storage Facilities.  the use or ownership of the following parking facilities: _____________________________; and the use or ownership of the following storage facilities:________________________. Note to Buyer: If exact rights to the parking and storage facilities is a concern to Buyer, Buyer should investigate.

For condominiums, parking and storage may be deeded or may just be assigned for use by that unit and considered common area. The only way to know other than to review the Seller’s original deed is to ask the Homeowners’ Association.

2.6. Exclusions. The following items are excluded (Exclusions):_____

2.7. Water Rights, Well Rights.  

·
2.7.1 Deeded Water Rights: The following legally described water rights: _____________________________
Any deeded water rights shall be conveyed by a good and sufficient _________ Deed ____  at closing

·
2.7.2. Other Rights Relating to Water. The following rights relating to water not included in §§ 2.7.1, 2.7.3, and 2.7.4 will be transferred to Buyer at Closing: _____________________________.

·
2.7.3.  Well Rights:  Seller agrees to supply required information to Buyer about the well. Buyer understands that if the well to be transferred is a “Small Capacity Well” or a “Domestic Exempt Water Well” used for ordinary household purposes, Buyer must, prior to or at Closing, complete a Change in Ownership form for the well. If an existing well has not been registered with the Colorado Division of Water Resources in the Department of Natural Resources (Division), Buyer must complete a registration of existing well form for the well and pay the cost of registration. If no person will be providing a closing service in connection with the transaction, Buyer must file the form with the Division within sixty days after Closing. The Well Permit # is _________________.

If you practice real estate brokerage in Colorado, you must know water rights in other than urban areas. Even then, some older urban properties may also have a well. Water rights are normally real property and are usually transferred by the appropriate type of deed. Some ditch rights may be personal property rights.

·
2.7.4. Water Stock Certificates: The water stock certificates to be transferred at Closing are as follows:_____

·
2.7.5. Conveyance. If Buyer is to receive any rights to water pursuant to § 2.7.2 (Other Rights Relating to Water), § 2.7.3 (Well Rights), or § 2.7.4 (Water Stock Certificates), Seller agrees to convey such rights to Buyer by executing the applicable legal instrument at Closing.

When you are preparing this offer for your buyer, you will not be privy to the Seller’s inclusions/exclusions in the listing contract. While the listing broker may have advertised certain major items, you should write this as if the buyer knows nothing and specifically asks for those items desired to be included. Never presume that an item will either be included or excluded. If not written here, there is no agreement and default goes to the seller. You will have the opportunity to learn this lesson when you buy an item your buyer thought was included and you failed to specify it. Although rare, the buyer may also wish to exclude some particularly undesirable property items (e.g. the rusty autos and parts in the yard).

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Agreement: §3 Dates and Deadlines

The following 39 dates and deadlines will govern the life of this contract. Your main job, once under contract, is to keep it on track – that is to assist your client to live up to his or her side. Remember the phrase “time is of the essence” – meaning any missed deadline has serious consequences – one of the most important is that it may give the other side a free ticket to cancel the contract.

The reference number given before each topic (on the actual form) refers to the governing section in the Contract. Once you’ve been through this contract review, it will be helpful to come back to this grid and read and relate each line with its reference paragraph.

You will develop your own method of filling in the deadlines, subject to the specifics of each offer you write for a buyer (or review with your seller). It is best to follow your employing broker’s lead here, as date preferences may be market- (or even office-) specific. Some thoughts on allowed times are given in the narrative for each reference paragraph.

The Commission in the new forms groups related items together by subject matter.  It is believed that this will allow the licensee to better help a consumer find specific information in this “somewhat lengthy” document.

3. Dates, Deadlines, and Applicability 

1 Alternative Earnest Money Deadline

Title


Record Title Deadline


Record Title Objection Deadline

4 Off-Record Title Deadline

5 Off-Record Title Objection Deadline

6. Title Resolution deadline 

7 Right of First Refusal Deadline

Owners’ Association


Association Documents Deadline


Association Documents Termination Deadline

Seller’s Disclosures

10 Seller’s Property Disclosure Deadline

11 Lead-Based Paint Disclosure Deadline

Loan and Credit

12 New Loan Application Deadline

13 New Loan Termination Deadline

14 Buyer’s Credit Information Deadline

15 Disapproval of Buyer’s Credit Information Deadline

16 Existing Loan Deadline

17 Existing Loan Termination Deadline

18 Loan Transfer Approval Deadline

19 Seller or Private Financing Deadline

Appraisal

20 Appraisal Deadline

21 Appraisal Objection Deadline

22 Appraisal Resolution Deadline

Survey

23 New ILC or New
 Survey Deadline

24 New ILC or New Survey Objection Deadline

25 New ILC or New Survey Resolution Deadline

Inspection and Due Diligence

26 Inspection Objection Deadline

27 Inspection Termination Deadline 

28 Inspection Resolution Deadline

29 Property Insurance Termination Deadline

30 Due Diligence Documents Delivery Deadline

31 Due Diligence Documents Objection Deadline

32 Due Diligence Documents Resolution Deadline

33 Conditional Sale Deadline

34 Lead-Based Paint Termination Deadline

Closing and Possession

35 Closing Date

36 Possession Date

37 Possession Time

38 Acceptance Deadline Date

39 Acceptance Deadline Time

Leave no lines blank in the dates/deadlines grid. Either a date or “N/A” or “Deleted.” IF you delete here, even though it is sufficient, it makes for easier reading if you also line through (non-obliterating) the reference paragraph, or completely omit if your software and Rule F-5 permit.

3.2 
Applicability of Terms. Any box checked in this Contract means the corresponding provision applies. If any deadline, blank in § 3.
1 (Dates and Deadlines) is left blank or completed with  the abbreviation “N/A” or the word “Deleted” such deadline, is not applicable and  the corresponding provision containing the deadline is deleted.  If no box is checked in a provision that contains a selection of “None”, such provision means that “None” applies.

The abbreviation “MEC” (mutual execution of this Contract) means the date upon which both parties have signed this Contract.

(Note: If
 FHA or
 VA loan boxes are checked in §4.5.3 (Loan Limitations) the 
Appraisal Deadline (§3) 
do Not apply to 
FHA insured or 
VA guaranteed loans.)

End of Page

Agreement: §4 Purchase Price and Terms

4.1. Price and Terms. The Purchase Price set forth below shall be payable in U.S. Dollars by Buyer as follows:

This is the crux of the deal. Mix and match loan types, or delete lines as needed. 
 

Item No.

Reference

Item

Amount

Amount

1

§4.1

Purchase Price

$

  

2

§4.2

Earnest Money

  

$

3

§4.5

New Loan

  

  

4

§4.6

Assumption Balance

  

  

5

§4.7

Seller or Private Financing

  

  

6

§4.8

Seller Financing

  

  

7 & 8

  

  

  

  

9

§4.4

Cash at Closing

  

  

10

  

Total

$

$

 

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Agreement: §4 Purchase Price and Terms (continued)

4.2. Seller Concession. At Closing, Seller will credit to Buyer $ n/a (Seller Concession). The Seller Concession may be used for any Buyer fee, cost, charge or expenditure to the extent the amount is allowed by the Buyer’s lender and is included in the Closing Statement or Closing Disclosure, at Closing. Examples of allowable items to be paid for by the Seller Concession include, but are not limited to: Buyer’s closing costs, loan discount points, loan origination fees, prepaid items and any other fee, cost, charge, expense or expenditure. Seller Concession is in addition to any sum Seller has agreed to pay or credit Buyer elsewhere in this Contract.

4.3. Earnest Money. The Earnest Money set forth in this Section, in the form of ____________________ , will be payable to and held by (Earnest Money Holder), in its trust account, on behalf of both Seller and Buyer. The Earnest Money deposit must be tendered by Buyer with this Contract unless the parties mutually agree to an Alternative Earnest Money Deadline for its payment. The parties authorize delivery of the Earnest Money deposit to the company conducting the Closing (Closing Company), if any, at or before Closing. In the event Earnest Money Holder has agreed to have interest on Earnest Money deposits transferred to a fund established for the purpose of providing affordable housing to Colorado residents, Seller and Buyer acknowledge and agree that any interest accruing on the Earnest Money deposited with the Earnest Money Holder in this transaction will be transferred to such fund.

The Commission has created this section to resolve the problem of an offer to purchase being submitted without “valid earnest money” (either a “copy” of an earnest money  check or a “copy” of a Promissory Note—neither of which in Colorado is valid earnest money).  In the event that the buyer is not able to submit the valid earnest money the licensee is encouraged to choose an “Alternative Earnest Money Deadline”(see below) allowing the offer to purchase to be legally valid in order to move forward with the transaction.

In addition, the language of line one “part payment of the Purchase Price and” was removed.  For example, a VA loan or other 100% financing do not apply the Earnest Money to the Purchase Price. It might be more appropriate in these cases to reference the earnest money is or is not

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4.3.1. Alternative Earnest Money Deadline.  The deadline for delivering the Earnest Money, if other than at the time of tender of this Contract is as set forth as the Alternative Earnest Money Deadline.

Clearly state the form of tender such as “personal check,” “cash” or “promissory note” per Rule E-1(m).

This says the brokerage firm will hold the earnest money, but more than 50% of the time the broker simply gives the money over to the title company. In this case, the broker must have closing instructions signed by the buyer and seller and title company before turning over the money. The state REALTOR® association has established a housing opportunity fund as referenced above. Make sure your bank is capable of accounting for earnest money by individual deposit before doing this. For a small office it could be an accounting challenge.

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4.3.2. Return of Earnest Money.  If Buyer has a right to terminate this Contract and timely terminates, Buyer is entitled to the return of Earnest Money as provided in this Contract. If this Contract is terminated as set forth in § 25 and, except as provided in § 24(Earnest Money Dispute), if the Earnest Money has not already been returned following receipt of a Notice to Terminate, Seller agrees to execute and return to Buyer or Broker working with Buyer, written mutual instructions, e.g., Earnest Money Release form, within three days of Seller’s receipt of such form.

This is a new provision which specifically provides that if the Buyer is entitled to terminate and does terminate (no dispute over earnest money involved) the contract the Earnest Money being held by the Seller is required to sign the Earnest Money Release form and return the form along with the Earnest Money to the Buyer within 3 days of the Seller’s receipt of the form.  If the Earnest Money is being held by someone other than the Listing or Seller Broker (e.g., the closing entity or title company) the entity has 5 days following receipt to return so long as the check has passed the bank.

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Agreement: §4 Purchase Price and Terms (continued)

4.4. Form of Funds; Time of Payment; Available Funds.

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4.4.1. Good Funds.  All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, must be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).

(Remember that a Colorado closing coincides with the transfer of title. Therefore all moneys at closing must be “good funds,” money that cannot be recalled or cancelled, (e.g. not any type of check that could bounce, any I.O.U. or promissory note, etc.)

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4.4.2. Time of Payment Available Funds.  All funds including the Purchase Price to be paid by Buyer, must be paid before or at Closing or as otherwise agreed in writing between the parties shall be timely paid to allow disbursement by Closing Company at Closing OR SUCH NONPAYING PARTY WILL BE IN DEFAULT. Buyer represents that Buyer, as of the date of this Contract, ____  Does   ____Does Not have funds that are immediately verifiable and available in an amount not less than the amount stated as Cash at Closing in § 4.1.

(Remember that a Colorado closing coincides with the transfer of title. Therefore all moneys at closing must be “good funds,” money that cannot be recalled or cancelled, (e.g. not any type of check that could bounce, any I.O.U. or promissory note, etc.)

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Agreement: §4 Purchase Price and Terms (continued)

4.5. New Loan.

·
4.5.1. Buyer to Pay Loan Costs.  Buyer, except as otherwise permitted in § 4.2 (Seller Concession), if applicable, must timely pay Buyer’s loan costs, loan discount points, prepaid items and loan origination fees, as required by lender.

·
4.5.2. Buyer May Select Financing.  Buyer may pay in cash or select financing appropriate and acceptable to Buyer, including a different loan than initially sought, except as restricted in § 4.5.3 (Loan Limitations) or § 30, Additional Provisions.

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4.5.3. Loan Limitations.  Buyer may purchase the Property using any of the following types of loan: _____ Conventional _____ FHA _____ VA ____ Bond _____ Other.

·
4.5.4. Loan Estimate – Monthly Payment and Loan Costs.  Buyer is advised to review the terms, conditions and costs of Buyer’s New Loan carefully. If Buyer is applying for a residential loan, the lender generally must provide Buyer with a Loan Estimate within three days after Buyer completes a loan application. Buyer should also obtain an estimate of the amount of Buyer’s monthly mortgage payment.

4.6. 
Assumption.  Buyer agrees to assume and pay an existing loan in the approximate amount of the Assumption Balance set forth in § 4.1 (Price and Terms), presently payable at $______________  per  ________________ including principal and interest presently at the rate of ________% per annum, and also including escrow for the following as indicated: ___ Real Estate Taxes ____Property Insurance Premium ___ Mortgage Insurance Premium and_____. Buyer agrees to pay a loan transfer fee not to exceed $_____________. At the time of assumption, the new interest rate will not exceed ________% per annum and the new payment will not exceed $_____________ per ________________ principal and interest, plus escrow, if any. If the actual principal balance of the existing loan at Closing is less than the Assumption Balance, which causes the amount of cash required from Buyer at Closing to be increased by more than $_____________, or if any other terms or provisions of the loan change, Buyer shall have the right to terminate under §25.1, on or before 
Closing Date. 

Seller ___ Will ____   Will Not be released from liability on said loan. If applicable, compliance with the requirements for release from liability shall be evidenced by delivery _____  on or before Loan Transfer Approval Deadline ______  at Closing of an appropriate letter of commitment from lender. Any cost payable for release of liability shall be paid by  ________________in an amount not to exceed $_____________.

Double check your figures if there is an assumption involved. Remember closing may occur a few months after this contract. So, if the seller has made more payments, the assumed balance will be lower – leaving more cash for the buyer to come up with. Closing is not the time to find this out. There are few worse feelings than having a cash-strapped buyer come to closing to learn that they need more cash. Here is another situation in which the broker has been known to cough up the difference.

Emphasis above added.  It is to suggest that almost every V.A. or FHA loan intended to be assumed will require lender pre-approval.

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Agreement: §4 Purchase Price and Terms (continued)

4.7. Seller or Private Financing. 

WARNING: Unless the transaction is exempt, federal and state laws impose licensing, other requirements and restrictions on sellers and private financiers. Contract provisions on financing and financing documents, unless exempt, should be prepared by a licensed Colorado attorney or licensed mortgage loan originator. Brokers should not prepare or advise the parties on the specifics of financing, including whether or not a party is exempt from the law.

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 4.7.1. Seller Financing. If Buyer is to pay all or any portion of the Purchase Price with Seller financing, _____Buyer _____Seller will deliver the proposed Seller financing documents to the other party on or before _____ days before Seller or Private Financing Deadline.

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4.7.1.1. Seller May Terminate. If Seller is to provide Seller financing, this Contract is conditional upon Seller determining whether such financing is satisfactory to the Seller, including its payments, interest rate, terms, conditions, cost and compliance with the law. Seller has the Right to Terminate under § 25.1, on or before Seller or Private Financing Deadline, if such Seller financing is not satisfactory to Seller, in Seller’s sole subjective discretion.

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4.7.2. Buyer May Terminate. If Buyer is to pay all or any portion of the Purchase Price with Seller or private financing, this Contract is conditional upon Buyer determining whether such financing is satisfactory to Buyer, including its availability, payments, interest rate, terms, conditions and cost. Buyer has the Right to Terminate under § 25.1, on or before Seller or Private Financing Deadline, if such Seller or private financing is not satisfactory to Buyer, in Buyer’s sole subjective discretion.

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Transaction Provisions: §5 Financing Conditions and Obligations

5.1. New Loan Application.  If Buyer is to pay all or part of the Purchase Price by obtaining one or more new loans (New Loan), or if an existing loan is not to be released at Closing, Buyer, if required by such lender, shall make an application verifiable by such lender, on or before New Loan Application Deadline  and exercise reasonable efforts to obtain such loan or approval.

A savvy buyer with a good broker will have been pre-qualified, or even pre-approved long before writing an offer. If not, it seems in everyone’s best interests to set the loan application deadline at 3 days or less after MEC in the dates and deadlines grid.

5.2. New Loan Review.  If Buyer is to pay all or part of the Purchase Price with a New Loan, this Contract is conditional upon Buyer determining, in Buyer’s sole subjective discretion, whether the New Loan is satisfactory to Buyer, including its availability, payments, interest rate, terms, conditions, and cost. This condition is for the sole benefit of Buyer. Buyer has the Right to Terminate under § 25.1, on or before New 
Loan Termination Deadline if the new Loan is not satisfactory to Buyer in Buyer’s sole subjective discretion. Buyer does not have a right to terminate based on the New Loan if the objection is based on the Appraised Value (defined below) or the Lender Requirements (defined below). IF SELLER IS NOT IN DEFAULT AND DOES NOT TIMELY RECEIVE WRITTEN BUYER’S NOTICE TO TERMINATE, BUYER’S EARNEST MONEY WILL BE NONREFUNDABLE, except as otherwise provided in this contract (e.g., Appraisal, Title, Survey).

This is actually a free out from the contract for the buyer. No matter what the buyer has proposed as financing, the buyer may seek a different loan at any time. As a broker working with the buyer, you would certainly want to check the first four boxes in §4.5.3. Even so, whatever the loan types, the buyer may terminate without penalty and get all of his or her earnest money back upon stating that loan applied for is not satisfactory. The broker working with the buyer will want the loan approval deadline to be closer to closing. The broker working with the seller may want to counter this date to make loan approval deadline closer to contract execution.

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Transaction Provisions: §5 Financing Conditions and Obligations (continued)

5.3. Credit Information  If an existing loan is not to be released at Closing, this Contract is conditional (for the benefit of Seller) upon Seller’s approval of Buyer’s financial ability and creditworthiness, which approval will be at Seller’s sole subjective discretion. Accordingly: (1) Buyer must supply to Seller by Buyer’s Credit Information Deadline, at Buyer’s expense, information and documents (including a current credit report) concerning Buyer’s financial, employment and credit condition; (2) Buyer consents that Seller may verify Buyer’s financial  ability and creditworthiness; and (3) any such information and documents received by Seller shall be held by Seller in confidence, and not released to others except to protect Seller’s interest in this transaction. If the Cash at Closing is less than as set forth in § 4.1 of this Contract, Seller  has the right to terminate under § 25.1, or before Closing. If Seller disapproves of Buyer’s financial ability or creditworthiness Seller’s sole subjective discretion, Seller shall have the Right to Terminate under § 25.1, on or before 
Disapproval of Buyer’s Credit Information Deadline .

5.4. Existing Loan Review.  If an existing loan is not to be released at Closing, Seller must deliver copies of the loan documents (including note, deed of trust, and any modifications) to Buyer by Existing Loan Deadline. For the sole benefit of Buyer, this Contract is conditional upon Buyer’s review and approval of the provisions of such loan documents Buyer, has the Right to Terminate under § 25.1, on or before 
Existing Loan Termination Deadline, based on any unsatisfactory provision of such documents, in Buyer’s sole subjective discretion. If the lender’s approval of a transfer of the Property is required, this Contract is conditional upon Buyer obtaining such approval without change in the terms of such loan, except as set forth in § 4.6. If lender’s approval is not obtained by Loan Transfer Approval Deadline, this Contract will terminate on such deadline. Seller  has the Right to Terminate under § 25.1, on or before  Closing, in Seller’s sole subjective discretion, if Seller is to be released from liability under such existing loan and Buyer does not obtain such compliance as set forth in § 4.6.

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Transaction Provisions: §6 Appraisal Provisions

6.1. Appraisal Definition. An “Appraisal” is an opinion of value prepared by a licensed or certified appraiser, engaged on behalf of Buyer or Buyer’s lender, to determine the Property’s market value (Appraised Value). The Appraisal may also set forth certain lender requirements, replacements, removals or repairs necessary on or to the Property as a condition for the Property to be valued at the Appraised Value.

6.2. Appraisal Condition.

The applicable Appraisal provision set forth below applies to the respective loan type set forth in §4.5.3., or if a cash transaction, i.e. no financing, § 6.2.1. shall apply.

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6.2.1. Conventional/Other.  Buyer has the right to obtain an Appraisal. If the Appraised Value is less than the Purchase Price, or if the Appraisal is not received by Buyer on or before Appraisal Deadline Buyer may, on or before 
Appraisal Objection Deadline:

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6.2.1.1. Notice to Terminate. Notify Seller in writing, pursuant to § 25.1,  that this Contract is terminated; or

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6.2.1.2. Appraisal Objection. Deliver to Seller a written objection accompanied by either a copy of the Appraisal or written notice from lender that confirms the Appraised Value is less than the Purchase Price (Lender Verification.

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6.2.1.3. Appraisal Resolution. If an Appraisal Objection is received by Seller, on or before 
Appraisal Objection Deadline, and if Buyer and Seller have not agreed in writing to a settlement thereof on or before 
Appraisal Resolution Deadline, this Contract will terminate on the 
Appraisal Resolution Deadline, unless Seller receives Buyer’s written withdrawal of the Appraisal Objection before such termination, i.e., on or before expiration of 
Appraisal Resolution Deadline.

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6.2.2. FHA. It is expressly agreed that, notwithstanding any other provisions of this Contract, the Purchaser (Buyer) shall not be obligated to complete the purchase of the Property described herein or to incur any penalty by forfeiture of Earnest Money deposits or otherwise unless the purchaser (Buyer) has been given in accordance with HUD/FHA or VA requirements a written statement issued by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender, setting forth the appraised value of the Property of not less than $_____________. The Purchaser (Buyer) shall have the privilege and option of proceeding with the consummation of this Contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure.

HUD does not warrant the value or the condition of the Property. The purchaser (Buyer) should satisfy himself/herself that the price and condition of the Property are acceptable.

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6.2.3. VA. It is expressly agreed that, notwithstanding any other provisions of this Contract, the purchaser (Buyer) shall not incur any penalty by forfeiture of Earnest Money or otherwise or be obligated to complete the purchase of the Property described herein, if the Contract Purchase Price or cost exceeds the reasonable value of the Property established by the Department of Veterans Affairs. The purchaser (Buyer) shall, however, have the privilege and option of proceeding with the consummation of this Contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs. 

6.3. Lender Property Requirements. If the lender imposes any written requirements, replacements, removals or repairs (Lender Requirements), including any specified in the Appraisal to be made to the Property (e.g., roof repair, repainting), beyond those matters already agreed to by Seller in this Contract, this contract terminates on the earliest of three days following Seller’s receipt of the Lender Requirements, or closing, unless prior to termination. (1) the parties enter into a written agreement to satisfy the Lender Requirements; (2) the Lender Requirements have been completed or (3) the satisfaction of the Lender Requirements is waived in writing by Buyer.

A Seller cannot be forced into making any repairs he or she does not want to make just so the buyer can get his or her loan.

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Transaction Provisions: §6 Appraisal Provisions (continued)

6.4. Cost of Appraisal. Cost of any appraisal to be obtained after the date of this Contract must be timely paid by____ Buyer ____ Seller. The cost of the Appraisal may include any and all fees paid to the appraiser, appraisal management company, lender’s agent or all three.

Cost of appraisal is normally paid by the buyer, but this is negotiable.

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Transaction Provisions: §7 Evidence of Title and Association Documents

7.1. Evidence of Title. On or before Record Title Deadline (§ 2.3), Seller shall cause to be furnished to Buyer, at Seller’s expense, a current commitment for owner’s title insurance policy (Title Commitment) in an amount equal to the Purchase Price, or if this box is checked, ___ An Abstract of title certified to a current date. If title insurance is furnished, Seller shall also deliver to Buyer copies of any abstracts of title covering all or any portion of the Property (Abstract) in Seller’s possession. At Seller’s expense, Seller shall cause the title insurance policy to be issued and delivered to Buyer as soon as practicable at or after Closing. The title insurance commitment ___ 
Shall ___ 
Shall Not commit to delete or insure over the standard exceptions which relate to: (1) parties in possession, (2) unrecorded easements, (3) survey matters, (4) any unrecorded mechanics’ liens, (5) gap period (effective date of commitment to date deed is recorded), and (6) unpaid taxes, assessments and unredeemed tax sales prior to the year of Closing. Any additional premium expense to obtain this additional coverage shall be paid by ___ 
Buyer ___ 
Seller.

Note: The title insurance company may not agree to delete or insure over any or all of the standard exceptions. Buyer shall have the right to review the Title Commitment. If the Title Commitment or its provisions are not satisfactory to Buyer, Buyer may exercise Buyer’s rights pursuant to §8.1.

Few properties have title tracked by abstracts any more. The requirement for the Seller to deliver the actual Title Insurance Policy after closing is actually the broker working with the Seller’s requirement – since it is the broker’s primary job to insure the client’s compliance with the entire contract. The check-box for extended title insurance coverage favors the buyer if selected, but may not be required. Follow your employing broker’s direction on the use of this box in the interests of your client.

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Transaction Provisions: §7 Owners’ Association Documents

7. OWNERS’ ASSOCIATION. This Section is applicable if the Property is located within a Common Interest Community and subject to the declaration (Association)

7.1. Common Interest Community Disclosure.

THE PROPERTY IS LOCATED WITHIN A COMMON INTEREST COMMUNITY AND IS SUBJECT TO THE DECLARATION FOR SUCH COMMUNITY. THE OWNER OF THE PROPERTY WILL BE REQUIRED TO BE A MEMBER OF THE OWNER’S ASSOCIATION FOR THE COMMUNITY AND WILL BE SUBJECT TO THE BYLAWS, AND RULES AND REGULATIONS OF THE ASSOCIATION. THE DECLARATION, BYLAWS, AND RULES AND REGULATIONS WILL IMPOSE FINANCIAL OBLIGATIONS UPON THE OWNER OF THE PROPERTY, INCLUDING AN OBLIGATION TO PAY ASSESSMENTS OF THE ASSOCIATION. IF THE OWNER DOES NOT PAY THESE ASSESSMENTS, THE ASSOCIATION COULD PLACE A LIEN ON THE PROPERTY AND POSSIBLY SELL IT TO PAY THE DEBT. THE DECLARATION, BYLAWS, AND RULES AND REGULATIONS OF THE COMMUNITY MAY PROHIBIT THE OWNER FROM MAKING CHANGES TO THE PROPERTY WITHOUT AN ARCHITECTURAL REVIEW BY THE ASSOCIATION (OR A COMMITTEE OF THE ASSOCIATION) AND THE APPROVAL OF THE ASSOCIATION. PURCHASERS OF PROPERTY WITHIN THE COMMON INTEREST COMMUNITY SHOULD INVESTIGATE THE FINANCIAL OBLIGATIONS OF MEMBERS OF THE ASSOCIATION. PURCHASERS SHOULD CAREFULLY READ THE DECLARATION FOR THE COMMUNITY AND THE BYLAWS AND RULES AND REGULATIONS OF THE ASSOCIATION. 

Here’s a perfect example of the overuse of bold-faced font and all capital letters. If you shout everything, it’s hard to tell the important from the unimportant. This warning and its font are specified in Colorado statute. It’s in this contract because some Buyers have claimed they didn’t know they were subject to an HOA, or the extent of the HOA’s power. Don’t let your buyer be one of those.

7.2 Association Documents to Buyer.  Seller is obligated to provide to Buyer the Association Documents (defined below), at Seller’s expense, on or before 
Association Documents Deadline. Seller authorizes the Association to provide the Association Documents to Buyer, at Seller’s expense. Seller’s obligation to provide the Association Documents is fulfilled on Buyer’s receipt of the Association Documents, regardless of who provides such documents.

Before striking this, remember that more than half of all transactions, and a very high percentage of suburban single-family transactions, are subject to an HOA. It’s not just for condominiums.

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Transaction Provisions: §7 Owners’ Association Documents (continued)

7.3. Association Documents Association Documents (Association Documents) consist of the following:

7.3.1. All Association declarations, articles of Incorporation, bylaws, articles of incorporation, operating agreement, rules and regulations, party wall agreements and the Association’s responsible governance policies adopted under § 38-33.3-209.5, C.R.S.;

7.3.2  Minutes of: (1) the annual owners’ or members’ meeting and (2) any executive boards’ or managers’ meetings; such minutes include those provided under the most current annual disclosure required under § 38-33.3-209,4 C.R.S. (Annual Disclosure) and minutes of meetings, if any, subsequent to the meetings disclosed in the Annual Disclosure. If none of the preceding minutes exist, then the most recent minutes, if any (§§ 7.3.1 and 7.3.2 collectively, Governing Documents); and

7.3.3  List of all Association insurance policies as provided in the Association’s last Annual Disclosure, including, but not limited to, property, limited liability, association director and officer professional liability and fidelity policies. the list must include company names, policy limits, policy deductibles, additional named insured and expiration dates of the policies listed (Association Insurance Documents;  

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Transaction Provisions: §7 Owners’ Association Documents (continued)

7.4. Conditional on Buyer’s Review. Buyer has the right to review the Association Documents. Buyer has the Right to Terminate under § 25.1, on or before 
Association Documents Termination Deadline, based on any unsatisfactory provision in any of the Association Documents, in Buyer’s sole subjective discretion. Should Buyer receive the Association Documents after 
Association Documents Deadline, Buyer, at Buyer’s option, has the Right to Terminate under § 25.1 by Buyer’s Notice to Terminate received by Seller on or before ten days after Buyer’s receipt of the Association Documents. If Buyer does not receive the Association Documents, or if Buyer’s Notice to Terminate would otherwise be required to be received by Seller after 
Closing Date, Buyer’s Notice to Terminate must be received by Seller on or before Closing. If Seller does not receive Buyer’s Notice to Terminate within such time, Buyer accepts the provisions of the Association Documents as satisfactory, and Buyer waives any Right to Terminate under this provision, notwithstanding the provisions of § 8.6 (Right of First Refusal or Contract Approval)
.

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Transaction Provisions: §8 Title Insurance, Record Title and Off Record Title

8.1 Evidence of Record Title.

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8.1.1. Seller Selects Title Insurance Company. If this box is checked, Seller will select the title insurance company to furnish the owner’s title insurance policy at Seller’s expense. On or before 
Record Title Deadline, Seller must furnish to Buyer, a current commitment for an owner’s title insurance policy (Title Commitment), in an amount equal to the Purchase Price, or if this box is checked, an Abstract of Title certified to a current date. Seller will cause the title insurance policy to be issued and delivered to Buyer as soon as practicable at or after Closing.

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8.1.2. Buyer Selects Title Insurance Company. If this box is checked, Buyer will select the title insurance company to furnish the owner’s title insurance policy at Buyer’s expense. On or before 
Record Title Deadline, Buyer must furnish to Seller, a current commitment for owner’s title insurance policy (Title Commitment), in an amount equal to the Purchase Price. If neither box in § 8.1.1 or § 8.1.2 is checked, § 8.1.1 applies.

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8.1.3. Owner’s Extended Coverage (OEC). The Title Commitment_____ 
Will _____
Will Not contain Owner’s Extended Coverage (OEC). If the Title Commitment is to contain OEC, it will commit to delete or insure over the standard exceptions which relate to: (1) parties in possession, (2) unrecorded easements, (3) survey matters, (4) unrecorded mechanics’ liens, (5) gap period (period between the effective date and time of commitment to the date and time the deed is recorded), and (6) unpaid taxes, assessments and unredeemed tax sales prior to the year of Closing. Any additional premium expense to obtain OEC will be paid by_____ 
Buyer_____ 
Seller _____
One-Half by Buyer and One-Half by Seller _____
Other   

Regardless of whether the Contract requires OEC, the Title Insurance Commitment may not provide OEC or delete or insure over any or all of the standard exceptions for OEC. The Title Insurance Company may require a New Survey or New ILC, defined below, among other requirements for OEC. If the Title Insurance Commitment is not satisfactory to Buyer, Buyer has a right to object under § 8.45 (Right to Object to Title, Resolution).

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8.1.4. Title Documents. Title Documents consist of the following: (1) copies of any plats, declarations, covenants, conditions and restrictions burdening the Property, and (2) copies of any other documents (or, if illegible, summaries of such documents) listed in the schedule of exceptions (Exceptions) in the Title Commitment furnished to Buyer (collectively, Title Documents).

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8.1.5. Copies of Title Documents. Buyer must receive, on or before 
Record Title Deadline, copies of all Title Documents. This requirement pertains only to documents as shown of record in the office of the clerk and recorder in the county where the Property is located. The cost of furnishing copies of the documents required in this Section will be at the expense of the party or parties obligated to pay for the owner’s title insurance policy.

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8.1.6. Existing Abstracts of Title. Seller must deliver to Buyer copies of any abstracts of title covering all or any portion of the Property (Abstract of Title) in Seller’s possession on or before 
Record Title Deadline.

8.2. Record Title. Buyer has the right to review and object to the Abstract of Title or Title Commitment and any of the Title Documents as set forth in § 8.45 (Right to Object to Title, Resolution) on or before 
Record Title Objection Deadline. Buyer’s objection may be based on any unsatisfactory form or content of Title Commitment or Abstract of Title, notwithstanding § 13, or any other unsatisfactory title condition, in Buyer’s sole subjective discretion. If the Abstract of Title, Title Commitment or Title Documents are not received by Buyer on or before the 
Record Title Deadline, or if there is an endorsement to the Title Commitment that adds a new Exception to title, a copy of the new Exception to title and the modified Title Commitment will be delivered to Buyer. Buyer has until the earlier of Closing or ten days after receipt of such documents by Buyer to review and object to: (1) any required Title Document not timely received by Buyer, (2) any change to the Abstract of Title, Title Commitment or Title Documents, or (3) any endorsement to the Title Commitment. If Seller receives Buyer’s Notice to Terminate or Notice of Title Objection, pursuant to this § 8.2 (Record Title), any title objection by Buyer is governed by the provisions set forth in § 8.45 (Right to Object to Title, Resolution). If Seller has fulfilled all Seller’s obligations, if any, to deliver to Buyer all documents required by § 8.1 (Evidence of Record Title) and Seller does not receive Buyer’s Notice to Terminate or Notice of Title Objection by the applicable deadline specified above, Buyer accepts the condition of title as disclosed by the Abstract of Title, Title Commitment and Title Documents as satisfactory.

7.2. Copies of Exceptions. On or before Record Title Deadline (§ 3), Seller, at Seller’s expense, shall furnish to Buyer and __________________, (1) copies of any plats, declarations, covenants, conditions and restrictions burdening the Property, and (2) if a Title Commitment is required to be furnished, and if this box is checked ___ Copies of any Other Documents (or, if illegible, summaries of such documents) listed in the schedule of exceptions (Exceptions). Even if the box is not checked, Seller shall have the obligation to furnish these documents pursuant to this section if requested by Buyer any time on or before 
Exceptions Request Deadline (§ 3). This requirement shall pertain only to documents as shown of record in the office of the clerk and recorder in the county where the Property is located. The abstract or Title Commitment, together with any copies or summaries of such documents furnished pursuant to this section, constitute the title documents (collectively, Title Documents).

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Transaction Provisions §8 Title Insurance, Record Title and Off-Record Title (continued)

8.3. Off-Record Title Matters. Seller must deliver to Buyer, on or before 
Off-Record Title Deadline (§ 3) true copies of all existing surveys in Seller’s possession pertaining to the Property and must disclose to Buyer all easements, liens (including, without limitation, governmental improvements approved, but not yet installed) or other title matters (including, without limitation, rights of first refusal and options) not shown by public records of which Seller has actual knowledge (Off-Record Matters). This Section excludes and 
New ILC or 
New Survey governed under
 § 9 (New ILC, New Survey). Buyer  has the right to inspect the Property to investigate if any third party has any right in the Property not shown by public records (e.g. an unrecorded easement, boundary line discrepancy or water rights). Buyer’s Notice to Terminate or Notice of Title Objection of any unsatisfactory condition (whether disclosed by Seller or revealed by such inspection, notwithstanding §8.2 (Record Title) and §13 (Transfer of Title), in Buyer’s sole subjective discretion must be received by Seller on or before 
Off-Record Title Objection Deadline,  Buyer has until the earlier of Closing or ten days after receipt by Buyer to review and object to such Off-Record Matter. If Seller receives Buyer’s Notice to Terminate or Notice of Title Objection pursuant to this § 8.3 (Off-Record Title) any title objection by Buyer is governed by the provisions set forth in § 8.4 (Right to Object to Title, Resolution) If Seller does not  receive Buyer’s Notice to Terminate or Notice of Title Objection by the applicable deadline specified above, Buyer accepts title subject to such Off-Record Matters and rights, if any, of third parties not shown by public records of which Buyer has actual knowledge.

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Transaction Provisions: §8 Title Insurance, Record Title and Off-Record Title

Only one of the above two 
will apply. But either will provide the buyer with a free out if the property is not worth the offering price. Appraisals are engaged by the “Buyer’s lender” in most cases – not the buyer. The buyer always has the right to proceed with the transaction provided he or she has the additional funds that the lender/FHA/VA will not approve for the loan.

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Transaction Provisions §8 Title Insurance, Record Title and Off-Record Title (continued)

It makes sense (and simplicity of tracking) to set the objection deadline for the following three paragraphs on the same date. Unlike the physical condition inspection in Paragraph 10 of this contract, the buyer may not terminate the contract for title objections until closing as the Seller has up to that point to correct any title issues. Buyer may waive title corrections at any time (for instance, a small survey encroachment of no consequence to the buyer.)

8.5 Right to Object To Title, Resolution.  Buyer’s right to object, in Buyer’s sole subjective discretion, to any title matters shall include those matters set forth in § 8.2 (Record Title), §8.3 (Off-Record Title), § 8.4 (Special Taxing District) and §13 (Transfer of Title).  If Buyer objects to any title matter, on or before the applicable deadline, Buyer has the following options:

·
8.45.1. Title Objection, Resolution. If Seller receives Buyer’s written Notice objecting to any title matter (Notice of Title Objection),on or before the applicable deadline, and if Buyer and Seller have not agreed to a written settlement on or before 
Title Resolution Deadline , this Contract will terminate on the expiration of 
Title Resolution Deadline, unless Seller receives Buyer’s written withdrawal of Buyer’s Notice of Title Objection, i.e., Buyer’s written notice to waive objection to such items and waives the right to terminate for that reason, on or before expiration of 
Title Resolution Deadline . If either the Record Title Deadline or the Off-Record Title Deadline, or both, are extended pursuant to § 8.2 (Record Title) or § 8.3 (Off-Record Title), or § 8.4 (Special Taxing Districts), the Title Resolution Deadline also will be automatically extended to the earlier of Closing or fifteen days after Buyer’s receipt of the applicable documents; or

·
8.45.2. Title Objection, Right to Terminate. Buyer  may exercise the  right to terminate  under § 25.1, on or before the applicable deadline, based on any title matter unsatisfactory to Buyer, in Buyer’s sole subjective discretion.

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Transaction Provisions §8 Title Insurance, Record Title and Off-Record Title (continued)

8.5. Special Taxing Districts.

SPECIAL TAXING DISTRICTS MAY BE SUBJECT TO GENERAL OBLIGATION INDEBTEDNESS THAT IS PAID BY REVENUES PRODUCED FROM ANNUAL TAX LEVIES ON THE TAXABLE PROPERTY WITHIN SUCH DISTRICTS. PROPERTY OWNERS IN SUCH DISTRICTS MAY BE PLACED AT RISK FOR INCREASED MILL LEVIES AND TAX TO SUPPORT THE SERVICING OF SUCH DEBT WHERE CIRCUMSTANCES ARISE RESULTING IN THE INABILITY OF SUCH A DISTRICT TO DISCHARGE SUCH INDEBTEDNESS WITHOUT SUCH AN INCREASE IN MILL LEVIES. BUYER SHOULD INVESTIGATE THE SPECIAL TAXING DISTRICTS IN WHICH THE PROPERTY IS LOCATED BY CONTACTING THE COUNTY TREASURER, BY REVIEWING THE CERTIFICATE OF TAXES DUE FOR THE PROPERTY, AND BY OBTAINING FURTHER INFORMATION FROM THE BOARD OF COUNTY COMMISSIONERS, THE COUNTY CLERK AND RECORDER, OR THE COUNTY ASSESSOR.
 

A tax certificate from the respective county treasurer listing any special taxing districts that affect the Property (Tax Certificate) must be delivered to Buyer on or before 
Record Title Deadline. If the property is located within a special taxing district and such inclusion is unsatisfactory to Buyer, in Buyer’s sole subjective discretion, Buyer may object, on or before Record Title Objection Deadline. If the Tax Certificate shows that the property is included in a special taxing district and is received by Buyer after the Record Title Deadline, Buyer has until the earlier of closing or 10 days after receipt by Buyer to review and object to the Property’s inclusion in a special taxing district as unsatisfactory to Buyer.

Here we go with the bold-face all caps again… And again, it’s required by law. A special taxation district is enacted for a single-purpose (e.g. a recreation center) – separate from normal property taxes. This warning stems from homeowners in the early 1990s being constructively evicted because they could not pay the exorbitant taxes that were not clearly understood when they purchased their homes. Some homes actually had negative (below zero) property valuations. When this warning says “Buyer should investigate, it really means broker working with the buyer should investigate and share this information with the buyer before the offer is written.

Buyer has the Right to Terminate under 25.1, on or before 
Off-Record Title Objection Deadline, based on any unsatisfactory effect that the Property being located within a special taxing district in Buyer’s sole subjective discretion.

Since the Seller cannot remove the property from the special taxation district, the buyer may terminate on these grounds at any time. Of course, if the broker working with the buyer is ahead of the game, this can likely be resolved before the offer is ever written/presented.

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Transaction Provisions: §8 Title Insurance, Record Title and Off-Record Title (continued)

8.6. Right of First Refusal or Contract Approval. If there is a right of first refusal on the Property or a right to approve this Contract, Seller must promptly submit this Contract according to the terms and conditions of such right. If the holder of the right of first refusal exercises such right or the holder of a right to approve disapproves this Contract, this Contract will terminate. If the right of first refusal is waived explicitly or expires, or the Contract is approved, this Contract shall remain in full force and effect. Seller must promptly notify Buyer of the foregoing. If expiration or waiver of the right of first refusal or approval of this Contract has not occurred on or before 
Right of First Refusal Deadline, this Contract shall terminate.

Although there are some legitimate reasons someone may have a right to refuse this offer, this is when you want your fair housing senses to be highly tuned. These types of clauses have been used in the past to deny ownership to otherwise protected classes.

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Transaction Provisions §8 Title Insurance, Record Title and Off-Record Title (continued)

8.7. Title Advisory. The Title Documents affect the title, ownership and use of the Property and should be reviewed carefully. Additionally, other matters not reflected in the Title Documents may affect the title, ownership and use of the Property, including without limitation, boundary lines and encroachments, area,  zoning, building code violations, unrecorded easements and claims of easements, leases and other unrecorded agreements, water on or under the Property, and various laws and governmental regulations concerning land use, development and environmental matters.

·
8.7.1. OIL, GAS, WATER AND MINERAL DISCLOSURE. THE SURFACE ESTATE OF THE PROPERTY MAY BE OWNED SEPARATELY FROM THE UNDERLYING MINERAL ESTATE, AND TRANSFER OF THE SURFACE ESTATE MAY NOT NECESSARILY INCLUDE TRANSFER OF THE MINERAL ESTATE OR WATER RIGHTS. THIRD PARTIES MAY OWN OR LEASE INTERESTS IN OIL, GAS, OTHER MINERALS, GEOTHERMAL ENERGY OR WATER ON OR UNDER THE SURFACE OF THE PROPERTY, WHICH INTERESTS MAY GIVE THEM RIGHTS TO ENTER AND USE THE SURFACE OF THE PROPERTY TO ACCESS THE MINERAL ESTATE, OIL, GAS OR WATER.

·
8.7.2. SURFACE USE AGREEMENT. THE USE OF THE SURFACE ESTATE OF THE PROPERTY TO ACCESS THE OIL, GAS OR MINERALS MAY BE GOVERNED BY A SURFACE USE AGREEMENT, A MEMORANDUM OR OTHER NOTICE OF WHICH MAY BE RECORDED WITH THE COUNTY CLERK AND RECORDER.

·
8.7.3. OIL AND GAS ACTIVITY. OIL AND GAS ACTIVITY THAT MAY OCCUR ON OR ADJACENT TO THE PROPERTY MAY INCLUDE, BUT IS NOT LIMITED TO, SURVEYING, DRILLING, WELL COMPLETION OPERATIONS, STORAGE, OIL AND GAS, OR PRODUCTION FACILITIES, PRODUCING WELLS, REWORKING OF CURRENT WELLS, AND GAS GATHERING AND PROCESSING FACILITIES.

·
8.7.4. ADDITIONAL INFORMATION. BUYER IS ENCOURAGED TO SEEK ADDITIONAL INFORMATION REGARDING OIL AND GAS ACTIVITY ON OR ADJACENT TO THE PROPERTY, INCLUDING DRILLING PERMIT APPLICATIONS. THIS INFORMATION MAY BE AVAILABLE FROM THE COLORADO OIL AND GAS CONSERVATION COMMISSION.

·
8.7.5. Title Insurance Exclusions. Matters set forth in this Section, and others, may be excepted, excluded from, or not covered by the owner’s title insurance policy.

8.8. Consult an Attorney. Buyer is advised to timely consult legal counsel with respect to all such matters as there are strict time limits provided in this Contract (e.g., 
Record Title Objection Deadline and 
Off-Record Title Objection Deadline).

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Transaction Provisions §9 New ILC, New Survey

NEW ILC, NEW SURVEY.

9.1. New ILC or New Survey. If the box is checked, a (1)_____
New Improvement Location Certificate (New ILC) or (2) _____
New Survey in the form of __________ is required and the following will apply:

·
9.1.1. Ordering of New ILC or New Survey. _____Seller _____Buyer will order the New ILC or New Survey. The New ILC or New Survey may also be a previous ILC or survey that is in the above-required form, certified and updated as of a date after the date of this Contract.

·
9.1.2. Payment for New ILC or New Survey. The cost of the New ILC or New Survey will be paid, on or before Closing, by: _____Seller _____Buyer or:_____

·
9.1.3. Delivery of New ILC or New Survey. Buyer, Seller, the issuer of the Title Commitment (or the provider of the opinion of title if an Abstract of Title), and _____ will receive a New ILC or New Survey on or before 
New ILC or New Survey Deadline.

·
9.1.4. Certification of New ILC or New Survey. The New ILC or New Survey will be certified by the surveyor to all those who are to receive the New ILC or New Survey.

9.2. Buyer’s Right to Waive or Change New ILC or New Survey Selection. Buyer may select a New ILC or New Survey different than initially specified in this Contract if there is no additional cost to Seller or change to the 
New ILC or New Survey Objection Deadline. Buyer may, in Buyer’s sole subjective discretion, waive a New ILC or New Survey if done prior to Seller incurring any cost for the same.

9.3. New ILC or New Survey Objection. Buyer has the right to review and object to the New ILC or New Survey. If the New ILC or New Survey is not timely received by Buyer or is unsatisfactory to Buyer, in Buyer’s sole subjective discretion, Buyer may, on or before 
New ILC or New Survey Objection Deadline, notwithstanding § 8.3 or § 13:

·
9.3.1. Notice to Terminate. Notify Seller in writing, pursuant to § 25.1, that this Contract is terminated; or

·
9.3.2. New ILC or New Survey Objection. Deliver to Seller a written description of any matter that was to be shown or is shown in the New ILC or New Survey that is unsatisfactory and that Buyer requires Seller to correct.

·
9.3.3. New ILC or New Survey Resolution. If a 
New ILC or New Survey Objection is received by Seller, on or before 
New ILC or New Survey Objection Deadline, and if Buyer and Seller have not agreed in writing to a settlement thereof on or before 
New ILC or New Survey Resolution Deadline, this Contract will terminate on expiration of the 
New ILC or New Survey Resolution Deadline, unless Seller receives Buyer’s written withdrawal of the New ILC or New Survey Objection before such termination, i.e., on or before expiration of 
New ILC or New Survey Resolution Deadline.

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CHAPTER START

Disclosure, Inspection and Due Diligence: §10 Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water

10.1. Seller’s Property Disclosure. On or before 
Seller’s Property 
Disclosure Deadline, Seller agrees to deliver to Buyer the most current version of the applicable Colorado Real Estate Commission’s Seller’s Property Disclosure form completed by Seller to Seller’s actual knowledge, and current as of the date of this Contract.

Click here to open the Seller’s Property Disclosure Forms:

·

All Types of Properties

·

Residential

10.2. Disclosure of Adverse Material Facts; Subsequent Disclosure Present Condition. Seller must disclose to Buyer any adverse material facts actually known by Seller as of the date of the contract. Seller agrees that disclosure of adverse material facts will be in writing. In the event that Seller discovers an adverse material fact after the date of this Contract, Seller must timely disclose such adverse fact to the Buyer. Buyer has the Right to Terminate based the Seller’s new disclosure on the earlier of the Closing or five days after Buyer’s receipt of the new disclosure. Except as otherwise provided in this Contract, Buyer acknowledges that Seller is conveying the Property to Buyer in an “
As Is” condition, “
Where Is” and “ 
With All Faults.”

10.3. Inspection Objection Deadline. Unless otherwise provided in this Contract Buyer acting in good faith, has the right to have inspections (by one or more third parties, personally or both) of the Property and Inclusions (Inspection), at Buyer’s expense. If (1) the physical condition of the Property, including, but not limited to, the roof, walls, structural integrity of the Property, the electrical, plumbing, HVAC and other mechanical systems of the Property, (2) the physical condition of the Inclusions, (3) service to the property (including utilities and communication services), systems and components of the Property, (e.g. heating and plumbing), (4) any proposed or existing transportation project, road, street or highway, or (5) any other activity, odor or noise (whether on or off the Property) and its effect or expected effect on the Property or its occupants is unsatisfactory in Buyer’s sole subjective discretion, Buyer may:

·
10.3.1. Inspection Objection. On or before the 
Inspection Objection Deadline, deliver to Seller a written description of any unsatisfactory condition that Buyer requires Seller to correct; or

·
10.3.2. Terminate. On or before the 
Inspection Termination Deadline, notify Seller, in writing pursuant to § 25.1, that this Contract is terminated due to any unsatisfactory condition. 
Inspection Termination Deadline will be on the earlier of Inspection Resolution Deadline or the date specified in § 3.1 for Inspection Termination Deadline.

 

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Disclosure, Inspection and Due Diligence: §10 Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (continued)

10.3. Inspection Resolution. If an Inspection Objection is received by Seller on or before Inspection Objection Deadline, and if Buyer and Seller have not agreed in writing to a settlement thereof on or before
 Inspection Resolution Deadline, this Contract will terminate on Inspection Resolution Deadline  unless Seller receives Buyer’s written withdrawal of the Inspection Objection before such termination, i.e., on or before expiration of Inspection Resolution Deadline.

10.4. Damage, Liens and Indemnity. Buyer, except as otherwise provided in this Contract or other written agreement between the parties, is responsible for payment for all inspections, tests, surveys, engineering reports, or any other reports performed at Buyer’s request (Work) and must pay for any damage that occurs to the Property and Inclusions as a result of such Work. Buyer must not permit claims or liens of any kind against the Property for Work performed on the Property. Buyer agrees to indemnify, protect and hold Seller harmless from and against any liability, damage, cost or expense incurred by Seller and caused by any such Work, claim, or lien. This indemnity includes Seller’s right to recover all costs and expenses incurred by Seller to defend against any such liability, damage, cost or expense, or to enforce this Section, including Seller’s reasonable attorney fees, legal fees and expenses. The provisions of this Section shall survive the termination of this Contract. This § 10.4 does not apply to items performed pursuant to an Inspection Resolution.

You break it, you fix it.

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Disclosure, Inspection and Due Diligence: §10Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (continued)

10.5. Insurability. Buyer has the right to review and object to the availability, terms and conditions of and premium for property insurance. (Property Insurance). Buyer has the Right to Terminate under § 25.1 on or before 
Property Insurance Termination Deadline (§ 3) based on any unsatisfactory provision of the Property Insurance, in Buyer’s sole subjective discretion.

After a series of particularly horrific Colorado wild fires, some insurance companies were redlining entire Zip codes as places for which they would not issue homeowner’s insurance. Similarly, homeowner’s insurance premiums in some Zip codes increased by vast amounts. It’s not such a problem as of this writing, but the buyer has a right, under this contract, to be aware and terminate if necessary.

10.6  Due Diligence

·
10.6.1 Due Diligence Documents. If the respective box is checked, Seller agrees to deliver copies of the following documents and information pertaining to the Property (Due Diligence Documents) to Buyeron or before 
Due Diligence Documents Delivery

·
10.6.1.1 All current leases, including any amendments or other occupancy agreements, pertaining to the Property. Those leases or other occupancy agreements pertaining to the Property that survive Closing are as follows (Leases):

·
10.6.1.2. Other documents and information:

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Disclosure, Inspection and Due Diligence: §10 Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (continued)

·
10.6.2. Due Diligence Documents Review and Objection. Buyer has the right to review and object to Due Diligence Documents. If the Due Diligence Documents are not supplied to Buyer or are unsatisfactory in Buyer’s sole subjective discretion, Buyer may, on or before 
Due Diligence Documents Objection Deadline:

·
10.6.2.1. Notice to Terminate. Notify Seller in writing, pursuant to § 25.1, that this Contract is terminated; or

·
10.6.2.2. Due Diligence Documents Objection. Deliver to Seller a written description of any unsatisfactory Due Diligence Documents that Buyer requires Seller to correct.

·
10.6.2.3. Due Diligence Documents Resolution. If a Due Diligence Documents Objection is received by Seller, on or before 
Due Diligence Documents Objection Deadline, and if Buyer and Seller have not agreed in writing to a settlement thereof on or before 
Due Diligence Documents Resolution Deadline, this Contract will terminate on 
Due Diligence Documents Resolution Deadline unless Seller receives Buyer’s written withdrawal of the Due Diligence Documents Objection before such termination, i.e., on or before expiration of 
Due Diligence Documents Resolution Deadline.

10.7. Conditional Upon Sale of Property. This Contract is conditional upon the sale and closing of that certain property owned by Buyer and commonly known as _________________ Buyer has the Right to Terminate under § 25.1 effective upon Seller’s receipt of Buyer’s Notice to Terminate on or before 
Conditional Sale Deadline if such property is not sold and closed by such deadline. This Section is for the sole benefit of Buyer. If Seller does not receive Buyer’s Notice to Terminate on or before 
Conditional Sale Deadline, Buyer waives any Right to Terminate under this provision

Note: Any property sale contingency should appear in 
Additional Provisions (§ 30).

Look in your buyer’s eyes when asking this one. Remember you must disclose any reason your buyer may not be able to complete this transaction – even if you are the buyer’s agent.

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Disclosure, Inspection and Due Diligence: §10 Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (continued)

10.8. Source of Potable Water (Residential Land and Residential Improvements Only). Buyer ___
Does ___
Does Not acknowledge receipt of a copy of Seller’s Property Disclosure or Source of Water Addendum disclosing the source of potable water for the Property. ___ There is 
No Well. Buyer ___ 
Does ___ 
Does Not acknowledge receipt of a copy of the current well permit. 

Note to Buyer: 
SOME WATER PROVIDERS RELY, TO VARYING DEGREES, ON NONRENEWABLE GROUND WATER. YOU MAY WISH TO CONTACT YOUR PROVIDER (OR INVESTIGATE THE DESCRIBED SOURCE) TO DETERMINE THE LONG-TERM SUFFICIENCY OF THE PROVIDER’S WATER SUPPLIES. 

This provision was added in 2008 as a result of a subdivision relying on a private water company actually running dry.

10.9. Existing Leases; Modification of Existing Leases; New Leases. [Intentionally Deleted]

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Disclosure, Inspection and Due Diligence: §10 Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (continued)

10.10. Lead-Based Paint.  

10.10.1 Lead-Based Paint Disclosure. Unless exempt, if the Property includes one or more residential dwellings constructed or a building permit was issued prior to January 1, 1978, for the benefit of Buyer, Seller and all licensed real estate licensees must sign and deliver to Buyer a completed Lead-Based Paint Disclosure (Sales) form on or before the 
Lead-Based Paint Disclosure Deadline. If Buyer does not timely receive the Lead-Based Paint Disclosure, Buyer may waive the failure to timely receive the Lead-Based Paint Disclosure, or Buyer may exercise Buyer’s Right to Terminate under § 25.1 by Seller’s receipt of Buyer’s Right to Terminate on or before the expiration of the 
Lead-Based Paint Termination Deadline.

10.10.2 Lead-Based Paint Assessment. If buyer elects to conduct or obtain a risk assessment or inspection of the Property for the presence of Lead-Based Paint or Lead Based Paint Hazards, Buyer has a Right to Terminate under § 25.1 Seller’s receipt of Buyer’s Notice to Terminate on or before the expiration of the 
Lead-Based Paint Termination Deadline. if Buyer’s Notice to Terminate would otherwise be required to be received by Seller after 
Closing Date, Buyer’s Notice to Terminate must be received by Seller on or before Closing. Buyer may elect to waive Buyer’s right to conduct or obtain a risk assessment or inspection of the Property for the presence of Lead-Based Paint or Lead Based Paint Hazards. If Seller does not receive Buyer’s Notice to Terminate within such time, Buyer accepts the condition of the Property relative to any Lead-Based Paint as satisfactory and Buyer waives any Right to Terminate under this provision.  

10.11 Carbon Monoxide Alarms. Note: If the improvements on the Property have a fuel-fired heater or appliance, a fireplace, or an attached garage and include one or more rooms lawfully used for sleeping purposes (Bedroom), the parties acknowledge that Colorado law requires that Seller assure the Property has an operational carbon monoxide alarm installed within fifteen feet of the entrance to each Bedroom or in a location as required by the applicable building code.

  

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Disclosure, Inspection and Due Diligence: §10 Property Disclosure, Inspection, Indemnity, Insurability, Due Diligence, Buyer Disclosure and Source of Water (continued)

10.12. Methamphetamine Disclosure. If Seller knows that methamphetamine was ever manufactured, processed, cooked, disposed of, used or stored at the Property, Seller is required to disclose such fact. No disclosure is required if the Property was remediated in accordance with state standards and other requirements are fulfilled pursuant to § 25-18.5-102, C.R.S. Buyer further acknowledges that Buyer has the right to engage a certified hygienist or industrial hygienist to test whether the Property has ever been used as a methamphetamine laboratory. Buyer has the “Right to Terminate under § 25.1 upon Seller’s receipt of Buyer’s written notice to terminate, notwithstanding any provision of this Contract, based on Buyer’s test results that indicate the Property has been contaminated with methamphetamine, but has not been remediated to meet the standards established by rules of the State Board of Health promulgated pursuant to § 25-18.5-102, C.R.S., Buyer shall promptly give written notice to Seller of the results of the test.

Nasty Business! Note the 2nd sentence, as it is unlike all other disclosure requirements in real estate. A seller is not required to disclose that there was a meth lab on the property if it has been remediated under state law. Free advice: You do not want your family, or your buyer’s family living in a former methamphetamine lab regardless of remediation. The seller may not be required by law to disclose, but if the broker actually knows, he or she is between a rock and a hard place and has a tough ethical decision to make.

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Closing Provisions: §12 Closing Documents, Instructions, and Closing

12.1. Closing Documents and Closing Information. Seller and Buyer will cooperate with the Closing Company to enable the Closing Company to prepare and deliver all documents required for Closing to Buyer and Seller and their designees. If Buyer is obtaining a loan to purchase the Property, Buyer acknowledges Buyer’s lender is required to provide the Closing Company in a timely manner all required loan documents and financial information concerning Buyer’s loan. Buyer and Seller will furnish any additional information and documents required by Closing Company that will be necessary to complete this transaction. Buyer and Seller will sign and complete all customary or reasonably required documents at or before Closing.

12.2. Closing Instructions.  Colorado Real Estate Commission’s Closing Instructions ___ 
Are ___Are Not executed with this Contract.

12.3. Closing. Delivery of deed from Seller to Buyer will at closing (Closing). Closing shall be on the date specified as the 
Closing Date (§ 3) or by mutual agreement at an earlier date. The hour and place of Closing will be as designated by___________________________________.

Unless there is a compelling reason other than the broker working with the buyer flexing his or her muscle, leave this up to the broker working with the Seller.

12.4. Disclosure of Settlement Costs. Buyer and Seller acknowledge that costs, quality, and extent of service vary between different settlement service providers (e.g., attorneys, lenders, inspectors and title companies).

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CP-1, CP-2

The first two chapters of this Course covered 1.) License law and 2.) Commission rule. We will now review the third collection of policies known as Commission Position (CP) Statements. Chapter 3 of the CREM contains the position statements in full. They are abbreviated here with enough detail for you to understand their meaning. 

By the end of this unit, you will be able to:

· Explain how the CO Laws and the Position statements differ

· Describe the Broker responsibilities according to the CO Position Statements

· Recognize and express the Position Statement concerning Interest Bearing Accounts and refund of earnest money

Note that while position statements indicate the desires of the real estate commission as to how certain policies are carried out; they do not carry the force of law. 

CP-1:  
Homebuilder’s Exemption from Licensing: Salespersons working for new homebuilders are not required to be licensed. New home sales staff, however, must be regularly salaried. This means that money paid them is not a draw against future commissions, is paid on a regular cycle, must exceed minimum wage and must have normal payroll taxes withheld. 

CP-2:  
Referral Fees and Advertising Services: A broker may not pay commissions or referral fees to unlicensed persons for activities requiring a license. The Commission interprets this as anything involving negotiating. Negotiating is further defined as the act of bringing two parties together for the purpose of consummating a real estate transaction.

Referral fees may be paid if:

1. An actual introduction of business has been made;

2. A contractual referral fee relationship exists; or

3. A contractual cooperative brokerage relationship exists.

(Instructor’s Note: Federal RESPA law treats referral fees more stringently than this Statement. Consult your employing broker and seek competent legal counsel.)

Payment for general promotion of your real estate business is not prohibited.

End of Page

CP-1, CP-2

The first two chapters of this Course covered 1.) License law and 2.) Commission rule. We will now review the third collection of policies known as Commission Position (CP) Statements. Chapter 3 of the CREM contains the position statements in full. They are abbreviated here with enough detail for you to understand their meaning. 

By the end of this unit, you will be able to:

· Explain how the CO Laws and the Position statements differ

· Describe the Broker responsibilities according to the CO Position Statements

· Recognize and express the Position Statement concerning Interest Bearing Accounts and refund of earnest money

Note that while position statements indicate the desires of the real estate commission as to how certain policies are carried out; they do not carry the force of law. 

CP-1:  
Homebuilder’s Exemption from Licensing: Salespersons working for new homebuilders are not required to be licensed. New home sales staff, however, must be regularly salaried. This means that money paid them is not a draw against future commissions, is paid on a regular cycle, must exceed minimum wage and must have normal payroll taxes withheld. 

CP-2:  
Referral Fees and Advertising Services: A broker may not pay commissions or referral fees to unlicensed persons for activities requiring a license. The Commission interprets this as anything involving negotiating. Negotiating is further defined as the act of bringing two parties together for the purpose of consummating a real estate transaction.

Referral fees may be paid if:

1. An actual introduction of business has been made;

2. A contractual referral fee relationship exists; or

3. A contractual cooperative brokerage relationship exists.

(Instructor’s Note: Federal RESPA law treats referral fees more stringently than this Statement. Consult your employing broker and seek competent legal counsel.)

Payment for general promotion of your real estate business is not prohibited.

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CP-6, CP-7

CP-6: Release of Earnest Money: A broker is not required to return disputed earnest money, but may await court instruction resulting from lawsuit between the parties, OR may turn the disputed funds over to a court for distribution. When disputed, it is wise to obtain both parties signatures on a commission-approved release form. 

When a transaction fails with no dispute, the broker must return earnest money to the appropriate party immediately. No signature of release or receipt is required. 

In the rare case when a broker is unable to locate a party due earnest money, a broker may be required to deposit the money as unclaimed property with the State Treasurer under the Great Colorado Payback program. If not claimed after a certain period, the money is advertised and thereafter escheats to the state. 

CP-7: Closing Costs: Nothing in this position statement adds to the context of Commission Rule E-37. 

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CP-8, CP-9, CP-10

CP-8: Assignment of Contracts and Escrowed Funds: When a real estate company is sold, merged or goes out of business, all interested parties must be notified and permission obtained to transfer any listing/employment agreements or assign any escrowed funds. Escrowed money transferred to a new broker makes the new broker liable for its safeguarding and accounting even without new agreements being signed. Earnest money may not be released to any party, except the closing entity, just prior to closing. 

CP-9: Recordkeeping by Brokers: The loan payoff statement should be retained by the listing broker; the new loan statement should be retained by the broker working with the buyer. The final sales agreement and settlement statement delivered at closing for that party’s tax reporting, or future use, shall bear duplicate signatures as authorized. Remainder of text is verbatim from Rule E-5.

CP-10: Compensation Agreements between Employing and Employed Brokers: The Commission will not get involved in compensation disputes between employing brokers and their licensees. Both parties should have an (oral or) written employment contract covering compensation; disputes must be settled internally or through the courts.

(Instructor’s note: It is prudent to include compensation from referrals and costs associated with purchase and sale of broker-owned properties before entering an employment contract.)

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CP-11, CP-12

CP-11: Assignments of Broker’s Rights to a Commission: An employed broker must place any funds from any source with the employing broker, and may not accept a commission or any valuable consideration from anyone other than the employing broker. An employing broker may assign a commission to any person after title has transferred (closing).

CP-12: Broker’s Payment or Rebating a Portion of an Earned Commission: Although brokers are forbidden from paying fees to unlicensed persons, brokers may generally add a sum of money to, or rebate a portion of, the earned commission from the brokerage services offered in the contract to their own clients without violating the license law. 

Listing brokers who intend to offer a rebate of earned commission to the buyer must first obtain the seller’s authorization because:

a. Such a rebate may adversely affect the buyer’s financial qualifying and thus harm the broker’s fiduciary to the seller; and

b. If the expected payment is not made, the buyer may include the seller in any lawsuit to recover the promised rebate.

Gratuitous true gifts (not offered as inducements to purchase) of nominal value are okay and do not interfere with a listing broker’s fiduciary to the seller.

 

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CP-13, CP-14

CP-13: Single-Party Listings: Listing a property for sale to a specified single purchaser is unfair to the seller, possibly putting an unaware seller, who also signs a normal exclusive listing, in jeopardy of owing two commissions. Therefore, when seeking a single-party listing, the broker should include one, two or all of these provisions:

1. This listing contract shall apply only to the sale of the property to (______).

2. The termination date shall not be extended by the “holdover period of this listing contract.

3. If a sale is made to any other party than the single party named above by the seller or the seller’s broker, this listing contract is void.

CP-14: Sale of Modular Homes by Licensees: A licensee may sell a modular home and not be subject to the license law restrictions on delivering all money to, or receiving commissions, only by the employing broker. Likewise, none of the recordkeeping or money-handling provisions of Rules E-1 or E-5 apply. But if the sale includes land, or is tied to a pre-arranged parcel of land, then license law and Commission rule apply and all money must be processed through the employing broker with appropriate recordkeeping.

 

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CP-15, CP-16

CP-15: Sale of Items Other than Real Estate: If items or services are sold under a property management agreement, or a contract for sale of the real property, a broker must disclose to both buyer and seller (or landlord and tenant) that the licensee is being compensated by a vendor or contractor. All money must be processed through the employing broker. 

If the sale is under a separate contract without reference to real property, the vendor or contractor may pay an employed licensee without going through the employing broker. However, if a listing broker makes the sale to a buyer during a listing agreement with the seller, the employed licensee must disclose to both the seller and buyer the vendor or contractor is paying that to him or her. 

The employment contract between the employing and employed brokers will take priority as to any restrictions or prohibitions against such activity. 

CP-16: Access to Properties Offered for Sale: The listing broker is primarily responsible for safeguarding access instructions to property listed for sale. Broker working with sellers must also safeguard access information and not distribute it to appraisers, inspectors or buyers without the listing broker’s authorization.

(Instructor’s note: This means discussing any seller access preferences during the listing presentation and insuring they are followed.)

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CP-18, CP-19

CP-18: Payments to Wholly Owned Employee’s Corporation. An employed broker must be licensed in his or her own personal name, and may not use a corporate name in the practice of real estate or to circumvent Commission rules on broker supervision. However, brokers may choose to establish a corporate veil for IRS or state tax purposes and the Commission will then allow commission checks to be paid to the name of the associate broker’s corporate entity. 

CP-19: Short-Term Occupancy Agreements.  Resort or hotel-type agreements are not leases and are exempt from the definition of real estate brokerage. However, a licensed broker conducting such activity must still 
escrow and account for any held money belonging to others.

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CP-20

CP-20: Unlicensed Personal Assistants. Unlicensed persons may not perform activity requiring a license. This means they may not independently draft legal documents (contracts), offer opinions, advice or interpretation. They may, however, prepare contracts and forms as directed by the licensee, and distribute information on listed properties prepared by the licensee. 

Unlicensed assistants 
may:

1. Perform clerical duties including gathering listing information.

2. Provide access to properties, as long as no negotiating, selling, offering or contracting occurs.

3. Distribute pre-printed objective information at an open house as long as no negotiating, selling, offering or contracting occurs.

4. Distribute pre-printed objective information on listed properties prepared by licensees.

5. Deliver paperwork to other brokers.

6. Deliver paperwork to sellers/buyers 
after review by licensee.

7. Deliver lender-prepared paperwork to obtain signatures.

8. Independently prepare CMA’s for sellers/buyers, as long as their name is included thereon as preparer and the CMA is actually presented by the licensee.

Written office policy should detail the duties, responsibilities and limitations of personal assistants. 

Assistants should be paid in some manner other than sharing in sales commissions. When compensation is based on success of the closing, unlicensed assistants may face increased pressure to cross over into activities requiring a license.

 

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CP-21

CP-21 Office Policy Manuals should contain procedures for at least:

· Typical real estate transactions (contract review, earnest money handling, back-up contracts, closings).

· Non-qualifying assumptions and owner financing.

· Guaranteed buyouts.

· Investor purchases (and brokerage relationships less than “arms-length (CP-31).

·
Brokerage relationships offered to the public.

(Instructor’s note: This is the only policy required by statute C.R.S. 12-10-403 for every brokerage, including both single- and multiple-person firms.)

·
Broker designation in firms of more than one person when the broker elects to take advantage of Rule E-38 to avoid writing a letter of appointment for every side of every transaction.

· Maintenance and protection of confidential information (Rule E-39).

· Licensee purchase and sale of property.

· Monitoring of license renewals and transfers.

· Delegation of authority (When employing broker is absent, acts as a designated broker in a transaction, or in certain cases of administrative or supervisory practice.

(
Instructor’s note: Remember a broker may delegate authority, but not responsibility.)

Property Management

(Instructor’s note: A firm intending to engage in property management is well advised to develop an entire separate office policy manual for such activity. The level of detail is far too broad to be addressed in a policy topic. Chapter 20 of the CREM offers additional guidance/options for property management.)

· Property listing/release/termination procedures.

· Training (Including dissemination of information and office meetings).

· Personal Assistants.

· Fair Housing.

· Listing syndication

· Broker price opinions 

(This policy should not simply restate Federal and state law, nor list protected classes for which associates are already responsible, but should have YOUR personal affirmation of this subject, including policy on broker behavior and reporting/dealing with fair housing issues should they arise.)

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CP-22, CP-23

CP-22: Handling of Confidential Information in Real Estate Brokerage. This CP statement addresses the requirement for written policies to safeguard files, phone conversations, sales meetings, etc. Remember that the 
designated broker is the only guardian of the client’s confidential information unless assistance is needed in accordance with Commission Rule E-45 as authorized by paragraph 4c of the Commission-approved listing/employment agreements. 

CP-23: Use of Licensee Buyout Addendum: This addendum is required 
only when a licensee contracts to purchase a property:

1. Concurrent with listing the property for sale.

2. As an inducement to, or to facilitate the owner’s purchase of, another property.

3. But continues to market the property under an existing listing agreement.

If a licensee intends to purchase for his or her own account, he or she must:

1. Sever the brokerage relationship.

2. Renounce any right to a commission.

3. Advise the owner to seek other real estate or legal representation. 
(
Instructor’s note: This position statement pre-dates designated brokerage. This severance applies only to the licensee purchaser’s personal brokerage relationships, and not to properties listed by other brokers in the firm.)

Resale to a buyer with whom the licensee had negotiated during the listing violates the license law absent written disclosure and seller acknowledgment.

 

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CP-22, CP-23

CP-22: Handling of Confidential Information in Real Estate Brokerage. This CP statement addresses the requirement for written policies to safeguard files, phone conversations, sales meetings, etc. Remember that the 
designated broker is the only guardian of the client’s confidential information unless assistance is needed in accordance with Commission Rule E-45 as authorized by paragraph 4c of the Commission-approved listing/employment agreements. 

CP-23: Use of Licensee Buyout Addendum: This addendum is required 
only when a licensee contracts to purchase a property:

1. Concurrent with listing the property for sale.

2. As an inducement to, or to facilitate the owner’s purchase of, another property.

3. But continues to market the property under an existing listing agreement.

If a licensee intends to purchase for his or her own account, he or she must:

1. Sever the brokerage relationship.

2. Renounce any right to a commission.

3. Advise the owner to seek other real estate or legal representation. 
(
Instructor’s note: This position statement pre-dates designated brokerage. This severance applies only to the licensee purchaser’s personal brokerage relationships, and not to properties listed by other brokers in the firm.)

Resale to a buyer with whom the licensee had negotiated during the listing violates the license law absent written disclosure and seller acknowledgment.

 

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CP-24, CP-25, CP-26

CP-24: Preparation of CMA’s/Evaluations Used for Loan Purposes. A broker may use a CMA in court testimony or for tax considerations. Brokers may also prepare value estimates under contract to federally regulated lending institutions provided they are competent to the assignment, reach a value estimate below the federal mandated amount requiring an appraisal, and include the “I am not an appraiser” disclaimer in Section 7 of the license law. 

CP-25: Recording Listing Contracts. A licensee may not file a mechanic’s lien, lis pendens, record a listing contract, or otherwise attempt to cloud title on a property to enforce a perceived earned commission. The only appropriate courses of action are: mediation, arbitration, or civil action.

CP-26: Auctioning. Real estate auctions must be conducted under the license law with a licensed broker listing, advertising, showing and preparing contracts on the property, although the actual “crier” (auctioneer) of the auction may be unlicensed.

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CP-27, CP-28, CP-29

CP-27: Performance of Residential Leasing and Property Management Functions. Specifies the minimum inclusions of a written management agreement. 

(Instructor’s note: There is no commission-approved management agreement form. The commission requires both an “Exclusive Right-to-Lease Listing Contract” and a Management Agreement – preferably reviewed by broker’s legal counsel.)

CP28: Showing Properties: Brokers must advise clients, and include in listing/employment contracts on the methods, advantages and limitations of controlling access to the property. Different kind of lockboxes, seller desires for advance appointment showings or listing broker presence may reduce the number of property showings. A broker must never unilaterally refuse a showing absent seller’s explicit written authorization.

CP-29: Megan’s Law: A licensee should inform potential buyers to contact local law enforcement officials for information if the presence of registered sex offenders is of concern to the buyer.

(Instructor’s note: Certainly the broker may assist in locating the appropriate law enforcement agency or on-line source, but must refrain from any determination as to whether certain neighborhood residents are, in fact, sex offenders.)

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CP-30, CP-31

CP-30: Seller Assisted Down Payments (Joint with Board of Real Estate Appraisers).  Brokers have a responsibility to safeguard the representation of accurate sold data. Such data is often later used for appraisals on other properties and may result in inflated values if sales concessions are not accurately reported. Accordingly, brokers should:

1. Note all seller concessions or costs in the Buy/Sell contract, Settlement Statement and Real Property Transfer Declaration.

2. Accurately and completely reflect seller contributions, inducements and seller-assisted down payments in the MLS – including updating after closing as required.

3. Advise sellers/buyers to seek competent tax counsel on the effect of such contributions and inducement.

4. Cooperate with appraisers seeking information on real costs of prior sales.

CP-31: Acting as an Agent or Transaction Broker in Particular Transactions. Agents advocate. Transaction-Brokers assist as neutral consultants. No judge will ever determine that a licensee was a neutral third-party advisor when selling Mom’s house, or buying/selling on one’s account. Therefore, regardless of the firm’s brokerage relationship policy, representing oneself, a relative or close personal friend, or a repeat client/investor should not be done as an agent.

 

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CP-32, CP-33, CP-34, CP-35, CP-36

CP-32: Brokerage Disclosures. Where a buyer (tenant) declines to enter an agency employment agreement, a broker should enter the appropriate contract as a transaction-broker. The broker and client MUST enter an employment agreement with the “Buyer Agency” or “Tenant Agency” box checked at the top of the form BEFORE advocating for the client. 

CP-33: Application of Good Funds Laws. In Colorado, title actually transfers from seller to buyer at closing. Therefore all funds going into the closing must be what are known as “Good Funds.” This means the funds must be readily available for withdrawal, and includes completed wire transfers, certified, cashiers or teller’s checks. The title company doing the closing must have such Good Funds 
in hand before disbursing any moneys at closing.

CP-34: Settlement Service Provider Selection, Closing Instructions and Earnest Money Deposits:  This position covers how settlement service providers are selected, when closing instructions must be completed by a real estate broker (“broker”) and how earnest money is to be handled.

CP-35:  Position on Brokers as Principals: The Commission regularly receives complaints stating that a licensed broker acting as a principal in a transaction failed to do one of the following: failed to disclose adverse material fact; failed to disclose brokerage relationships; failed to ensure that contract document and/or settlement statements reflect terms of the transaction; has filed a document that unlawfully clouds title to the property; fails to disclose broker’s licensed status; mismanages funds belonging to others ; and/or falsifies information used for purposes of obtaining financing.  The Commission reminds licensees that the Commission may investigate and discipline a licensee acting in the capacity of a principal in the transaction.  (See S
eibel v. Colorado Real Estate Commission, 34 Colo. App. 415, 530 P.2d 1290)

CP-36:  CP-36 Commission Position on Minimum Service Requirements: The Commission has received numerous inquiries regarding the minimum services that brokers must provide to buyers or sellers of real property.  §12-10-403, C.R.S. requires that any broker performing the activities requiring a real estate broker’s license as set forth in §12-10-202, C.R.S., act in the capacity of either a transaction broker or a single agent in the transaction.  The minimum duties required to be performed by a real estate broker acting in the capacity of a single agent are set forth in:

· §12-1-404 and 12-10-405, C.R.S.  §12-10-404, C.R.S. Single agent engaged by seller or landlord states, in part:

(1)  A broker engaged by a seller or landlord to act as a seller’s agent or a landlord’s agent is a limited agent with the following duties and obligation:

(a)  To perform the terms of the written agreement made with the seller or landlord;

(b)  To exercise reasonable skill and care for the seller or landlord;

(c)  To promote the interests of the seller or landlord with the utmost good faith, loyalty, and fidelity, including, but not limited to:

(I)     Seeking a price and terms which are acceptable to the seller or landlord; except that the broker shall not be obligated to seek additional offers to purchase the property while the property is subject to a contract for sale or to seek additional offers to lease the property while the property is subject to a lease or letter of intent to lease:

(II)    Presenting all offers to and from the seller or landlord in a timely manner regardless of whether the property is subject to a contract for sale or a lease or letter of intent to lease;

(III)   Disclosing to the seller or landlord adverse material facts actually known by the broker;

(IV)   Counseling the seller or landlord as to any material benefits or risks of a transaction which are actually known by the broker;

(V)    Advising the seller or landlord to obtain expert advice as to material matters about which the broker knows but the specifics of which are beyond the expertise of such broker;

(VI)   Accounting in a timely manner for all money and property received; and

(VII)  Informing the seller or landlord that such seller or landlord shall not be vicariously liable for the acts of such seller’s or landlord’s agent that are not approved, directed or ratified by such seller or landlord.   

(d)  To comply with all requirements of this article and any rules promulgated pursuant to this article; and

(e)  To comply with any applicable federal, state, or local laws, rules, regulations, or ordinances including fair housing and civil rights statutes or regulations.

· 12-10-405, C.R.S. Single agent engaged by buyer or tenant states, in part:

(1) A broker engaged by a buyer or tenant to act as a buyer’s or tenant’s agent shall be a limited agent with the following duties and obligations:

(a) To perform the terms of the written agreement made with the buyer or tenant;

(b) To exercise reasonable skill and care for the buyer or tenant;

(c) To promote the interests of the buyer or tenant with the utmost good faith, loyalty, and fidelity, including but not limited to:

(I) Seeking a price and terms which are acceptable to the buyer or tenant; except that the broker shall not be obligated to seek other properties while the buyer is a party to a contract to purchase property or while the tenant is a party to a lease or letter of intent to lease;

(II) Presenting all offers to and from the buyer or tenant in a timely manner regardless of whether the buyer is already a party to a contract to purchase property or the tenant is already a party to a contract or a letter of intent to lease;

(III) Disclosing to the buyer or tenant adverse material facts actually known by the broker;

(IV) Counseling the buyer or tenant as to any material benefits or risks of a transaction which are actually known by the broker;

(V) Advising the buyer or tenant to obtain expert advice as to material matters about which the broker knows but the specifics of which are beyond the expertise of such broker;

(VI) Accounting in a timely manner for all money and property received; and

(VII) Informing the buyer or tenant that such buyer or tenant shall not be vicariously liable for the acts of such buyer’s or tenant’s agent that are not approved, directed, or ratified by such buyer or tenant;

(d) To comply with all requirements of this article and any rules promulgated pursuant to this article; and (e) To comply with any applicable federal, state, or local laws, rules, regulations, or ordinances including fair housing and civil rights statutes or regulations.

The minimum duties required to be performed by a real estate broker acting in the capacity of a transaction broker are set forth in §12-10-407, C.R.S. which states, in part:

(1) A broker engaged as a transaction-broker is not an agent for either party;

(2) A transaction-broker shall have the following obligations and responsibilities:

(a) To perform the terms of any written or oral agreement made with any party to the transaction;

(b) To exercise reasonable skill and care as a transaction-broker, including, but not limited to:

(I) Presenting all offers and counteroffers in a timely manner regardless of whether the property is subject to a contract for sale or lease or letter of intent;

(II) Advising the parties regarding the transaction and suggesting that such parties obtain expert advice as to material matters about which the transaction-broker knows but the specifics of which are beyond the expertise of such broker;

(III) Accounting in a timely manner for all money and property received;

(IV) Keeping parties fully informed regarding the transaction;

(V) Assisting the parties in complying with the terms and conditions of any contract including closing the transaction;

(VI) Disclosing to prospective buyers or tenants any adverse material facts actually known by the broker including but not limited to adverse material facts pertaining to the title, the physical condition of the property, any defects in the property, and any environmental hazards affecting the property required by law to be disclosed;

(VII) Disclosing to any prospective seller or landlord all adverse material facts actually known by the broker including but not limited to adverse material facts pertaining to the buyer’s or tenant’s financial ability to perform the terms of the transaction and the buyer’s intent to occupy the property as a principal residence; and 

(VIII) Informing the parties that  as a seller and buyer or as landlord and tenant they shall not be vicariously liable for any acts of the transaction-broker;

(c) To comply with all requirements of this article and any rules promulgated pursuant to this article; and

(d) To comply with any applicable federal, state, or local laws, rules, regulations, or ordinances including fair housing and civil rights statutes or regulations. §12-10-403, C.R.S. allows real estate brokers to perform duties in addition to those established in §§12-10-404, 12-10-405 and 12-10-407, C.R.S.  The additional duties may include, but are not limited to, holding open houses, property showings, providing a lockbox, use of multiple listing services or other information exchanges, etc.

Additional services that brokers agree to provide their clients must be documented in writing.  A broker is not allowed to solely perform “additional” services which require a real estate broker’s license, i.e. offering the real property of another for sale through advertisements, without providing the minimum duties required by single agency or transaction brokerage.  The Commission does not regulate the fees or commissions charged by brokers for minimum or additional services provided.  Fees and commissions are negotiable between the broker and the principal.

Please be advised that since 2011 the Colorado Real Estate Commission issued several new position statements. The new position statements are as follows:

·

Position Statement CP37
 – Survey and Lease Objections

·

Position Statement CP38
 – AFBA Disclosures and Conflicts of Interest

·

Position Statement CP39
 – Lease Options, Lease Purchase Agreements & Installment Land Contracts

·

Position Statement CP40
 – Teams

·

Position Statement CP41
– Competency

· Position Statement CP42 – Apartment Building or Complex Management

· Position Statement CP43 – Property Inspection Resolutions

· Position Statement CP44 – Coming Soon Listings

· Position Statement CP45 – Defined Terms

· Position Statement CP46 – Broker Disclosure of Adverse Material Facts

A list of all the Real Estate Commissions’ positions statements can be found at: 

https://www.colorado.gov/pacific/dora/division-real-estate-rule-making-and-position-statements

Summary

This concludes Chapter 3. Below is a brief summary which you can review before taking your quiz.

Homebuilder’s Exemption from Licensing: Salespersons working for new homebuilders are not required to be licensed.

Referral Fees and Advertising Services: A broker may not pay commissions or referral fees to unlicensed persons for activities requiring a license.

Sign Crossing Rule: a broker may not contact a seller or buyer who is party to a current exclusive listing or employment agreement.

Interest Bearing Trust Accounts: Except in the case of mobile home park management, any interest paid on trust accounts does not belong to the broker.

Advance Rentals and Security Deposits: Advance rent must be held in escrow until applied to the owner’s credit.

Release of Earnest Money: A broker is not required to return disputed earnest money, but may await court instruction resulting from lawsuit between the parties or may turn the disputed funds over to a court for distribution.

Assignment of Contracts and Escrowed Funds: When a real estate company is sold, merged or goes out of business, all interested parties must be notified and permission obtained to transfer any listing/employment agreements or assign any escrowed funds.

Recordkeeping by Brokers: The loan payoff statement should be retained by the listing broker; the new loan statement should be retained by the broker working with the buyer.

Compensation Agreements between Employing and Employed Brokers: The Commission will not get involved in compensation disputes between employing brokers and their licensees.

Assignments of Broker’s Rights to a Commission: An employed broker must place any funds from any source with the employing broker, and may not accept a commission or any valuable consideration from anyone other than the employing broker.

Broker’s Payment or Rebating a Portion of an Earned Commission: brokers may generally add a sum of money to the earned commission from the brokerage services. 

Single-Party Listings: Listing a property for sale to a specified single purchaser is unfair to the seller, possibly putting an unaware seller, who also signs a normal exclusive listing, in jeopardy of owing two commissions.

Sale of Modular Homes by Licensees: A licensee may sell a modular home and not be subject to the license law restrictions on delivering all money to, or receiving commissions, only by the employing broker.

Sale of Items Other than Real Estate: If items or services are sold under a property management agreement a broker must disclose to both buyer and seller that the licensee is being compensated by a vendor or contractor.

Access to Properties Offered for Sale: The listing broker is primarily responsible for safeguarding access instructions to property listed for sale.

Payments to Wholly Owned Employee’s Corporation. An employed broker must be licensed in his own personal name, and may not use a corporate name in the practice of real estate.

Short-Term Occupancy Agreements:  Resort or hotel-type agreements are not leases and are exempt from the definition of real estate brokerage. A licensed broker conducting such activity must still 
escrow and account for any held money belonging to others.

Unlicensed Personal Assistants: Unlicensed persons may not perform activity requiring a license.

·
Written office policy should detail the duties, responsibilities and limitations of personal assistants.

· Assistants should be paid in some manner other than sharing in sales commissions.

Office Policy Manuals should contain procedures for at least:

· Typical real estate transactions

· Non-qualifying assumptions and owner financing.

· Guaranteed buyouts.

· Investor purchases.

Handling of Confidential Information in Real Estate Brokerage: requirement for written policies to safeguard files.

Use of Licensee Buyout Addendum is required only when a licensee contracts to purchase a property:

· Concurrent with listing the property for sale.

· As an inducement to, or to facilitate the owner’s purchase of, another property.

· But continues to market the property under an existing listing agreement.

A broker may use a 
CMA in court testimony or for tax considerations.

Recording Listing Contracts: The only appropriate courses of action are: mediation, arbitration, or civil action.

Showing Properties: Brokers must advise clients, and include in listing/employment contracts on the methods, advantages and limitations of controlling access to the property.

Megan’s Law: A licensee should inform potential buyers to contact local law enforcement officials for information if the presence of registered sex offenders is of concern to the buyer. 

Seller Assisted Down Payments: Brokers have a responsibility to safeguard the representation of accurate sold data. Such data is often later used for appraisals on other properties and may result in inflated values if sales concessions are not accurately reported.

Agents advocate. Transaction-Brokers assist as neutral consultants.

Where a buyer (tenant) declines to enter an agency employment agreement, a broker should enter the appropriate contract as a transaction-broker.

Application of Good Funds Laws: The title company doing the closing must have such Good Funds 
in hand before disbursing any moneys at closing.

The Commission has received numerous inquiries regarding the minimum services that brokers must provide to buyers or sellers of real property. 

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 

Chapter 3 Summary

Congratulations – you have completed Chapter Three! Pass the following quiz with a score of 80% or better to continue onto Chapter Four. Good Luck!

 

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C.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:


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.)


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.


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.


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.

End

 

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Exclusive Right-to-Buy

A contract to employ a broker may be to list property for sale/lease or to “list” a buyer for whom to locate a property to buy or lease. Perhaps in the future we will come to label these both as employment contracts to avoid the confusion. 

We will now review thoroughly the Exclusive Right-to-Buy Contract in much the same detail as the Exclusive Right-to-Sell. You will notice many similarities. When finished, we will contrast the Exclusive Tenant employment agreement with this form.

By the end of this unit, you will be able to: 

· Explain the purpose of the Exclusive Right to Buy Contract

· Describe each paragraph encountered when completing an Exclusive Right to Buy contract

· Recognize the purpose of the various Brokerage Disclosure Forms and describe when they would be used

Let’s get started!

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Right-to-Buy Preamble

The printed portions of this form, except differentiated additions, have been approved by the Colorado Real Estate Commission. (BC60-6-19) ( Mandatory 1-20)

THIS IS A BINDING CONTRACT. THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING. 

Compensation charged by real estate brokerage firms is not set by law. Such charges are established by each real estate brokerage firms. 

DIFFERENT BROKERAGE RELATIONSHIPS ARE AVAILABLE WHICH INCLUDE BUYER AGENCY, SELLER AGENCY OR TRANSACTION-BROKERAGE.

You have noticed that there is no difference in the preamble warnings between this people listing and the former property listings.

End of Page

Right-to-Buy §1 and §2

EXCLUSIVE RIGHT-TO-BUY CONTRACT  
_____BUYER AGENCY _____TRANSACTION-BROKERAGE 
Date:

 

1. AGREEMENT. Buyer and Brokerage Firm enter into this exclusive, irrevocable contract as of the date set forth above (Buyer Listing Contract) and agree to its provisions. Broker, on behalf of Brokerage Firm, agrees to provide brokerage services to Buyer. Brokerage Firm will receive compensation as set forth in this Buyer Listing Contract.

Buyer and Firm in the contract; Buyer and individual licensee in the brokerage relationship.

2. BROKER AND BROKERAGE FIRM.

___ 2.1. Multiple-Person Firm. If this box is checked, the individual designated by Brokerage Firm to serve as the broker of Buyer and to perform the services for Buyer required by this contract is called Broker. If more than one individual is so designated, then references in this Buyer Listing Contract to Broker shall includes all persons so designated, including substitute or additional brokers. The brokerage relationship exists only with Broker and does not extend to the employing broker, Brokerage Firm, or to any other brokers employed or engaged by Brokerage Firm who are not so designated.

___ 2.2. One-Person Firm.  If this box is checked, Broker is a real estate brokerage firm with only one licensed natural person. References in this Buyer Listing Contract to Broker or Brokerage Firm mean both the licensed natural person and brokerage firm, who serve as the broker of Buyer and perform the services for Buyer required by this contract.

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Right-to-Buy §3 Defined Terms

3.1. Buyer: (Insert Buyer(s) Names here)

and any other person or entity on whose behalf the named party acts, directly or indirectly, to Purchase the Property.

Notice that this allows a substitution of the client. A Seller listing has no such substitution allowed, but a buyer may have someone else purchase the property for him or her.

3.2. Brokerage Firm: (Insert Brokerage Firm Name here)

3.3. Broker: 
(Insert name of Designated Broker here)  
 

3.4  Property. Property means real estate which substantially meets the following requirements or similar real estate acceptable to Buyer: 

This is a tricky one. You want to be thorough enough as to indicate what the buyer really wants, but not so detailed that very few homes will ever meet the buyer’s needs. You might fill this is in with something generic, such as: “A home suitable for a family of 4 within the (XX) Association of REALTORS© marketing area.” If the buyer really has a firm requirement, e.g. preferably not on a major arterial street, make sure it gets written down and used in your property screening.

Also note that this definition does NOT say “real estate listed in the MLS.” Performing properly as a buyer broker means finding that property whether it is in foreclosure, is a For Sale By Owner, or a property not even known to the market (i.e. identifying the perfect property and trying to convince an owner to become a seller). Real buyer brokerage is not for sissies. 
 

3.5. Purchase; Lease.

· 3.5.1 Purchase means the acquisition of any interest in the Property or the creation of the right to acquire any interest in the Property (including a contract or lease). It also includes an agreement to acquire any ownership interest in an entity that owns the Property.

· _____3.5.2  If this box is checked, Buyer authorizes Broker to negotiate a lease of the property.  Lease of the property or Lease means any agreement between a landlord and the Buyer to create a tenancy or leasehold interest in the Property.

Notice that an installment land contract or lease also qualifies as successful performance on your part.

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Right-to-Buy §3 Defined Terms (continued)

3.6. Listing Period. The Listing period of the Buyer Listing Contract begins on ____, and continues through the earlier of (1) completion of the Purchase of the Property or Lease of the Property or (2) ____. Broker will continue to assist in the completion of any purchase or lease for which compensation is payable to Brokerage Firm under § 7 of this Buyer Listing contract.

3.7. Applicability of Terms. A check or similar mark in a box means that such provision is applicable. The abbreviation “N/A” or the word “Deleted”, means not applicable. The abbreviation “MEC” (mutual execution of this contract) means the date upon which both parties have signed this Buyer Listing Contract.

3.8  Day. Computation of Period of Days, Deadline.

·
3.8.1 Day. As used in this Seller Listing Contract, the term “day” means the entire day ending at 11:59 p.m., United States Mountain Time (Standard or Daylight Savings as applicable).

·
3.8.2 Computation of Period of Days, Deadline. In computing a period of days, when the ending date is not specified, the first day is excluded and the last day is included, e.g. three days after MEC. If any deadline falls on a Saturday, Sunday or federal or Colorado state holiday (Holiday), such deadline ___ 
Will ___ 
Will Not be extended to the next day that is not a Saturday, Sunday or Holiday. Should neither box be checked, the deadline will not be extended.

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Right-to-Buy §4 Brokerage Relationship

4.1. If the Buyer Agency box at the top of page 1 is checked, Broker represents Buyer as a Buyer’s Limited Agent. If the Transaction-Brokerage box at the top of page 1 is checked, Broker shall act as a Transaction-Broker. 

4.2. In-Company Transaction – Different Brokers. When the seller and Buyer in a transaction are working with different brokers, those brokers continue to conduct themselves consistent with the brokerage relationships they have established. Buyer acknowledges that Brokerage Firm is allowed to offer and pay compensation to brokers within Brokerage Firm working with a seller. 

4.3. In-Company Transaction – One Broker. If the seller and Buyer are both working with the same broker, Broker shall function as:

·
4.3.1. Buyer’s Agent. If the Buyer Agency box at the top of page 1 is checked, the parties agree the following applies: 


Check One Box Only

·
4.3.1.1. Buyer Agency Only. Unless the box in Section 4.3.1.2 (Buyer Agency Unless Brokerage Relationship With Both is checked, Broker represents Buyer as Buyer’s Agent and must treat the seller as a customer. A customer is a party to a transaction with whom Broker has no brokerage relationship. Broker must disclose to such customer Broker’s relationship with Buyer.

·
4.3.1.2.___ Buyer Agency Unless Brokerage Relationship with Both. If this box is checked, Broker represents Buyer as Buyer’s Agent and must treat the seller as a customer, unless Broker currently has or enters into an agency or Transaction-Brokerage relationship with the seller, in which case Broker must act as a Transaction-Broker.

This compromise box allows you to champion your buyer as an agent, and use a Change-of-Status form to become a T-B if/when your buyer wishes to make an offer on one of your personal listed properties. Again, any of the choices at the top of the contract and in this Section 6 are subject to 1.) Your employing broker’s written office policy on brokerage relationships offered to the public, and 2.) Your buyer’s preference.

·
4.3.2. Transaction-Broker. If the Transaction-Brokerage box at the top of page 1 is checked, or in the event neither box is checked, Broker must work with Buyer as a Transaction-Broker.  A Transaction-Broker must perform the duties described in § 5 and facilitate purchase transactions without being an advocate or agent for either party . If the seller and Buyer are working with the same broker, Broker shall continue to function as a Transaction-Broker.

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Right-to-Buy §5 Brokerage Duties

Brokerage Firm, acting through Broker
 as either a Transaction-Broker or a Buyer’s Agent, must perform the following 
Uniform Duties when working with Buyer:

5.1. Broker must exercise reasonable skill and care for Buyer, including but not limited, to the following:

·
5.1.1. Performing the terms of any written or oral agreement with Buyer;

·
5.1.2. Presenting all offers to and from Buyer in a timely manner regardless of whether Buyer is already a party to a contract to Purchase the Property;

·
5.1.3. Disclosing to Buyer adverse material facts actually known by Broker;

·
5.1.4. Advising Buyer regarding the transaction and advising Buyer to obtain expert advice as to material matters about which Broker knows, but the specifics of which are beyond the expertise of Broker;

·
5.1.5. Accounting in a timely manner for all money and property received; and

·
5.1.6. Keeping Buyer fully informed regarding the transaction. 

5.2. Broker shall not disclose the following information without the informed consent of Buyer:

·
5.2.1. That Buyer is willing to pay more than the purchase price offered for the Property;

·
5.2.2. What Buyer’s motivating factors are;

·
5.2.3. That Buyer will agree to financing terms other than those offered; or

·
5.2.4. Any material information about Buyer unless disclosure is required by law or failure to disclose such information would constitute fraud or dishonest dealing

·
5.2.5. Any facts or suspicions regarding circumstances that could psychologically impact or stigmatize the Property.

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Right-to-Buy §5 Brokerage Duties (continued)

5.3. Buyer consents to Broker’s disclosure of Buyer’s confidential information to the supervising broker or designee for the purpose of proper supervision, provided such supervising broker or designee shall not further disclose such information without consent of Buyer, or use such information to the detriment of Buyer.  

5.4. Broker may show properties in which the Buyer is interested to other prospective buyers without breaching any duty or obligation to such Buyer. Broker is not prohibited from showing competing buyers the same property and from assisting competing buyers in attempting to purchase a particular property.  

5.5. Broker shall not be obligated to seek other properties while Buyer is already a party to a contract to purchase property.  

5.6. Broker has no duty to conduct an independent inspection of the Property for the benefit of Buyer and has no duty to independently verify the accuracy or completeness of statements made by a seller or independent inspectors. Broker has no duty to conduct an independent investigation of Buyer’s financial condition or to verify the accuracy or completeness of any statement made by Buyer. 

5.7. Broker shall disclose to any prospective seller all adverse material facts actually known by Broker, including but not limited to adverse material facts concerning Buyer’s financial ability to perform the terms of the transaction and whether Buyer intends to occupy the Property as a principal residence.

Be careful here. If acting as an agent, you have a fiduciary to your buyer; but you must still disclose to the Seller when writing an offer if your buyer has credit issues. This type of disclosure does not violate your fiduciary. In fact, it protects the public from nuisance offers. All the more reason for you to be involved with a full understanding of your buyer’s financial resources/loan qualifications. 

5.8. Buyer understands that Buyer shall not be liable for Broker’s acts or omissions that have not been approved, directed, or ratified by Buyer.

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Right-to-Buy §6 Additional Duties of Buyer’s Agent

If the Buyer Agency box at the top of page 1 is checked, Broker is Buyer’s Agent, with the following additional duties:

6.1. Promoting the interests of Buyer with the utmost good faith, loyalty and fidelity.

6.2. Seeking a price and terms that are acceptable to Buyer.

6.3. Counseling Buyer as to any material benefits or risks of a transaction that are actually known by Broker.

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Right-to-Buy §7 Compensation to Brokerage Firm

In consideration of the services to be performed by Broker, Brokerage Firm will be paid as set forth in this section,   with no discount or allowance for any efforts made by Buyer or any other person. Brokerage Firm is entitled to receive additional compensation, bonuses, and incentives paid by listing brokerage firm or seller. Broker will inform Buyer of the fee to be paid to Brokerage Firm and, if there is a written agreement, Broker will supply a copy to Buyer, upon written request of Buyer.

7.1. Brokerage Firm’s Fee – Purchase

Check Compensation Arrangement:

· _____
7.1.1. Success Fee.  Brokerage Firm will be paid as follows:

· _____
7.2.1.2. Amount.  A fee equal to ______  % of the purchase price,   but not less than $ ________,as provided in § 7.1.1.2.

· _____
7.1.1.2. Adjusted Amount.  See Section 19 Additional Provisions or _________
Other

· _____
7.1.1.3. When Earned; When Payable – Purchase.  The Success Fee is earned by the Brokerage Firm upon the Purchase of the Property and is payable upon closing of the transaction. If any transaction fails to close as a result of the seller’s default, with no fault on the part of Buyer, the Success Fee will be waived. If any transaction fails to close as a result of Buyer’s default, in whole or in part, the Success Fee will not be waived; such fee is payable upon Buyer’s default, but in any event not later than the date that the closing of the transaction was to have occurred.

· _____
7.1.2. Hourly Fee.  Brokerage Firm will be paid $____ per hour for time spent by Broker pursuant to this Buyer Listing Contract, up to a maximum total fee of $______.  This hourly fee is payable to Brokerage Firm upon receipt of an invoice from Brokerage Firm.

· _____
7.1.3. Retainer Fee.  Buyer will pay Brokerage Firm a nonrefundable retainer fee of $_________  due and payable  upon signing of this Buyer Listing Contract. This amount ___  
Will ___ 
Will Not be credited against other fees payable to Brokerage Firm under this section.

· _____ 
7.1.4. Other Compensation. ____________________________________

7.2 Brokerage Firm’s Fee – Lease.   If the box in § 3.5.2 is checked Brokerage Firm will be paid  a fee as follows, less any amounts paid by  the listing brokerage firm or landlord:

· _____
7.2.1. Amount. $__________ 
Per Square Foot per________or_________,except as provided in Section 7.2.2

· _____
7.2.2. Adjusted Amount.  ___ See Section 19. Additional Provisions or ____
 Other __________________.

· _____
7.2.3. Other_________________________________________________.

· _____
7.2.4. When Earned; When Payable – Lease.  This lease fee is earned upon the mutual execution of the Lease. One-half of this lease fee is paid upon mutual execution of the Lease and one-half upon possession of the premises by tenant or as follows: ___________________________. If the Lease, executed after the date of this Buyer Listing Contract, contains an option to extend or  renew, or if Buyer expands into additional space within the building or complex where the Property is located, Brokerage Firm ___  Will   ____Will Not be paid a fee upon exercise of such extension, renewal option or expansion. If Brokerage Firm is to be paid a fee for such extension, renewal or expansion, the amount of such fee and its payment are as follows:_________________________________________________________________.

7.3.  Who Will Pay Brokerage Firm’s Fee.

· ______
7.3.1. Listing Brokerage Firm or Seller May Pay. Buyer IS Obligated to Pay.  Broker is authorized and instructed to request payment of the Brokerage Firm’s fee from the listing brokerage firm or seller. Buyer is obligated to pay any portion of Brokerage Firm’s fee which is not paid by the listing brokerage firm or seller.

· _____ 
7.3.2. Buyer Will Pay.  Buyer is be obligated to pay the Brokerage Firm’s fee.

This option is for those who will pay their buyer broker separately from any commission split offered by the seller’s broker. If you really do your job well, this should be able to save the buyer more than the value of your commission.

·
7.3.3 Listing Brokerage Firm or Seller May Pay. Buyer is NOT Obligated to Pay.  Broker is authorized to obtain payment of the Brokerage Firm’s fee from the listing brokerage firm or seller.  Provided Buyer has fulfilled Buyer’s obligations in this Buyer Listing Contract, Buyer is 
not be obligated to pay Brokerage Firm’s fee. If no box is checked above, then § 7.3.3 
(Buyer is NOT Obligated to Pay) will apply.

The three paragraphs above offer you multiple ways to structure your compensation, remembering that as an associate you must follow the employing broker’s fee policy for the company. 

The above sections (7.3.1) and (7.3.3) appear to contradict each other. You will always want to check (7.3.1) requiring that the buyer make up any difference between your fees and the split offered by the Seller’s broker. A savvy buyer will always want to check (7.3.3) indicating the broker will be perfectly satisfied with the Seller’s broker’s commission split as offered in the MLS.

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Right-to-Buy § 7 Compensation to Brokerage Firm (continued)

_____
7.4. Holdover Period.  Brokerage Firm’s fee shall apply to Property contracted for (or leased if § 3.5.2 is checked) during  the Term of this Buyer Listing Contract or any extensions and also applies to Property contracted for or leased within___________ calendar days after the Buyer Listing Period expires (Holdover Period) (1) if the Property is one on which Broker negotiated and (2) if Broker submitted its address or other description in writing to Buyer during the Listing Period Term, (Submitted  Property). Provided, however, Buyer ___   
Will____ 
Will Not owe the compensation under §§ 7.1,7.2,7.3.1 and 7.3.2, if a commission is earned by another real estate brokerage firm acting pursuant to an exclusive agreement with Buyer entered into during the Holdover Period, and a Sale or Lease of the Submitted Property is consummated. If no box is checked above in this § 7.4, then Buyer shall not owe the commission to Brokerage Firm.

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Right-to-Buy §8 and §9 and §10

8. LIMITATIONS ON THIRD-PARTY COMPENSATION. Neither Broker nor Brokerage Firm, except as set forth in § 7, will accept compensation from any other person or entity in connection with the Property without the written consent of Buyer. Additionally, neither Broker nor Brokerage Firm is permitted to assess and receive mark-ups or other compensation for services performed by any third party or affiliated business entity unless Buyer signs a separate written consent for such services.

9. BUYER’S OBLIGATIONS TO BROKER. Buyer agrees to conduct all negotiations for the Property only through Broker, and to refer to Broker all communications received in any form from real estate brokers, prospective sellers, or any other source during the Term of this Buyer Listing Contract. Buyer represents that Buyer ___ 
Is ___
Is Not currently a party to any agreement with any other broker to represent or assist Buyer in the location or purchase of property.

Buyers have a tendency, because they have more opportunity, to forget the exclusivity of this contract. You may need to point out that when they are looking for properties on the Internet or cruising open houses on the weekend, any inquiries or negotiations go through you

10. RIGHT OF PARTIES TO CANCEL.

·
10.1. Right of Buyer to Cancel. In the event Broker defaults under this Buyer Listing Contract, Buyer has the right to cancel this Buyer Listing Contract, including all rights of Brokerage Firm to any compensation if the Buyer Agency box at the top of page 1 is checked. Examples of a Broker default include, but are not limited to (1) abandonment of Buyer, (2) failure to fulfill all material obligations of Broker and (3) failure to fulfill all material Uniform Duties (§ 5) or, if the Buyer Agency box at the top of page 1 is checked, the failure to fulfill all material Additional Duties Of Buyer’s Agent (§ 6). Any rights of Buyer that accrued prior to cancellation will survive such cancellation.

·
10.2. Right of Broker to Cancel. Brokerage Firm may cancel this Buyer Listing Contract upon written notice to Buyer if Buyer fails to reasonably cooperate with Broker or Buyer defaults under this Buyer Listing Contract. Any rights of Brokerage Firm that accrued prior to cancellation will survive such cancellation.

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Right-to-Buy §11 Costs of Services or Products Obtained from Outside Sources

Broker will not obtain or order products or services from outside sources unless Buyer has agreed to pay for them promptly when due (examples: surveys, radon tests, soil tests, title reports, engineering studies, property inspections). Neither Broker nor Brokerage Firm shall be obligated to advance funds for Buyer. Buyer must reimburse Brokerage Firm for payments made by Brokerage Firm for such products or services authorized by Buyer.

Another one of those “slow down and make sure the buyer really understands this” paragraphs. A buyer is more likely to want these kinds of additional services or data than a Seller is. When the time comes to help arrange or order products or services, the buyer’s okay in writing, electronically, or on paper should precede the order.

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Right-to-Buy §12 Brokerage Services: Showing Properties

12. BROKERAGE SERVICES; SHOWING PROPERTIES

·
12.1. Brokerage Services:    The following additional tasks shall be performed by Broker:

·
12.2. Showing Properties. Buyer acknowledges that Broker has explained the possible methods used by listing brokers and sellers to show properties, and the limitations (if any) on Buyer and Broker being able to access properties due to such methods. Broker’s limitations on accessing properties are as follows: ___________. Broker, through Brokerage Firm, has access to the following multiple listing services and property information services: _________________.

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Right-to-Buy §13 Disclosure of Buyer’s Identity

13. Broker ___ 
Does ___
Does Not have Buyer’s permission to disclose Buyer’s identity to third parties without prior written consent of Buyer.

You won’t find this paragraph in the Exclusive Right-to-Sell contract. The Seller’s name is a matter of public record. There are some situations (celebrity for instance) where the buyer may feel his or her name may adversely affect negotiations for the property. If your buyers don’t want their names revealed, make sure you understand why and abide by their wishes.

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Right-to-Buy §14, §15 §16 and §17

14. DISCLOSURE OF SETTLEMENT SERVICE COSTS. Buyer acknowledges that costs, quality, and extent of service vary between different settlement service providers (e.g., attorneys, lenders, inspectors, and title companies).

15. NONDISCRIMINATION. The parties agree not to discriminate unlawfully against any prospective seller because of the race, creed, color, sex, sexual orientation, marital status, familial status, physical or mental disability, handicap, religion, national origin, or ancestry of such person. 

16. RECOMMENDATION OF LEGAL AND TAX COUNSEL. By signing this document, Buyer acknowledges that Broker has advised that this document has important legal consequences and has recommended consultation with legal and tax, or other counsel, before signing this Buyer Listing Contract. 

17. MEDIATION. If a dispute arises relating to this Buyer Listing Contract, prior to or after closing, and is not resolved, the parties shall first proceed in good faith to submit the matter to mediation. Mediation is a process in which the parties meet with an impartial person who helps to resolve the dispute informally and confidentially. Mediators cannot impose binding decisions. The parties to the dispute must agree in writing before any settlement is binding. The parties will jointly appoint an acceptable mediator and will share equally in the cost of such mediation. The mediation, unless otherwise agreed, will terminate in the event the entire dispute is not resolved within 30 calendar days of the date of written notice requesting mediation is delivered by one party to the other at the party’s last known address.

After which the options are arbitration (in which the arbitrator’s finding is binding) or civil lawsuit.

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Right-to-Buy §18, §19 and §20

18. ATTORNEY FEES. In the event of any arbitration or litigation relating to this Buyer Listing Contract, the arbitrator or court shall award to the prevailing party all reasonable costs and expenses, including attorney and legal fees.

Again, If the judge feels like it. The courts are not bound by your contract with a client.

19. ADDITIONAL PROVISIONS. (The following additional provisions have not been approved by the Colorado Real Estate Commission.)

Again, your firm is a party to this contract. Your broker may direct standard insertions here or there or may be some other essential items negotiated between you and the buyer.

20. ATTACHMENTS. The following are a part of this Buyer Listing Contract:_________________________________. 

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Right-to-Buy §21 Notice, Delivery, and Choice of Law

21.1. Physical Delivery. All notices must be in writing, except as provided in § 21.2. Any document, including a signed document or notice, delivered to the other party to this Buyer Listing Contract, is effective upon physical receipt. Delivery to Buyer is effective when physically received by Buyer, any signator on behalf of Buyer, any named individual of Buyer or representative of Buyer.

21.2. Electronic Delivery. As an alternative to physical delivery, any document, including a signed document and written notice may be delivered in electronic form only by the following indicated methods only:  ___ 
Facsimile ___E-mail _____Internet. 
If no box is checked, this § 21.2 is not applicable and § 21.1 governs notice and delivery. Documents with original signatures shall be provided upon request of any party. 

21.3. Choice of Law. This Buyer Listing Contract and all disputes arising hereunder are governed by and construed in accordance with the laws of the State of Colorado that would be applicable to Colorado residents who sign a contract in this state for property located in Colorado.

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Right-to-Buy §22, §23, §24 and §25

22. MODIFICATION OF THIS CONTRACT. No subsequent modification of any of the terms of this Buyer Listing Contract is valid, binding upon the parties, or enforceable unless in writing and signed by the parties.  

23. COUNTERPARTS. This Buyer Listing Contract may be executed by each of the parties, separately, and when so executed by all the parties, such copies taken together are deemed to be a full and complete contract between the parties.  

24. ENTIRE AGREEMENT.  This agreement constitutes the entire contract between the parties and any prior agreements, whether oral or written, have been merged and integrated into this Buyer Listing Contract.  

25. COPY OF CONTRACT. Buyer acknowledges receipt of a copy of this Buyer Listing Contract signed by Broker, including all attachments.

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Right-to-Buy §26 Megan’s Law and the End

26. MEGAN’S LAW. If the presence of a registered sex offender is a matter of concern to Buyer, Buyer understands that Buyer must contact local law enforcement officials regarding obtaining such information.

Although not a pleasant topic, it is much better to ask about this right now, than to find out about your buyer’s extreme sensitivity later on. Remember you can help identify the sources of this kind of information, but the client must be the one to review the actual data.

Brokerage Firm authorizes Broker to execute this contract on behalf of Brokerage Firm.

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Exclusive

As you learned with the Exclusive Right-to-Sell vs. the Exclusive Right-to-Lease, the Commission has designed very parallel forms. The same is true for the differences between the Exclusive Right-to-Buy you’ve just studied above and the Exclusive Tenant Contract.

Other than changing “Buyer” to “Tenant,” and the pro-forma substitutions necessary to fit the rental/leasing situation, the contract protections and provisions are essentially identical. The contract provides for a commission upon purchase, if the client changes his or her mind about renting, and the compensation paragraph permits you to negotiate a fee for future lease renewals.

 

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Related Forms

Before moving on to Sales contracts, there are a number of Commission-approved forms that are required Disclosures before or in lieu of a listing contract or Addenda to a listing.

BROKERAGE DISCLOSURE TO BUYER/TENANT

A buyer is often not eager to enter a brokerage relationship at your first meeting. He or she is usually seeking information at an open house or when walking in to your office. For those situations where the buyer is not willing to sign an exclusive agreement, the Commission has approved this disclosure form.

Rule # 1 for all disclosure forms: If a prospective buyer (or seller for other forms) refuses to even sign a disclosure form, you simply note that fact on a copy of the disclosure and keep it in your transaction file.

In addition to the current Buyer disclosure the Commission has approved a specific Brokerage Disclosure to Tenant form to be used by those who do extensive tenant leasing (either commercial or residential). This form mirrors the Brokerage Disclosure to Buyer/Tenant. (TD20-10-19). 

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Broker Disclosure to Buyer – Definitions of Working Relationships

The printed portions of this form, except differentiated additions, have been approved by the Colorado Real 1 Estate Commission. (BD24-10-19) (Mandatory 1-20) 

DIFFERENT BROKERAGE RELATIONSHIPS ARE AVAILABLE WHICH INCLUDE SELLER AGENCY, BUYER AGENCY OR TRANSACTION-BROKERAGE.

BROKERAGE DISCLOSURE TO  
BUYER 
DEFINITIONS OF WORKING RELATIONSHIPS

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Broker Disclosure to Buyer – Definitions of Working Relationships (continued)

Seller’s Agent: A seller’s agent works solely on behalf of the seller to promote the interests of the seller with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the seller. The seller’s agent must disclose to potential buyers all adverse material facts actually known by the seller’s agent about the property. A separate written listing agreement is required, which sets forth the duties and obligations of the broker and the seller. 

Buyer’s Agent: A buyer’s agent works solely on behalf of the buyer to promote the interests of the buyer with the utmost good faith, loyalty and fidelity. The agent negotiates on behalf of and acts as an advocate for the buyer. The buyer’s agent must disclose to potential sellers all adverse material facts actually known by the buyer’s agent, including the buyer’s financial ability to perform the terms of the transaction and, if a residential property, whether the buyer intends to occupy the property. A separate written buyer agency agreement is required, which sets forth the duties and obligations of the broker and the buyer. 

Transaction-Broker: A transaction-broker assists the buyer or seller or both throughout a real estate transaction by performing terms of any written or oral agreement, fully informing the parties, presenting all offers and assisting the parties with any contracts, including the closing of the transaction, without being an agent or advocate for any of the parties. A transaction-broker must use reasonable skill and care in the performance of any oral or written agreement, and must make the same disclosures as agents about all adverse material facts actually known by the transaction-broker concerning a property or a buyer’s financial ability to perform the terms of a transaction and, if a residential property, whether the buyer intends to occupy the property. No written agreement is required.

Customer: A customer is a party to a real estate transaction with whom the broker has no brokerage relationship because such party has not engaged or employed the broker, either as the party’s agent or as the party’s transaction-broker.

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Broker Disclosure to Buyer – Definitions of Working Relationships (continued)

RELATIONSHIP BETWEEN BROKER AND BUYER

Broker and Buyer referenced below have NOT entered into a buyer agency agreement. The working relationship specified below is for a specific property described as: _______________________________________________________ or real estate which substantially meets the following requirements:

Buyer understands that Buyer shall not be liable for Broker’s acts or omissions that have not been approved, directed or ratified by the Buyer.

CHECK ONE BOX ONLY:

___
 Multiple-Person Firm. Broker, referenced below, is designated by Brokerage Firm to serve as Broker. If more than one individual is so designated, then references in this document to Broker shall include all persons so designated, including substitute or additional brokers. The brokerage relationship exists only with Broker and does not extend to the employing broker, Brokerage Firm or to any other brokers employed or engaged by Brokerage Firm who are not so designated.

___
 One-Person Firm. If Broker is a real estate brokerage firm with only one licensed natural person, then any references to Broker or Brokerage Firm mean both the licensed natural person and brokerage firm who shall serve as Broker.

CHECK ONE BOX ONLY: 

___ 
Customer: Broker is the seller’s agent and Buyer is a customer. Broker as seller’s agent, intends to perform the following list of tasks:  ___
Show a property ___
Prepare and Convey written offers, counteroffers and agreements to amend or extend the contract.  Broker is not the agent of Buyer. 

___ 
Customer for Broker’s Listings – Transaction-Brokerage for Other Properties: When Broker is the seller’s agent, Buyer is a customer. When Broker is not the seller’s agent, Broker is a transaction-broker assisting in the transaction. Broker is not the agent of Buyer.

___ 
Transaction-Brokerage Only: Broker is a transaction-broker assisting in the transaction. Broker is not the agent of Buyer.

Buyer consents to Broker’s disclosure of Buyer’s confidential information to the supervising broker or designee for the purpose of proper supervision, provided such supervising broker or designee shall not further disclose such information without consent of Buyer, or use such information to the detriment of Buyer.

DISCLOSURE OF SETTLEMENT SERVICE COSTS.  Buyer acknowledges that costs, quality, and extent of service vary between different settlement service providers (e.g., attorneys, lenders, inspectors and title companies).

 

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Broker Disclosure to Buyer – Definitions of Working Relationships

THIS IS NOT A CONTRACT.  IT IS BROKER’S DISCLOSURE OF BROKER’S WORKING RELATIONSHIP.

If this is a residential transaction, the following provisions shall apply:

MEGAN’S LAW. If the presence of a registered sex offender is a matter of concern to Buyer, Buyer understands that Buyer must contact local law enforcement officials regarding obtaining such information.

BUYER ACKNOWLEDGEMENT: 

Buyer acknowledges receipt of this document:

On _____________________,

BUYER ACKNOWLEDGEMENT:

The Buyer acknowledges receipt of this document on ______________.

Buyer:___________________________________Date:__________________

BROKER ACKNOWLEDGEMENT:

On ___________________________________, Broker provided__________________ (Buyer) with this document via ____________________________________________ and retained a copy for Broker’s records.

Brokerage Firm Name:

Broker:

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Definitions of Working Relationships (DD25-5-09)

This form contains the exact verbatim definitions from the above Broker Disclosure to Buyer/Tenant. The license law states it is to be used when a member of the public asks questions concerning brokerage relationships 
not offered under the broker’s written office policy. It is a commission approved form, but is mandatory only in the above case.

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Brokerage Disclosure to Seller (FSBO) (SD16-10-19)


When reviewing the Exclusive Right-to-Buy Contract, we cautioned you that your job was to find your buyer the desired property without regard to whether it was listed by another broker and entered in the MLS. If the buyer’s perfect home is a “For Sale By Owner” (FSBO), you would use this form to notify the seller of your existing relationship with the buyer.

The form follows the exact format of the Broker Disclosure to Buyer/Tenant above with the relationship options worded for applicability to Sellers.

 

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Brokerage Duties Disclosure to Seller (BDD56-5-09)

REO and Non-CREC Approved Listings 

On rare occasions you may find yourself brokering properties for a lending institution or a government agency. In these cases, the listing contract will most likely be one drafted and insisted upon for universal use by the lender or agency. In such a case, you must prepare and submit this mini-listing addendum disclosing the duties and relationships that will apply under Colorado license law. 

REO is short hand for Real Estate Owned, something the lender does not want. 

This hybrid disclosure form contains verbatim extracts from the Commission approved listing contracts such as:

· Section 1, 
Broker and Brokerage Firm: Multi-person Firm and One Person Firm.

· Section 2, 
Defined Terms: Seller, Broker and Brokerage Firm.

· Section 3, 
Brokerage Relationship: In-company transaction-different brokers and In-Company Transaction-One Broker.

· Section 4 and 5, Brokerage Services and Duties (Uniform Duties) of T-B and the additional 3 as Agent (Section 5).

· Section 6, 
Material Defects, Disclosure and Inspection.

 

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Brokerage Duties Addendum to Property Management Agreement (BDA55-05-09)

Similarly, property management agreements for large commercial buildings may consist of standardized forms used nationally. When such is a case, this form lays out the Colorado license law with respect to brokerage relationships and uniform duties owed to the client.

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Change of Status (CS23-10-06)

This form is not so much a disclosure as it is a reminder. When the broker first entered into a brokerage relationship as an agent, the client was given a choice to check whether the agency would last forever 
until death do us part
 (or the end of the transaction) OR the agency would last until the broker got lucky and scored working with the other party to the transaction. If that happens, this form reminds the former agency client that the agreement he or she selected way back when is now in effect and the broker is now the Transaction-Broker for both sides.

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Disclosures – Non-Brokerage Relationships

There are five more forms not related to brokerage relationships, but disclosing some aspect of listing contracts. They are:

· Seller’s Property Disclosure (Residential) SPD29-10-11 and (All Types Properties) SPD19-10-11.

· Lead-Based Paint Disclosures (Sales) LP45-10-12 and (Rentals) LP46-10-12.

· Square Footage Disclosure SF94-05-04.

· Agreement to Amend/Extend Contract with Broker AE42-6-19.

· Listing Firm’s Well Checklist. 

·
Seller’s Property Disclosure Residential-SPD29-10-11 or All Types Properties SPD19-10-11

·
This form should be presented as part of every listing presentation. It is to be filled out by the Seller (not the broker) and is correct to Seller’s current actual knowledge. In order to be sure it is as thorough as possible, it should be left for the Seller to complete and return in a day or two. If the Seller balks at filling this out or marks “Do Not Know” through all pages, there is a red flag for the broker to investigate. 
In the Exclusive Right To Sell  Listing Contract the Seller is given the option to provide or not provide the Seller Property Disclosure, but even if not provided Seller is still required to disclose by statue any material defect of which the Seller is actually aware.

·
Sellers seldom know everything about their property. An occasional “Do Not Know” entry serves to alert the buyer to the need for thorough investigation. Once completed, copies should be left in the property for prospective buyer or their brokers to access during showings.

·
The disclosure is extremely detailed and covers improvements, general information (zoning, environmental, etc.), and land. It is far too detailed to be reproduced here, but should be accessed at the CREC Website for your own benefit. 

· Click here to open the 

Seller’s Property Disclosure
 form.

·
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Seller’s Property Disclosure

Here are the strong disclaimers at the end of the form:

Seller and Buyer understand that the real estate brokers do not warrant or guarantee the above information on the Property. Property inspection services may be purchased and are advisable. This form is 
not intended as a substitute for an inspection of the Property.

ADVISORY TO SELLER:

Failure to disclose a known material defect may result in legal liability.

The information contained in this Disclosure has been furnished by Seller, who certifies to the truth thereof based on Seller’s CURRENT ACTUAL KNOWLEDGE.

ADVISORY TO BUYER:

1. Even though Seller has answered the above questions to Seller’s current actual knowledge, Buyer should thoroughly inspect the    Property and obtain expert assistance to accurately and fully evaluate the Property to confirm the status of the following matters:

a. the physical condition of the Property;

b. the presence of mold or other biological hazards;

c. the presence of rodents, insects and vermin including termites;

d. the legal use of the Property and legal access to the Property;

e. the availability and source of water, sewer, and utilities;

f. the environmental and geological condition of the Property;

g. the presence of noxious weeds; and

h. any other matters that may affect Buyer’s use and ownership of the Property that are important to Buyer as Buyer decides whether to purchase the Property.

2. Seller states that the information is correct to “Seller’s current actual knowledge” as of the date of this form. The term “current actual knowledge” is intended to limit Seller’s disclosure only to facts actually known by the Seller and does not include “constructive knowledge” or “common knowledge” or what Seller “should have known” about the Property. The Seller has no duty to inspect the Property when this Disclosure is filled in and signed.

3. Valuable information may be obtained from various local/state/federal agencies, and other experts may assist Buyer by performing more specific evaluations and inspections of the Property.

4. Boundaries, location and ownership of fences, driveways, hedges, and similar features of the Property may become the subjects of a dispute between a property owner and a neighbor. A survey may be used to determine the likelihood of such problems.

5. Whether any item is included or excluded is determined by the contract between Buyer and Seller and not this Seller’s Property Disclosure.

6. Buyer acknowledges that Seller does not warrant that the Property is fit for Buyer’s intended purposes or use of the Property. Buyer acknowledges that Seller’s indication that an item is “working” is not to be construed as a warranty of its continued operability or as a representation or warranty that such item is fit for Buyer’s intended purposes.

7. Buyer hereby receipts for a copy of this Disclosure. 

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Lead-Based Paint Disclosures Sales- LP45-10-12 or Rentals- LP46-10-12

If a residential property was built (building permit issued) prior to January 1, 1978, no contract is valid for its sale unless the buyer was given and signed a notice of lead based paint condition, an EPA booklet entitled: “Protect Your Family from Lead in Your Home” and a 10-day right to inspect and cancel any considered sale.

There is a separate form for sales and rentals.

In addition to these mandatory forms entitled “Lead Based Paint Disclosures,” the Commission also has developed a form for optional use entitled “Lead-Based Paint Obligations of Seller” (Landlord).

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Square Footage Disclosure SF94-05-04

Real Estate brokers do not measure property square footage! This is a job for builders, remodelers, architects, appraisers, assessors, and anyone 
except a real estate broker. However, because brokers are often overcome by weakness or curiosity, and because they do such a poor job when they do measure, the Commission has prepared a form to disclose:

1. Whether a square footage measurement was made.

2. If so, what standard was used and when it was measured.

3. If not, what was the source and date of the square footage represented?

4. That if the buyer has any concern, the property should be measured independently by an expert of their choosing.

Rule of thumb: See above: Real Estate Brokers do not measure square footage! If the buyer (or someone else) wants to measure, the broker should hold the zero end of the tape measure and let the concerned party do the calculations.

 

Agreement to Amend/Extend Contract with Broker AE42-6-19

There are two forms used to extend contracts. One is used for listings/employment agreements and the other is for use with the Contract to Buy and Sell Real Estate. Be careful as the only difference in title is the added words “with Broker” in the form used to extend a listing. This form is used for both Buyer and Seller listings.

This form should be used for any changes during the term of the listing, for instance, a change in list price (for which there should always be a written source document showing the Seller’s authorization). 

If the original listing or employment was for an extended period, one may use this form or begin with a new listing contract rather than use this form to renew for another listing period.

Listing and selling urban (city) real estate is pretty simple. The problems associated with land measurement and water usage on rural property introduce complexities for which special expertise is needed. 

Because many brokers were clueless concerning some aspects of water rights and their transfer, the Commission developed a Listing Firm’s Well Checklist. It states right on the form that it is not intended to be anything but an internal document which allows the listing broker to get correct information regarding the well and then convey accordingly.

When listing property with a well, whether it is a primary or secondary water source, this form is an invaluable guide to the kinds of questions to ask and the kinds of data to gather for later use in the sales transaction. Since the history of many wells may pre-date modern recordkeeping, this kind of information as to flow rates, depth, permit numbers, etc. may take some time to gather. Do it at time of listing. Due to the current statutory Water Well Transfer requirements this for is invaluable in knowing the true picture of the well in order to proceed correctly. 

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Summary

This concludes Chapter 6. Below is a brief summary which you can review before taking your quiz.

Very much like the Exclusive Right-to-Sell, the 
Exclusive Right-to-Buy Contract is binding and legal counsel shall be sought.

In 
computing a period of days, when the ending date is not specified, the first day is excluded and the last day is included.

The 
Uniform Duties are identical to the Exclusive Right-to-Sell.

· Promoting the interests of Buyer with the utmost good faith, loyalty and fidelity.

· Seeking a price and terms that are acceptable to Buyer.

· Counseling Buyer as to any material benefits or risks of a transaction known by Broker.

The 
Success Fee is earned by the Brokerage Firm upon the Purchase of the Property and is payable upon closing of the transaction.

Neither Broker nor Brokerage Firm shall accept compensation from any other person or entity in connection with the Property without the written consent of Buyer.

Buyer agrees to conduct all negotiations for the Property only through Broker.

Broker will not obtain products or services from outside sources unless Buyer has agreed to pay for them promptly when due.

If a dispute arises, the parties shall first proceed in good faith to submit the matter to 
mediation.

The arbitrator or court shall award to the 
prevailing party all reasonable costs and expenses, including 
attorney and legal fees.

No subsequent 
modification of any of the terms of this Buyer Listing Contract shall be valid, binding upon the parties, or enforceable unless in writing and signed by the parties.

Buyer acknowledges receipt of a copy of this Buyer Listing Contract signed by Broker, including all attachments.

Megan’s Law – If the presence of a registered sex offender is a matter of concern, Buyer must contact local law enforcement officials regarding obtaining such information.

Broker Disclosure to Buyer 

·

Seller’s Agent:
 works solely on behalf of the seller to promote the interests of the seller with the utmost good faith, loyalty and fidelity.

·

Buyer’s Agent:
 works solely on behalf of the buyer to promote the interests of the buyer with the utmost good faith, loyalty and fidelity.

·

Transaction-Broker:
 assists the buyer or seller or both by performing terms of any agreement without being an agent or advocate for any of the parties

·

Customer:
 a party to a real estate transaction with whom the broker has no brokerage relationship.

REO and Non-CREC Approved Listings 

· Broker and Brokerage Firm.

· Defined Terms

· Brokerage Relationship

· Brokerage Services and Duties

· Material Defects, Disclosure and Inspection.

Disclosures – Non-Brokerage Relationships

· Seller’s Property Disclosure (Residential)

· Lead-Based Paint Disclosures (Sales)

· Square Footage Disclosure

· Agreement to Amend/Extend Contract with Broker

· Listing Firm’s Well Checklist

Failure to disclose a known 
material defect may result in legal liability.

Real Estate Brokers do not measure 
square footage.

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 

Chapter 6 Summary

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Introduction

Congratulations! You have accomplished much. You have reached the point of transition from the academic knowledge of the license law and Commission Rules and Position Statements and are now ready to apply this knowledge to the real world. You will now learn the process of completing Commission-approved listing/employment agreements – just as you will do for every transaction in which you are involved throughout your career. 

There are six different varieties of listing (employment) contracts approved by the commission. Four are used to list properties for sale or rent. The remaining two are used to “list” either a buyer or a tenant for whom you will locate properties.

By the end of this unit, you will be able to: 

· Recognize the six listing/employment agreements used in Colorado

· Describe the purpose of the Exclusive Right to Sell Contract, when it is used and explain the purpose of each of the paragraphs

· Differentiate between the Exclusive Right to Sell Contract and an Exclusive Brokerage Contract 

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Property Listing Contracts

Here is a short summary description of all three; 1 listing agreement and two (2) listing addenda:

Exclusive Right-to-Sell: You will recall from the Law and Practice course that this is the most common and best protection for the broker. The broker will receive the agreed-upon commission if the property sells anytime during the contract period, no matter who sells it. Payment is also earned if the seller sells to anyone with whom the listing broker negotiated during the listing and whose name the listing broker submitted to the seller in writing before the listing expired.

Brokerage Addendum 
Exclusive:  The licensee prepares the Exclusive Right to Sell Listing Agreement and attaches this addendum to that listing agreement so that it reserves to the seller the right to sell the property independently of the listing broker. If this occurs, the seller owes no commission to the broker. Functions the same as the Exclusive Right-to-Sell with respect to protection of commission against other competing brokerage firms.

Open Listing Addendum: The licensee prepares the Exclusive Right to Sell Listing Agreement and attaches this addendum to that listing agreement in which the seller agrees to pay a commission only to the broker that is the procuring cause of the sale. The seller may sell on his/her own, or through any number of other brokers with open listing agreements and owe no commission to the first listing broker.

Because they are the most commonly used forms, we will examine the Exclusive Right-to-Sell and Exclusive Right-to-Buy and then compare the addenda by exception. Because you must understand and be able to explain every paragraph in the contract, we will re-print every paragraph verbatim in its own screen regardless of length and then provide instructional comment if needed in 
italic font on the same screen. The addenda to the Exclusive Right to Sell Listing Agreement will follow by comparison at the end of the Exclusive Right-to-Sell.

 

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Exclusive Right-to-Sell

The printed portions of this form, except differentiated additions, have been approved by the Colorado Real Estate Commission. (LC50-6-19) (Mandatory 1-20)

This note is atop every Commission-approved form. Forms are numbered [in this case LC50, plus the month and date of its allowable use (1-20)]. The mandatory use date is also shown.

Exclusive Right-To-Sell: Preamble

THIS IS A BINDING CONTRACT. THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES 
SHOULD CONSULT LEGAL AND TAX OR OTHER COUNSEL BEFORE SIGNING.

Compensation charged by real estate brokerage firms is not set by law. Such charges are established by each real estate brokerage firm. 

The bold all-caps warning implements Rule E-14, and Conway-Bogue case law. As to commission rates, make sure you only discuss your firm’s rates and services, and avoid comparing your firm or yourself to any other practitioners. See also Paragraph 23.

DIFFERENT BROKERAGE RELATIONSHIPS ARE AVAILABLE WHICH INCLUDE BUYER AGENCY, SELLER AGENCY 
OR TRANSACTION-BROKERAGE.

Implements the license law (C.R.S.12-10-408(1)(c)). There really are only two types of brokerage relationships – 
agency (regardless of the principal) and 
transaction-brokerage (regardless of the principal). 

Note also that all three of the above warnings are pre-printed above the title of the form. They are not technically part of the agreement between the principal and the broker that follows.

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Exclusive Right-to-Sell (continued)

EXCLUSIVE RIGHT-TO-SELL LISTING CONTRACT

____SELLER AGENCY   ____TRANSACTION-BROKERAGE

Date:                   
 

One of these boxes must be checked in accordance with the a.) desires of the seller and b.) your employing broker’s written office policy. If there is a conflict, consult your employing broker before proceeding. The date should be the date the contract is prepared. Each party also dates his or her signature at the end of the contract as of the date signed.

1.
AGREEMENT. Seller and Brokerage Firm enter into this exclusive, irrevocable contract (Seller Listing Contract) and agree to its provisions. Broker, on behalf of Brokerage Firm, agrees to provide brokerage services to Seller. Seller agrees to pay Brokerage Firm as set forth in this Seller Listing Contract. 
IMPORTANT NOTE: The listing is between Seller and Brokerage 
Firm. While you are the only member of the firm in the brokerage relationship (agency or T-B) under Colorado’s designated brokerage law, the 
FIRM owns the listing.

2.
BROKER AND BROKERAGE FIRM.

· ___
 2.1 Multiple-Person Firm. If this box is checked, the individual designated by Brokerage Firm to serve as the broker of Seller and to perform the services for Seller required by this Seller Listing Contract is called Broker. If more than one individual is so designated, then references in this Seller Listing Contract to Broker shall include all persons so designated, including substitute or additional brokers. The brokerage relationship exists only with Broker and does not extend to the employing broker, Brokerage Firm, or to any other brokers employed or engaged by Brokerage Firm who are not so designated.

· ___ 
2.2 One-Person Firm. If this box is checked, Broker is a real estate brokerage firm with only one licensed natural person. References in this Seller Listing Contract to Broker or Brokerage Firm mean both the licensed natural person and brokerage firm who shall serve as the broker of Seller and perform the services for Seller required by this Seller Listing Contract.

Designated brokerage applies only to multiple-person firms. Paragraph 2.1. allows for designating more than one person (teams) and for the employing broker to substitute or add other brokers later.

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§3 Defined Terms

·
3.1 Seller:

·
3.2 Brokerage Firm:

·
3.3 Broker:

·
3.4 Property. The Property is the following legally described real estate in the County of………………………., Colorado: known as No. ………… Street Address City State Zip together with the interests, easements, rights, benefits, improvements and attached fixtures appurtenant thereto, and all interest of Seller in vacated streets and alleys adjacent thereto, except as herein excluded. 

3.1 This is where you begin to insure a continuing clear chain of title by entering the Seller’(s) name(s) exactly as they appear on the Seller’s deed. The deed is also the best place to obtain the legal description.

·
3.5 Sale; Lease

·
3.5.1 A Sale is the voluntary transfer or exchange of any interest in the Property or the voluntary creation of the obligation to convey any interest in the Property, including a contract or lease. It also includes an agreement to transfer any ownership interest in an entity which owns the Property.

·
3.5.2. _____If this box is checked Seller authorizes Broker to negotiate leasing the Property. Lease of the Property or Lease means any lease of any agreement between the Seller and a tenant to create a tenancy or leasehold interest in the Property.

·
3.6 Listing Period. The Listing Period of this Seller Listing Contract shall begin on _____, and shall continue through the earlier of (1) completion of the Sale of the Property______________ or (2)____________, and any written extensions (Listing Period).  Broker must continue to assist in the completion of any sale or lease for which compensation is payable to Brokerage Firm under § 7 
(Compensation/Holdover) of this Seller Listing contract. 

·
3.7 Applicability of Terms. A check or similar mark in a box means that such provision is applicable. The abbreviation “N/A” or the word “Deleted” means not applicable. The abbreviation “MEC” (mutual execution of this contract) means the latest date upon which both parties have signed this Seller Listing Contract.

·
3.8 Day; Computation of Period of Days, Deadline.

·
3.8.1 Day.As used in this Seller Listing Contract, the term “day” shall mean the entire day ending at 11:59 p.m., United States Mountain Time (Standard or Daylight Savings as applicable).

·
3.8.2 Computation of Period of Days, Deadline. In computing a period of days, when the ending date is not specified, the first day is excluded and the last day is included, e.g. three days after MEC. If any deadline falls on a Saturday, Sunday or federal or Colorado state holiday (Holiday), such deadline ___ 
Will___ 
Will Not to the next day that is not a Saturday, Sunday or Holiday. Should neither box be checked, the deadline will not be extended. 

3.5 Note the inclusion of less than a sale of the total property (any interest or an installment land contract or lease) as being defined in the sale definition – and therefore generating a commission to broker.)

3.7 MEC: The latest date upon which the parties have signed is actually the date signed by the seller, or if countered by the seller, it will be the date signed by the buyer upon acceptance of the counterproposal.

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§4 Brokerage Relationship

·
4.1. If the Seller Agency box at the top of page 1 is checked, Broker represents Seller as Seller’s limited agent (Seller’s Agent). If the Transaction-Brokerage box at the top of page 1 is checked, Broker acts as a Transaction-Broker.

·
4.2. In-Company Transaction – Different Brokers. When Seller and buyer in a transaction are working with different brokers, those brokers continue to conduct themselves consistent with the brokerage relationships they have established. Seller acknowledges that Brokerage Firm is allowed to offer and pay compensation to brokers within Brokerage Firm working with a buyer.

·
4.3. In-Company Transaction – One Broker. If Seller and buyer are both working with the same broker, Broker shall function as:

·
4.3.1. Seller’s Agent. If the Seller Agency box at the top of page 1 is checked, the parties agree the following applies:

·
4.3.1.1. Seller Agency Only. Unless the box in § 4.3.1.2 
(Seller Agency Unless Brokerage Relationship with Both) is checked, Broker shall represent Seller as Seller’s Agent and must treat the buyer as a customer. A customer is a party to a transaction with whom Broker has no brokerage relationship. Broker must disclose to such customer Broker’s relationship with Seller.

·
4.3.1.2. Seller Agency Unless Brokerage Relationship with Both. If this box is checked, Broker represents Seller as Seller’s Agent and must treat the buyer as a customer, unless Broker currently has or enters into an agency or Transaction-Brokerage relationship with the buyer, in which case Broker must act as a Transaction-Broker. 

·
4.3.2. Transaction-Broker. If the Transaction-Brokerage box at the top of page 1 is checked, or in the event neither box is checked, Broker must work with Seller as a Transaction-Broker. A Transaction-Broker must perform the duties described in § 5 and facilitate sales transactions without being an advocate or agent for either party. If Seller and buyer are working with the same broker, Broker must continue to function as a Transaction-Broker. 

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§5 Brokerage Duties

Brokerage Firm, acting through Broker, as either a Transaction-Broker or a Seller’s Agent, must perform the following 
Uniform Duties when working with Seller:

·
5.1. Broker shall exercise reasonable skill and care for Seller, including, but not limited to the following:

·
5.1.1. Performing the terms of any written or oral agreement with Seller;

·
5.1.2. Presenting all offers to and from Seller in a timely manner regardless of whether the Property is subject to a contract for Sale;

·
5.1.3. Disclosing to Seller adverse material facts actually known by Broker;

·
5.1.4. Advising Seller regarding the transaction and advising Seller to obtain expert advice as to material matters about which Broker knows but the specifics of which are beyond the expertise of Broker;

·
5.1.5. Accounting in a timely manner for all money and property received; and

·
5.1.6. Keeping Seller fully informed regarding the transaction.

(Instructor’s Note 5.1: The above 
‘Uniform Duties” are exactly the same as the license law (C.R.S. 1-61-804) and apply regardless of whether the type of brokerage relationship is agent or transaction brokerage.)

·
5.2. Broker must not disclose the following information without the informed consent of Seller:

·
5.2.1. That Seller is willing to accept less than the asking price for the Property;

·
5.2.2. What the motivating factors are for Seller to sell the Property;

·
5.2.3. That Seller will agree to financing terms other than those offered;

·
5.2.4. Any material information about Seller unless disclosure is required by law or failure to disclose such information would constitute fraud or dishonest dealing; or

·
5.2.5. Any facts or suspicions regarding circumstances that could psychologically impact or stigmatize the Property.

(Note 5.2. Likewise, these client confidential items apply regardless of whether the Broker is an agent or T-B.)

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§5 Brokerage Duties (continued)

·
5.3. Seller consents to Broker’s disclosure of Seller’s confidential information to the supervising broker or designee for the purpose of proper supervision, provided such supervising broker or designee does not further disclose such information without consent of Seller, or use such information to the detriment of Seller.

(Note 5.3: Implements Rule E-45 previously covered.)

·
5.4. Brokerage Firm may have agreements with other sellers to market and sell their property. Broker may show alternative properties not owned by Seller to other prospective buyers and list competing properties for sale.

·
5.5. Broker shall not be obligated to seek additional offers to purchase the Property while the Property is subject to a contract for Sale.

·
5.6. Broker has no duty to conduct an independent inspection of the Property for the benefit of a buyer and has no duty to independently verify the accuracy or completeness of statements made by Seller or independent inspectors. Broker has no duty to conduct an independent investigation of a buyer’s financial condition or to verify the accuracy or completeness of any statement made by a buyer.

(Note 5.6. “Having no duty” is not the same as withholding material facts actually known. You must disclose any of these items if you know of (or even suspect) adverse impact.)

·
5.7. Seller understands that Seller is not be liable for Broker’s acts or omissions that have not been approved, directed, or ratified by Seller.

·
5.8. When asked, Broker ___ Will 
___Will Not disclose to prospective buyers and cooperating brokers the existence of offers on the Property and whether the offers were obtained by Broker, a broker within Brokerage Firm or by another broker. 

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Top of Form

§6 Additional Duties of Seller’s Agent

If the Seller Agency box at the top of page 1 is checked, Broker is Seller’s Agent, with the following additional duties:

·
6.1. Promoting the interests of Seller with the utmost good faith, loyalty and fidelity.

·
6.2. Seeking a price and terms that are set forth in this Seller Listing Contract.

·
6.3. Counseling Seller as to any material benefits or risks of a transaction that are actually known by Broker.

These 3 duties are the essential difference between a transaction broker and an 
AGENT and are owed by every agent to his or her client. These three duties are specifically not owed (nor expected) of a licensee acting as a transaction-broker.

 

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CHAPTER START

§7 Compensation to Brokerage Firm; Compensation to Cooperative Broker

Seller agrees that any Brokerage Firm compensation that is conditioned upon the Sale of the Property will be earned by Brokerage Firm as set forth herein without any discount or allowance for any efforts made by Seller or by any other person in connection with the Sale of the Property. 

(NOTE 7: This is what makes your listing an exclusive right-to-sell!)

·
7.1. Amount. In consideration of the services to be performed by Broker, Seller agrees to pay Brokerage Firm as follows:

·
7.1.1. Sale Commission. (1) ____% of the gross purchase price or (2) $_______, in U.S. dollars.

·
7.1.2. Lease Commission. If the box in § 3.5.2 is checked, Brokerage Firm will be paid a fee equal to (1) ______% of the gross rent under the lease, or (2) $_______ , in U.S. dollars, payable as follows:

·
7.1.3. Other Compensation. ________.

·
7.2. Cooperative Broker Compensation. Brokerage Firm offers compensation to outside brokerage firms, whose brokers are acting as:

· _____
 Buyer Agents: _____ % of the gross sales price or _____, in U.S. dollars.

· _____
Transaction-Brokers:_____ % of the gross sales price or _____, in U.S. dollars.

·
7.3. When Earned. Such commission shall be earned upon the occurrence of any of the following: 

·
7.3.1. Any Sale of the Property within the Listing Period by Seller, by Broker or by any other person;

Note 7.3.1: This reinforces exclusive right-to-sell.

·
7.3.2. Broker finding a buyer who is ready, willing and able to complete the sale or lease as specified in this Seller Listing Contract; or

You will have earned a commission here – even if the Seller rejects a full price, exact terms offer. You’ll have to sue to get it, but you earned it by performing your end of the agreement.

·
7.3.3. Any Sale (or Lease if § 3.5.2 is checked) of the Property within _____ calendar days after the expiration of the Listing Period expires (Holdover Period) 1) to anyone with whom Broker negotiated and 2) whose name was submitted, in writing, to Seller by Broker during the Listing Period (submitted Prospect), however, Seller ___ 
Will ___ 
Will Not owe the commission to Brokerage Firm under this § 7.3.3 if a commission is earned by another licensed real estate brokerage firm acting pursuant to an exclusive agreement entered into during the Holdover Period and a Sale or Lease to a Submitted Prospect is consummated. If no box is checked above in this § 7.3.3, then Seller does not owe the commission to Brokerage Firm.

·
7.4. When Applicable and Payable. The commission obligation shall applies to a Sale made during the Listing Period or any extension of such original or extended term. The commission described in § 7.1.1 is payable at the time of the closing of the Sale, or, if there is no closing (due to the refusal or neglect of Seller) then on the contracted date of closing, as contemplated by § 7.3.1 or § 7.3.3, or upon fulfillment of § 7.3.2 where the offer made by such buyer is not accepted by Seller.

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§8 Limitation on Third-Party Compensation

Neither Broker nor the Brokerage Firm, except as set forth in § 7, will accept compensation from any other person or entity in connection with the Property without the written consent of Seller. Additionally, neither Broker nor Brokerage Firm is permitted to assess or receive mark-ups or other compensation for services performed by any third party or affiliated business entity unless Seller signs a separate written consent for such services. 

(You will have a much more pleasant career if you are happy with the commission you earn. Nickel-and-Diming clients for miscellaneous fees is annoying to the client, and in some eyes, unprofessional.)

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§9 Other Brokers’ Assistance, Multiple Listing Services (MLS) and Marketing

Seller has been advised by Broker of the advantages and disadvantages of various marketing methods, including advertising and the use of Multiple Listing Services (MLS) and various methods of making the Property accessible by other brokerage firms (e.g., using lock boxes, by-appointment-only showings, etc.), and whether some methods may limit the ability of another broker to show the Property. After having been so advised, Seller has chosen the following (check all that apply):

·
9.1. MLS/Information Exchange.

·
9.1.1. The Property ___ 
Will ___
Will Not be submitted to one or more multiple listing services and ___ 
Will ___
Will Not be submitted to one or more property information exchanges. If submitted, Seller authorizes Broker to provide timely notice of any status change to such MLS and information exchanges. Upon transfer of deed from Seller to buyer, Seller authorizes Broker to provide sales information to such MLS and information exchanges.

·
9.1.2. Seller authorizes the use of electronic and all other marketing methods except: _______________.

·
9.1.3. Seller further authorizes use of the data by MLS and property information exchanges, if any.

·
9.1.4. The Property Address ___ 
Will ___
Will Not be displayed on the Internet.

·
9.1.5. The Property Listing ___ 
Will ___
Will Not be displayed on the internet.

·
9.2. Property Access .Access to the Property may be by: 
___ Lock Box 
___ __________________ 
Other instructions: __________________

·
9.3. Broker Marketing. The following specific marketing tasks shall be performed by Broker:

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§10 Seller’s Obligations to Broker; Disclosures and Consent

·

10.1. Negotiations and Communication. Seller agrees to conduct all negotiations for the Sale of the Property only through Broker, and to refer to Broker all communications received in any form from real estate brokers, prospective buyers, tenants or any other source during the Listing Period of this Seller Listing Contract.

·
10.2. Advertising. Seller agrees that any advertising of the Property by Seller (e.g., Internet, print and signage) must first be approved by Broker.

·
10.3. No Existing Listing Agreement. Seller represents that Seller ___ 
Is ___
Is Not currently a party to any listing agreement with any other broker to sell the Property.

·
10.4. Ownership of Materials and Consent. Seller represents that all materials (including all photographs, renderings, images or other creative items) supplied to Broker by or on behalf of Seller are owned by Seller, except as Seller has disclosed in writing to Broker. Seller is authorized to and grants to Broker, Brokerage Firm and any MLS (that Broker submits the Property to) a nonexclusive irrevocable, royalty-free license to use such material for marketing of the Property, reporting as required and the publishing, display and reproduction of such material, compilation and data. This license shall survive the termination of this Seller Listing Contract.

·
10.5. Colorado Foreclosure Protection Act. The Colorado Foreclosure Protection Act (Act) generally applies if: (1) the Property is residential, (2) Seller resides in the Property as Seller’s principal residence (3) Buyer’s purpose in purchase of the Property is not to use the property as Buyer’s personal residence and (4) the Property is in foreclosure or Buyer has notice that any loan secured by the Property is as least thirty days delinquent or in default. If all requirements 1, 2, 3 and 4 are met and the Act otherwise applies, then a contract, between Buyer and Seller for the sale of the Property, that complies with the provisions of the Act is required. If the transaction is a Short Sale transaction and a Short Sale Addendum is part of the Contract between Seller and Buyer, the Act does not apply.  It is recommended that Seller consult with an attorney.

(Note 10.1: This emphasizes the exclusive nature of your employment, and you may want to highlight it in a very loud color in your listing presentation.)

(Note 10.5: Foreclosures are complex, both in the property and in terms of the Colorado Foreclosure Protection Act. Unlike a normal Buy/Sell contract, the Seller has a 3-day right to cancel on a whim. Notice of this and other requirements must be given to the Seller. An attorney’s expertise, paid for by Seller is prudent, but if there is any possibility of this occurring make sure the seller has this obligation clearly understood at the time of listing.)

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§11 Price and Terms

The following Price and Terms are acceptable to Seller:

·
11.1. Price. U.S. $ ___________________________

(Note 11.1: Remember this price and any subsequent changes thereto is set by the seller, not the broker – although the broker may certainly consult and assist in estimating the value.)

·
11.2. Terms. ___ 
Cash ___ 
Conventional ___ 
FHA ___ 
VA

· ___ 
Other:

·
11.3. Loan Discount Points. _________________

·
11.4. Buyer’s Closing Costs (FHA/VA). Seller must pay closing costs and fees, not to exceed $ _______, that Buyer is not allowed by law to pay, for tax service and __________________.

·
11.5. Earnest Money. Minimum amount of earnest money deposit U.S. $____________ in the form of ________________.

·
11.6. Seller Proceeds. Seller will receive net proceeds of closing as indicated: ___ 
Cashier’s Check at Seller’s expense; ___ 
Funds Electronically Transferred (Wire Transfer) to an account specified by Seller, at Seller’s expense; or ___ 
Closing Company’s Trust Account Check.

·
11.7. Advisory: Tax Withholding. The Internal Revenue Service and the Colorado Department of Revenue may require closing company to withhold a substantial portion of the proceeds of this Sale when Seller either (1) is a foreign person or (2) will not be a Colorado resident after closing. Seller should inquire of Seller’s tax advisor to determine if withholding applies or if an exemption exists.

(Note 11.7: C.R.S.39-22-604.5 mandates withholding the lesser of 2% of the sale price or the entire net proceeds of the sale when it is not certain that the Seller will remain in Colorado after the sale. This law does not apply to sales of less than $100,000, for foreclosure sales or if the seller provides the closer with a written affirmation of residency/permanent residence/permanent place of business or that no tax is expected to be owed.)

 

§12 Deposits

Brokerage Firm is authorized to accept earnest money deposits received by Broker pursuant to a proposed Sale contract. Brokerage Firm is authorized to deliver the earnest money deposit to the closing agent, if any, at or before the closing of the Sale contract. 

§13 Inclusions and Exclusions

·
13.1. Inclusions. The Purchase Price includes the following items (Inclusions):

·
13.1.1. Fixtures. The following items are included if attached to the Property on the date of this Seller Listing Contract unless excluded under Exclusions (Section 13.2):, lighting, heating, plumbing, ventilating, and air conditioning fixtures, TV antennas, inside telephone, network and coaxial (cable) wiring and connecting blocks/jacks, plants, mirrors, floor coverings, intercom systems, built-in kitchen appliances, sprinkler systems and controls, built-in vacuum systems (including accessories), garage door openers including ________remote controls.

Other Fixtures:  _____

· If any fixtures are attached to the Property after the date of this Seller Listing Contract, such additional fixtures are also included in the Purchase Price.

·
13.1.2. Personal Property. The following items are included if  on the Property whether attached or not on the date of this Seller Listing Contract: storm windows, storm doors, window and porch shades, awnings, blinds, screens, window coverings, curtain rods, drapery rods, fireplace inserts, fireplace screens, fireplace grates, heating stoves, storage sheds, and all keys. If checked, the following are included: ___ 
Water Softeners___ 
Smoke/Fire Detectors___
Carbon Monoxide Alarms ___
Security Systems ___
Satellite Systems (including satellite dishes); and   
The Personal Property to be conveyed at closing shall be conveyed by Seller free and clear of all taxes (except personal property taxes for the year of closing), liens and encumbrances, except _______________. 
Conveyance will be by bill of sale or other applicable legal instrument. 

·
13.1.3. Trade Fixtures. The following trade fixtures are included: __________________________. The Trade Fixtures to be conveyed at closing must be conveyed by Seller, free and clear of all taxes (except personal property taxes for the year of closing), liens and encumbrances, except ________________. 
Conveyance will be by bill of sale or other applicable legal instrument. 

·
13.1.4. Parking and Storage Facilities. ___
Use Only ___
Ownership of the following parking facilities:___________; 

·
13.1.5. Water Rights. The following legally described water rights:

Any water rights shall be conveyed by _______
 deed or other applicable legal instrument. The Well Permit # is _________________


(Note 13.1.5:There will not be a better time to get a copy of the actual well permit, if applicable.)

·
13.1.6. Growing Crops. The following growing crops:

·
13.2. Exclusions. The following are excluded (Exclusions):

(Note 13.1 and 13.2: Go over these items carefully during your listing presentation and again at the time of presenting an offer. You may be liable for buying:

a.
Something the buyer thinks is included; or

b.
Something the Seller thought was excluded if this is not 100% clear to all parties.)

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§14 Title and Encumbrances

Seller represents to Broker that title to the Property is solely in Seller’s name. Seller must deliver to Broker true copies of all relevant title materials, leases, improvement location certificates and surveys in Seller’s possession and shall disclose to Broker all easements, liens and other encumbrances, if any, on the Property, of which Seller has knowledge. Seller authorizes the holder of any obligation secured by an encumbrance on the Property to disclose to Broker the amount owing on said encumbrance and the terms thereof. 

(
NOTE: This is your authority to obtain loan payoff figures from the lender, although the lender may likely require a separate letter signed by the borrower/Seller.)

In case of Sale, Seller agrees to convey, by a _________________deed, only that title Seller has in the Property. Property must be conveyed free and clear of all taxes, except the general taxes for the year of closing.

All monetary encumbrances (such as mortgages, deeds of trust, liens, financing statements) must be paid by Seller and released except as Seller and buyer may otherwise agree. Existing monetary encumbrances are as follows:___________ 

(
NOTE: This is where you ask the Seller for a copy of the latest loan statement and include the data on this form.)

NOTE: The Property is subject to the following leases and tenancies: ______________________________________. 


(Red Flag:

 A lease survives a sale unless the lease states otherwise.)

If the Property has been or will be subject to any governmental liens for special improvements installed at the time of signing a Sale contract, Seller is responsible for payment of same, unless otherwise agreed.

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§15 Evidence of Title

Seller agrees to furnish buyer, at Seller’s expense, unless the parties agree in writing to a different arrangement, a current commitment and an owner’s title insurance policy in an amount equal to the Purchase Price as specified in the Sale contract, or if this box is checked, ___ 
An Abstract of Title certified to a current date.

Single-line strike-through of the abstract box/option if not applicable (almost always). If a Torrens Certificate will be used (almost never) strike all after the word “buyer” and insert “a Torrens Certificate” – (for which there is no cost to either party.)

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§16 Association Assessments

Seller represents that the amount of the regular owners’ association assessment is currently payable at approximately $__________ per_______ and that there are no unpaid regular or special assessments against the Property except the current regular assessments and except _________. Seller agrees to promptly request the owners’ association to deliver to buyer before date of closing a current statement of assessments against the Property.

(
NOTE: If there is a homeowners’ association, always check its Website and/or call to nail this down accurately.)

 

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§17 Possession

Possession of the Property shall be delivered to buyer as follows: _____________________________________, subject to leases and tenancies as described in § 14.

(
NOTE 17: …but only if the loan is approved and all contingencies are met. As the Seller’s broker, you want to avoid having the Seller in mid-move if the deal falls through. In some areas, possession is customarily a few days after closing to allow for moving out and cleaning up. If possession is any longer than that, some rent back provision should be negotiated to protect the purchaser.)

 

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§18 Material Defects, Disclosures and Inspection and §19 Right of Parties to Cancel

·

18.1. Broker’s Obligations. Colorado law requires a broker to disclose to any prospective buyer all adverse material facts actually known by such broker including but not limited to adverse material facts pertaining to the title to the Property and the physical condition of the Property, any material defects in the Property, and any environmental hazards affecting the Property which are required by law to be disclosed. These types of disclosures may include such matters as structural defects, soil conditions, violations of health, zoning or building laws, and nonconforming uses and zoning variances. Seller agrees that any buyer may have the Property and Inclusions inspected and authorizes Broker to disclose any facts actually known by Broker about the Property.

·
18.2. Seller’s Obligations.

·
18.2.1. Seller’s Property Disclosure Form Disclosure of known material latent (not obvious) defects is required by law.

Seller ___ Agrees ___ Does Not Agree to provide a Seller’s Property Disclosure form completed to the best of Seller’s current, actual knowledge.

·
18.2.2. Lead-Based Paint. Unless exempt, if the improvements on the Property include one or more residential dwellings for which a building permit was issued prior to January 1, 1978, a completed Lead-Based Paint Disclosure (Sales) form must be signed by Seller and the real estate licensees, and given to any potential buyer in a timely manner.

·
18.2.3. Carbon Monoxide Alarms. Note: If the improvements on the Property have a fuel-fired heater or appliance, a fireplace, or an attached garage and one or more rooms lawfully used for sleeping purposes (Bedroom), Seller understands that Colorado law requires that Seller assure the Property has an operational carbon monoxide alarm installed within fifteen feet of the entrance to each Bedroom or in a location as required by the applicable building code, prior to offering the Property for sale or lease.

·
18.2.4. Condition of Property. The Property will be conveyed in the condition existing as of the date of the sales contract or lease, ordinary wear and tear excepted, unless Seller, at Seller’s sole option, agrees in writing to any repairs or other work to be performed by Seller.

19. RIGHT OF PARTIES TO CANCEL.

·
19.1. Right of Seller to Cancel. In the event Broker defaults under this Seller Listing Contract, Seller has the right to cancel this Seller Listing Contract, including all rights of Brokerage Firm to any compensation if the Seller Agency box is checked. Examples of a Broker default include, but are not limited to (1) abandonment of Seller, (2) failure to fulfill all material obligations of Broker and (3) failure to fulfill all material Uniform Duties (§ 5) or, if the Seller Agency box at the top of page 1 is checked, the failure to fulfill all material Additional Duties Of Seller’s Agent (§ 6). Any rights of Seller that accrued prior to cancellation will survive such cancellation.

·
19.2. Right of Broker to Cancel. Brokerage Firm may cancel this Seller Listing Contract upon written notice to Seller that title is not satisfactory to Brokerage Firm. Although Broker has no obligation to investigate or inspect the Property, and no duty to verify statements made, Brokerage Firm has the right to cancel this Seller Listing Contract if any of the following are unsatisfactory (1) the physical condition of the Property or Inclusions, (2) any proposed or existing transportation project, road, street or highway, (3) any other activity, odor or noise (whether on or off the Property) and its effect or expected effect on the Property or its occupants, or (4) any facts or suspicions regarding circumstances that could psychologically impact or stigmatize the Property. Additionally, Brokerage Firm has the right to cancel this Seller Listing Contract if Seller or occupant of the Property fails to reasonably cooperate with Broker or Seller defaults under this Seller Listing Contract. Any rights of Brokerage Firm that accrued prior to cancellation will survive such cancellation. 

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§20 Forfeiture of Payments

In the event of a forfeiture of payments made by a buyer, the sums received will be: (1) 100% will be paid to Seller; (2) divided between Brokerage Firm and Seller, one-half to Brokerage Firm but not to exceed the Brokerage Firm compensation agreed upon herein, and the balance to Seller; (3) Other: If no box is checked in this Section, choice (1), 100 % paid to Seller, applies. Any forfeiture of payment under this section will not reduce any Brokerage Firm compensation owed, earned and payable under § 7.

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§21 Cost of Services and Reimbursement

Unless otherwise agreed upon in writing, Brokerage Firm must bear all expenses incurred by Brokerage Firm, if any, to market the Property and to compensate cooperating brokerage firms, if any. Neither Broker nor Brokerage Firm shall obtain or order any other products or services unless Seller agrees in writing to pay for them promptly when due (examples: surveys, radon tests, soil tests, title reports, engineering studies, property inspections). Unless otherwise agreed, neither Broker nor Brokerage Firm shall be obligated to advance funds for the benefit of Seller in order to complete a closing. Seller must reimburse Brokerage Firm for payments made by Brokerage Firm for such products or services authorized by Seller. 

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§22 Disclosure of Settlement Costs

Seller acknowledges that costs, quality, and extent of service vary between different settlement service providers (e.g., attorneys, lenders, inspectors and title companies). 

(
NOTE 21: Remember the Seller is the one paying the most for closing services by agreeing to provide title insurance for the buyer. The choice of title insurance company belongs to the Seller, not the broker.)

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§23 Maintenance of the Property

Neither Broker nor Brokerage Firm shall be responsible for maintenance of the Property nor shall they be liable for damage of any kind occurring to the Property, unless such damage shall be caused by their negligence or intentional misconduct. 

(
NOTE 22: Be especially cautious here if the property will be vacant. Some Sellers have been known to consider the broker to be a free interim property maintenance person.)

§24 Nondiscrimination

The parties agree not to discriminate unlawfully against any prospective buyer because of the race, creed, color, sex, sexual orientation, marital status, familial status, physical or mental disability, handicap, religion, national origin or ancestry of such person. 

(
NOTE 23: Again, 
Red Flag. If the Seller hesitates here, find out why and consult your employing broker before proceeding. This isn’t a matter of preference for you or the Seller. It is the law!)

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§25 Recommendation of Legal and Tax Counsel

By signing this document, Seller acknowledges that Broker has advised that this document has important legal consequences and has recommended consultation with legal and tax or other counsel before signing this Seller Listing Contract.

(
NOTE 24: You warned the Seller in the Preamble. Now you’re advising the Seller again.)

 

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§26 Mediation

If a dispute arises relating to this Seller Listing Contract, prior to or after closing, and is not resolved, the parties must first proceed in good faith to submit the matter to mediation. Mediation is a process in which the parties meet with an impartial person who helps to resolve the dispute informally and confidentially. Mediators cannot impose binding decisions. The parties to the dispute must agree, in writing, before any settlement is binding. The parties will jointly appoint an acceptable mediator and will share equally in the cost of such mediation. The mediation, unless otherwise agreed, shall terminate in the event the entire dispute is not resolved within 30 calendar days of the date written notice requesting mediation is delivered by one party to the other at the party’s last known address.

(
NOTE 25: You hope it never comes to this, but if you have a dispute, mediation is an efficient, low-cost way to resolve the issue. It is generally non-binding (unlike arbitration or a court order). Have a couple of good mediators identified way before the need arises and consult your employing broker if this prospect appears imminent.)

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§27 Attorney Fees

In the event of any arbitration or litigation relating to this Seller Listing Contract, the arbitrator or court must award to the prevailing party all reasonable costs and expenses, including attorney and legal fees.

In fact, some judges do not feel bound by this restriction. And rightly so, since the judge is not a party to the contract. But is does serve as the general rule.

§28 Additional Provisions

(The following additional provisions have not been approved by the Colorado Real Estate Commission.)

(
NOTE 27: This space may expand or contract to fit whatever you and the Seller feel needs to go here. Remember, since you and your firm are one of the parties to the listing, you are free to negotiate here. Not so with the Buy/Sell contract.)

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§29 Attachments and §30 No Other Party or Intended Beneficiaries

29. ATTACHMENTS. The following are a part of this Seller Listing Contract:

30. NO OTHER PARTY OR INTENDED BENEFICIARIES. Nothing in this Seller Listing Contract is deemed to inure to the benefit of any person other than Seller, Broker and Brokerage Firm.

(
NOTE 29: Real Estate listing/employment contract are categorized as personal service contracts – meaning should the Seller die before going under contract, so does the listing. A buy/sell contract would continue in effect and “inure” to the benefit of the surviving heirs.)

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§31 Notice, Delivery and Choice of Law

·
31.1. Physical Delivery. All notices must be in writing, except as provided in § 31.2. Any document, including a signed document or notice, delivered to the other party to this Seller Listing Contract, is effective upon physical receipt. Delivery to Seller is effective when physically received by Seller, any signator on behalf of Seller, any named individual of Seller or representative of Seller.

·
31.2. Electronic Delivery. As an alternative to physical delivery, any document, including any signed document or written notice may be delivered in electronic form only by the following indicated methods: ___ 
Facsimile ___Email ___Internet. Documents with original signatures will be provided upon request of any party.

·
31.3. Choice of Law. This Seller Listing Contract and all disputes arising hereunder are governed by and construed in accordance with the laws of the State of Colorado that would be applicable to Colorado residents who sign a contract in this state for property located in Colorado.

(
NOTE 30: These items are designed to preclude or minimize any later dispute as to who did what to whom and how/when they did it.)

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§32 Modification of This Seller Listing Contract

No subsequent modification of any of the terms of this Seller Listing Contract shall be valid, binding upon the parties, or enforceable unless made in writing and signed by the parties.

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§33 Counterparts

This Seller Listing Contract may be executed by each of the parties, separately, and when so executed by all the parties, such copies taken together are deemed to be a full and complete contract between the parties.

(
NOTE 32: This comes in handy when one Seller is on an extended stay out-of-state and the other one(s) are here. They may sign separate copies which, when stapled together, become one contract. Saves much time.)

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§34 Entire Agreement

This agreement constitutes the entire contract between the parties, and any prior agreements, whether oral or written, have been merged and integrated into this Seller Listing Contract. 

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§35 Copy of Contract, Authorization Line and Signature Blocks

35. COPY OF CONTRACT. Seller acknowledges receipt of a copy of this Seller Listing Contract signed by Broker, including all attachments.

Brokerage Firm authorizes Broker to execute this Seller Listing Contract on behalf of Brokerage Firm.

One more time…you take the listing for your firm who owns it! Not to be confused with you being alone (no firm, no other brokers) with the client in the brokerage relationship.

The contract ends with 4 signature blocks; two are for Seller, one for you and one for you to fill in with your firm’s information. 

You’ve now reviewed line-by-line the Exclusive Right-to-Sell Contract. You will use this contract more than most others in residential real estate brokerage. Not all listings conclude with a successful closing, so it stands to reason that you will complete more listing contracts than Buy/Sell contracts. 

The Real Estate Commission course outline requires that you actually prepare each one of the different types of listing contracts and related forms. Keep in mind that your employing broker may have some preferences as to how you word contract entries when taking a listing. Expect a high level of supervision for the first real-world listings you take (Commission Rule E-32). For this exercise, you will use the guidelines and explanations pertaining to the specific contract in this Chapter 5. 

Click here to open a blank 
Exclusive Right-to-Sell Listing Contract

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Summary

This concludes Chapter 5. Below is a brief summary which you can review before taking your quiz.

Exclusive Right-to-Sell: The broker will receive the agreed-upon commission if the property sells anytime during the contract period, no matter who sells it.

· Binding contract. Parties should consult legal counsel.

· Brokerage relationships include buyer/seller agency and transaction-brokerage.

Brokerage Addendum Exclusive: Reserves to the seller the right to sell the property independently of the listing broker.

Open Listing Addendum: The seller agrees to pay a commission only to the broker that is the procuring cause of the sale.

Uniform Duties when working with Seller:

· Broker shall exercise reasonable skill and care for Seller.

· Broker shall not disclose information without the informed consent.

· Seller consents to Broker’s disclosure of Seller’s confidential information to the supervising broker.

· Broker has no duty to conduct an independent inspection of the Property for the benefit of a buyer.

Seller agrees to pay Brokerage Firm the Sale and Lease Commission.

The commission obligation shall apply to a Sale made during the Listing Period or any extension of such original or extended term.

Seller agrees:

· To conduct all negotiations for the Sale of the Property only through Broker.

· That any advertising of the Property by Seller shall first be approved by Broker.

The Colorado Foreclosure Protection Act requires:

· The Property is residential.

· Seller resides in the Property as Seller’s principal residence.

· Buyer’s purpose in purchase of the Property is not to use the property as Buyer’s personal residence.

· The Property is in foreclosure or Buyer has notice that any loan secured by the Property is as least thirty days delinquent or in default.

The following Price and Terms are acceptable to Seller:

· Loan Discount Points

· Buyer’s Closing Costs (FHA/VA)

· Earnest Money

· Seller Proceeds

· Tax Withholding

Inclusions

· Fixtures

· Personal Property

· Parking and Storage Facilities

· Growing Crops

Title to the Property is solely in Seller’s name.

Seller authorizes the holder of any obligation secured by an encumbrance on the Property to disclose to Broker the amount owing and the terms. 

Red Flag: A lease survives a sale unless the lease states otherwise.

Colorado law requires a broker to disclose all known adverse material facts.

A seller is not required to provide a written disclosure of adverse matters regarding the Property. Disclosure of known material latent (not obvious) defects is required by law.

Right of Broker to Terminate if the overall condition is unsatisfactory to Broker. 

Forfeiture of payments – the sums received shall be divided between Brokerage Firm and Seller.

Seller shall reimburse Brokerage Firm for payments made by Brokerage Firm for products or services authorized by Seller. 

Neither Broker nor Brokerage Firm shall be responsible for maintenance of the Property nor shall they be liable for damage of any kind occurring to the Property.

Nothing in the Seller Listing Contract shall be deemed to inure to the benefit of any person other than Seller, Broker and Brokerage Firm.

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 
Chapter 5 Summary

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A. Overview

The Real Estate Commission is delegated the authority to adopt rules governing the conduct of real estate licensees. The rules are all contained in Chapter 2 of the Colorado Real Estate Manual.

There are 5 rules, lettered from “A” through “E” and Rule I.  Each of these lettered headings is broken down into numbered rules. For example, rules under A would be identified as Rule A-1, A-2, A-3, etc.

Some rules may not directly apply to you as a real estate broker. We will distill, paraphrase, and summarize the rules as we consider them individually. Some of the rules are self-explanatory. Others have some background or extension that requires further explanation.

The actual rule language is in Chapter 2 of the Colorado Real Estate Manual. The actual text is considerably longer than what we present here, although not necessarily more essential to your licensure or practice of real estate. A gap in the rule numbering herein simply means that the particular rule(s) has minimal effect on your licensure, has been repealed, or is internal to the workings of the Commission. As with the license law, outline numbering within a rule below may not match the outline numbering/lettering in the actual rule.

By the end of this unit, you will be able to: 

· Recognize and list the Colorado Rules

· Explain license qualifications, application requirements, examinations and continuing education requirements

· Describe Errors and Omissions insurance purpose and requirements 

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Unit 2-2 Rule A

COMMISSION RULE A – QUALIFICATIONS, APPLICATIONS AND EXAMINATIONS

A-2. Pre-license education must be completed before taking the state exam or applying for a license. The part about schools electronically reporting evidence of candidate’s having successfully completed the course has not yet been implemented by the Commission.

A-5. The state broker-licensing exam has two parts, the national part and the state-specific part. You may pass the two parts on separate dates. If you fail one part, you only need to retake the failed part. You must submit passing grades for both parts dated less than one year prior to applying for your license.

A-9. The Commission is to issue you a license within 10 days of receipt of your complete application and satisfactory criminal background (fingerprint) results. They will notify you of an incomplete or unsatisfactory application. If a license is approved pending the Commission receiving specified compliance items, you have 20 days to submit or your license may be issued on inactive status.

 

A-12(b). You may apply to the Commission at any time for a “Preliminary Advisory Opinion.” This commission form will require all of the same detailed information as for the application above, but does not require completion of pre-license education nor a license application fee. The Commission’s opinion as to whether they would grant a license if applied for is not binding, but unless you lie or omit information that surfaces by other means, a favorable opinion is a reasonable assurance that a license will be granted.

(Instructor’s Note: If this is of concern to you, we suggest you read the actual rule text in the Colorado Real Estate Manual and apply as early as possible. Depending on the time of submission and the level of investigation necessary, a PAO may take from 2-3 months to complete.)

A-15. For licenses issued prior to July 1, 2004, brokers intending to renew on active status or inactive salespersons or brokers intending to activate a license, must first submit fingerprints electronically or on an FD-258 Card Form to the Colorado Bureau of Investigation for a one-time-only criminal history record check. The rule provides for automatic license inactivation for failure to submit unless the applicant can prove a good-faith effort to comply and the fault lies with the readability of the fingerprints.

A-16. New license applicants must submit fingerprints to the Colorado Bureau of Investigation, who will then forward them to the FBI, for the purposes of state and national criminal history record checks.

A-17. The 72 hours of pre-license education other than Law and Practice (48 hours) and Colorado Contracts and Regulations (this 48 hour course) must be broken out in these specific courses.

a. 24 hours of Real Estate Closings

b. 8 hours of Trust Accounts and Recordkeeping

c. 8 hours of Current Legal Issues

d. 32 hours of Practical Applications

Unit 2-2 Rule A

A-20. If you are denied a license, you must be notified and given a reason.

A-23. Pre-License and Brokerage Administration courses must be based on education principles acceptable to the Commission.

A-25. If your application, renewal, or any other fee is paid for by a check that bounces, the application is cancelled. It may be reinstated at the Commission’s discretion only if made good, plus payment of whatever penalty administrative fee that may be imposed.

A-26. In addition to the requirements of C.R.S. 12-10-211(7) for issuance of a temporary license to prevent hardship, the person to be appointed temporary employing broker must show two years of active licensed experience in the Commission records. Only a vote of the commissioners may approve issuance of more than two temporary 90-day licenses to any firm in any 18-month period.

COMMISSION RULE B – CONTINUING EDUCATION

B-1. Your initial license will be valid for 3 years from the date of issuance. Before renewing your license on active status every 3 years, you must complete 24 hours of continuing education. You must also have your continuing education current before activating an inactive license or reinstating an expired license on active status.

B-2. There are 4 ways of completing the 3-year continuing education requirement:

a. Complete 3 versions (1 per year) of the 4-hour “Annual Commission Update” course, plus 12 hours of elective continuing education courses during the 3-year license period. (Any additional versions of the Annual Commission Update taken within the license period will count towards the required elective hours.)

b. One-time-only, complete the 24-hour “Broker Reactivation” course in lieu of the entire renewal continuing education requirement.

c. Pass the Colorado state portion of the licensing exam.

d. Complete 72 total hours of pre-licensing education covering Contracts and Closings.

B-3. The Commission is required to furnish a new “Annual Commission Update” course each year.

This Rule B-3 requires a 
closed-book 70% passing score on the Annual Commission Update course exam developed by the commission.

 

B-5. Continuing education is not acceptable for license renewal, activation or reinstatement credit in the following subjects:

1. Sales or marketing meetings in your brokerage.

2. Orientation, personal growth, self-improvement, self-promotion or marketing courses.

3. Motivational meetings or seminars.

4. Examination preparation or exam technique courses.

B-8. Continuing education courses must be at least one hour in length and 
credit may not be earned for more than 8 hours in one day.

You may not repeat a course for credit in the same calendar year, nor may you carry any excess hours forward into the next license period. You may not “test out” of a course by taking a “challenge” exam in lieu of completing the course requirements. 
Courses taken under a disciplinary stipulation from the commission do not count toward any continuing education requirement. 

B-10. YOU are responsible for obtaining proof of completion from your course provider. The document must show your licensed name, course title, course length, date(s) completed, and the provider’s authentication/signature.

Never send your course completion certificates to the commission unless specifically requested. Retain course completion certificates for 4 years from the date of the course.

B-14. When you submit an application for license renewal, activation or reinstatement, you are automatically attesting that you are in compliance with any applicable continuing education requirement.

Unit 2-2 Rule C

COMMISSION RULE C – LICENSING – OFFICE

C-1. A broker licensed as an individual proprietorship must be the sole owner of the brokerage.

C-2. Every resident Colorado broker must maintain and supervise a brokerage practice available to the public, EXCEPT employed associate brokers or inactive brokers.

C-3. Every employing broker must be “reasonably” available to manage and supervise the brokerage practice during regular business hours.

C-16. A licensee may not lend his/her/its licensed name or license to anyone to circumvent the license law or commission rule.

C-17. The commission may refuse to issue a license that duplicates (or is similar to) the name on a license that has been suspended or revoked.

C-18. A broker’s trade name, if any, will appear on the broker’s license and the brokerage must do business only under the trade name, or under the full (firm name plus trade name) name appearing on the license.

Unit 2-2 Rule C

C-20. No brokerage may be licensed in a name identical to another brokerage name.

C-21. An individual proprietorship may not use a trade name containing any words that would appear to be corporate (e.g. Inc., LLC, etc.).

Unit 2-2 Rule C

C-22. The applicant employing broker for an entity license (Corp, LLC, or Partnership) must certify that:

a. The entity (and any assumed or trade name) is properly incorporated, filed or registered with the Colorado Secretary of State, or Colorado Department of Revenue, as appropriate to the type of business. Proof of the business establishment and proof of the trade name approval must accompany the application.

b. The applicant employing broker has been duly appointed to be the real estate broker for the entity by the entity’s ownership.

C-23. A brokerage firm employing an unlicensed on-site manager who prepares leases or rental agreements must:

a. Require the on-site manager to be accountable to and report directly to the employing broker or a specifically delegated qualified employed broker associate who must actively and diligently supervise all on-site manager activities.

b. Engage the on-site manager as either a salaried employee or independent contractor paid through the real estate brokerage firm. Salary may include any non-commission value, such as rent.

c. Prevent the on-site manager from negotiating material terms of any lease or rental agreement. Duties may include filling in blanks on pre-printed brokerage lease forms, showing available units to prospects, and collecting rent and security deposits.

C-25. An employing broker must immediately notify the commission of termination of employment with the licensed entity or of any lapse in the qualifications (contained in C.R.S. 12-10-211) to act as employing broker. Upon such notification, the employing broker’s license and all associate broker licenses shall be placed on inactive status.

C-26. A broker license may be issued on inactive status.

Unit 2-2 Rule D

COMMISSION RULE D – RENEWAL, TRANSFER, INACTIVE LICENSE, ERRORS AND OMISSIONS INSURANCE

D-2. A licensee may request inactive license status.

D-3. A license on inactive status must still be renewed every 3 years. The renewal fee is the same as for active license renewal.

D-4. Licenses may be renewed on-line or with the renewal application provided by the commission or other methods acceptable to the Real Estate Commission.

D-6. Renewal notices for employed licensees will be sent to the electronic mailing address on file with the Commission.

D-7. An employing broker may directly pay earned commissions to a previous associate who has transferred to another brokerage or changed to inactive license status.

D-11. Initial license will expire on December 31 of the year the initial license was issued. Thereafter, a licensee will renew a license on a calendar year cycle commencing on January 1 of year one and expiring on December 31 of year three.

D-12. License renewal fees are non-refundable.

Unit 2-2 Rule D

D-14. Errors and Omissions (E&O) Insurance is required for every active license, including real estate companies. (This means that a one-person incorporated brokerage firm requires two E&O policies, whereas a one-person sole proprietor requires only one E&O policy.)

The Commission will enter a competitive bid process for a group E&O policy from a Colorado-registered insurer having an A.M. Best (an insurance company rating organization) rating of “A” or better. The insurer will, at no expense to the State, collect all premiums, maintain records, and report names of insured and a record of claims to the Commission.

The group policy must cover all acts requiring a license EXCLUDING illegal or fraudulent acts. It must insure loss from a licensee’s use of lockboxes to a minimum of $25,000 per occurrence. The policy is individual and license specific, and transfers without additional premium if a licensee transfers to a new employing broker. It may be cancelled only for non-payment of premiums or denial, revocation, suspension or inactivation of your broker license.

The policy must provide at least $100,000 coverage per license per covered claim, with a $300,000 annual aggregate limit per license. The policy may require a $1,000 deductible per claim, but no deductible is allowed for legal expense or defense. The insurer must defend all covered claims and the insured may select his or her own defense attorney subject to written permission of the carrier, which may not be unreasonably withheld. (Note: The current insurer relies heavily on in-house legal staff.)

Premium is pro-rated for policies purchased after the beginning of the policy year (Jan. 1 – Dec. 31), but there is no refund of premium for a policy cancelled before the end of the policy year. For additional premium, a licensee may purchase higher, excess or additional coverage, or may purchase an extended reporting period of not less than 365 days.

The policy must afford a “conformity endorsement” covering an active Colorado licensee with multiple licenses for licensed acts in another E&O group-mandated state(s) without having to purchase a separate policy for that state(s).

Licensees may purchase E&O insurance from any independent insurance carrier as long as the carrier and the policy conform to essentially the same requirements as stated above. Talk to your employing broker and consult the actual text of Rule D-14(c) and (d) for details. The state’s group policy vendor automatically reports your coverage to the Commission; whereas you and any independent carrier may have to fill out and deliver a certificate to the commission at each policy renewal.

If your coverage lapses or certification of coverage is not maintained, the commission may change your license status to inactive.

(Instructor’s note: If this happens, any E&O coverage you may have actually had may be cancelled, meaning an interruption of any tail [past] coverage for prior transactions prior to the next effective date of coverage.)

Unit 2-2 Rule E

COMMISSION RULE E – SEPARATE ACCOUNTS – RECORDS – ACCOUNTINGS – INVESTIGATIONS

(This E Rule is more likely than the preceding rules to have a direct impact on your day-to-day real estate practice. The previous rules focused on getting and keeping your license. Rule E is the rule that deals with administration of your real estate brokerage and the actual practice of real estate.)

 

Unit 2-2 Rule E-1

Rule E-1. Other people’s money, e.g. earnest money, rent due to a landlord or tenant security deposits, must be held in an account labeled “trust” or “escrow”, and labeled by the type of money held in the account. This means you may deposit earnest money for all different sales in a “sales trust account,” but must keep homeowners’ association dues (for example) in a separate, appropriately labeled trust account.

Rule E-1(a). Trust accounts must be in the name of the licensed individual broker, or if the brokerage is licensed as an entity, in the name of the individual employing broker AND the entity. The individual broker must always be able to withdraw money from the account, and may authorize any other person (with or without a license) to co-sign on the account. In spite of such co-signers, the individual broker always remains responsible for trust account management.

Rule E-1(c). Trust accounts may not restrict withdrawals to a fixed maturity date, or impose penalties for early withdrawal unless all parties to the transaction consent in advance in writing. This typically makes it difficult to use CD’s or other sophisticated financial instruments as trust account depositories.

End of Page

Unit 2-2 Rule E-1(f)

Rule E-1(f). Trust account funds (other people’s money) may not be 
commingled (mixed) with money belonging to the broker or company, except that a small amount of broker funds may be deposited to keep the account from ever reaching a negative balance and to keep from using any other people’s money to cover any incidental bank charges (such as purchasing checks).

· When money in a trust account may be earned by the broker, it must be withdrawn promptly from the trust account (and moved to the company operating account).

· Money owed to, or held for, employed licensees, including for payment of insurance premiums or potential IRS withholding, must not be held in a trust account (except that portion of earnest money which may become earned commissions upon closing).

· A broker may advance his or her own money for the benefit of another and keep it in the trust account. However, once advanced, the broker has no right to withdraw the money for other than the original purpose for which it was identified and advanced.

· If a broker owns an interest in a partnership, joint venture or syndication, any funds connected to such an enterprise where the broker may also earn a commission, must be maintained in a discrete trust account.

· Trust fund moneys are “earned” only after all contracted services are performed and no person holds any right of recall on the money. Brokers must maintain an accounting system consisting of a journal and individual property/client ledgers and account for moneys deposited into, and withdrawn from, trust accounts. 

End of Page

Unit 2-2 Rule E-1

·
Rule E-1(g) A broker/builder must hold earnest money deposits for new construction in a trust account and may not use the deposit for construction purposes.

·
Rule E-1(h) A brokerage dealing primarily in sales may deposit/disburse property management rent and security funds into/out of the company sales escrow account until 7 or more properties are under management.

·
Rule E-1(j) Money received under an installment land contract must be held in an escrow account until the land contract is signed by the seller and a copy of the signed contract is delivered to the buyer.

·
Rule E-1(k). If a buyer borrows money using the property as collateral before the seller delivers the deed to the buyer, all payments received by the broker must be held in an escrow account until the deed is delivered, unless all parties agree otherwise in writing.

·
Rule E-1(l). The form of earnest money (e.g. check, cash, promissory note, gold bullion, etc.) must be identified in the contract. If it is a promissory note, the broker must specify in the contract the due date of the note or attach a copy of the note to the contract. The broker must present any promissory note for payment when due, and if not paid, must immediately inform the seller. 

·
Unit 2-2 Rule E-1

·

·
Rule E-1(m). Property management funds must be deposited within 5 business days following receipt.

·
Rule E-1(n). Earnest money in any form must be payable to or assigned/endorsed to and delivered to the 
listing broker who must hold it until due in the case of a promissory note, or deposit it into the broker’s escrow account within 3 business days of the broker receiving notice of contract acceptance.

· The parties may instruct the broker in writing 
(usually via the contract) to deliver the earnest money to a third party 
(e.g. title company). If so, the broker must retain a copy of the earnest money instrument along with the endorsement to the third party, and obtain and keep a dated and signed receipt upon delivery to the third party.

Rule E-1(o). Recordkeeping Requirements. 

Brokers must maintain a recordkeeping system consisting of:

1.
Journal, (
similar to a checkbook register) a chronological log of all deposits into, or disbursements from, the account.

Each journal entry must include:

For Funds Received:

For Funds Disbursed:

Name of payer and property ID

Name of payee

Date of receipt AND deposit

Date of payment and Check Number

Purpose of receipt

Vendor invoice or document proving purpose of payment

Amount

Check number and Amount

Resulting cash balance in account

Resulting cash balance in account

1.
Ledger, a chronological log of all deposits/disbursements made on behalf of each beneficiary (seller, buyer, tenant or landlord) to a transaction. Each ledger entry must contain the same information as above for journal entries. No individual ledger may EVER have a negative (less than zero dollars) balance.

2.
Bank Reconciliation Worksheet, Brokers must reconcile each escrow account monthly (unless no banking activity occurred in the account). Reconciliation is satisfactory when the journal cash balance exactly matches the sum of all ledgers and then exactly matches the balance on the monthly statement from the bank.

Sample forms for journal, ledger and bank reconciliation worksheets, as well as sample accounting transactions are available in Chapter 19 of the CREM.

Even if the broker reports only summary amounts for managed property, each ledger entry must be linked to supporting detailed documentation for every cash receipt/payment. Property managers must account to each owner for each property 
within 30 days after the end of any month in which funds were either received or disbursed, unless otherwise agreed to in the written management agreement.

We mentioned that a broker could deposit a small amount of personal funds in each escrow account as a protection from entering a negative balance because of bank charges or similar. If this is the case (
and it is a good practice) then the money must be entered on a separate “
Broker’s Ledger,” and must also be entered in the account journal.

Documentation of deposits and disbursements also includes electronic funds transfers, and telephone transfers, etc. Detailed notes with information similar to the journal entries shown previously are required. All such confirmations, front/back copies of checks, etc. must be available for Commission inspection upon request.

Escrow accounting must be on a 
cash basis. A beneficiary of an escrow account may request “accrual basis” accounting in writing, which, if agreed to, requires the broker to maintain a separate recordkeeping system (journal, ledgers and bank account) for each beneficiary.

A broker must secure and maintain 
written client approval prior to charging or receiving markups, service fees, oversight fees or any compensation above amounts charged by any third party vendor or affiliated business entity. The broker must also keep record showing the amount or percentages of each such receipt of funds.

 

Unit 2-2 Rule E-1

Rule E-1(p). Money belonging to one beneficiary of an escrow account may never be used for the benefit of another beneficiary. (Such a “borrowing,” even accidentally, is a likely cause of a negative ledger balance.)

Rule E-1(q). Anything of value received in lieu of cash shall be held by the broker unless otherwise agreed. (So try not to accept a sailboat as earnest money. It’s not only costly to store, but frustrating to not be able to enjoy it on the water.)

Rule E-1(r). If a firm has branch office(s), each branch may either use the main office escrow account and recordkeeping system or set up a separate account(s) and system(s) for the branch. An escrow account must always be linked to a recordkeeping system in the same office.

Rule E-1(t). There is no limit to the number of escrow accounts a broker may maintain. If a broker doesn’t maintain other people’s money (e.g. uses a title company for all earnest money), there is no need to even maintain an escrow account.

 

Unit 2-2 Rule E

Rule E-2. When a client pays for some repair or advertising or service ordered by the broker before the service is completed, the broker must deposit the money in an escrow account until it is earned by full performance. Brokers must account to each beneficiary within 30 days of any withdrawal(s) from an escrow account. (NOTE: This is important to remember when a closing will not take place for an extended time. An interim accounting may be necessary.) Money agreed to in writing by the payer and broker as being a nonrefundable retainer may be received and spent as the broker determines, and is not subject to escrow accounting.

Rule E-3. Every licensee must produce documents or records as requested for audit or investigation by the real estate commission. Homeowners Association (HOA) records and documentation belong to the HOA, must be delivered to them by the broker upon terminating any HOA management contract. A broker may retain copies of these original records at the broker’s expense.

 

Rule E-4. A broker must deliver a duplicate of any broker-prepared document that pertains to the employment agreement or property transaction, and must retain a copy of such duplicate for inspection by the real estate commission.

If such documents are finance-related (e.g. note, deed of trust, etc.) they should be unsigned or prominently marked “Copy”, as the originals are negotiable as real money.

Brokers working with buyers have the same duplicate delivery and record retention requirements as above. A buyer broker is not required to maintain a copy of the listing contract nor of the seller’s settlement statement.

A broker is 
not required to maintain copies of:

· Public records

· Title commitments

· Loan applications

· Lender required disclosures

· Third-party affirmations after settlement

There is a useful index of required sales and management transaction file contents in Chapter 19 of the real estate manual for reference when building your first real-world transaction files. Many brokers will also have transaction file checklists available, and some may require file inventory before paying associate commission splits.

Rule E-5. A broker must sign and provide an accurate, complete and detailed settlement statement at the time of closing to his or her client or customer. If signed by the employed licensee, settlement statements must be 
delivered to the employing broker immediately after closing. This rule places the closing responsibility on the designated broker, but does not relieve the employing broker’s supervisory responsibilities.

The employing or independent broker must retain a signed copy of all settlement statements for future use or inspection by the real estate commission.

Settlement statement(s) must show:

· Date of closing.

· Purchase price.

· Itemization of adjustments, money or things of value debited or credited to the pertinent party.

· Date of adjustments, if not the same as closing date.

· Balance(s) due from respective parties to the contract.

· Payees, Makers and Assignees of any notes paid, made or assumed.

· Debit and Credit of any pre-owned home warranty service contract.

The seller and buyer need only receive their respective debit/credit itemization on their settlement statement – not debits and credits of the other party.

Settlement statements shall be delivered at the time of delivery and acceptance of title, whether by bill of sale, deed or installment land contract for a later deed.

If the employing or independent broker’s company prepares the settlement statements and documents and conducts the closing, such 
broker is primarily responsible for the accuracy and completeness of the statements and documents.

If the designated broker is unable to attend a closing, or review closing documents, another licensee may agree, or the employing broker may designate another licensee to review and sign a closing statement 
and will assume joint responsibility with the absent licensee for its accuracy, completeness and delivery.

(Instructor’s note: Even though the substitute licensee was blindsided and knows nothing of the parties or transaction! My free risk reduction advice: if offered this substitute “opportunity,” go back home and call in sick until after the closing.)

A broker may transfer closing funds from the escrow account to the closing entity “at or before” closing, must obtain a dated/signed receipt therefore in the transaction file, and the settlement statement must contain the names of both the licensee who signs the statement and the employing broker, if applicable.

If the buyer obtains a new loan and the lender deducts costs from the total loan amount before disbursing loan proceeds prior to closing, the 
loan proceeds must be reconciled with buyer and seller settlement totals. A copy of this reconciliation must be retained in the transaction file and be made available for future real estate commission audit.

 

Rule E-6. Electronic or paperless transactions are permitted, provided the record may be produced upon request by the commission in a format capable of retrieval, or being legibly printed. Either principal in a transaction may request, and must be provided, print copies of closing documents.

Rule E-8. Advertising must be done in the name of the employing broker unless it is property owned by the licensee and not listed with the employing broker (Note: most brokers will require you to list through them.)

Advertising of general sales activity must cite the source of the data, must disclaim that all advertised sales intend only to show trends and were not necessarily sold by the advertising licensee, or shall separately identify the sales for which the advertising licensee was directly responsible.

Rule E-10. Licenses are non-transferable, and an employed licensee may never represent him- or herself as an independent or employing broker.

Rule E-11. Every listing agreement must contain a definite termination date.

 

Rule E-12. When a listing or right-to-buy agreement contains a “holdover agreement” the right to a commission applies only to those persons or properties actually negotiated during the agreement and for which the broker submitted names or addresses to the principal in writing at the end of the agreement.

(Instructor’s note: All Commission-approved employment agreements contain a pre-printed holdover agreement – whereby the broker has the right to an earned commission if the seller sells to that buyer [or the buyer purchases that particular property] after the expiration of the employment. This is to prevent the seller or buyer from end-running the broker in an attempt to avoid paying a commission. It is a good practice to submit the name of everyone who views your listed property [or every property the buyer client viewed] during the term of the employment.)

Rule E-13. (Known as the “sign-crossing rule”) A licensee may not initiate communication if a seller or buyer is party to an exclusive right or exclusive agency contract with another brokerage. However, if the seller or buyer initiates the contact, the licensee may negotiate terms on which a future employment contract might be based, or actually enter into an employment agreement to be effective after the current agreement expires.

(Instructor’s note: These situations are extremely dangerous. The seller is usually upset that the property didn’t sell. The buyer is usually upset at not finding the right property. Either way, you may be jumping into the middle of a nasty situation. Remember that if the current employment failure upset the client, just think how upset he/she will be if/when yours expires without a sale! Be especially careful to never speak badly of the previous licensee or agree with the seller/buyer on complaints about which you have no first-hand knowledge.)

Unit 2-2 Rule E

Rule E-14. In every transaction, before closing the licensee must recommend a.) Examination of title and b.) Use of legal counsel.

(Instructor’s Note: Every Commission-approved real estate employment agreement and buy/sell contract has these advisories pre-printed. This rule would seem to require verbal counsel as well. Remember that in Colorado we are privileged to conduct real estate transactions without having an attorney at law involved. But advising the client of the right to consult legal experts is prudent and indeed absolutely necessary when matters are beyond your level of expertise.)

Rule E-15. A broker may not claim any portion of earnest money if the seller fails to close for whatever reason and the failure is not due to the buyer. While it is true that you will have earned your commission upon performing your part of the employment agreement (finding a ready, willing and able buyer), the earnest money must be returned to the buyer and you must demand from, or sue, the seller for your commission.

Rule E-16. Security deposits may not be turned over to the owner unless the tenant agrees, knows where the money will be, and how to get it returned. If given over to the owner, the management agreement must clearly make the owner responsible for its return and authorize the release of the owner’s name and address to the tenant in the event of a dispute. A broker may never contract to use a tenant security deposit for the broker’s own benefit.

 

Rule E-18. In a transaction in which a licensee will earn a commission, 
informed, written consent from the client/customer must be obtained prior to receiving any fee or incentive from a 
mortgage lender. The federal Real Estate Settlement and Procedures Act (RESPA), however, may be stronger than this and prohibits payment of any money to a settlement service provider (e.g. real estate broker) for services not actually provided.

Rule E-19. In a transaction in which a licensee will earn a commission, a licensee may 
never accept a fee or incentive of any kind from a 
title insurance company.

Rule E-20. Only the seller sets or changes the asking price for a property. (Never undertake this on your own without written or witnessed seller authorization.)

Rule E-21. If the commission sends written notice of a complaint against you, or that you have been selected for an audit, or that recordkeeping problems were discovered in an audit, you must respond in writing within the time allowed, including:

· Full response to the allegation or complaint.

· Full response to any additional questions in the notice.

· Any requested documents or records.

· Any additional pertinent explanation or material. 

 

Unit 2-2 Rule E

Rule E-22. This rule passed in 2006, is nearly six pages long! It incorporates, by reference, the federal Real Estate Settlement and Procedures (RESPA) law. Although far too complex to summarize, Rule E-22 may be reduced ad absurdum to the single premise that 
a broker may not pay or receive anything of value to or from anybody in connection with transaction except for “services actually rendered.”

Rule E-23. A Colorado broker may pay a finder’s fee or share a commission with an out-of-state broker if:

· The out-of-state licensed broker must have a domicile and office elsewhere.

· All advertising, negotiating, contracting and conveyance done in Colorado must be in the name of the Colorado broker.

All pre-closing funds are deposited in the Colorado broker’s name according to Colorado Commission rules.

Unit 2-2 Rule E

Rule E-24. If you lie or misstate fact on your broker application, you are subject to discipline.

Rule E-25. A licensee must 
always disclose personal conflicts of interest to clients/customers. A licensee must 
always disclose that he/she is licensed when selling, buying or leasing for self.

Rule E-27. A licensee must 
never predict future availability or cost of services, utilities, or the character or possible future use of a property or any nearby property.

Rule E-29. An employing broker has authority, direction and control over licensee conformance with licensee law and Commission rule. In every complaint against a licensee, the Commission shall look at whether proper supervision was in place. 
Broker supervision applies to licensees and all broker employees including secretaries, bookkeepers and unlicensed assistants.

Unit 2-2 Rule E

Rule E-30. Employing Broker Duties are:

a. Maintain all trust accounts and trust account records.

b. Maintain all transaction records.

c. Develop office policy manual and review it periodically with all employees.

d. Provide a HIGH level of supervision for all licensees with less than 2 years active licensed experience.

e. Provide REASONABLE supervision for experienced licensees.

f. Try to prevent and preclude recurrence of violations of license law, rule and office policy.

g. Adequately supervise main and branch offices, regardless of delegation to licensed/unlicensed managers.

Rule E-31. REASONABLE Supervision of experienced licensees means:

a. Maintain written office policy detailing licensed employee duties and responsibilities. Such policies shall be given to, read and signed by each licensee and be available for Commission inspection.

b. Review all executed contracts to ensure competent preparation.

c. Review transaction files to ensure inclusion of all pertinent documents.

d. Employed broker may delegate 
supervisory authority to other experienced licensees provided:

a. Delegated licensee bears joint responsibility with Employing Broker for compliance.

b. Delegation must be in writing, signed by the delegate and available for Commission inspection.

c. Employing broker 
may never contract to delegate responsibility for broker supervision.

Rule E-32. HIGH Level of Supervision for licensees with less than 2 years of active licensed experience, in addition to the above, means:

a. Provide specific training in office policy and procedures.

b. Be reasonable and available for consultation.

c. Provide assistance in preparing contracts.

d. Monitor transactions from contract to closing.

e. Review documents in preparation for closing.

f. Ensure employing broker or experienced licensee attends closings or is available for assistance.

g. Employed broker may delegate 
supervisory authority to other experienced licensees provided:

a. Delegated licensee bears joint responsibility with Employing Broker for compliance.

b. Delegation must be in writing, signed by the delegate and available for Commission inspection. 

 

Rule E-33. Ministerial Tasks. With proper disclosure, a licensee acting as agent may assist the other party (customer) without either violating the agency relationship or creating a new brokerage relationship with the customer. Such tasks include:

· Showing property.

· Preparing and delivering offers and counteroffers.

· Revealing available financing alternatives.

· Providing information on services contributing to a successful closing and fulfillment of the agency.

Rule E-34. All 
offers to buy or lease must be presented to the listing broker if the listing is current and exclusive.

Rule E-35. Written brokerage relationship 
disclosures must be made 
before a licensee elicits or accepts confidential information concerning a buyer or tenant’s need, motivation or financial qualifications.

No disclosure is required for bona-fide open houses, preliminary conversations or “small talk” concerning price range, location or property styles, or responding to general factual questions concerning advertised properties.

Rule E-36. A broker who provides closing service may not disburse funds until they are available for immediate withdrawal from the institution holding the funds, either as a matter of right or under a contingency-free agreement with the financial institution.

Rule E-37. A licensee is not required to prepare any legal documents, but if a licensee (or his or her agent) does so, the licensee or agent may not charge the client or customer a separate fee. Attorneys for buyer or seller may charge document preparation fees to the public and these are not the responsibility of the broker. The buyer, seller, licensee or any other party, may pay any other closing costs. A broker who charges fees for conducting closings must specify the costs and obtain the written consent of the parties to be charged.

Rule E-38. Broker Designation. An employing broker must designate a broker in writing for every side of every transaction (C.R.S. 12-10-403(6)(a)). Instead of writing a separate letter or memo each time, a broker may write an office policy that ties automatic designation to the broker or team who signs any one of the six Commission-approved listing/employment contracts, or a Broker Disclosure to Buyer in the case of working as a transaction broker by disclosure. The employing broker has the right to substitute or add designated brokers and must disclose any such designation to the buyer or seller.

Unit 2-2 Rule E

Rule E-39. Every employing or independent broker (including single-broker practitioners) must write a policy 
identifying and describing the brokerage relationships that the firm and its employed licensees offer the public.

(Instructor’s note: since there are only two brokerage relationships, agency and transaction, most firms allow both and leave it up to whatever the prospective client desires, or understands better.)

The policy must:

a. Apply to all licensees in the office.

b. Be read, agreed to, and signed by each licensee.

c. Identify the procedure for broker designation (in multiple licensee firms only).

d. Provide adequate protection of confidential client information such as:

a. Seller or landlord is willing to take less.

b. Buyer or tenant is willing to pay more.

c. Information about either party’s motivating factors.

d. Information that either party may agree to other financing.

e. Material information about a party not required to be disclosed by law.

f. Facts or suspicions that may psychologically stigmatize a property.

g. Any other confidential information.

e. An office policy may authorize an employing broker acting as a designated broker to retain supervisory oversight of that transaction. 

 

Rule E-40. A broker may work with buyer and seller in the same transaction as a transaction broker for both sides, or a single agent for one party treating the other as a customer. These options must be disclosed and made a part of each the listing/employment agreement.

(Instructor’s Note: The options are pre-printed in the appropriate Commission-approved forms.)

A broker may never work as an agent for both sides. Remember dual agency is illegal in Colorado. A broker also may not act as an agent for one party and a transaction-broker for the other.

Rule E-41. A broker agent for either party, who then secures the other party, must switch to transaction broker for both parties (assuming the original party checked the appropriate box in the listing agreement allowing a future change to transaction broker to occur. If they did not, you must quit any brokerage relationship with the second party and treat them as a customer or advise them to get their own broker.) You must provide a “Change of Status (Transaction Broker Disclosure)” form to the party to whom the change applies as soon as you become a transaction broker. If such a situation arises at the time a written offer is imminent, you may use the notice at the end of the Commission-approved “Contract to Buy and Sell Real Estate” by checking the box marked “transaction broker” and the box that says “This is a Change of Status.”

Unit 2-2 Rule E

Rule E-42. If a licensee prepares a competitive market analysis for any reason other than anticipated sale or purchase of a property (e.g. estate valuation, lender request, etc.) it must contain the disclaimer: “The preparer of this evaluation is not registered, licensed or certified as a real estate appraiser by the State of Colorado.”

Rule E-43. Licensees are not responsible for measuring property, but they are responsible for the accurate representation of the source of any square footage measurement. A licensee who measures property must disclose the standard, methodology or manner used and advise the client that it is for marketing purposes only. If the client needs precise measurement, advise them to have an independent measurement done.

 

Unit 2-2 Rule E

Rule E-44. When 
a license is suspended, revoked, expired or inactivated, the licensee must immediately:

1. Cease any licensed activity.

2. Return the pocket card to the Commission.

3. Cease 
all advertising.

4. Inform all clients, and release all listings, management agreements or other contracts requiring a license.

5. Account for all trust funds and complete all pending closings (employing or independent brokers only).

6. Refuse any commission unless earned prior to the loss of license.

Rule E-45. Every listing/employment agreement gives the designated broker 
consent to share client confidential information with a supervising broker (Rules E-30, E-31 and E-32) without making the supervising broker a party to the brokerage relationship.

 

Unit 2-2 Rule E-46

Rule E-46.

(Instructor’s note: This rule pertains to Affiliated Business Arrangements. Like Rule E-22 it was adopted in 2006. It is over two pages long. It is heavily abbreviated and paraphrased here to give its basic meaning. We believe this shortened version will suffice for earning your license.)

A licensee or employing broker must provide a written HUD 
Affiliated Business Arrangement Disclosure Statement to any buyer or seller prior to referring to any settlement service provider with whom an affiliated business arrangement exists (for example, a broker-owned title company). You must also keep a copy of the signed disclosure statement in the transaction file.

Sham business arrangements are forbidden. These type of scams exact junk fees from buyers and sellers charged by non-existent companies for settlement services existing only in “smoke and mirrors.”

Rule E-46 requires an individual licensee to 
disclose to the Commission the names and physical location of any affiliated business arrangements to which the licensee is a party upon:

· New application for active licensure.

· Re-activation of an inactive license.

· Transfer of an active license to another brokerage firm.

Employing and independent brokers must 
annually disclose the name and physical location of any party with whom an affiliated business arrangement exists.

Unit 2-2 Rule E-47 & E-48

Rule E-47. On every occasion of engaging in the practice of real estate brokerage, a broker must determine whether he or she possesses the necessary experience, training, and knowledge to provide brokerage services and maintain compliance with the applicable federal, state and local laws, rules, regulations and ordinances. If the broker does not have the necessary experience, training, and knowledge, the broker must: decline to provide brokerage services; or obtain the necessary experience, training and knowledge; or obtain the assistance of their supervising broker or legal counsel, or co-list with another licensed broker who does have the necessary experience, training, and knowledge. 

Rule E-48. No licensee shall file a lien, a lis pendens, or record a listing contract to secure the payment of a commission or other fee associated with real estate brokerage duties in a residential transaction. A licensee involved in a residential transaction shall not cause the title to a property to become clouded or otherwise interfere with the transfer of title when the licensee is not a principal in the transaction. A licensee involved in a commercial transaction, pursuant to 38-22.5-101, may file such a lien or lis pendens.

Note: This is limited to commercial leasing transactions.

Rule E-49. A licensee shall make written notification to the Commission within 30 calendar days of any of the following:

a. A plea of guilt, a plea of nolo contendere or a conviction of any crime identified by 12-10-217(1)(p), C.R.S.

b. A violation or aiding and abetting in the violation of the Colorado or federal fair housing laws.

c. Any disciplinary action taken against a licensee in any other jurisdiction, if the licensee’s action(s) would constitute a violation of the real estate license law in Colorado.

d. A suspension or revocation of a license, registration, or certification by Colorado or another state, within the last five years, for fraud, deceit, material misrepresentation, theft, or the breach of a fiduciary duty that denied the licensee the authorization to practice as a mortgage broker, a real estate broker or salesperson, a real estate appraiser, an insurance producer, an attorney, a securities broker-dealer, a securities sales representative, an investment advisor, or an investment advisor representative. 

End of Page

Unit 2-2 Rule G-2

Commission Rule G is the implementation of the license law C.R.S. 12-10-207(2) for brokers dealing in 
Rental Referral business.

Rule G-2. Brokers must provide each prospective tenant a receipt for any advance fees. Such a receipt may be contained in a written contract. The receipt or contract must have the following verbatim warning in all capital letters and bold face:

IF THE INFORMATION CONCERNING RENTAL FURNISHED BY THE BROKER IS SHOWN TO BE NOT CURRENT OR ACCURATE IN REGARD TO THE TYPE OF RENTAL DESIRED, THE FULL FEE SHALL BE REPAID OR REFUNDED TO THE PROSPECTIVE TENANT UPON WRITTEN DEMAND. CURRENT RENTALS HAVE BEEN VERIFIED AS TO AVAILABILITY WITHIN THE LAST FOUR BUSINESS DAYS.

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Unit 2-2 Rule G, I, & K

Rule G3. A broker must retain the original (copy to the prospective tenant) of any rental referral list for 
90 days

Rule G-5. When referrals are made by any method other than in-person, the broker must retain for 
1 year a copy of the addresses furnished, including the name of the broker or employee who provided the address(es). 

Rule G-6. Broker shall make and post a written register of all advertised/ published properties. All advertised properties must have been verified as being for rent within four days before the advertisement appears. All properties advertised must be assigned a broker-developed unique identifying code, must be approved by the owner to be offered for rent (may be oral, but logged in writing by the broker), and all ads must be retained for 1 year. 

Rule G-7. A broker violating any of these G rules may be found unworthy or incompetent in the license law. This includes:

· Property is not in the area represented.

· Rental price advertised is other than asked by the owner.

· Property is non-existent or unverifiable for rent.

· Advertised specifics differ from the actual property.

· Type of property is different than advertised (e.g. advertised single-family home is actually a duplex). 

Rule I is entitled “Declaratory Orders” and deals with the process for petitioning the Commission for such an order to clarify or interpret any uncertainty as to the applicability to the petitioner of any statute, rule or order of the Commission. It is not germane to the issuance of a license. 

Rule K was added in 2008. It pertains to administrative procedures and time limits for filing designations, requests, exceptions and pleadings in regard to disciplinary actions taken by the Commission. It is not germane to the issuance of a license. 

 

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Summary

This concludes Chapter 2. Below is a brief summary which you can review before taking your quiz.

Rule A – Qualifications, Applications and Examinations

The Commission is to issue you a license within 10 days of receipt of your complete application and 
criminal background (fingerprint) results.

If you have been licensed in another state, you must submit a 
Certificate of License History.

If within the last 10 years you have a 

criminal background
 of any kind, not counting misdemeanor traffic violations, you must submit a:

· Written, signed statement explaining each violation in detail.

· Completed Real Estate Commission Application addendum (REC-BAA).

· Letter from the employing broker. 

You may apply to the Commission at any time for a 
Preliminary Advisory Opinion.

If you are 
denied a license, you must be notified and given a reason.

Pre-License and Brokerage Administration courses must be based on education principles acceptable to the Commission.

If your application, renewal, or any other fee is paid for by a check that bounces, the application is cancelled.

The person to be appointed 
temporary employing broker must show two years of active licensed experience in the Commission records.

Rule B – Continuing Education

Your initial license will be 
valid for 3 years from the date of issuance.

· Before renewing your license, you must complete 24 hours of continuing education.

· You must also have your continuing education current before activating an inactive license.

The Commission is required to furnish a new 
Annual Commission Update course each year.

Continuing education courses must be at least 
one hour in length and credit may not be earned for more than 8 hours in one day.

You are responsible for obtaining 
proof of completion from your course provider.

Never send your course completion certificates to the commission unless specifically requested.

Rule C – Licensing – Office

A broker licensed as an individual proprietorship must be the 
sole owner of the brokerage.

Every employing broker must be 
reasonably available to manage and supervise the brokerage practice during regular business hours.

Associate brokers shall be licensed under the 
licensed brokerage, not the trade name.

A person may not be licensed under more than one name or practice real estate under other than the person or entity’s licensed name.

A broker using a trade name owned by another must include the brokerage name as registered with the commission 
when advertising.

An individual proprietorship may not use a trade name containing any words that would appear to be corporate (e.g. Inc., LLC, etc.).

A brokerage firm employing an 

unlicensed on-site manager
 who prepares leases or rental agreements must require him to be accountable to and report directly to the employing broker.

A broker license may be issued on inactive status.

Rule D – Renewal, Transfer, Inactive License, Error and Omission Insurance

A license on inactive status must still be renewed every 3 years. The renewal fee is the same as for active license renewal.

An employing broker may directly pay earned commissions to a previous associate who has transferred to another brokerage or changed to inactive license status.

Initial license 
expires 3 years from the date of issuance.

License renewal fees are non-refundable.

Errors and Omissions Insurance is required for every active license, including real estate companies.

The policy is individual and license specific and transfers without additional premium if a licensee transfers to a new employing broker.

Rule E – Separate Accounts – Records – Accountings – Investigations

 

Unit 2-2 Rule E-1

Rule E-1. Other people’s money, e.g. earnest money, rent due to a landlord or tenant security deposits, must be held in an account labeled “trust” or “escrow”, and labeled by the type of money held in the account. This means you may deposit earnest money for all different sales in a “sales trust account,” but must keep homeowners’ association dues (for example) in a separate, appropriately labeled trust account.

Rule E-1(a). Trust accounts must be in the name of the licensed individual broker, or if the brokerage is licensed as an entity, in the name of the individual employing broker AND the entity. The individual broker must always be able to withdraw money from the account, and may authorize any other person (with or without a license) to co-sign on the account. In spite of such co-signers, the individual broker always remains responsible for trust account management.

Rule E-1(c). Trust accounts may not restrict withdrawals to a fixed maturity date, or impose penalties for early withdrawal unless all parties to the transaction consent in advance in writing. This typically makes it difficult to use CD’s or other sophisticated financial instruments as trust account depositories.

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Unit 2-2 Rule E-1(f)

Rule E-1(f). Trust account funds (other people’s money) may not be 
commingled (mixed) with money belonging to the broker or company, except that a small amount of broker funds may be deposited to keep the account from ever reaching a negative balance and to keep from using any other people’s money to cover any incidental bank charges (such as purchasing checks).

· When money in a trust account may be earned by the broker, it must be withdrawn promptly from the trust account (and moved to the company operating account).

· Money owed to, or held for, employed licensees, including for payment of insurance premiums or potential IRS withholding, must not be held in a trust account (except that portion of earnest money which may become earned commissions upon closing).

· A broker may advance his or her own money for the benefit of another and keep it in the trust account. However, once advanced, the broker has no right to withdraw the money for other than the original purpose for which it was identified and advanced.

· If a broker owns an interest in a partnership, joint venture or syndication, any funds connected to such an enterprise where the broker may also earn a commission, must be maintained in a discrete trust account.

· Trust fund moneys are “earned” only after all contracted services are performed and no person holds any right of recall on the money. Brokers must maintain an accounting system consisting of a journal and individual property/client ledgers and account for moneys deposited into, and withdrawn from, trust accounts. 

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Unit 2-2 Rule E-1

·
Rule E-1(g) A broker/builder must hold earnest money deposits for new construction in a trust account and may not use the deposit for construction purposes.

·
Rule E-1(h) A brokerage dealing primarily in sales may deposit/disburse property management rent and security funds into/out of the company sales escrow account until 7 or more properties are under management.

·
Rule E-1(j) Money received under an installment land contract must be held in an escrow account until the land contract is signed by the seller and a copy of the signed contract is delivered to the buyer.

·
Rule E-1(k). If a buyer borrows money using the property as collateral before the seller delivers the deed to the buyer, all payments received by the broker must be held in an escrow account until the deed is delivered, unless all parties agree otherwise in writing.

·
Rule E-1(l). The form of earnest money (e.g. check, cash, promissory note, gold bullion, etc.) must be identified in the contract. If it is a promissory note, the broker must specify in the contract the due date of the note or attach a copy of the note to the contract. The broker must present any promissory note for payment when due, and if not paid, must immediately inform the seller. 

 

Unit 2-2 Rule E-1

Rule E-1(m). Property management funds must be deposited within 5 business days following receipt.

Rule E-1(n). Earnest money in any form must be payable to or assigned/endorsed to and delivered to the 
listing broker who must hold it until due in the case of a promissory note, or deposit it into the broker’s escrow account within 3 business days of the broker receiving notice of contract acceptance.

The parties may instruct the broker in writing 
(usually via the contract) to deliver the earnest money to a third party 
(e.g. title company). If so, the broker must retain a copy of the earnest money instrument along with the endorsement to the third party, and obtain and keep a dated and signed receipt upon delivery to the third party.

 

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Unit 2-2 Rule E-1(p)

Rule E-1(o). Recordkeeping Requirements. 

Brokers must maintain a recordkeeping system consisting of:

1.
Journal, (
similar to a checkbook register) a chronological log of all deposits into, or disbursements from, the account.

Each journal entry must include:

For Funds Received:

For Funds Disbursed:

Name of payer and property ID

Name of payee

Date of receipt AND deposit

Date of payment and Check Number

Purpose of receipt

Vendor invoice or document proving purpose of payment

Amount

Check number and Amount

Resulting cash balance in account

Resulting cash balance in account

1.
Ledger, a chronological log of all deposits/disbursements made on behalf of each beneficiary (seller, buyer, tenant or landlord) to a transaction. Each ledger entry must contain the same information as above for journal entries. No individual ledger may EVER have a negative (less than zero dollars) balance.

2.
Bank Reconciliation Worksheet, Brokers must reconcile each escrow account monthly (unless no banking activity occurred in the account). Reconciliation is satisfactory when the journal cash balance exactly matches the sum of all ledgers and then exactly matches the balance on the monthly statement from the bank.

Sample forms for journal, ledger and bank reconciliation worksheets, as well as sample accounting transactions are available in Chapter 19 of the CREM.

Even if the broker reports only summary amounts for managed property, each ledger entry must be linked to supporting detailed documentation for every cash receipt/payment. Property managers must account to each owner for each property 
within 30 days after the end of any month in which funds were either received or disbursed, unless otherwise agreed to in the written management agreement.

We mentioned that a broker could deposit a small amount of personal funds in each escrow account as a protection from entering a negative balance because of bank charges or similar. If this is the case (
and it is a good practice) then the money must be entered on a separate “
Broker’s Ledger,” and must also be entered in the account journal.

Documentation of deposits and disbursements also includes electronic funds transfers, and telephone transfers, etc. Detailed notes with information similar to the journal entries shown previously are required. All such confirmations, front/back copies of checks, etc. must be available for Commission inspection upon request.

Escrow accounting must be on a 
cash basis. A beneficiary of an escrow account may request “accrual basis” accounting in writing, which, if agreed to, requires the broker to maintain a separate recordkeeping system (journal, ledgers and bank account) for each beneficiary.

A broker must secure and maintain 
written client approval prior to charging or receiving markups, service fees, oversight fees or any compensation above amounts charged by any third party vendor or affiliated business entity. The broker must also keep record showing the amount or percentages of each such receipt of funds.

 

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Unit 2-2 Rule E-1

Rule E-1(p). Money belonging to one beneficiary of an escrow account may never be used for the benefit of another beneficiary. (Such a “borrowing,” even accidentally, is a likely cause of a negative ledger balance.)

Rule E-1(q). Anything of value received in lieu of cash shall be held by the broker unless otherwise agreed. (So try not to accept a sailboat as earnest money. It’s not only costly to store, but frustrating to not be able to enjoy it on the water.)

Rule E-1(r). If a firm has branch office(s), each branch may either use the main office escrow account and recordkeeping system or set up a separate account(s) and system(s) for the branch. An escrow account must always be linked to a recordkeeping system in the same office.

Rule E-1(t). There is no limit to the number of escrow accounts a broker may maintain. If a broker doesn’t maintain other people’s money (e.g. uses a title company for all earnest money), there is no need to even maintain an escrow account.

 

Unit 2-2 Rule E

Rule E-2. When a client pays for some repair or advertising or service ordered by the broker before the service is completed, the broker must deposit the money in an escrow account until it is earned by full performance. Brokers must account to each beneficiary within 30 days of any withdrawal(s) from an escrow account. (NOTE: This is important to remember when a closing will not take place for an extended time. An interim accounting may be necessary.) Money agreed to in writing by the payer and broker as being a nonrefundable retainer may be received and spent as the broker determines, and is not subject to escrow accounting.

Rule E-3. Every licensee must produce documents or records as requested for audit or investigation by the real estate commission. Homeowners Association (HOA) records and documentation belong to the HOA, must be delivered to them by the broker upon terminating any HOA management contract. A broker may retain copies of these original records at the broker’s expense.

 

Unit 2-2 Rule E-4

Rule E-4. A broker must deliver a duplicate of any broker-prepared document that pertains to the employment agreement or property transaction, and must retain a copy of such duplicate for inspection by the real estate commission.

If such documents are finance-related (e.g. note, deed of trust, etc.) they should be unsigned or prominently marked “Copy”, as the originals are negotiable as real money.

Brokers working with buyers have the same duplicate delivery and record retention requirements as above. A buyer broker is not required to maintain a copy of the listing contract nor of the seller’s settlement statement.

A broker is 
not required to maintain copies of:

· Public records

· Title commitments

· Loan applications

· Lender required disclosures

· Third-party affirmations after settlement

There is a useful index of required sales and management transaction file contents in Chapter 19 of the real estate manual for reference when building your first real-world transaction files. Many brokers will also have transaction file checklists available, and some may require file inventory before paying associate commission splits.

 

Unit 2-2 Rule E-5

Rule E-5. A broker must sign and provide an accurate, complete and detailed settlement statement at the time of closing to his or her client or customer. If signed by the employed licensee, settlement statements must be 
delivered to the employing broker immediately after closing. This rule places the closing responsibility on the designated broker, but does not relieve the employing broker’s supervisory responsibilities.

The employing or independent broker must retain a signed copy of all settlement statements for future use or inspection by the real estate commission.

Settlement statement(s) must show:

· Date of closing.

· Purchase price.

· Itemization of adjustments, money or things of value debited or credited to the pertinent party.

· Date of adjustments, if not the same as closing date.

· Balance(s) due from respective parties to the contract.

· Payees, Makers and Assignees of any notes paid, made or assumed.

· Debit and Credit of any pre-owned home warranty service contract.

The seller and buyer need only receive their respective debit/credit itemization on their settlement statement – not debits and credits of the other party.

Settlement statements shall be delivered at the time of delivery and acceptance of title, whether by bill of sale, deed or installment land contract for a later deed.

If the employing or independent broker’s company prepares the settlement statements and documents and conducts the closing, such 
broker is primarily responsible for the accuracy and completeness of the statements and documents.

If the designated broker is unable to attend a closing, or review closing documents, another licensee may agree, or the employing broker may designate another licensee to review and sign a closing statement 
and will assume joint responsibility with the absent licensee for its accuracy, completeness and delivery.

(Instructor’s note: Even though the substitute licensee was blindsided and knows nothing of the parties or transaction! My free risk reduction advice: if offered this substitute “opportunity,” go back home and call in sick until after the closing.)

A broker may transfer closing funds from the escrow account to the closing entity “at or before” closing, must obtain a dated/signed receipt therefore in the transaction file, and the settlement statement must contain the names of both the licensee who signs the statement and the employing broker, if applicable.

If the buyer obtains a new loan and the lender deducts costs from the total loan amount before disbursing loan proceeds prior to closing, the 
loan proceeds must be reconciled with buyer and seller settlement totals. A copy of this reconciliation must be retained in the transaction file and be made available for future real estate commission audit.

 

Unit 2-2 Rule E

Rule E-6. Electronic or paperless transactions are permitted, provided the record may be produced upon request by the commission in a format capable of retrieval, or being legibly printed. Either principal in a transaction may request, and must be provided, print copies of closing documents.

Rule E-8. 
Advertising must be done in the name of the employing broker unless it is property owned by the licensee and not listed with the employing broker (
Note: most brokers will require you to list through them.)

Advertising of general sales activity must cite the source of the data, must disclaim that all advertised sales intend only to show trends and were not necessarily sold by the advertising licensee, or shall separately identify the sales for which the advertising licensee was directly responsible.

Rule E-10. Licenses are non-transferable, and an employed licensee may never represent him- or herself as an independent or employing broker.

Rule E-11. Every listing agreement must contain a 
definite termination date.

 

End of Page

Unit 2-2 Rule E-12

Rule E-12. When a listing or right-to-buy agreement contains a “holdover agreement” the right to a commission applies only to those persons or properties actually negotiated during the agreement and for which the broker submitted names or addresses to the principal in writing at the end of the agreement.

(Instructor’s note: All Commission-approved employment agreements contain a pre-printed holdover agreement – whereby the broker has the right to an earned commission if the seller sells to that buyer [or the buyer purchases that particular property] after the expiration of the employment. This is to prevent the seller or buyer from end-running the broker in an attempt to avoid paying a commission. It is a good practice to submit the name of everyone who views your listed property [or every property the buyer client viewed] during the term of the employment.)

Unit 2-2 Rule E-13

Rule E-13. (Known as the “sign-crossing rule”) A licensee may not initiate communication if a seller or buyer is party to an exclusive right or exclusive agency contract with another brokerage. However, if the seller or buyer initiates the contact, the licensee may negotiate terms on which a future employment contract might be based, or actually enter into an employment agreement to be effective after the current agreement expires.

(Instructor’s note: These situations are extremely dangerous. The seller is usually upset that the property didn’t sell. The buyer is usually upset at not finding the right property. Either way, you may be jumping into the middle of a nasty situation. Remember that if the current employment failure upset the client, just think how upset he/she will be if/when yours expires without a sale! Be especially careful to never speak badly of the 
previous licensee or agree with the seller/buyer on complaints about which you have no first-hand knowledge.)

 

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Unit 2-2 Rule E

Rule E-14. In every transaction, before closing the licensee must recommend a.) Examination of title and b.) Use of legal counsel.

(Instructor’s Note: Every Commission-approved real estate employment agreement and buy/sell contract has these advisories pre-printed. This rule would seem to require verbal counsel as well. Remember that in Colorado we are privileged to conduct real estate transactions without having an attorney at law involved. But advising the client of the right to consult legal experts is prudent and indeed absolutely necessary when matters are beyond your level of expertise.)

Rule E-15. A broker may not claim any portion of earnest money if the seller fails to close for whatever reason and the failure is not due to the buyer. While it is true that you will have earned your commission upon performing your part of the employment agreement (finding a ready, willing and able buyer), the earnest money must be returned to the buyer and you must demand from, or sue, the seller for your commission.

Rule E-16. Security deposits may not be turned over to the owner unless the tenant agrees, knows where the money will be, and how to get it returned. If given over to the owner, the management agreement must clearly make the owner responsible for its return and authorize the release of the owner’s name and address to the tenant in the event of a dispute. A broker may never contract to use a tenant security deposit for the broker’s own benefit.

 

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Unit 2-2 Rule E

Rule E-18. In a transaction in which a licensee will earn a commission, 
informed, written consent from the client/customer must be obtained prior to receiving any fee or incentive from a 
mortgage lender. The federal Real Estate Settlement and Procedures Act (RESPA), however, may be stronger than this and prohibits payment of any money to a settlement service provider (e.g. real estate broker) for services not actually provided.

Rule E-19. In a transaction in which a licensee will earn a commission, a licensee may 
never accept a fee or incentive of any kind from a 
title insurance company.

Rule E-20. Only the seller sets or changes the asking price for a property. (Never undertake this on your own without written or witnessed seller authorization.)

Rule E-21. If the commission sends written notice of a complaint against you, or that you have been selected for an audit, or that recordkeeping problems were discovered in an audit, you must respond in writing within the time allowed, including:

· Full response to the allegation or complaint.

· Full response to any additional questions in the notice.

· Any requested documents or records.

· Any additional pertinent explanation or material. 

 

End of Page

Unit 2-2 Rule E

Rule E-22. This rule passed in 2006, is nearly six pages long! It incorporates, by reference, the federal Real Estate Settlement and Procedures (RESPA) law. Although far too complex to summarize, Rule E-22 may be reduced ad absurdum to the single premise that 
a broker may not pay or receive anything of value to or from anybody in connection with transaction except for “services actually rendered.”

Rule E-23. A Colorado broker may pay a finder’s fee or share a commission with an out-of-state broker if:

· The out-of-state licensed broker must have a domicile and office elsewhere.

· All advertising, negotiating, contracting and conveyance done in Colorado must be in the name of the Colorado broker.

All pre-closing funds are deposited in the Colorado broker’s name according to Colorado Commission rules.

End of Page

Unit 2-2 Rule E

Rule E-24. If you lie or misstate fact on your broker application, you are subject to discipline.

Rule E-25. A licensee must 
always disclose personal conflicts of interest to clients/customers. A licensee must 
always disclose that he/she is licensed when selling, buying or leasing for self.

Rule E-27. A licensee must 
never predict future availability or cost of services, utilities, or the character or possible future use of a property or any nearby property.

Rule E-29. An employing broker has authority, direction and control over licensee conformance with licensee law and Commission rule. In every complaint against a licensee, the Commission shall look at whether proper supervision was in place. 
Broker supervision applies to licensees and all broker employees including secretaries, bookkeepers and unlicensed assistants.

End of Page

Unit 2-2 Rule E

Rule E-30. Employing Broker Duties are:

a. Maintain all trust accounts and trust account records.

b. Maintain all transaction records.

c. Develop office policy manual and review it periodically with all employees.

d. Provide a HIGH level of supervision for all licensees with less than 2 years active licensed experience.

e. Provide REASONABLE supervision for experienced licensees.

f. Try to prevent and preclude recurrence of violations of license law, rule and office policy.

g. Adequately supervise main and branch offices, regardless of delegation to licensed/unlicensed managers.

Rule E-31. REASONABLE Supervision of experienced licensees means:

a. Maintain written office policy detailing licensed employee duties and responsibilities. Such policies shall be given to, read and signed by each licensee and be available for Commission inspection.

b. Review all executed contracts to ensure competent preparation.

c. Review transaction files to ensure inclusion of all pertinent documents.

d. Employed broker may delegate 
supervisory authority to other experienced licensees provided:

a. Delegated licensee bears joint responsibility with Employing Broker for compliance.

b. Delegation must be in writing, signed by the delegate and available for Commission inspection.

c. Employing broker 
may never contract to delegate responsibility for broker supervision.

Rule E-32. HIGH Level of Supervision for licensees with less than 2 years of active licensed experience, in addition to the above, means:

a. Provide specific training in office policy and procedures.

b. Be reasonable and available for consultation.

c. Provide assistance in preparing contracts.

d. Monitor transactions from contract to closing.

e. Review documents in preparation for closing.

f. Ensure employing broker or experienced licensee attends closings or is available for assistance.

g. Employed broker may delegate 
supervisory authority to other experienced licensees provided:

a. Delegated licensee bears joint responsibility with Employing Broker for compliance.

b. Delegation must be in writing, signed by the delegate and available for Commission inspection. 

 

Unit 2-2 Rule E

Rule E-33. Ministerial Tasks. With proper disclosure, a licensee acting as agent may assist the other party (customer) without either violating the agency relationship or creating a new brokerage relationship with the customer. Such tasks include:

· Showing property.

· Preparing and delivering offers and counteroffers.

· Revealing available financing alternatives.

· Providing information on services contributing to a successful closing and fulfillment of the agency.

Rule E-34. All 
offers to buy or lease must be presented to the listing broker if the listing is current and exclusive.

Rule E-35. Written brokerage relationship 
disclosures must be made 
before a licensee elicits or accepts confidential information concerning a buyer or tenant’s need, motivation or financial qualifications.

No disclosure is required for bona-fide open houses, preliminary conversations or “small talk” concerning price range, location or property styles, or responding to general factual questions concerning advertised properties.

Rule E-36. A broker who provides closing service may not disburse funds until they are available for immediate withdrawal from the institution holding the funds, either as a matter of right or under a contingency-free agreement with the financial institution.

 

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Unit 2-2 Rule E

Rule E-37. A licensee is not required to prepare any legal documents, but if a licensee (or his or her agent) does so, the licensee or agent may not charge the client or customer a separate fee. Attorneys for buyer or seller may charge document preparation fees to the public and these are not the responsibility of the broker. The buyer, seller, licensee or any other party, may pay any other closing costs. A broker who charges fees for conducting closings must specify the costs and obtain the written consent of the parties to be charged.

Rule E-38. Broker Designation. An employing broker must designate a broker in writing for every side of every transaction (C.R.S. 12-10-403(6)(a)). Instead of writing a separate letter or memo each time, a broker may write an office policy that ties automatic designation to the broker or team who signs any one of the six Commission-approved listing/employment contracts, or a Broker Disclosure to Buyer in the case of working as a transaction broker by disclosure. The employing broker has the right to substitute or add designated brokers and must disclose any such designation to the buyer or seller.

 

Unit 2-2 Rule E

Rule E-39. Every employing or independent broker (including single-broker practitioners) must write a policy 
identifying and describing the brokerage relationships that the firm and its employed licensees offer the public.

(Instructor’s note: since there are only two brokerage relationships, agency and transaction, most firms allow both and leave it up to whatever the prospective client desires, or understands better.)

The policy must:

a. Apply to all licensees in the office.

b. Be read, agreed to, and signed by each licensee.

c. Identify the procedure for broker designation (in multiple licensee firms only).

d. Provide adequate protection of confidential client information such as:

a. Seller or landlord is willing to take less.

b. Buyer or tenant is willing to pay more.

c. Information about either party’s motivating factors.

d. Information that either party may agree to other financing.

e. Material information about a party not required to be disclosed by law.

f. Facts or suspicions that may psychologically stigmatize a property.

g. Any other confidential information.

e. An office policy may authorize an employing broker acting as a designated broker to retain supervisory oversight of that transaction. 

 

Unit 2-2 Rule E

Rule E-40. A broker may work with buyer and seller in the same transaction as a transaction broker for both sides, or a single agent for one party treating the other as a customer. These options must be disclosed and made a part of each the listing/employment agreement.

(Instructor’s Note: The options are pre-printed in the appropriate Commission-approved forms.)

A broker may never work as an agent for both sides. Remember dual agency is illegal in Colorado. A broker also may not act as an agent for one party and a transaction-broker for the other.

Rule E-41. A broker agent for either party, who then secures the other party, must switch to transaction broker for both parties (assuming the original party checked the appropriate box in the listing agreement allowing a future change to transaction broker to occur. If they did not, you must quit any brokerage relationship with the second party and treat them as a customer or advise them to get their own broker.) You must provide a “Change of Status (Transaction Broker Disclosure)” form to the party to whom the change applies as soon as you become a transaction broker. If such a situation arises at the time a written offer is imminent, you may use the notice at the end of the Commission-approved “Contract to Buy and Sell Real Estate” by checking the box marked “transaction broker” and the box that says “This is a Change of Status.” 

 

Unit 2-2 Rule E

Rule E-42. If a licensee prepares a competitive market analysis for any reason other than anticipated sale or purchase of a property (
e.g. estate valuation, lender request, etc.) it must contain the disclaimer: “The preparer of this evaluation is not registered, licensed or certified as a real estate appraiser by the State of Colorado.”

Rule E-43. Licensees are not responsible for measuring property, but they are responsible for the accurate representation of the source of any square footage measurement. A licensee who measures property must disclose the standard, methodology or manner used and advise the client that it is for marketing purposes only. If the client needs precise measurement, advise them to have an independent measurement done.

 

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Unit 2-2 Rule E

Rule E-44. When 
a license is suspended, revoked, expired or inactivated, the licensee must immediately:

1. Cease any licensed activity.

2. Return the pocket card to the Commission.

3. Cease 
all advertising.

4. Inform all clients, and release all listings, management agreements or other contracts requiring a license.

5. Account for all trust funds and complete all pending closings (employing or independent brokers only).

6. Refuse any commission unless earned prior to the loss of license.

Rule E-45. Every listing/employment agreement gives the designated broker 
consent to share client confidential information with a supervising broker (Rules E-30, E-31 and E-32) without making the supervising broker a party to the brokerage relationship.

 

Unit 2-2 Rule E

Rule E-44. When 
a license is suspended, revoked, expired or inactivated, the licensee must immediately:

1. Cease any licensed activity.

2. Return the pocket card to the Commission.

3. Cease 
all advertising.

4. Inform all clients, and release all listings, management agreements or other contracts requiring a license.

5. Account for all trust funds and complete all pending closings (employing or independent brokers only).

6. Refuse any commission unless earned prior to the loss of license.

Rule E-45. Every listing/employment agreement gives the designated broker 
consent to share client confidential information with a supervising broker (Rules E-30, E-31 and E-32) without making the supervising broker a party to the brokerage relationship.

 

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Unit 2-2 Rule E-46

Rule E-46.

(Instructor’s note: This rule pertains to Affiliated Business Arrangements. Like Rule E-22 it was adopted in 2006. It is over two pages long. It is heavily abbreviated and paraphrased here to give its basic meaning. We believe this shortened version will suffice for earning your license.)

A licensee or employing broker must provide a written HUD 
Affiliated Business Arrangement Disclosure Statement to any buyer or seller prior to referring to any settlement service provider with whom an affiliated business arrangement exists (for example, a broker-owned title company). You must also keep a copy of the signed disclosure statement in the transaction file.

Sham business arrangements are forbidden. These type of scams exact junk fees from buyers and sellers charged by non-existent companies for settlement services existing only in “smoke and mirrors.”

Rule E-46 requires an individual licensee to 
disclose to the Commission the names and physical location of any affiliated business arrangements to which the licensee is a party upon:

· New application for active licensure.

· Re-activation of an inactive license.

· Transfer of an active license to another brokerage firm.

Employing and independent brokers must 
annually disclose the name and physical location of any party with whom an affiliated business arrangement exists.

 

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Unit 2-2 Rule E-47 & E-48

Rule E-47. On every occasion of engaging in the practice of real estate brokerage, a broker must determine whether he or she possesses the necessary experience, training, and knowledge to provide brokerage services and maintain compliance with the applicable federal, state and local laws, rules, regulations and ordinances. If the broker does not have the necessary experience, training, and knowledge, the broker must: decline to provide brokerage services; or obtain the necessary experience, training and knowledge; or obtain the assistance of their supervising broker or legal counsel, or co-list with another licensed broker who does have the necessary experience, training, and knowledge. 

Rule E-48. No licensee shall file a lien, a lis pendens, or record a listing contract to secure the payment of a commission or other fee associated with real estate brokerage duties in a residential transaction. A 
licensee involved in a residential transaction shall not cause the title to a property to become clouded or otherwise interfere with the transfer of title when the licensee is not a principal in the transaction. A licensee involved in a commercial transaction, pursuant to 38-22.5-101, may file such a lien or lis pendens.

Note: This is limited to commercial leasing transactions.

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Unit 2-2

Rule E-49. A licensee shall make written notification to the Commission within 30 calendar days of any of the following:

a. A plea of guilt, a plea of nolo contendere or a conviction of any crime identified by 12-10-217(1)(p), C.R.S.

b. A violation or aiding and abetting in the violation of the Colorado or federal fair housing laws.

c. Any disciplinary action taken against a licensee in any other jurisdiction, if the licensee’s action(s) would constitute a violation of the real estate license law in Colorado.

d. A suspension or revocation of a license, registration, or certification by Colorado or another state, within the last five years, for fraud, deceit, material misrepresentation, theft, or the breach of a fiduciary duty that denied the licensee the authorization to practice as a mortgage broker, a real estate broker or salesperson, a real estate appraiser, an insurance producer, an attorney, a securities broker-dealer, a securities sales representative, an investment advisor, or an investment advisor representative. 

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Unit 2-2

“F” stands for Forms. Colorado real estate brokers are allowed to fill in the blanks on standardized, Commission-approved forms. We will cover Rule F and all the required contract forms in another section of this course. 

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Unit 2-2 Rule G-2

Commission Rule G is the implementation of the license law C.R.S. 12-10-207(2) for brokers dealing in 
Rental Referral business.

Rule G-2. Brokers must provide each prospective tenant a receipt for any advance fees. Such a receipt may be contained in a written contract. The receipt or contract must have the following verbatim warning in all capital letters and bold face:

IF THE INFORMATION CONCERNING RENTAL FURNISHED BY THE BROKER IS SHOWN TO BE NOT CURRENT OR ACCURATE IN REGARD TO THE TYPE OF RENTAL DESIRED, THE FULL FEE SHALL BE REPAID OR REFUNDED TO THE PROSPECTIVE TENANT UPON WRITTEN DEMAND. CURRENT RENTALS HAVE BEEN VERIFIED AS TO AVAILABILITY WITHIN THE LAST FOUR BUSINESS DAYS.

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Unit 2-2 Rule G, I, & K

Rule G3. A broker must retain the original (copy to the prospective tenant) of any rental referral list for 
90 days

Rule G-5. When referrals are made by any method other than in-person, the broker must retain for 
1 year a copy of the addresses furnished, including the name of the broker or employee who provided the address(es). 

Rule G-6. Broker shall make and post a written register of all advertised/ published properties. All advertised properties must have been verified as being for rent within four days before the advertisement appears. All properties advertised must be assigned a broker-developed unique identifying code, must be approved by the owner to be offered for rent (may be oral, but logged in writing by the broker), and all ads must be retained for 1 year. 

Rule G-7. A broker violating any of these G rules may be found unworthy or incompetent in the license law. This includes:

· Property is not in the area represented.

· Rental price advertised is other than asked by the owner.

· Property is non-existent or unverifiable for rent.

· Advertised specifics differ from the actual property.

· Type of property is different than advertised (e.g. advertised single-family home is actually a duplex). 

Rule I is entitled “Declaratory Orders” and deals with the process for petitioning the Commission for such an order to clarify or interpret any uncertainty as to the applicability to the petitioner of any statute, rule or order of the Commission. It is not germane to the issuance of a license. 

Rule K was added in 2008. It pertains to administrative procedures and time limits for filing designations, requests, exceptions and pleadings in regard to disciplinary actions taken by the Commission. It is not germane to the issuance of a license. 

 

Summary

Other people’s money must be held in an account labeled “trust” or “escrow” and labeled by the type of money held in the account.

· May not be in the name of an employed broker.

· May not restrict withdrawals to a fixed maturity date or impose penalties for early withdrawal.

· Funds may not be 
commingled with money belonging to the broker.

· Property management funds must be deposited within 5 business days following receipt.

· Earnest money in any form must be delivered to the 
listing broker.

· Brokers must maintain a 
recordkeeping system consisting of a journal, ledger and bank reconciliation worksheet.

· Escrow accounting must be on a 
cash basis.

· There is
 no limit to the number of escrow accounts a broker may maintain.

A broker must deliver a duplicate of any broker-prepared document and retain a copy for inspection by the commission. A broker is 
not required to maintain copies of:

· Public records

· Title commitments

· Loan applications

· Lender required disclosures

· Third-party affirmations after settlement

If signed by the employed licensee, 
settlement statements must be delivered to the employing broker immediately after closing. Copies must be maintained.

Electronic or paperless transactions are permitted, with conditions.

Advertising must be done in the name of the employing broker unless it is property owned by the licensee and not listed with the employing broker.

Every listing agreement must contain a 
definite termination date.

Holdover agreement – the right to a commission applies only to those actually negotiated during the agreement.

Before closing, the licensee must recommend an 

examination of title
 and use of
 
legal counsel.

A broker may not claim any portion of earnest money if the seller fails to close for whatever reason and the failure is not due to the buyer.

Security deposits may not be turned over to the owner unless the tenant agrees, knows where the money will be, and how to get it returned.

Informed, written consent from the client must be obtained prior to receiving any fee or incentive from a 
mortgage lender.

A licensee may 
never accept a fee or incentive of any kind from a 
title insurance company.

Only the seller sets or changes the asking price for a property.

A broker may not pay or receive anything of value to or from anybody in connection with transaction except for “services actually rendered.”

A Colorado broker may pay a 
finder’s fee or 
share a commission with an out-of-state broker in certain cases.

A licensee must 
always disclose personal conflicts of interest to clients.

A licensee must 
never predict future availability or cost of services, utilities, or the character or possible future use of a property.

A licensee may never accept a fee or thing of value from a
 pre-owned home warranty service company or affiliate in connection with the sale of a warranty contract.

Written brokerage relationship 
disclosures must be made before a licensee elicits or accepts
 confidential information concerning a buyer or tenant’s need, motivation or financial qualifications.

Every employing or independent broker must write a policy 
identifying and describing the brokerage relationships that the firm and its employed licensees offer the public.

You must provide a 
“Change of Status (Transaction Broker Disclosure)” form to the party to whom the change applies as soon as you become a transaction broker.

Licensees are not responsible for measuring property, but they are responsible for the 
accurate representation of the source of any square footage measurement.

Provide a written HUD 
Affiliated Business Arrangement Disclosure Statement seller prior to referring to any settlement service provider.

An individual licensee is required to 
disclose to the Commission the names and physical location of any affiliated business arrangements to which the licensee is a party.

An affiliate relationship is defined as a business relationship between a licensee and a provider/associate provider of settlement services, which results in a 
pecuniary benefit to the licensee

A licensee involved in a residential transaction shall not cause the title to a property to become 
clouded.

Rule G – Rental Referral

Brokers must provide each prospective tenant a receipt for any advance fees.

A broker must retain the original of any rental referral list for 
90 days. 

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Unit 2 Section 4 Review of Colorado Contract Law

By the end of this unit, you will be able to:

· Describe the Conway-Bogue court case and summarize the ruling of the Colorado Supreme Court

· Compare and contrast the CO Fair Housing Act and the Federal Fair Housing Act

· Explain Common-Interest Ownership and its requirements

· Describe CO Statutory Relationships

There are several core case laws and statutes affecting the practice of real estate in Colorado. They are presented here in summary format along with the reference for further investigation.

Click here to read the following section in the 

Colorado Revised Statutes

:

· CRS 38-10-108 

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Unit 2-4 Conway-Bogue

Conway–Bogue is the shortened name of one of the parties to a major case law opinion by the Colorado Supreme Court in 1957. The lawyers in the Denver Bar Association sued the Conway-Bogue Realty Investment Company to prevent what the lawyers considered real estate broker infringement on their practice of law. 

The Supreme Court determined that many of the 
acts performed by real estate brokers do constitute the practice of law. This includes preparing deeds, leases, completing standard and approved contract forms, etc., and giving explanation or advice as to the legal effect of these forms. 

It also concluded that 
licensed real estate brokers may prepare these sale, loan, and leasing documents (that normally only attorneys-at-law may prepare)
 only for their own customers in transactions in which they are acting as a real estate broker

The courts said it reached its decision based on:

1. A scarcity of lawyers in many parts of the state. (
Remember, this was in the 1950’s.)

2. A 50+-year history of the public seeking brokers rather than lawyers to conduct real estate transactions.

3. No record of any public or lawyer harm from the (then) current practice.

4. No move by the legislature to stop this “alleged evil” practice.

The Court found that 
to prohibit brokers from this limited practice of law would “not be in the public interest.”

 

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Unit 2-4 Conway-Bogue

The Colorado Association of REALTORS® legal counsel cautioned its members that the broker’s activity must be limited as to:

1. Brokers must be 
connected to the transaction as broker.

2. Brokers 
may not charge for legal document preparation.

3. Brokers may only prepare “
commonly used, printed, standard and approved forms.”

(Instructor’s Note: This is the precursor to Rule F-7 and the Commission-approved forms in required use today.)

Clearly, brokers 
must NOT prepare:

1. Legal documents as a business, courtesy or favor, whether paid or not, when not connected to the transaction as a broker.

2. Documents that are not on standard and approved printed forms.

3. Wills or other legal documents beyond those customary in a real estate transaction.

C.A.R.’s attorney also warned that it would appear 
in the best interests of the public and also in conformity with the Court’s opinion for brokers to:

1. Always recommend that title be examined.

2. Inform the parties of their right to have legal documents prepared by their own choice of lawyers.

3. Advise the parties of their right to have a lawyer represent them at closing.

4. Seek attorney assistance when legal complications are beyond the broker’s knowledge. 

 

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Unit 2-4 Conway-Bogue

SUMMARY: The Colorado Supreme Court ruled that real estate brokers may prepare certain legal documents by filling in the blanks on standard, approved printed forms when they are the broker in the transaction and receive no compensation other than their commission. 

The legal summary issued by C.A.R.’s legal counsel in 1957 ended with the following 
caution

“It is to the interest OF EVERY BROKER (emphasis added) that these limitations be properly recognized and followed so that the Supreme Court would not have reason to change its opinion at a later date.” 

Those words are as true today as when they were first written. 

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Unit 2-4 Conway-Bogue

“Standard and Approved” Forms were not defined in the court opinion, and were not given over to the Real Estate Commission with the adoption of Rule F until 1971.

(
Instructor’s note: Rule F will be covered along with the forms themselves in a following section of this course.)

The authority to complete standard forms was not codified into the license law (C.R.S. 12-10-403(4)) until 1993.

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Unit 2-4

On the same day that Conway-Bogue was decided, the Supreme Court also settled two related cases in which the Denver and Colorado Bar Associations had sued to stop two title companies from preparing legal documents and performing other acts which, the lawyers claimed, also constituted the unauthorized practice of law. 

The Court issued one decision from the cases taken together. It held that the title companies:

1. Could prepare papers related to loans made from their own funds.

2. Could not prepare/charge for legal documents for others.

3. Could not mandate closing or escrow service as a requirement of selling title insurance.

Today, title companies close most real estate transactions – instead of brokers. It is important to remember, however, that the closing service is separate from the issuance of title insurance. While the title company may charge the buyer and seller for this closing service (Rule E-37), the buyer and seller may not pay for preparation of legal documents. The title company prepares legal documents (deeds, etc.) as the broker’s “scrivener” (writer), and the broker normally pays this nominal fee. Finally, even though title companies routinely conduct closings, Commission Rule E-5 holds the broker responsible for the proper closing of a Colorado real estate transaction.

 

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Unit 2-4 Statute of Frauds

You will recall from the Law and Practice course that most states have a statute of frauds designed to protect the public from oral trickery – claims that can only be backed up by “he said, she said” types of arguments. 

Colorado’s statute is found in the 
Contracts Chapter of the Real Estate Manual. The law is 
C.R.S. 38-10-108 which says: 

“Every contract for a leasing of more than one year, or for the sale of any lands or any interest in land is 
void unless the contract or some note or memorandum thereof expressing the consideration is in writing, and subscribed (signed) by the party by whom the lease or sale is to be made.” 

Note that such a contract is 
void (never legally existed) rather than voidable (valid until challenged).

On a related note, and for the same reason as above, remember that a Colorado broker may not claim an earned commission based on an oral 
agency listing/employment agreement. Such an agreement must be in writing.

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Unit 2-4 Statute of Frauds

You will recall from the Law and Practice course that most states have a statute of frauds designed to protect the public from oral trickery – claims that can only be backed up by “he said, she said” types of arguments. 

Colorado’s statute is found in the 
Contracts Chapter of the Real Estate Manual. The law is 
C.R.S. 38-10-108 which says: 

“Every contract for a leasing of more than one year, or for the sale of any lands or any interest in land is 
void unless the contract or some note or memorandum thereof expressing the consideration is in writing, and subscribed (signed) by the party by whom the lease or sale is to be made.” 

Note that such a contract is 
void (never legally existed) rather than voidable (valid until challenged).

On a related note, and for the same reason as above, remember that a Colorado broker may not claim an earned commission based on an oral 
agency listing/employment agreement. Such an agreement must be in writing.

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Unit 2-4 Electronic Duplication

You have previously learned that Commission Rule E-6 permits transaction documents to be electronic as long as they are readily retrievable by the Commission upon request and as long as all parties agree. This permission is implemented by client choice in the Commission-approved Contract to Buy and Sell Real Estate (Paragraph 28). 

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Unit 2-4 Subdivisions

SUBDIVISIONS, CONVERSIONS, AND TIME SHARING

Chapter 1 of this course covered Part 4 of the License law concerning Subdivision development. Here we will review briefly Commission Rule S, and some of the pertinent points of subdivision regulation. Since a developer must register with the Commission, but is not necessarily required to have a broker license, much of this section of the law and Commission rule will not apply. The material that is included here, however, is subject to testing on the broker licensing examination. Both Part 4 and Rule S are in a separate Chapter of the Real Estate Manual along with information on Common Interest Communities (those governed by Homeowners Associations).

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Unit 2-4 Subdivisions

SUBDIVISIONS, CONVERSIONS, AND TIME SHARING

Chapter 1 of this course covered Part 4 of the License law concerning Subdivision development. Here we will review briefly Commission Rule S, and some of the pertinent points of subdivision regulation. Since a developer must register with the Commission, but is not necessarily required to have a broker license, much of this section of the law and Commission rule will not apply. The material that is included here, however, is subject to testing on the broker licensing examination. Both Part 4 and Rule S are in a separate Chapter of the Real Estate Manual along with information on Common Interest Communities (those governed by Homeowners Associations).

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Unit 2-4 Subdivisions

The first step in subdivision development is 
registration.

This must be done before any negotiating, selling or transferring to the public takes place. Registration requires volumes of data on both the developer and the land to be subdivided. Registration certificates expire December 31 of the year in which issued and must be renewed annually. 

Sales of subdivision lots and time-shares are subject to 
cancellation by the purchaser for any reason up to midnight of the 5th day following execution of the contract. 

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Unit 2-4 Subdivisions

The Real Estate Commission realizes that subdivision expertise, including planning and zoning laws, etc., is likely beyond the realm of most licensee’s expertise. Nonetheless, every licensee has the responsibility to seek information from, or refer clients to, expert sources. 

Some 
facts that should be known to a licensee through reading or logic include:

1. The sale of a portion of a property divides the land into two parcels that may be subject to subdivision regulation by other than the real estate commission.

2. Just because a building is suitable for conversion into a duplex or four-plex, does not mean that such a conversion does not violate the law.

3. An area zoned as horse property does not automatically mean the parcel is large enough to keep horses.

4. Even if an area is zoned for home business, there may be prohibitions against parking, employees, customer traffic or other.  

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Unit 2-4 Colorado Fair Housing

COLORADO FAIR HOUSING ACT

Colorado was the first state (1959) to enact laws protecting private property transactions from discrimination against protected classes.

Federal Fair Housing law will prevail for most practical applications with the following distinctions:

1. Colorado law adds four protected classes in addition to those in Federal law. They are:

·
Creed (This can be a belief system not necessarily related to religion, such as socialism.)

·
Ancestry (National origin is where a person comes from. Ancestry is who your parents are. For example, a violent, nationally-recognized death row inmate.)

·
Marital status (In Colorado, one may not discriminate against single, married or divorced persons 
except that municipalities or counties may do so by zoning.)

·
Sexual orientation.

2. Colorado law covers 
commercial property.

3. Unlike Title VIII, Colorado law does not exempt single-family homes or owner-occupied 1-4 unit homes.

4. Colorado Administrative Law Judges may levy fines for a larger scope of violations than their federal counterparts.

5. Colorado law permits restriction in the sale, rental or development of housing intended for persons with disabilities.

Some local ordinances also protect 
age as a class. Consult your broker or city officials. 

 

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Unit 2-4 Colorado Fair Housing

An aggrieved person may file a complaint with the state Civil Rights Commission or HUD up to one year after occurrence. Complainants may choose to file directly in state or federal court up to two years after the alleged discrimination. 

The Colorado attorney general may, on its own motion, intervene in any complaint considered to be of general public importance, or initiate complaints up to 18 months after occurrence.

Penalties for proven violations are virtually unlimited in dollar terms, in addition to injunction, affirmative action. The one that should concern most licensees is revocation of the real estate license.

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Unit 2-4 Appraiser Licensing

APPRAISER LICENSING was covered in Unit 2-1 under Colorado license law Part 7, and in Unit 2-3 Commission Position Statements.

Appraisers are administratively located with the Colorado Division of Real Estate, but have their own 
Board of Real Estate Appraisers that provides direct regulation of the industry. 

 

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Unit 2-4 Colorado Common-Interest Ownership

COLORADO COMMON-INTEREST OWNERSHIP ACT (CCIOA)

A common interest community is defined as one in which owners are obligated to pay some fees for common areas, such as taxes, insurance, maintenance or improvement. It is a condominium, townhouse, subdivision or co-op community subject to the 
payment of dues to a Homeowners Association (HOA).  An entire chapter in the 2018 Colorado Real Estate Manual has been devoted to Common Interest Communities and Community Association Manager Licensing Program.

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Unit 2-4 Colorado Common-Interest Ownership

CCIOA was originally passed to provide HOA’s with an effective means of organizational transfer of control from the developer to owners’ administration. It gave HOA’s the power to file liens to collect delinquent dues and fees from homeowners. 

In 2006, in response to HOA over restriction, the Colorado legislature updated CCIOA to even the balance of power and rights between unit owners and the HOA. Unit owners, for instance, must be given notice of HOA meetings, Board member changes, and may even collectively force audits of HOA funds in some situations.

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Unit 2-4 Colorado Statutory Relationships

The Colorado Real Estate Commission Course Outline for this topic takes it through the entire Section 8 of Title 12, Article 61 of Colorado statute. We have covered that in exhaustive detail in Section 1, License Law of this Contracts and Regulations Course.

Therefore, this section will review and try to distill Colorado’s sometimes confusing Brokerage Relationships statutes from a more simple perspective without repeating Section 8 of the license law. 

 

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Unit 2-4 Colorado Statutory Relationships

In much of the rest of the United States, if you list a house for a seller, you are the 
seller’s agent. As an agent, you owe fiduciary duties to your seller – meaning you will advocate getting the best price and terms for the seller. When a licensee from another company shows your listing and brings an offer for your seller, that licensee is on the same team as the listing agent. He or she acts as the listing broker’s 
subagent – assisting the buyer, even though owing a fiduciary through the listing agent to the seller. 

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Unit 2-4 Colorado Statutory Relationships

In the same example above, the listing agent and the subagent were most likely salespersons – the vast majority of licensees still are – working for a single boss – their Broker. 

Unit 2-4 Colorado Statutory Relationships

Finally, all of the players above were considered to have something called ”
imputed knowledge.” This means that since all were on the same side, all knew, or should have known, all client confidential information. The 
brokerage relationship as agent extended to everyone – the firm as an entity, all licensed salespersons in the firm and the employing broker. They were all agents of the seller. 

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Unit 2-4 Colorado Statutory Relationships

Four basic changes have taken place since the late 1980s to make the above scenario completely obsolete. Three have been intentional changes enacted in Colorado license law, and one started out of a few brokers and has grown into a nationwide trend – buyer brokerage. 

Unit 2-4 Colorado Statutory Relationships

While it is true that isolated pockets of buyer representation occurred earlier, the 
buyer brokerage movement was largely local until the 1980s. As buyers became more sophisticated they realized that they were not truly represented in a real estate transaction because everyone was aligned with the seller. Early buyer brokers elected to become agents and advocate for the interests of the buyers.

This was not a congenial transition. Many brokers refused to accept offers from or denied commission splits to buyer agents. Over several years, this animosity lessened as traditional brokers realized that this kind of divisiveness was harmful to their ability to sell their listings, and therefore put them in violation of the fiduciary owed to the seller. 

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Unit 2-4 Colorado Statutory Relationships

The first recognition of buyer agency in Colorado’s license law in 1993 also introduced the now familiar neutral, non-advocate assistant known as the 
Transaction-Broker (T-B).

T-B also introduced much trepidation and confusion into the industry. This was such a radical concept that some brokers suggested it would collapse the industry, or would never last. 

To this day, the concept is often misunderstood by even some Colorado brokers to mean a lessening of liability for the risks in a transaction. This is not true, as we will discuss shortly, when considering 
universal duties. Those duties now enshrined in Colorado’s commission-approved contract forms are owed to the client regardless of brokerage relationship. 

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Unit 2-4 Colorado Statutory Relationships

The second major statutory change came in 1997 in the form of single licensing. 
Single licensing is the concept of educating all new applicants – you – to the broker level from day one. Colorado had a multi-year transition to allow all then licensed salespersons to upgrade their licenses to those of a broker. 

Single licensing stemmed from realization of changes in the public and the real estate market.

1. Buyers and sellers don’t differentiate (or even understand the difference) between a salesperson and a broker. All they want is a competent results-driven licensee.

2. Complexity in real estate transactions is not reserved for those with two years of active licensed experience. The most complex transaction of your career could occur in the first month of being licensed.

3. Growth of the Internet and other technologies enabled salespersons to act more independently. Licensees were less dependent on the computer and resources located in the main office.

4. Salespersons with years of experience would defend against disciplinary action by the Commission with the salesperson defense, i.e. “I’ve been a salesperson for a hundred years but I don’t know anything about that since I’m not a broker.” 

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Unit 2-4 Colorado Statutory Relationships

The final – and in some way the biggest change – came in 2003 in the form of 
Designated Brokerage.

Designated Brokerage is the overarching method or infrastructure for every licensed real estate transaction in Colorado. It requires the employing broker to appoint a designated broker in writing for every side of every transaction. Every broker is a designated broker before, and in addition to, being either an agent or a transaction-broker. 

It is NOT a brokerage relationship. In fact, it precedes establishment of a brokerage relationship. 

It severs the individual “designated broker” who enters a brokerage relationship from any connection to the employing broker, the firm or any other licensees employed in the firm. To be sure, the employing broker and firm still own the listing or employment agreement as you will learn when we review the contracts, but there is nobody besides the client and the designated broker in the brokerage relationship. 

It eliminates the concept of “imputed knowledge” – meaning that the individual designated broker is the 
only protector or guardian of confidential client information. No longer is everyone in the firm assumed to know or expected to have access to all the details about each client or property in the firm. 

While the designation must be made in writing, Rule E-38 allows an employing broker to write an office policy establishing automatic designation for brokers who sign certain listing or disclosure forms. 

Later on, the Commission passed Rule E-45, and altered all the listing/employment contracts to provide client approval allowing a designated broker to share confidential information with a “supervising” broker without extending the agency or T-B brokerage relationship to that supervising broker or the firm. These changes recognized the need for inexperienced brokers to obtain assistance or counsel when necessary.

 

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Unit 2-4 Colorado Statutory Relationships

Now, let’s go back and consider the example sales scenario introduced at the beginning of this section with all four of the changes in place. 

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Unit 2-4 Colorado Statutory Relationships

In Colorado, when you list a seller’s house for sale, the employing broker must first designate you to that seller. When you sign the listing agreement, you will enter an individual brokerage relationship as either the seller agent or transaction-broker, depending on the employing broker’s office policy. If you are the seller’s agent, you will advocate for that seller. If you are a transaction-broker, you are neutral and will assist the seller in marketing the home and putting the transaction together.

If a broker from another firm shows your listing and brings an offer for your seller, he or she must advise you before the showing – whether acting as an agent or transaction-broker for the buyer – as permitted by his or her employing broker’s written office policy. Neither of you will exchange confidential information about your respective clients. 

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Unit 2-4 Colorado Statutory Relationships

The broker working with the buyer will be a broker, not a salesperson, and will never be your subagent. There will be no imputed knowledge to the other associate brokers in your firm, or to the firm itself or the employing broker. 

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Unit 2-4 Colorado Statutory Relationships

Now that you have seen an illustration – however simplified – it is time to go back and review the Brokerage Relationships license law Section 12-10-401 to 12-10-411 in Chapter 1 of this course. Don’t skip doing this because you think you’ve been there already. The complex Colorado structuring of brokerage designation and brokerage relationship sets the foundation for all of the transactions you will ever do. You must also master brokerage relationships in order to grasp the next section of the course that involves completing Commission-approved contract listing/employment agreements. The importance of understanding brokerage relationships is far greater than material needed to pass the broker-licensing exam.

When you have finished your review of the brokerage relationships license law, come back here to learn about the Commission rule on forms.

 

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Unit 2-4 Rule F

RULE F – USE OF COMMISSION-APPROVED FORMS

The Real Estate Commission has had the authority to promulgate standard and approved printed forms for nearly 40 years. The Commission maintains a standing forms committee composed of brokers, attorneys, and other interested parties who meet monthly to update forms on an as-needed basis. Commission Rule F sets the guidelines for the use of these forms. Remember we have paraphrased these rules for clarity and space.

 

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Unit 2-4 Rule F

Rule F-1. Permitted Modifications

a. Brokers may not modify Commission-approved forms except as allowed in this Rule F.

b. A broker(age) may 
pre-print its firm name, address, telephone, e-mail address, trademark or other 
identifying information on forms.

c. Initial lines may be added at the bottom of pages.

d. Deletions or insertions amending commission-approved language must originate from 
negotiations or instructions of party(ies) to the transaction. Deletions must be struck through on the actual form in a manner that leaves the original language legible.

e.
Blank spaces may be lengthened or shortened as needed. 
(
Instructor’s note: Forms software programs do this automatically, expanding as you enter data.)

f. Filled-in blanks or insertions must be in a 
typeface or font that is clearly recognizable as different from the font on the pre-printed form.

g. Provisions of the Contract may be deleted but the provision’s caption or heading must remain unaltered on the form followed by the word “omitted – not applicable.”

h. One or more pages may be added that contains the dates and deadlines set forth in Section 3, arranged in chronological date sequence. 

i. Dates and Deadlines table and Purchase Price and Terms of the Counterproposal and Amend/Extend may be deleted so long as the provision’s caption or heading remains unaltered on the form followed by the word “omitted – not applicable.”

j. The term “Landlord” may be substituted for the term “Seller” and the term “Tenant” for the term “Buyer” in the Brokerage Disclosure To Buyer, Brokerage Disclosure to Seller and Definitions of Working Relationships forms.

k. Signature lines may be added along with identifying labels for the parties signatures.

l. Language may be modified, stricken or deleted as the Commission may from time to time so authorize.

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Unit 2-4 Rule F

Rule F-1 (g). A broker may omit printing part or all of the following sections of the 
Contract to Buy and Sell Real Estate, (or corresponding sections of other forms) if they are not used. If omitted, the paragraph heading must remain pre-printed along with the word “OMITTED.” 

Section 2.5, Inclusions 

Section 2.6 Exclusions

Section 4.2, 4.4, Seller Concessions

Section 4.5, New Loan

Section 4.6, Assumption

Section 4.7, Seller Financing

(Instructor’s note: Each of these sections is multiple paragraphs long. It is easy to see why leaving out the paragraphs for loan assumption and seller financing when not applicable makes for a much shorter, and therefore clearer, contract form.)

Section 5, Financing Conditions and Obligations 

Section 6, Appraisal Provisions 

Section 7, Common Interest Community Governing Documents

Section 8.5, Special Taxing Districts 

Section 8.6, Right of First Refusal or Approval 

Section 10.8, Source of Potable Water

Section 10.6, Due Diligence

Section 10.8 – 10.12, Existing Leases

Section 11, Tenant Estoppel 

Section 15.3, Status and Transfer Letter Fees

Section 15.4, Local Transfer Tax

Section 15.5, Private Transfer Fee

Section 15.7, Sales and Use Tax 

Section 16.2, Rents

Section 16.3, Association Assessments

Unit 2-4 Rule F

Rule F-1

h. A broker may add a separate page duplicating the front page “Dates and Deadlines” information arranged in chronological order to the following three forms:

·
Contract to Buy and Sell Real Estate

·
Counterproposal

·
Agreement to Amend/Extend Contract

i. If not required:

· A broker may omit pre-printing the “Dates and Deadlines” table and “Purchase Price and Terms” on the 
Counterproposal form; and

· The “Dates and Deadlines” table on the 
Agreement to Amend/Extend Contract 

· If omitted, the paragraph heading must remain pre-printed along with the word “OMITTED.”

i. A broker conducting a lease transaction may substitute “Landlord” for “Seller,” and “Tenant for “Buyer” on the following three forms:

·
Brokerage Disclosure to Buyer/Tenant

·
Brokerage Disclosure to Seller

·
Definitions of Working Relationships

Unit 2-4 Rule F

Rule F-2 Additional Provisions

a. This section of the contract forms must contain only transaction-specific terms or acknowledgments that result from negotiations or instructions of the parties. 
(
Instructor’s note: Note that the broker IS a party to the listing/employment contract and may negotiate additional provision entries thereto.)

b. A broker is not a party to a buy/sell or lease contract, and therefore may never insert self-serving personal provisions, disclaimers or exculpatory (“I’m not responsible”) language.

 

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Unit 2-4 Rule F

Rule F-3 Addenda

a. A pre-printed, broker-developed addenda which modifies or adds to the terms of a Commission-approved contract form not resulting from negotiations of the parties must be prepared by:

· A principal to the contract.

· The broker’s attorney.

· A principal party’s attorney.

b. Such addendum MAY NOT be prepared by the broker or brokers for the parties.

c. Broker must retain the addendum for four (4) years from the last date the addendum was used.

d. Broker must be able to provide the Commission with the name of the attorney or law firm that prepared the addendum upon request. 

 

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Unit 2-4 Rule F

1. If such an addendum is used, it must be attached to the contract – not inserted in “Additional Provisions” or any other part of the body of the contract.

2. If a broker who is not a party to the contract uses such an addendum, it may not contain self-serving personal provisions, disclaimers or exculpatory (“I’m not responsible”) language.

3. If such an addendum is prepared by the broker’s attorney, it must state on each page (in same type size as the addendum): 

4. “This addendum has not been approved by the Colorado Real Estate Commission. It was prepared by (insert licensed name of broker or brokerage firm’s) legal counsel.”

5. If a broker(age)-developed addendum is attached to listing, tenant or right-to-buy contract, it must state on each page (in same type size as the addendum):”This addendum has not been approved by the Colorado Real Estate Commission. It was prepared by (insert licensed name of broker or brokerage firm).” 

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Unit 2-4 Rule F

Rule F-4 Prohibited Provisions. No contract provision or modification may override the license law or Commission rule.

(Repeats Rule E-12) Any holdover provision applies only to persons or properties negotiated during the term of the contract and whose names (listings) or addresses (buyer/tenant agreements) were submitted to the client prior to the expiration of the agreement.  

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Unit 2-4 Rule F

Rule F-5 Explanation of Permitted Modifications. A broker must explain all modifications, deletions, omissions, insertions, additional provisions and addenda to the client or customer and must recommend the parties obtain expert advice on matters beyond the broker’s expertise. 

Unit 2-4 Rule F

Rule F-6 Commission Approved Form Reproduction. Forms and modifications must be legible. Forms software must protect against inadvertent alteration. 

Rule F-7 Forms Index. Since Commission-approved forms may be updated at any time, a current index here would tend to be always out-of-date. Remember that brokers are required to use a Commission-approved form when one has been developed/published that is pertinent to the intended use. When the Commission does not promulgate a needed form (e.g. installment land contract), an attorney or a party other than the broker should provide the form. The most current version of applicable forms are available at 

https://www.colorado.gov/pacific/dora/division-real-estate-contracts-and-forms

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Summary

This concludes Chapter 4. Below is a brief summary which you can review before taking your quiz.

Conway-Bogue – The Colorado Supreme Court ruled that brokers may prepare legal documents by filling in the blanks on standard, approved printed forms when they are the broker in the transaction and receive no compensation other than their commission. 

The title companies:

· Could prepare papers related to loans made from their own funds.

· Could not prepare/charge for legal documents for others.

· Could not mandate closing or escrow service as a requirement of selling title insurance.

Colorado’s 
Statute of Frauds is found in the 
Contracts Chapter of the Real Estate Manual. A broker may never sign any documents in place of the client without a written 
Power of Attorney. 

Transaction documents may be 

electronic
 if retrievable and all parties agree.


subdivision is any Colorado real property divided into 
20 or more residential parcels.

· A subdivision is not campground memberships nor bulk sales or transfers between developers.

· The first step in subdivision development is 
registration.

· Subject to 
cancellation up to midnight of the 5th following day.

· Every licensee shall seek information from, or refer clients to, expert sources. 

Colorado Fair Housing Act

Four protected classes:

1.
Creed 

2.
Ancestry

3.
Marital status

4.
Sexual orientation

Colorado law:

·
Covers 
commercial property.

· Does 
not exempt single-family homes or owner-occupied 1-4 unit homes.

· Judges may levy fines for a larger scope of violations than their federal counterparts.

· Permits restriction in the sale, rental or development of housing intended for persons with disabilities.

An aggrieved person may file a 
complaint with the state Civil Rights Commission or HUD up to one year after occurrence.

Penalties for proven violations are virtually unlimited in dollar terms.

Common interest community – owners are obligated to pay some fees for common areas. Subject to the payment of dues to a Homeowners Association (HOA).

Colorado Statutory Relationships

Single licensing stemmed from realization of changes in the public and the real estate market.

· Buyers and sellers don’t differentiate between a salesperson and a broker.

· Complexity in real estate transactions is not reserved for those with two years of active licensed experience.

· Growth of the Internet and other technologies enabled salespersons to act more independently.

· Salespersons with years of experience would defend against disciplinary action.

Designated Brokerage

· Requires the employing broker to appoint a designated broker in writing for every side of every transaction.

· Not a brokerage relationship.

· The individual designated broker is the only protector of confidential client information.

The broker working with the buyer will be a broker, not a salesperson, and will never be your subagent.

Rule F – Use of Commission-approved Forms

· A broker may 
pre-print its identifying information on forms.

· Deletions or insertions amending commission-approved language must originate from 
negotiations or instructions of parties to the transaction.

·
Blank spaces may be lengthened or shortened as needed. 

· Filled-in blanks or insertions must be in a 
typeface or font that is clearly recognizable as different from the font on the pre-printed form. 

A broker may add a separate page duplicating the front page “Dates and Deadlines” information arranged in chronological order to the following three forms:

1.
Contract to Buy and Sell Real Estate

2.
Counterproposal

3.
Agreement to Amend/Extend Contract

If not required:

· A broker may omit pre-printing the “Dates and Deadlines” table and “Purchase Price and Terms” on the 
Counterproposal form;

· The “Dates and Deadlines” table on the 
Agreement to Amend/Extend Contract form.

A broker may never insert self-serving personal provisions, disclaimers or exculpatory language.

A pre-printed, broker-developed 
addenda must be prepared by:

· A principal to the contract.

· The broker’s attorney.

· A principal party’s attorney.

It must be retained for four years.

No contract provision or modification may override the license law or Commission rule.

A broker must explain all modifications and addenda to the client and recommend the parties obtain expert advice on matters beyond the broker’s expertise. 

Click here if you would like to open this summary as a pdf, which you can then print or save to your device: 

Chapter 4 Summary

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