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CR-3 Required Reading (Manual)

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Brokerage Relationships

I . In t roduct i on

A . Brok era ge Rel a t ionships i n Re a l Est a te Ac t

Colorado is a national leader in the creat ion of real estate brokerage laws.

For many years, the common law practice of agency guided re la tionsh ips be tween

the broker and the se l ler , land lord, buyer , or tenant . (For ease o f re ference,

“se l ler , landlord, buyer , or tenant” when used together wi l l be re ferred to as the

“par ty” in th is chapter.) Ef fec tive January 1, 1994, the “Brokerage Rela tionships

in Real Esta te Act” sign if ican t ly changed Co lorado l icense law by establ ishing

two dif feren t types of working relat ionships between a broker and a party: s ing le

agency and transaction-brokerage. This legisla tion codi f ied the duties and

obl iga tions o f a real estate broker.

B . Es tabl i sh ing t he Re l a t i onsh ip

Par t ies now have two choices when engaging the services of a real esta te

broker . One cho ice is t ra nsac t io n -b r oke rage , where the broker ass i s t s one or more

part ies throughout the transact ion wi thout be ing an advocate for any par ty.

Transaction brokerage is a non-agency rela tionsh ip . The second re la tionsh ip is

agenc y , w he r e th e broker is an agent and represents only one par ty in the

transaction. In addi t ion to the “Uni form Dut ies” (descr ibed in Section V of this

chapter) that both transact ion-brokers and agents are obl iga ted to perform under

the Colorado real estate statutes, the broker act ing as an agent is obligated to:

(1) promote the in terests of the party wi th the utmost good fa ith, loya lty, and

fidel i ty , (2) seek a pr ice or lease ra te and te rms tha t are acceptable to the par ty,

and (3) counse l the par ty as to any mater ial benef i ts or r isks of a transaction.

C . Re f i n i ng A gency Re l a t i onshi ps

Before January 1, 2003, when a brokerage f i rm entered into an agency

agreement wi th a par ty, al l of the brokers in tha t f irm would become agents of

that party. Conf ident ia l in format ion concern ing the party and the transaction

could be exchanged between brokers wi thin the brokerage firm. The same broker

or other brokers in the firm were permit ted to work as the agent for the o ther

party in the transact ion— thus crea ting dual agency. The f irm (and al l the brokers

in the f irm) cou ld represent both sides in the t ransact ion . This brokerage


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arrangement created a potent ial ly sensit ive and di f f i cu l t s i tua tion wi thin the

brokerage firm and resu lted in prob lems and conf l icts.

The second major change to Colorado’s real estate brokerage

rela tionsh ips was the 2003 “Designated Brokerage Relat ionships in Real Esta te

Act.” Th is sta tu te crea ted two types o f brokers in a mul t iple-person brokerage

firm—the “em ploy in g br ok e r ” and the “e m pl oy e d br ok e r . ” The statu te made each

broker within the brokerage firm an independent , s tandalone broker for the

purposes of establ ishing a brokerage rela t ionship . In the past , the party entered

in to an agency or transact ion-brokerage rela tionsh ip with the brokerage f irm.

However, the new statute provided that the brokerage re la tionsh ip is only

between the indiv idual broker and the party. The employing broker of the

mult ip le-person brokerage f irm was g iven the responsibi l i ty to designate e ither

the employing broker or one or more employed brokers as the “des igna t e d br ok er ”

to work with a par ticu lar party in a speci f ic real esta te transaction . By making the

rela tionsh ip a t the broker level ra ther than a t the brokerage firm level and by

proh ibi t ing the imputa tion of information with in the brokerage f irm, the sta tute

has simpl i f ied and improved the brokerage rela tionsh ip between the broker and

the party.

Colorado law provides brokerage relat ionship f lex ibi l i ty through the in troduction

and imp lementa tion of designated brokerage, agency, and transaction-brokerage.

In Colorado , each brokerage rela t ionship can be custom-designed for each

specif ic personal i ty , si tuat ion, and transact ion. Wri t ten agreements, disclosures, ,

pol icies, and rules are in place to ensure that these brokerage re la tionsh ips are

proper ly presented and implemented for the benef i t and protect ion of

the public.

I I . Re a l Est a te Brok e ra ge Bas i cs

A . One -P e rson F i r m

A brokerage employment contract is no t a contract between the individual

broker and the party. An employment contract is a cont ract betw een the br oker age

f i r m and the par ty. If the employment contract is wi th a brokerage f irm tha t

consists of only one l icensed natural person, then the brokerage fi rm and the

ind ividual broker are — for brokerage purposes—conceptual ly treated as one and

the same. Hence, there is no reason to “designate” a broker to work wi th the


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party (as the broker could on ly designate himse lf o r herse lf ) . Wi th a one-person

brokerage firm, there is no “designated broker.”

B . Mul t i p le -Pe rson F i rm

If the employment contract is with a brokerage f irm that consists of more

than one l icensed natural person, the employing broker or an ind ividua l broker

employed or engaged by that employing broker wi l l be designated by the

employing or superv is ing broker to work wi th the party as a designated broker.

The employing or supervising broker may designate more than one of its

ind ividual brokers to work with a party as designated brokers.

A brokerage relat ionship exists on ly wi th the ind ividual broker(s) so

designated. The duties, ob l iga tions, and responsib i l i t ies of that relat ionship do

not extend to the employing broker , brokerage f irm, or to any o ther brokers

employed or engaged by the brokerage f irm.

C . Con f i de nt ia l I n fo rma t i on

Preventing the imputa tion of knowledge and transmission of conf identia l

in formation f rom the designated broker to the employing broker or an employed

broker who has not been so designated is of paramount impor tance wi th

designated brokerage. But at the same t ime, the employing broker and

brokerage f irm remain responsib le for the supervis ion of the employed brokers

of the brokerage f irm and may have l iabil i ty for the act ions of the employed

brokers. Under certain circumstances, these provis ions could be contradictory,

part icu lar ly if the employed designated broker was working , for example, wi th the

se l ler and the employing broker was the designated broker for the buyer in the

same transaction . Commission Rule E-45 addresses this poten tial conf l ict.

D . Supe rv i s i on

Commission Ru le E-45 sta tes that a designated broker shal l be permi tted to

revea l to a supervising broker, and a supervis ing broker sha l l be permi t ted to

receive, conf identia l in format ion as author ized by the in formed consent of the

party the designated broker is assisting or working wi th , wi thout chang ing or

extend ing the designated brokera ge relat ionship beyond the designated broker .

An employing broker is au thor ized by Commission Ru le E-31 to delegate an

exper ienced broker to perform some of the responsib i l i t ies of the employing


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broker to prevent a conf l ic t of interest in a s itua tion where the employing broker

is act ively representing one o f the par ties to a transaction.

All of the standard Commission-approved employment contracts conta in a

provis ion granting the party’s consent to the designated broker ’s disclosure of

conf identia l in format ion to the employing broker or designee for the purpose of

proper supervision , provided such employing broker or designee does not fur ther

disclose such in formation wi thout consent of the party or use such information to

the de tr iment o f the party.

E. In t r ao f f i ce Re l a t i onsh i ps

As the resul t of the designated brokerage statu te, a designated broker may

work as a single agent for a sel ler or land lord and another designated broker in

the same f irm may work as a single agent for a buyer or tenant in the same

transaction, and this designated brokerage arrangement does not crea te dual

agency for e ither o f the brokers, the employing broker, or the brokerage f irm.

I I I . Age nc y

The agency rela t ionship evolved from the master-servant re la tionsh ip under

Engl ish common law. The servant owed abso lu te loya l ty to the master . This loyal ty

was super ior to the servant ’s persona l in terests as we ll as the in terests o f o thers.

Common law is establ ished by cour t decisions. Under com mon law, the agent

owes the pr incipa l f ive duties, including : (1) care: (2) obedience, (3) accounting ,

(4) loya lty ( includ ing conf identia l i ty) , and (5) disclosure . Sta tu tory law is the law

enacted by the legislature.

T he “a gen t ” is the indiv idual who is au thor ized and consents to represent the

in terests of the pr incipal . The “pr i nc ipa l ” is the individua l hir ing the agent and

granting to the agent the author i ty to represent the pr incipal . A “ f i duc ia ry

re la t ions h ip ” exists between the agent and the pr incipa l , mean ing the agent is he ld

in a posi t ion o f special trust and confidence by the pr incipal.

There are three kinds of agents: (1) universal agents, (2) genera l agents, and

(3) special agents. A “un iv er sa l a ge nt ” has un l imi ted au thor i ty to perform any act

on behal f o f the pr incipal . A “ge ne ra l a ge nt ” has far -reach ing or wide author i ty to

conduct a ser ies of transactions o f a cont inuous nature on beha lf o f the pr incipa l.

For example , the v ice -president o f the western region o f a company would be able

to make a l l the decisions for the western reg ion (bu t no t so for the o ther regions) .


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A “spec ia l a ge nt ” has on ly l imited author i ty to conduct a s ing le transact ion for the

pr incipa l. A real esta te broker and an a t torney are examples o f special agents. In

real esta te , a “s ing le a ge nt ” means a broker who is engaged by and represents only

one party in a transaction.

An agent general ly gains au thor i ty to act on beha l f of a pr incipal by en ter ing

in to a contract. A contract is considered “exp res s a ut hor i ty , ” where speci f ic terms,

dut ies, and responsibi l i t ies are establ ished between the agent and the pr incipal .

A writ ten l ist ing agreement to se l l a proper ty is an example o f an express

author i ty . “ I m pl ied a ut hor i ty ” is au thor i ty reasonab ly expected to permi t the agent

to be able to per form the scope o f the agency. “ Appa re nt a ut hor i t y ” is when th ird

part ies reasonab ly bel ieve an individua l has author i ty to act and b ind the pr incipal

based upon the pr incipal ’s words or conduct . Al though author i ty in an agency can

be crea ted expressly (wr i t ten or ora l) , impl ied or by the imposi t ion o f apparen t

(ostensible) au thor i ty , Colorado real esta te law speci f ica l ly sta tes tha t any agency

rela tionsh ip between a broker and a pr incipa l must be created by a wr i t ten

agreement signed by bo th part ies.

Even when acting as an agent, the broker ’s r igh t to bind a party is very

restr icted . A Commission-approved l is t ing agreement does not give the broker the

r igh t to s ign or ini t ia l lega l documents for the par ty. Absent a power o f a ttorney,

the broker should not sign for a party on any document re la ted to the rea l esta te

transaction.

For many years, Colorado rea l esta te brokers worked with the publ ic under the

common law of agency. Brokers au tomat ical ly became an agent of their party by

enter ing into a l ist ing for the sale or lease of the party’s property. In 1993, the

legislature decided tha t the du ties and responsib i l i t ies associa ted wi th real esta te

brokerage re la tionsh ips should be specif ica l ly de f ined in the sta tute. Sect ion 12-

61-804, C.R.S. , de fines the dut ies and obl igat ions of a single agent engaged by a

se l ler or landlord. Section 12-61-805, C.R.S., de fines the du t ies and obl igat ions

of a s ing le agent engaged by a buyer o r tenant . Al l o f these duties and

obl iga tions are summarized in the “Uni fo rm Dut ies” section below.

I V . T ra nsac t ion-Broke ra ge

Transact ion-brokerage was created as a non-agency relat ionship. Under

Colorado law, a broker is presumed to be a transaction-broker un less a s ing le-


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agency rela tionsh ip is crea ted by a wr i t ten agreement be tween the broker and

the party. A “ t ra ns ac t ion -br ok e r ” ass i s ts one or more part ies throughout a

contempla ted real estate transact ion with communica tion , in terposi t ion ,

advisement , negot ia tion , contract terms, and the closing of such rea l esta te

transaction wi thout being an agent or advocate for the interests of any par ty to

such transaction . Section 12-61-807, C.R.S. , de f ines the duties and obl iga tions of

a transact ion-broker engaged by a party. Al l of these duties and obl iga tions are

summar ized in the “Uni form Dut ies” section below.

V. Un i fo rm Du t i es

In Colorado, a broker must be either an agent or a transact ion-broker . If a

broker is an agent, there must be a writ ten agreement between the broker and

the party. A broker may be a transaction-broker by ei ther en ter ing into a wr it ten

agreement wi th the par ty or through

disclosure only.

If a broker is acting e ither as an agent or as a transact ion-broker in Co lorado,

there are 17 duties tha t the broker is responsible to perform. Since al l of these

dut ies are the same for agency and transact ion -brokerage, they are ca l led “ u n if o rm

dut i e s . ” If the broker and the par ty de termine tha t the broker should be an agent ,

then the broker must agree to per form the th ree “ad di t io na l du t i e s ,” descr ibed

below.

As of January 1, 2006, the un i form dut ies and add it ional dut ies language

out l ined below appears in al l Commission-approved employment contracts

between the broker and a party. By s igning any of these agreements, the broker

is agreeing to ab ide by and per form each o f these duties. There fore , i t is

impera t ive tha t the broker understand both the uni form and addi t iona l du ties

for agency.

A . Se l l e r o r Landl o rd U ni fo rm Du t ie s

Brokerage f irm, act ing through broker , shal l provide brokerage services to the

se l ler or landlord . The broker, act ing as e ither a transact ion-broker or a sel l er or

l andlord agent , shal l per form the fo l l ow ing uni form dut i es when work ing wi th se l l er

or landlord:


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1. Broker sha l l exerc ise reasonab le ski l l and care for se l ler or landlord ,

including , bu t no t l imi ted to the fo l lowing :

a. Per forming the terms o f any wr i t ten or oral agreement wi th sel ler

or landlord;

b. Presenting all o f fers to and f rom sel ler or landlord in a time ly manner

regard less of whether the proper ty is subject to a contract for sa le or a

lease or le t ter o f in tent to lease;

c. Disclosing to sel ler or land lord adverse mater ia l facts actual ly known by

broker;

d. Advising sel ler or land lord regarding the transact ion and to obtain expert

advice as to mater ia l matters about which broker knows but the speci f ics

of wh ich are beyond the exper tise of broker;

e. Accounting in a t imely manner for a l l money and proper ty

received; and

f. Keeping se l ler or landlord ful ly in formed regarding the t ransaction.

2. Broker sha l l no t d isclose the fol lowing in format ion without the in formed

consent o f sel ler or land lord :

a. That se l ler o r landlord is wi l l ing to accept less than the asking pr ice for

the property or asking lease ra te for the premises;

b. What the motivat ing factors are for sel ler or landlord to sel l the proper ty

or lease the premises;

c . That se l ler o r landlord wi l l agree to f inancing or lease terms o ther than

those offered;

d. Any mater ia l in format ion about se l ler or landlord un less disc losure is

requ ired by law or fai lure to disc lose such i n fo rmat ion would consti tu te

fraud or dishonest dea l ing ; or

e. Any facts or susp icions regard ing circumstances that could

psycholog ical ly impact or stigmatize the property or premises.

3. Se l ler or landlord consents to broker ’s disclosure of se l le r ’s or land lord ’s

conf identia l in format ion to the supervis ing broker o r designee for the

purpose of proper supervision , provided such supervis ing broker or


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designee shal l no t fur ther d isclose such in fo rmation without consent o f

se l ler or landlord , or use such in format ion to the de tr iment o f se l le r

or landlord.

4. Brokerage f irm may have agreements with other sellers to market and

sell their property. Broker may show al ternat ive proper ties not owned by

se l ler or landlord to other prospective buyers or tenants and l ist compet ing

proper t ies for sale or lease.

5. Broker sha l l not be obl iga ted to seek add it ional o f fers to purchase or

lease the proper ty or premises whi le the property or premises is sub ject to

a contract for sale or a lease or le t ter o f intent to lease.

6. Broker has no duty to conduct an independent inspection of the proper ty or

premises for the benef i t of a buyer or tenant and has no duty to

independent ly ver i fy the accuracy or comple teness of sta tements made by

se l ler or landlord or independent inspectors. Broker has no duty to

conduct an independent invest iga tion of a buyer ’s or tenant ’s f inancial

condi t ion or to verify the accuracy or comple teness o f any sta tement made

by a buyer or tenant.

7. Se l ler or landlord sha l l not be l iable for the acts of broker unless such acts

are approved, directed , or rat i f ied by the sel ler or landlord.

B . Se l l e r o r Landl o rd A gency – Add i t i ona l Dut i es

If broker is a l imi ted agent of se l l er or l andlor d (se l l er ’ s or l andlord ’ s agent ) ,

broker has the fo l l ow ing addi t i onal dut ies:

1. Promot ing the in terests o f se l ler or landlord with the u tmost good fai th ,

loya lty, and f idel i ty .

2. Seeking a pr ice and lease ra tes and terms that are acceptable to sel ler

or land lord .

3. Counsel ing se l le r or landlord as to any mater ial benefi ts or r isks of a

transaction tha t are actual ly known by broker.


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C . Buye r o r Te n a n t U ni fo rm Dut i es

Brokerage f irm, act ing through broker , shall provide brokerage services to the

buyer or tenant. Broker , act ing as either a transaction-broker or a buyer or t enant

agent , shal l per form the fo l l ow ing uni form dut i es when w ork ing wi th buyer or tenant:

1. Broker sha l l exerc ise reasonab le ski l l and care for buyer or tenant ,

including , bu t no t l imi ted to the fo l lowing :

a. Per forming the terms o f any wr i t ten or oral agreement wi th buyer

or tenant;

b. Presenting al l o ffers to and f rom buyer or tenant in a timely manner

regard less o f whether buyer or tenant is a lready a party to a

contract to purchase the proper ty or a wr i t ten agreement to lease

the premises;

c . Disclosing to buyer or tenant adverse mater ial facts actual ly known

by broker;

d. Advising buyer or tenant regard ing the transact ion and to obtain

exper t advice as to mater ial mat ters about which broker knows but

the speci f ics of which are beyond the exper tise o f broker;

e. Accounting in a t imely manner for a l l money and proper ty

received; and

f. Keeping buyer or tenant fu l ly in formed regarding the t ransaction.

2. Broker sha l l no t d isclose the fol lowing in format ion without the in formed

consent o f buyer or tenant:

a. That buyer or tenant is wi l l ing to pay more than the purchase pr ice

of fered for the proper ty or lease ra te o f fered for premises;

b. What buyer ’s or tenant’s motiva ting factors are;

c . That buyer or tenant wi l l agree to financing or lease terms o ther than

those offered;

d. Any mater ia l in format ion about buyer or tenant unless d isclosure is

requ ired by law or fa i lure to disclose such in fo rmat ion would

const i tu te f raud or dishonest dea l ing; or


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e. Any facts or susp icions regard ing circumstances that could

psycholog ical ly impact or stigmatize the property or premises.

3. Buyer o r tenant consents to broker ’s disc losure of buyer ’s or tenant’s

conf identia l in format ion to the supervis ing broker o r designee for the

purpose of proper supervision , provided such supervis ing broker or

designee shal l no t fur ther d isclose such in fo rmation without consent o f

buyer or tenant , or use such in format ion to the de tr iment o f buyer

or tenant.

4. Broker may show propert ies in which the buyer o r tenant is in terested to

other prospective buyers or tenants wi thout b reaching any duty or

obl iga tion to such buyer or tenant . Broker shal l not be proh ib ited f rom

showing compet ing buyers or tenants the same proper ty and from assisting

competing buyers or tenants in a ttempting to purchase or lease a par ticular

property.

5. Broker sha l l no t be obl igated to seek o ther p roper ties whi le buyer or

tenant is a lready a par ty to a contract to purchase property or to a lease

or le tter o f in tent to lease.

6. Broker has no duty to conduct an independent inspection of the

proper ty for the benefi t of buyer or tenant and has no duty to

independent ly ver i fy the accuracy or comple teness of sta tements made

by a sel ler or landlord or independent inspectors. Broker has no duty

to conduct an independent investigat ion of buyer ’s or tenant’s f inancial

condi t ion or to ver i fy the accuracy or comple teness o f any sta tement

made by buyer or tenant.

7. Broker sha l l d isclose to any prospect ive se l ler or landlord al l adverse

mater ia l facts actual ly known by broker , including bu t not l imited to adverse

mater ia l facts concern ing buyer ’s or tenant ’s f inancial abi l i ty to per form the

terms of the transaction and whether buyer intends to occupy the property

as a pr incipal residence.

8. Buyer o r tenant shal l not be l iab le for the acts of broker unless such

acts are approved, d irected , or ra ti f ied by the buyer or tenant.


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D . Buye r o r Te n a n t Ag e n c y – Add i t i ona l Dut i es

If broker is a l imi ted agent of buyer or t enant (buyer ’ s or t enant ’ s agent ) , broker

has the fo l l ow ing addi t i onal dut ies:

1. Promot ing the in terests o f buyer or tenant wi th the utmost good fa ith,

loya lty, and f idelity.

2. Seeking a pr ice or lease rate and terms tha t a re acceptable to buyer

or tenant.

3. Counsel ing buyer or tenant as to any mater ia l benef i ts or r isks o f a

transaction tha t are actual ly known by broker.

V I . Ente r ing in to a Brok e rage Re la t ionsh i p

A broker serving in a brokerage capacity may e ither be a single agent for one

party or a t ransact ion-broker wi th one or both parties. A broker sha l l be

considered a transact ion-broker un less a s ingle-agency rela t ionship is estab l ished

through a wr it ten agreement be tween the broker and the par ty to be represented

by such broker. If the transact ion-broker undertakes any dut ies in addi t ion to or

di fferen t from those set for th in the statute, such add i t iona l du ties shal l be

disclosed in wr it ing and signed by the broker and the party.

A . Age nc y

Pr ior to engaging in any brokerage activ i t ies, a broker in tending to establ ish a

sing le-agency re la tionsh ip with a party shall enter in to a wr i t ten agency

agreement wi th the par ty to be represented. The agreement sha l l se t for th the

agent ’s du ties as they appear in the agency sect ions o f the sta tu te and should set

for th any other agreed-upon duties.

B . T ra nsac t ion-Broke ra ge

Pr ior to engaging in any brokerage activi t ies, a broker becomes a transact ion-

broker by doing one of the fo l lowing: (1) entering into a wr it ten transaction-broker

contract wi th the party, or (2) provid ing the party wi th a wr i tten transact ion-

brokerage disclosure with a s ignature block for the party to acknowledge

receipt . If the disc losure is not signed, the broker shall note when the

disclosure was presented.


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C . Cust ome r

The sta tute de fines “customer” as a par ty to a real esta te transact ion wi th

whom the broker has no brokerage relat ionship because such party has not

engaged or employed a broker. A Brokerage Disclosure to Seller, explaining

brokerage re la tionsh ips, must be provided to a sel ler who does not have a working

rela tionsh ip with a real esta te broker.

D . Pe rmi t t e d Re l a t i onsh ips

Because there are different combinat ions of brokerage engagements , the

statute def ines which are permi tted and not permitted.

Di f fe ren t R e l a t i onshi ps w i th S ame Pa r t y

A broker may work with a single par ty in separate transact ions using di fferen t

rela tionsh ips including , bu t no t l imi ted to , sel l ing one property as a se l ler agent

and working wi th that se l ler in buying another p roperty as a transaction-broker or

buyer agent, provided the broker es tabl ishes separa te re la tionsh ips for each

transaction.

Sepa ra te T ransa c t i ons

A broker may work with a se l ler or landlord in one transact ion and work wi th a

buyer or tenant in another t ransaction.

No Double Agency Brokerage

A broker sha l l no t enter in to a brokerage relat ionship with one par ty as an

agent and the o ther par ty as a transact ion-broker in the same transact ion . A

broker who works with bo th the buyer and sel ler or land lord and tenant in the same

real esta te transact ion may do so as: (1) a transaction-broker with both buyer

and sel ler or landlord and tenant , (2) a single agent for the sel ler or landlord,

trea t ing the buyer or tenant as a customer , o r ( c) a s ing le agent for the buyer or

tenant , trea ting the sel ler or lan d lord as a customer .

(See Rule E-40.)

I n-H ou se T rans ac t i ons and D es i gna t ed B roke rage

A brokerage f irm may have one designated broker working as a s ing le agent

for the se l ler or landlord and another designated broker working as an agent for

the buyer or tenant in the same real estate transact ion without creat ing dual


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agency for the employing broker , brokerage firm, or any broker employed or

engaged by that employing broker.

No Dual Agency

A broker sha l l no t establ ish agency wi th the se l ler or landlord and the buyer or

tenant in the

same t ransaction.

Change o f S t a t us

A broker may swi tch or change from act ing in one capaci ty to another . For

example, a broker acting as a sel ler or landlord agent may change to a

transaction-broker if agreed upon by the part ies and the broker supplies a

Change of Status – Transaction-Brokerage Disclosure (Form CS23).

V I I . Manda tory D isc l osure s

A . Es tabl i sh ing t he Brok e ra ge Re l a t i onshi p

Colorado law provides a party with a number of ways to engage a real

estate broker. Consequently, there are several brokerage re la tionsh ip

disclosures tha t may be presented by the broker to the par ty pr ior to the broker

engaging in any act ivit ies tha t require a brokerage l icense.

Commission Ru le E-35 sta tes that “brokerage activ i t ies” occur when a broker

el ic i ts or accepts conf ident ia l in format ion from a par ty concerning specif ic rea l

esta te needs, motiva tions, or f inancia l qua l i f i ca t ions. Act ivi t ies such as an open

house, preliminary conversa tions, o r small talk concern ing pr ice range, loca tion ,

proper ty styles, or responding to general factua l quest ions about proper ties tha t

have been adver tised for sale or lease do not qual i fy as tr igger ing brokerage

act ivit ies.

B . Manda tory D isc losure s

All Commission-approved real esta te brokerage employment contracts

descr ibed above contain the fol lowing two mandatory d isclosures to the party:

Counse l

“This is a binding contract . Th is form has importan t lega l consequences and

the parties shou ld consul t legal and tax or o ther counsel be fore signing.”


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Rela t i ons h i ps

“Dif feren t brokerage rela tionships are avai lable that include se l ler agency,

land lord agency, buyer agency, tenant agency or transaction-brokerage.”

C . Desi gna ted Broke ra ge D i sc l osure

When a party engages a broker f rom a mult iple-person f irm, that broker is a

designated broker . Prio r to engaging in any brokerage activ i t ies, the designated

broker must advise the party in a wr i t ten agreement tha t the brokerage

rela tionsh ip exists only with the designated broker and does not extend to the

brokerage f irm, the employing broker , or to any other brokers employed or

engaged by the employing broker who are not so designated. The extent and

l imi ta tions o f the brokerage rela tionship wi th the designated broker must be

disclosed to the par ty working wi th tha t designated broker.

D . D isc l osu re Forms

The Commission has approved brokerage re lat ionship d isclosure forms for

presentat ion to potent ia l par ties pr io r to the broker engaging in any brokerage

act ivi t ies wi th those ind ividua ls. The forms should be presented to the

appropr iate individua l upon init ia l contact or as soon as pract ica l thereaf ter . The

broker should f i l l in the appropr ia te form and a t tempt to secure a signature from

the party to acknowledge rece ip t . If the disc losure is no t signed, the broker must

note when the disc losure was presented and re tain a copy in the broker ’s f i les.

These fo rms are disc losures on ly, and even i f the party s igns any of these fo rms,

they are not considered contracts.

Defin i t i ons of Work i ng Re la t i onships (Form DD25 )

This d isclosure must be provided to any ind ividua l who requests de fin i t ions o f

these working re la tionsh ips with brokers.

B roke rage D i sc l osu re to S el l e r (F o r S al e by Ow ne r ) (F o rm SD1 6 )

This disclosure is used when a broker comes in contact with a potential se l ler

or land lord of a proper ty and discusses the possib le sale or leasing of that

proper ty. The property address must be included. Also, the broker must state

whether : (1) the broker is an agent o f a buyer o r tenant and the se l ler or landlord

is a customer, or (2) the broker is a transaction-broker.


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B roke rage D u t i es D i sc l osu re to S e l l e r (R E O an d Non-CREC Approved

Li st i ng Agreements) (Form BDD56 )

B roke rag e D i sc l osu re to B uy e r /T enan t (F o r m BD2 4 )

B roke rage D i sc l osu re to T enan t ( BDT2 0 )

These disclosures are used when a broker comes in contact with a potential

buyer or tenant and discusses the poss ib le purchase or lease of property. The

proper ty address or requ irements must be included. Also , the broker must sta te

whether : (1) the broker is an agent o f a sel le r or land lord and the buyer or tenant

is a customer, or (2) the broker is a transaction-broker.

E. Othe r Di sc l osure s

No tice to Par t i es

A broker who has already establ ished a re la tionsh ip with one party to a

proposed transact ion must advise, at the earliest reasonable opportun ity, any

other po tent ia l par ties or their agents o f such establ ished relat ionship.

Transac t i on-Brokerage

Pr ior to engaging in any brokerage activ i ty , a transact ion-broker must d isclose

in wr it ing to the party to be assisted tha t such broker is not acting as an agent

for the o ther par ty and tha t the broker is acting as a transaction-broker.

Conf l ic ts of I n t eres t

Commission Ru le E-25 sta tes that when a broker is acting in a l icensed

capaci ty or when a broker sel ls, buys, or leases real property in wh ich the broker

has an ownersh ip or f inancial interest , the broker has a continuing duty to

disclose any known confl ic ts o f in terest. In addi t ion , the broker must disclose in

the real esta te contract or in a separa te document tha t the broker has an

ownership in terest in the proper ty and is a l icensed Colorado real estate b roker.

Transact ion Brokerage Versus Agency Commission posi t ion C P-31 states that

before act ing as a transaction-broker in transact ions where neutral i ty is di ff i cu lt ,

the broker should consider whether the transact ion-brokerage arrangement is

suitable, consu lt with the broker ’s supervis ing broker , and make any necessary

disclosures. Some examples where transact ion-brokerage may not be appropr ia te

are negotia t ing the sa le or purchase for for : (1) the broker ’s own account , (2) a


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spouse or family member o f the broker , (3) a close persona l fr iend or business

associa te of the broker , or (4) a repeat or regular par ty. Similar ly , the broker may

encounter cer tain agency si tuat ions or transact ions where act ing as an agent and

advocate for a party could be di ff i cu lt . In these circumstances, the broker

should consider whether the agency arrangement is appropr ia te , consul t with the

broker’s superv ising broker, and act accordingly.

F. Cha nge o f S t a t us

If a broker is acting as an agent for both a se l ler or landlord and a buyer or

tenant and begins to assist those par ties in the same rea l esta te transact ion , the

broker is act ing as a dua l agent, which is not permi tted under Colorado real

esta te law. The broker must immedia te ly provide the wr it ten Change of Sta tus –

Transact ion-Brokerage Disclosure (Form C S23) to the se l ler or landlord and

buyer or tenant and beg in working wi th both pa rt ies as a transact ion-broker . The

broker should at tempt to secure the acknowledgements and s ignatures of the

se l ler or landlord and buyer or tenant . However if that is no t possib le , the broker

must comple te the broker acknowledgement , sign the d isclosure form, and re ta in a

fi le copy. (See Rule E-41.)

V I I I . Tw o Ex a mp l e s

A . One B roker fo r Bot h Sides of a T ra nsa c t i on

Broker Amy is working with Sel ler Sam who owns a home. Buyer Bob, who is

not working wi th a broker , sees Broker Amy’s open house s ign , l i kes the home,

and determines that he is interested in making an offer.

Agen t /Cus t omer

If Broker Amy is working as an agent for Se l ler Sam, then Broker Amy must

trea t Buyer Bob as a customer un less Broker Amy enters in to a transaction

brokerage re la tionsh ip wi th Buyer Bob (if al lowed by the l ist ing agreement and

conf irmed by a Change of Status disc losure , Form C S-23). A “ customer” is a

party to a real estate transaction wi th whom the broker has no brokerage

rela tionsh ip because such party has no t engaged or employed a broker . Broker

Amy must present Commission -approved Form B D24, “Brokerage Disclosure to a

Buyer,” to Buyer Bob and check the box that sta tes “Customer: The Broker is

the Seller’s agent and the Buyer is a customer.”


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Transac t i on-Broker

If Broker Amy is working as a transaction-broker wi th Se l le r Sam, then Broker

Amy must also be a transaction-broker assis t ing Buyer Bob. A “ transact ion -

broker” is a broker who assists one or more part ies throughout a contempla ted

real esta te transaction without being an agent or advocate for the interests of

any par ty to such transaction . Broker Amy must present Commission- approved

Form B D24, “Brokerage Disclosure to Buyer ,” to Buyer Bob and check the box

that sta tes “Transaction-Brokerage Only: The Broker is a transaction-broker

assisting in the transaction.”

B . Bo th Si des Re prese nt e d

Broker Amy is working with Sel ler Sam who owns a home. Buyer Barbara is

working wi th Broker Brad, and af ter they tour the home, Buyer Barbara decides

she wou ld l i ke to make an o f fer . Depending upon the a lready -establ ished

brokerage relat ionships:

Agency

Broker Amy could be an agent for Se l ler Sam, and Broker Brad could be an

agent for Buyer Barbara; or

S e l l e r ’ s Agen t /T ransa c t i on-Broke r

Broker Amy could be an agent for Se l ler Sam, and Broker Brad could be a

transaction-broker assist ing Buyer Barbara ; or

T rans ac t i on - B ro ke r / B uye r ’ s Agen t

Broker Amy could be a transaction-broker assist ing Se l ler Sam and Broker

Brad cou ld be an agent for Buyer Barbara ; or

Both T ransa c t i on-Brokers

Broker Amy could be a transaction-broker assist ing Se l ler Sam and Broker

Brad could be a transaction-broker for Buyer Barbara.


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C . Prohi b i ted Re l a t i onshi ps

Dual Agency

Colorado sta tu tes proh ibi t e i ther broker from act ing as an agent for bo th the

se l ler and the buyer . Dual agency has been i l legal since 2003.

Agency L i mi ta t i on

A broker cannot be a transaction-broker assisting one par ty and be an agent

for the o ther par ty in the same transaction.

I X . Du ra t ion of Re l a t i onshi ps

Brokerage relat ionships be tween a broker and a party are in e f fect for certain

speci f ic per iods of t ime. Colorado statutes def ine th is t ime per iod and the du ties

and responsibi l i t ies a fter the rela tionship ends.

A . Te rm

The re la tionsh ips commence a t the time tha t the broker is engaged by a par ty

and cont inue unti l per formance or comple t ion of the agreement by which the

broker was engaged.

B . Te rmi na t ion

If the agreement by which the broker was engaged is no t performed or

comple ted for any reason, the re la tionsh ip wi l l end at the ear l ier o f the fol lowing:

(1) any da te o f expira t ion agreed upon by the broker and the par ty, or (2) by

termination or re l inqu ishment o f the relat ionship.

C. No Du t i es a f t e r Te rmi na t ion

Except as otherwise agreed to in wr i t ing and except as se t for th in the

paragraph D be low, a broker engaged as an agent or transact ion-broker owes

no fur ther du ty or ob l iga tion to the party af ter termination or expira tion of the

contract or complet ion of performance.

D . Responsib i l i t i e s a f te r Te rmi na t i on

A broker is responsible af ter termination or expirat ion of the contract or

comple t ion of performance for the fol lowing: (1) account ing for all moneys and

proper ty re la ted to and rece ived dur ing the engagement , and (2) if the broker


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was acting as an agent, the broker must keep conf ident ia l al l in formation

received during the course of the engagement which was made conf identia l

by request or instruct ions f rom the party, unless the party grants wr it ten

consent to disc lose such in formation , d isclosure of such in format ion is requ ired

by law, or the information is publ ic or becomes pub l ic by the works or conduct

of the party or from a source o ther than the broker.

X. Of f i c e Pol i c i e s

Two Commission rules provide guidance for of f ice pol icy rela ting to brokerage

rela tionsh ips. Commission Rule E-38 states tha t in a mult ip le-person firm, an

employing broker or employed broker must be designated in wr i t ing by the

employing broker to serve as a s ing le agent or transaction-broker . In addi t ion ,

Rule E-38 se ts for th certain guide l ines regarding ind ividua l and team brokerage

employment contracts, substi tu te or add it ional brokers, and transaction-broker

wr i t ten disc losures. Rule E-39 states tha t a brokerage firm must adopt a wr it ten

of f ice pol icy tha t identi f ies and descr ibes the re la tionsh ips o ffered to the publ ic by

the brokers o f tha t f i rm. A brokerage f irm may e lect to engage in agency only,

transaction-brokerage on ly, or both.

XI . Compe nsa t i on

The Colorado sta tu tes set for th speci f ic pol ic ies concerning the d isclosure and

payment o f compensation to brokers.

A . Paymen t Does N o t E stabl i sh Age ncy

Payment of compensat ion is no t construed to estab l ish an agency

rela tionsh ip between the broker and the par ty who pa id the compensat ion . For

example, one broker has an agency agreement wi th a sel ler and another

broker has an agency agreement with a buyer in the same transaction . Even

though the sel ler is the only party paying the commission and tha t payment is

being shared by the se l ler ’s broker and buyer ’s broker, the sel ler ’s broker is

working as a sel ler ’s agent only for the sel le r and the buyer ’s broker is

working as a buyer ’s agent only for the buyer.


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B . Mu l t i p l e Pa yme n ts

More than one par ty may compensate a broker for serv ices in a transaction

as long as all part ies to the transaction have consented in wr i t ing to such

mult ip le payments pr ior to en ter ing in to a contract to buy, sel l , or lease.

C . Paye r

The broker’s compensation may be paid by the party, a third party, or by

the sharing or split t ing of a commission or compensat ion be tween brokers.

D . Approva l t o Sha re

A broker must ob tain the wri t ten approval of the broker ’s par ty be fore the

broker proposes to the other broker that the other broker be compensated by

shar ing compensation pa id by such party.

E. Iden t i t y

Pr ior to enter ing in to a brokerage employment contract , the ident i ty of those

part ies, persons, or en ti t ies paying compensat ion or commissions to any broker

must be d isclosed to the par t ies to the t ransaction.

F. Ou t -o f-S ta te Broke rs

Commission Ru le E-23 sta tes that a Co lorado broker who coopera tes wi th a

broker who is l i censed in another state or country may pay such out-o f-

sta te broker a f inder ’s fee or share of the commission if : (1) such broker

resides and main ta ins an o f f ice in the other sta te or county, (2) all

adver tis ing , negotiat ions, contracting, and conveyancing done in Co lorado

is per formed in the name o f the Colorado broker, and (3) a l l money

co l lected pr ior to the c losing is deposi ted in the name o f the Co lorado

broker.

(DORA, 15-1 – 15-14)

Ci ted Material :

DORA. "Chapter 15 : Brokerage Relat ionships." Colorado Real Estate Manual .

Charlot tesv i l le, VA: LexisNex is, 2014. . Pr int .

cr-3 required reading (req re… · cr-3 required reading (manual) page 5 of 20 a “special...

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