MACINTOSH REAL ESTATE SCHOOL
COLORADO COURSE MATERIALS Q&A
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MacIntosh Real Estate School
COLORADO COURSE
QUESTIONS and ANSWERS
About the Text, Short-Answer, and Quiz Questions
CHAPTER 14 - LICENSE LAW
I think I am missing section V, "Other Considerations in Real Estate", listed in the Index (first page) of the Colorado Contracts and Regulations course.
You aren’t missing anything. It is all there in the materials, but not necessarily in that order.
See the top of that course outline page that starts the Colorado Contracts and Regulations book: "NOTE: This is not an 'outline' or 'index' of the order in which the 'Colorado' materials are presented. This is list of topics that the Colorado Real Estate Commission requires the student to master, in order to fulfill the requirements of this course and to prepare for the 'Colorado' portion of the state license exam."
Remember that the "Course Requirements" outline at the beginning of each course is by no means a "Table of Contents" - with each topic given (again) in that order. By way of example, each of those topics listed under "Section V - Other Considerations..." have already been discussed in other sections (or will be discussed in later sections). In other words, there is no specific "Section V", and it doesn't start on any specific page.
This is where these particular topics are located:
A. Promissory Notes - (the Closings course)
B. Liens and Encumbrances - (Chapter 10)
..1. Deeds of Trust
..2. Foreclosure
..3. General Property Taxes
..4. Special Districts
..5. Other liens
C. Errors and Omission Insurance - (Chapter 14 and Chapter 16)
D. Recovery Fund (Chapter 14)
E. Land Descriptions - (Chapter 8)
..Surveys and Improvement Location Certificates
F. Water Rights - (Chapter 3)
G. Financing - (Chapter 5)
..1. Equity Skimming
..2. U.C.C.C.
..3. Standards of Mortgage Servicing
..4. Loan Fraud
H. Landlord Tenant Act (38-12-101 et seq. CRS) - (Chapter 11)
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Is there any simpler way to digest all the legalese in these statutes?
Yes! First, you should highlight the important terms and passages in the text and and take notes in the margins. The trick is knowing what is important.
Here’s an example of how to distill the statutes down to their basics so that they are easier to understand and remember:
Here’s what the all-important statute in Chapter 14 says about people who - if they conduct these activities - need a (broker's) license in Colorado:
“"Real estate broker" or "broker" means any person, firm, partnership, limited liability company, association, or corporation who, in consideration of compensation by fee, commission, salary, or anything of value or with the intention of receiving or collecting such compensation, engages in or offers or attempts to engage in, either directly or indirectly, by a continuing course of conduct or by any single act or transaction, any of the following acts:
..(a) Selling, exchanging, buying, renting, or leasing real estate, or interest therein, or improvements affixed thereon;
..(b) Offering to sell, exchange, buy, rent, or lease real estate, or interest therein, or improvements affixed thereon;
..(c) Selling or offering to sell or exchange an existing lease of real estate, or interest therein, or improvements affixed thereon;” etc., etc.
But there is a lot of repetition in that section, which is – like any good law – simply in there to plug loopholes. For the purpose of comprehension, here’s how to summarize this or any law:
“’Broker’ means any person… who... gets paid for... the following acts:
..(a) Selling, exchanging, buying, renting, or leasing real estate…
..(b) Offering to sell…
..(c) Selling… a lease…
etc.”
See how easy that was?... and a whole lot easier to remember than trying to memorize hundreds of words of text: We distilled several hundred words of legalese into only about 20. This is infinitely more
effective than simply reading the same passage of text over-and-over.
Then, you should do the same thing for activities that do not require a license (= exceptions to the license law), the penalties for doing the things above without a license, and every other passage in the text!
Second, diligently complete the short-answer questions at the end of every chapter. This is the most effective way to summarize a lot of information and painlessly
understand and commit a lot of detail to memory.
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What does it mean when it says “Repealed” next to a statute number?
When it says, for instance, “12-61-104…(2) Repealed”, it is referring to a former law that was on the books (12-61-104(2)) which has since been taken off. So, there was a 12-61-104(2), but now there isn’t. You might wonder why we include it at all, and there are a couple of reasons: First, if you were following some law or had some policy based on some law – now you know that you no longer have to follow that law; Second, if we completely left out all reference to it, that would actually cause more confusion. For instance, if you were studying, say, 12-61-113 on page 14-21 through 14-25 (which is, indeed, very important to study), and you saw #j on page 14-22, then #k, and then it skipped to #m… you would wonder what happened to #l! (It doesn’t exist anymore, but we need to tell you that you’re not missing anything.)
When it says “deleted by Amendment”, it essentially means the same thing. Except, that that provision is now covered by some other law. The legislature deletes one of them (the "old" one) so that there is no repetition – which would lead to confusion and mis-application because of possibly slightly different wording.
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What is an “option dealer” and what is the significance of why this is specially mentioned in the licensing-requirement statute?
It's just what kind of contract the parties are using. Most brokers will be representing someone who is selling (or buying) directly a piece of land. But an "option" is (very simplistically put) the "right to buy - later on - if you want". This happens a lot with builders who have an "option contract" to buy multiple lots at specified points in time in the future. The Real Estate Commission put this in the statute as one of the things ("option dealer") that requires a license, because if they left it out certainly some cagey folks would try to get around the license law by saying, "I just sell the 'option' - not the land, so I don't need a broker's license..."
Bottom line is not to worry too much about the similarities and differences between a "regular" broker and an "option dealer" broker... just know that "option dealer" is on that list of people who need a license.
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12-61-101(4)(h) and (i) are confusing. What is the difference between a corporation owning a piece of real estate, and “principal officer with respect to property owned by it”? You have to have a person deal with the property.
There isn’t much difference, in the sense that neither of these are particularly important to us. Remember that the point of these statutes is that if there is a “loose end”, then someone is going to take advantage of it. OR, more likely, there was some loose end and someone took advantage of it and tried to get away with something (= acting as a r/e broker, without having a license), so the legislature and r/e commission had to “plug” the loophole with very specific wording.
The difference between H and I : H - a corporation doesn’t need to have a license if they are conducting some activity of a real estate nature, but those activities are “incidental” (as opposed to “being in the business of selling real estate”, which is definitely not incidental.) I – An officer of the corporation does not need to get a license if s/he owns 20% or more of the shares.
The significance of this is that if a corporation sells real estate and the officer of the corporation who is handling the transaction does NOT own 20% or more of the shares, then that officer does NOT fit through the exception and MUST have a license. (Remember that this section is dealing with EXCEPTIONS – people who do NOT need to have a license if they do these things.)
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Does CRS 12-61-101(4)(i) on page 14-8 mean that a corporate officer (owning 20% or more of outstanding stock in the corporation) does not need a real estate license to sell corporate-owned property?
That is essentially correct. The only qualifiers that must be added to this are that: A) If it is an already-built building, 1) it must be a "principal officer" (i.e., president, vice president, etc.) who owns the 20%+ stock - not just any stockholder; and 2) that property is owned by the corporation; and 3) the property cannot be a previously owned 1- or 2-family home. OR B) If it is vacant land on which property will be built (later), then there really aren’t any requirements for the corporation to have a licensed broker when the property is eventually built and sold to a buyer.
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"12-61-102 says that a corporation or LLC could own a home (if not previously occupied) and sell it without a broker being involved, but 12-61-102 seems to say the opposite. What is the difference?"
No... 12-61-102 is basically the "catch-all" statement that says if you sell real estate, you must have a license. 12-61-101 is both the "definitions" and "exceptions" to who needs a license and who doesn't. You would think that they would put the Rule first, and THEN the exceptions - but that isn't how it works with what is called "statutory construction", because first you have to define all the terms that you will be using later in the "meat" of the statute.
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Designated Brokerage - 12-61-103(7): I read where a broker's license can be issued to a person, partnership, LLC, or a corporation.
Is there any advantage or disadvantage to having one's license be in their corporate name, and the individual being the
designated broker?
Remember that the Section 12-61-101(4)) says "'real estate broker'
does NOT apply to any of the following..." So, it is saying, for instance, that a corporation does NOT need a license
to sell real estate "with respect to property owned or leased by it, acting through its officers or regular salaried
employees, when such acts are incidental and necessary in the ordinary course of the corporation's business activities
of a non real estate nature...", etc.
But when it says "a corporation doesn't need a license, if...", that is not to say that (in some other circumstance)
a corporation (or a partnership, or an LLC, etc.) gets a license. My point is that a "corporation" doesn't get a broker's license.
A person (who works for the corporation) gets the broker's license. See, specifically CRS 12-61-103(1)(b)(II) on page 14-10:
"'applicant' means an individual, or any person designated to act as broker for any partnership, limited liability company,
or corporation pursuant to subsection (7) of this section."
So, when you ask: "Is there any advantage or disadvantage to having ones license be in their corporate name,
and the individual being the designated broker?" You are really saying the same thing: You would be the broker, your
name would be on the license - no matter who you work for. Another thing that factors into this is that you have to be
licensed "under" an employing broker (a person) anyway; you couldn't, for instance, bypass that rule by going to work as
"John Smith, broker for XYZ corporation". You would still be "John Smith, associate broker, under Jane Doe, broker for XYZ Corp."
The other thing you might be asking is if working under the umbrella of a corporation would shield you from liability
the same way being a stockholder (or officer) of a corporation does. Not really, because since you work for a broker who works
for the corporation, you would not be exposed to that liability anyway. You would only be exposed to any liability for misdeeds
as a broker, according to the License Law and Rules of the Real Estate Commission. (See - and know - specifically, all the things
that can get you into trouble as a licensee: CRS 12-61-113.)
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What is the purpose of the law that specifies that a brokerage relationship exists only with a designated broker and doesn't extend to the employing broker or others in the same company?
The purpose of designated brokerage is for specifying "responsibility" for the transaction.
"I would think that a real estate company that has a listing would want all brokers to have the opportunity to sell the property." No... that's not how it works (with or without designated brokerage). If Broker X brings in the Seller (=listing), then that is Broker X's listing - they get the commission (or portion of the commission, after their boss - the employing broker/brokerage - gets their cut.) On the other side of the coin, however, that makes Broker X completely responsible for the deal (NOT the brokerage) - they have to do the legwork, follow ups, etc. And if they screw up, then it is the individual broker's neck on the line. (This does NOT, however, relieve the brokerage/employing broker of the duty to properly train and supervise their Associates.)
The whole idea of this is the all-important concept of "protecting the public". With designated brokerage - the client/customer knows EXACTLY who is working for them and responsible for the transaction. (By way of contrast, the "old" way was "selling agency" where both the listing salesperson, their boss (the brokerage), the "selling" broker and brokerage (the ones working with the buyer)... ALL "worked for" and "represented" the SELLER. NO ONE represented the BUYER! But the buyer didn't KNOW this! S/he thought "their" broker "represented" them. But really, if something went wrong and the buyer tried to look to "their" broker/salesperson, that licensee could simply say: "Oh, didn't you know? I really work for the seller - so you're out of luck!")
Now, with Designated Brokerage, the buyer and seller know IN ADVANCE exactly who works for them and who doesn't - and what those agents' responsibilities are.
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Designated Brokerage: Can your employing broker assign anyone in the office that has more then 2 years experience to supervise you?
Yes.
Are they completely liable for your actions?
They are responsible to supervise you, but it would be ridiculous to expect that someone would take on that kind of responsibility if they were “completely liable”! (So – no.)
Can you assign anyone in your office a contract? I thought that you needed the property seller’s permission?
The answer is in the article, “ASSIGNMENT OF CONTRACTS AND ESCROWED FUNDS”. Beyond that, the real estate commission hasn’t spoken to the issue.
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12-61-103.6 - If a licensee is required to have errors and omissions insurance why do we need the recovery fund?
You are required to have Errors and Omissions Insurance, but there are several cases where it would not be effective (and therefore the Recovery Fund may eventually come into play):
1) The E & O Insurance company that you paid the premium goes out of business, leaving all their “insureds” uncovered;
2) The licensee shows proof of insurance upon renewing the license for the next 3-year period. Then the licensee lets the insurance lapse at the end of the year, but before the next license renewal makes him/her prove s/he has insurance. (E&O must be renewed annually, but the license is good for 3 years);
3) The (monetary) damages caused by the licensee’s “error” is greater than the maximum amount of the E&O coverage;
4) The licensee’s acts are not covered by the Insurance policy. Remember, we are talking about an insurance policy, to there are many hidden “excluded acts”.
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If the commission is not able to provide errors and omissions insurance with a $100 premium does that mean the licensee is not required to have it?
If the Commission can’t provide insurance, then you are required to find it on your own. This actually happened last year, where the “approved” underwriter for Colorado E&O Insurance (Williams Underwriting) backed out of the agreement to provide insurance to all the Colorado brokers. The Commission had to scramble around to find another insurer (RISC), because even though it is the licensee’s responsibility to get insured – they knew that 10,000 Colorado brokers weren’t going to go out and find their own E&O insurance.
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Could you please explain this clause of the license law to me in plain English?
- “12-61-113(r) Using any provision allowing the licensee an option to purchase in any agreement…”
Well, just like any of these statutes, the key is to simplify (summarize) the "legalese" by cutting out all the legal and repetitive terms. These repetitive legalistic terms are in there to plug up any legal loopholes, but for our purposes we just want to know what it means.
First of all, we have to back up to the beginning of the statute section to see what we are talking about: Section 12-61-113 starts: "The commission, upon its own motion, may, and, upon the complaint in writing of any person, shall, investigate the activities of any licensee ... when the licensee has performed, is performing, or is attempting to perform any of the following acts and is guilty of..." which is just a convoluted way of saying that the R/E Commission can impose a penalty against any licensee who does any of the following... (misleading advertising, committing fraud, etc.)
The subsection (r) that you are wondering about can be "cut down" the same way. "Using any provision allowing the licensee an option to purchase in any agreement authorizing or employing such licensee to sell, buy, or exchange real estate for compensation or commission..." simply means "When a licensee takes advantage of their agency agreement that allows them also to buy that same property for their own purposes." This is what the Licensee Buy-Out Agreement is all about (very important in Chapter 21 AND the state license exam!)
Then it goes on to say: "except when such licensee, prior to ... exercise such option to purchase, reveals in writing to the licensee's principal or employer the full amount of the licensee's profit and obtains the written consent of such principal or employer..." which is just a complicated way of saying "unless they get the prior written consent of their principal (the seller) and/or their boss (the employing broker)."
So, to summarize: "A licensee can't take advantage of their agency agreement that allows them also to buy that same property for their own purposes, UNLESS they get the prior written consent of their principal and/or their boss."
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12-61-302 - What is the purpose of the Recovery Fund?
C.R.S. 12-61-302 says what the Fund is for - and why payments are made out of it:
Subsection 1) commencement of a civil action; 3) there was a judgment in a civil action that found the broker committed negligence, fraud, willful misrepresentation, or conversion of trust fund. Then it goes on in that Section to detail the limitations on when and how much will be paid out.
So, basically, if a broker is sued for fraud or misuse of funds, and loses in court, the victim can apply to get paid from the Fund if the broker can't pay it immediately. The "details" of that Section state that this option is only available after the victim and/or the broker jump through some hoops, such as trying to have the broker's Errors and Omissions Insurance pay for it, etc. Also, if payment is made – the broker's license is suspended until he/she pays back the fund.
This does not apply to “artificial” entities, such as a corporation or LLC, because of the nature of such an entity: Corporations and LLC’s are formed (partly) as a way for the individuals who form the corp or LLC to avoid their own personal assets being attacked in the event of a lawsuit. So, it wouldn’t be right (and it wouldn’t be something that the state of Colorado would be willing to pay for) for an individual to shield themselves from lawsuit for fraud (for instance) by forming a corporation and then making the state (through the real estate fund) pay for any losses due to that individual’s fraud.
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The Colorado concept that a principal can't be held liable for actions of his agent that he didn't approve or ratify is
different from the uniform concept that the principal is liable, correct?
No - it is the same in the "common law" (Uniform) as it is in the basic Colorado principles (although Colorado has muddied
it up greatly with the Transaction Brokerage, Designated Brokerage, etc.) The difference between the text in Chapter 2
(uniform version) and Chapter 14 (Colorado version) is that Colorado's is framed in the "negative": CRS 12-61-803(7),
"No seller, buyer, landlord, or tenant shall be vicariously liable for a broker’s acts or omissions that have not been approved,
directed, or ratified by such seller, buyer, landlord, or tenant." (Ch. 14, page 43)
While the Uniform is framed in the "affirmative" "the principal is personally liable for the acts of the principal's agent,
if the principal authorized the agent to do the wrongful act or if the act was within the scope of the agent's employment.
This is referred to as vicarious liability." (Ch. 2, page 5)
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Under 12-61-802, when it is talking about "designated Broker", why is "natural person" always in the definition?
In the case of the definition of a Designated Broker (12-61-802(1.5)), it specifies "natural person" because the statute is excluding "artificial" entities,
such as a corporation. (For example, broker John Smith doing business as "XYZ Brokerage" under the corporate name of "XYZ Brokerage, Inc."
So the statute is clarifying that even thoughthere is a corporate name and entity ("XYZ Brokerage") and the individual name and entity ("John Smith"),
that still only counts as one person... meaning John Smith does not need tospecify himself as the "Designated Broker" in any transaction.
More importantly, note that the definition of "broker" itself specifies that only a "natural person" can be licensed as a "broker".
(Not a corporation or limited liability company, etc.)
So, when getting your license, it is always a “real” (“natural”) person who has to get a license.
Even when it is a corporation, the company’s license has to be in the name of a “real” person. So – same with a “Designated Broker”:
The DB can’t be “XYZ Corporation”, because then a real person is not responsible for the transaction.
(Remember that part of the reason for the formation of a corporation is so that the shareholders or corp. officers are not personally liable for losses.
Surely, therefore, they would always designate the corporation itself, if brokerages could insulate themselves from legal wrongdoing by saying the “Designated Broker”
for the transaction was the corporation itself. So the R/E Commission is preventing that legal loophole by requiring all DBs be a real person.)
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12-61-805(8) - Why would a buyer's agent need to disclose to a seller whether a buyer intended to occupy a property as a principal residence?
I think the main reason that it would be important is for zoning and occupancy laws. If a seller sells a house in a residential neighborhood to a buyer who tears it down and builds a shopping center - the seller could be held liable by the (city, county, state) government. Another reason might be for valuation purposes. For example, a store may be more valuable than a residential house, so if a broker knew the buyer was going to build a store - but didn't tell seller - that would be akin to fraud and make the buyer and the broker liable.
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Short-Answer Question 20 - This asks, "Does the same rule apply to other legal entities and their members who have a
substantial interest in the application?" Who are the "other legal entities" that it is referring to?
Short-Answer Question #20 refers back to the answers of Question #19: “The Commission may require such proof in regard to the truthfulness,
honesty and moral character of any applicant for a broker’s license.” And these two sections refer back to the list on about page 5, under “B.
Licensing”, under “The Commission exercises its duties and authorities independently through the following programs or activities.”.
The “entities” are those things that are not “real people”, (the first entry – “Real Estate Broker”, as well as “appraiser”, “mortgage broker”, etc.)
but over whom the Commission still has authority because of their dealings in real estate in Colorado. For example:
• Corporate/LLC real estate brokerage
• Partnership real estate brokerage
• Raw ground subdivision developers
• Time-share and vacation club developers
• Condominium conversion developers
• Conservation easement holders
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Short-Answer Question 64 - I thought that in the "absence" of an agreement that is designated in writing, means that you are a Transaction Broker.
I thought you were either a "Designated Broker" (single agency) or you were a Transaction Broker, and that you did not have to be designated in writing to be a
Transaction Broker, which is how this question reads.
These question/answers is not making sense to you because you are under a fundamental misconception – which is actually understandable, because these concepts are
not really clear in the Colorado law.
You see, Designated Brokerage is not a “form” of agency. In other words, it isn’t like you are either a designated broker or a Transaction Broker.
In Colorado, there are essentially two different kinds of agency available (for the client/principal to “choose”). Either the broker is a single agent
(representing either the seller or the buyer) or you are a transaction broker. The difference is what kinds of “duties” the broker would owe to the party.
“Designated Brokerage” is not a kind of agency, like single agency or designated brokerage… just like dual agency isn’t a kind of brokerage. Just like
“dual agency” simply meant that the same broker was representing both the buyer and the seller in the same transaction, “designated brokerage” means that that
one broker represents either buyer or seller in that transaction – and is so designated. And therefore, what kind of agency – single/buyer/listing broker vs.
transaction broker - is not the issue: it is simply which party you are designated to work for.
And implicitly, that means if you were designated to work with the buyer you could not also work for the seller. For the same broker to work with both
the buyer and seller would be dual agency. On the other hand, what designated brokerage allows is for Broker A in the company to be designated to represent seller
and Broker B in the same company to be designated to represent buyer… and that won’t be dual agency, because the designated brokerage law says that these brokers
won’t share their party’s confidences with each other.
So… in a completely different issue, it used to be (with the common law of agency – Chapter 2) that all brokers represented the interests of the seller –
even if they were working with the buyer. If there was a written agency agreement with the buyer, then that broker would represent the buyer (and the listing broker
represented the seller). If there wasn’t a written agreement, the agent working with the buyer would still be representing the interests of the seller!
When Colorado enacted the “Transaction Brokerage” law 10 years ago, they switched that all around: This said that if you had a written agreement with the
seller – then you were a seller’s broker (listing or selling broker). If you had a written agreement with the buyer, then you represented the buyer’s interests.
If you had no written agreement, then you merely “worked for” (in other words, did not own the traditional agency duties of loyalty, disclosure, etc.) that party…
as a “Transaction Broker”. You were basically a “hired gun” to prepare legal documents, go to the closing, etc., but did not owe the “heightened” agency obligations.
So, it is not correct to say, "I thought you were either a "Designated Broker" (single agency) or you were a Transaction Broker." You are either a (Single)
Agent for the seller or buyer, or a Transaction Broker for the seller or buyer – the agency/listing agreement tells you which form of agency you are (or, if there is
no written agreement – then you are assumed to be TB). Separately, you are specifically designated to be working for either the seller or buyer, so that if some
other broker for the company (such as Century 21 or Re/Max) comes in with the other party, this won’t amount to dual agency.
Short-Answer Question 64 - This - states "a broker shall be considered a transaction broker unless:" The only answer seems to me to be:
a single agency is established through a written agreement. Since, in Colorado, we cannot be dual agents or subagents, why are those two in the answer.
This conclusion seems to be reinforced in the answers to your questions 73 and 74.
I hear your issue about the apparent conflict in this Question. Unfortunately, the Colorado legislature (or the R/E Commission)
has not resolved this issue within the statute, so we still have to reproduce it in the text. Note, however, that the section under
12-61-802 tries to clarify this issue anyway: “(5) “Subagent” means a broker engaged to act for another broker in performing brokerage tasks for a principal.
The subagent owes the same obligations and responsibilities to the principal as does the principal’s broker. [Note: Although defined in this statute, this license
law has eliminated subagency, effective January 1, 2003.]
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Quiz #1 - What is the difference between answer "a" and "b", and why is "a" the better answer?
As always, it’s because the question is asking about the specific language of the statute reproduced in the chapter text above the question.
Question 1 asks: “Which of the following would fall under the definition of a real estate broker?”
The difference between answer “a” and “b” is subtle, but it makes the difference between answer “a” being exactly correct,
and answer “b” being completely incorrect:
a. Anyone who solicits a fee from a prospective tenant for furnishing information concerning the availability of rental properties
b. Anyone who solicits a fee from an owner of a property for furnishing information concerning the availability of rental property
Answer “b” is not correct, because the statute doesn’t say “from an owner of a property”. It does say, exactly:
12-61-101 (X) “Soliciting a fee or valuable consideration from a prospective tenant for furnishing information concerning the availability of real property…”
(starting on about 14-6, and this specific section appears on about 14-7)
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Quiz #19 - I do not understand why the answer is not d. all of the above.....??
The most obvious reason is because answer “c” is impossible, by the wording of the question. It asks, “In which of these situations may the Commission suspend an associate broker’s license?” Answer “c” (“Failing to supervise employees”) only applies, of course, to an Employing Broker.
Secondly – and most important – this question asks about the specifics of 12-61-113, which says,
“(1) The commission… may… investigate the activities of any licensee …[and] has the power to
impose an administrative fine not to exceed two thousand five hundred dollars for each separate offense
censure a licensee,
to place the licensee on probation and to set the terms of probation, or
to temporarily suspend or
permanently revoke a license
when the licensee has performed… any of the following acts and is guilty of…”
Answer “a” (“When a licensee is convicted of any felony”) is simply not on that list… which is why it is not an answer (and therefore, neither can be answer “d” (“All of the above”)) to this question.
Remember, these questions are not asking generally – what are some bad things that a licensee can do… but they are asking “exactly… what does the specific law (above) say…?”
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Quiz #30 - I didn't think that needed the seller’s authorization to tell the buyers adverse information about the property?
I thought you had to always tell the buyer any adverse information about the property.
You are correct – but that is exactly what that question is saying. When it says, “Absent seller’s specific authorization…”
it means just what you say – seller’s authorization is not necessary. Therefore, the question and answer together is saying that
“seller’s agent may normally disclose to a buyer… Adverse Material Facts about the property actually known by the broker… even without seller’s authorization.
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CHAPTER 15 - RULES & REGULATIONS of the Real Estate Commission
Rule B-2(e) & Rule B-2(f): Does this mean you can retake the Colorado portion of the licensing exam or re-take the Colorado and Closings courses (72 hours) to satisfy the continuing education requirement, instead of taking additional classes? This doesn't seem like "continuing education", since it is just re-taking something you’ve already taken.
Rule B-2(e): Yes, a licensee may take and pass the Colorado part of the license exam, in lieu of the 24 hours of Continuing Education.
Rule B-2(f): Again - yes, a licensee may take and pass these 72 hours, in lieu of the 24 hours of Continuing Education. (Note that this can only be done once in a licensee’s licensing career.)
Note that these are essentially “emergency” exceptions for the agent who neglects to take the required update courses every year (together with a total of 12 hours of “elective” courses during the 3-year period.) The main point of continuing education is to “update” the agent on changes in the laws, closing requirements, etc. So – taking 48 hrs of Colorado contracts and 24 hours of Closings serves this purpose. Much of the curriculum will be the same as what the agent learned 3 or more years earlier – but there is a huge amount of information that changes over that time period. (Which is why MacIntosh is constantly updating the curriculum to reflect the constant changes in the contracts, license laws, etc.) In other words, so much changes over 3 years (and an agent will have certainly forgotten most of it) that re-passing the CO part of the license exam or re-passing the Colorado and Closings courses works well to update someone on new and revised laws.
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Rule D-14. What does it mean to have "coverage of licensee's use of lock boxes"?
Lock boxes are the devices that listing agents leave on the doorknobs of properties to allow other agents access
to show the property to potential buyers. When a (buyer’s) broker calls the listing broker and wants to show the house
to a potential buyer, all they have to do is call up the listing broker to get the combination to the lock box where the
house key is kept (after giving their license number to prove they are actually licensed!) There’s always a chance that
the potential buyer could steal or break something or injure themselves. In this case, the seller would place a claim
against the listing and buying broker’s (E&O insurance) and not their own homeowner’s insurance.
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Rule D-14. Is "extended reporting" coverage after termination of a policy for claims pertaining to a period during coverage?
For example, the policy covers 2015, but in 2016 someone makes a claim regarding 2013?
Basically. It would really be an extension of the time in which a licensee has to report a claim (and try to collect).
In other words, they wouldn’t be denied coverage just because they waited too long to report (file the paperwork).
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Rule E-2: This section talks about a non-refundable retainer that a broker need not deposit in an escrow account. What is a retainer and what is its purpose?
A retainer is a fee charged in advance to retain the services of someone. For example, I might put you (my real estate agent) “on retainer” by giving you $5000 for future services you may perform for me. (I.e., property management, securing a series of oil and gas leases, etc.) By accepting the retainer, the agent is essentially getting paid in advance – so agrees to perform those services later, since s/he has already gotten paid.
A retainer is very common with attorneys, but 99% of real estate agents will never see something like this.
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What is the point of Rule E-22 (and E-19)?
E-19 says that a real estate broker may not except a fee from a Title Insurance company, and Rule E-22 essentially says s/he
may not accept a fee from a settlement producer (title or closing company).
Basically, a real estate agent can't accept a gift or money from a title company or a company that does closings for the agent's clients.
Rule E-22 says essentially the same thing as Rule E-19, but it greatly expands and details all the different things that could fall under "settlement services":
The kinds of companies they are talking about could be a title company (again) or it could be an attorney or a separate company that conducts a closing.
(They make the distinction because the title company - the one that is providing the title insurance - is usually the same company that conducts the closing.
but not always.) This rule also expands the list of things that could be considered "remuneration". It isn't just a monetary "kickback" but could be big
things like trips to small things like coffee cups.
The issue in E-22 is Affiliated Business Arrangements – which means if one big company owns (in our scenario) a title company and a real estate brokerage.
The problem is/was that the brokers of XYZ Brokerage would have their closings done by ABC Settlement (Title) Company – making it look to the consumer
(buyers & sellers) like it was two different (unrelated) companies, when it truth they were just funneling money back and forth. A clear conflict of interest.
Another situation was where the two companies weren’t owned by the same company, but they had an “arrangement”: You send me all your business,
and I’ll send all mine to you. In return, we both “kick back” fees to each other. Again – they are only looking out for their best interests –
not their clients. (And as you know, all the Commission Rules deal with protecting your clients, not ripping them off or misrepresenting, etc.)
So Rule E-22 places restrictions on these kinds of arrangements or how much one company can “own” or pay another… and requires each company to
disclose those relationships.
One slight exception is that the real estate broker may get a small "return" on an investment in a title company.
The overall restriction is that a broker can be a shareholder or an investor in a title company (along with other investments they may have), but they
have to both disclose that to their clients, and there are limits to how much (what percentage) of a return (profit/shares) that the investor
can get from that other company.
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Why can’t a broker charge for preparing documents? I thought the text says that they can accept a fee with written consent.
A broker is not required to prepare documents… but if s/he does, then s/he may NOT charge for document preparation.
There are many things for which a broker may charge, but guaranteed – the broker may never charge for document preparation:
Rule E-37: “No fees to licensee/agent for legal document preparation - There is no obligation for a licensee to prepare any
legal documents as part of a real estate transaction. However, if a licensee or the licensee's agent prepares any legal document,
the licensee or the licensee's agent may not charge a separate fee for preparation of such documents.”
You will be tested on this on the license exam.
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What does Rule E-42 mean when it says, "other than the anticipated sale or purchase of the property".
“anticipated sale or purchase of the property” means that they actually have a contract and expect to close the deal.
In that case, they would not be required to put the “I am not an appraiser” language in there. (Although they probably would,
anyway, just to cover themselves.) Therefore, if the licensee prepares a CMA for marketing or promotional tool (“See how much
I can get for your house… List with me!”) they must include that language.
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What are each of the Rule F forms used for? What is purpose of Commission Rule F?
The basics of Rule F ("What it means") is outlined in Rule F-1 and so on (page 15-30+): "A real estate broker shall use one of the standard forms of ....
[Listing Contracts, Sales Contracts, etc.] approved by the Real Estate Commission... In instances where the Commission has not developed an approved form
and other forms are used, they must be prepared by the principal parties or an attorney..."
This means that a licensee must use a standard (Commission-approved) form. The licensee cannot draft up one of its own contracts, otherwise that
would be the practice of law - which only an attorney can do.
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Short-Answer Question #82 - Factors used in determining if an ABA with a title company is legitmate:...
To clarity, this question is saying that the items listed underneath it are ok and therefore, not a Sham?
Yes. This is a list of “tests” to determine whether an Affiliated Business Arrangement is “legitimate” (as opposed to a “sham” arrangement that is created just shield payments or collusion.)
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Quiz #1 - Since answer A is not the correct choice, doesn’t this question imply that an applicant can take the license exam prior to completing all requirements? Why, then, does question #2 say that educational requirements must be completed prior to the exam?
Be careful in your interpretation of this question (specifically answer “a”). Answer “a” says, “may take the Real Estate exam prior to completing all of the necessary requirements”. It does not say (or imply) “may take the Real Estate exam prior to completing all of the educational requirements”.
“The necessary requirements” also includes – for example – getting your fingerprints/background check completed. Therefore, the question is saying that you can take the license exam before you have gotten your fingerprints done.
Regardless, the answer to Question #2 (“c” – “Educational requirements must be completed prior to taking the exam”) is absolutely true.
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Quiz #3 - Isn’t Answer “a” also correct? (“An individual must, within two years of passing the exam, file the complete application and supporting documentation or all rights to a passing score will be terminated”)
No. Answer “a” is incorrect for the simple reason that the time-period is specifically one year (not “two years”.)
See Rule A-8: “…a person who has successfully passed the written exam must… within one year of the date of passing the entire examination, apply… for licensure…. Such complete application for licensure must be received within the one-year period as set forth in Rule A-5, or all rights to a passing score will be terminated and any incomplete application will be canceled. All examination records pertaining to a canceled application will be destroyed.”
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Quiz #5 -
This Quiz Question asks: “Which of the following is true of continuing education for renewal?
a. All licensees must complete an annual commission update course
b. each course must be at least three hours in length
c. No more than 6 hours of course credit will be allowed for any calendar day
d. Credit may be earned for remedial education stipulated to between a licensee and the commission as part of a disciplinary action”
It doesn't appear that any of these questions are correct, but specifically answer “d”: According to page 15-9 -15-10 licensed brokers have options, if they miss the Annual Update Course: 1) take the Broker Transition course (only once); 2) take the Broker Administration course (only once); 3) pass the Colorado state portion of the license exam; or 3) complete 72 hours in the Colorado Contracts and Regulations Course and Real Estate Closings.
This is one of those – just like you will see many on the license exam - where you must determine the correct answer by process of elimination. Meaning… there may be more than answer that is correct. In this case, none of the answer are perfect – so we must determine by elimination the choice that is most true… or at least not as inexactly worded as the rest.
Answer “b” is patently false, because Rule B-8(a) specifically states, “Courses must be at least 1 hour in length…”
Answer “c” is patently false, because the Rule says that no more than eight hours will be allowed per day – which means six will definitely be allowed.
Answer “d” is patently false, because Rule B-10(h) specifically states, “No credit may be earned for remedial education stipulated to between a licensed broker and the Commission as part of a disciplinary action, or alternative to disciplinary action.”
Answer “a” is not “perfect” – if for no other reason than what you said, that Brokers have options.
However, just because the Commission gives the broker options if they mess up and fail to take the yearly course – doesn’t mean that it is not true or correct… Because the statutes state that “all licensees must complete an annual Commission Update course“.
Therefore since answers “b” through “d” are absolutely, positively false – answer “a” has to be the “best” answer – which is what you are looking for.
The important lesson here is that you will not be fooled by tricky questions like this if you always use the process of elimination… first narrow down the choices so that you have at least two possibilities that could be correct. Then one of them is more incorrect because of some trick of the wording… That leaves one answer that best (or least worst) answers the question – and that should be your choice. (Here, three of the choices were completely false, and one of them was just not perfect. The “odd man” out is therefore the right answer.)
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Quiz #9 - If I read this correctly, inactive licenses must be renewed, yet a broker license may not be issued on an inactive status. Am I getting the terminology wrong. Is broker different than licensee?
No, a broker is a licensee. The main point of this question is that the first three answers are TRUE, so by the process of elimination answer "d" ("A broker license may not be issued on an inactive status.") is FALSE. I think you lost track of your double-negatives by the time you got through answer "d": Note that it says "Which of the following is NOT TRUE" and then answer "d" says "A broker license may NOT be issued on an inactive status." That double-negative (it is NOT true that NOT) means that a broker license MAY be issued on an inactive status!
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Quiz #15 - The question is about security deposits but the answers are earnest money. Can a security deposit also be called earnest money?
Rule E-1 deals with the accounts that a broker(age) must maintain and the requirements for depositing, and both property management
security deposit accounts and sales-escrow accounts are mentioned in the same breath. The issue (“trick”) here is to know that earnest
money deposits must be deposited within three days and property management security deposits get five days.
E-1(n) Time limits for deposit of money belonging to others
Except as provided in Rule E-1(o), all money belonging to others which is received by a broker as a property manager shall be deposited
in such broker’s escrow or trust account not later than five business days following receipt. All other money belonging to others which
is received by a broker shall be deposited in such broker’s escrow or trust account not later than the third business day following receipt.
You will get this or a similar question on the license exam.
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Quiz #22 - Doesn't Rule E-18 state that a licensee cannot receive a commission from a lender? If so, then why is the answer "a"
("With consent from the appropriate party, a real estate broker may accept a commission from which of the following? a. Placing a loan with a money lender")
.
You are correct that Rule E-18 starts with the provision that a broker cannot receive a commission from a lender:
"A licensee shall not accept, directly or indirectly, a placement fee, commission or other valuable consideration for placing a loan with a mortgage lender..."
However, that Rule very consciously goes on to provide two very important "outs" - exceptions - that allow a licensee to receive compensation from a lender:
First, the prohibition is agains receiving a fee from a lender in any real estate transaction in which the licensee... is entitled to receive a commission as a result of the sale of property in such transaction."
This means that the broker could conceivably get a "finder's fee" for a lead - as long as the broker was not the agent in that transaction.
Second - unlike Rule-28, which absolutely prohibits a fee from a home warranty company, or Rule-F (through the Conway-Bogue case,
see Chapter 16) which prohibits licensees for charging for document preparation -
in the case of lender fees, the licensee may receive that fee if "the licensee fully informs any party with whom they have established a brokerage relationship,
or worked with as a customer, and obtains prior written consent of such party."
So, Answer "a" is the correct answer since the agent may receive a fee from a lender if they are either not professionally involved in that particular transaction
or receives written consent from the parties.
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Quiz #23 - I thought I understood that employing brokers can assign to an associate broker the duty to supervise employed licensees? Did I miss another terminology there? Employing brokers have other brokers supervising licensees all the time from my understanding?
The key to answer “c” is your understanding of the difference between “delegate” (the word in the actual Rule E-31) and “assign” (the word in the question). “Delegate” means to commit or entrust a task to another, such as to delegate a task to a subordinate. “Assign” in this case, means to transfer the duty to another. In other words, I am completely getting rid of the duty and giving it to you.
While as a broker, you can delegate your authority or responsibility in a certain task, to cannot completely assign it. Therefore, answer “c” is the best answer in this case.
As a side note, keep in mind that delegating the authority is not a way for a broker to get around the legal duty to supervise. "Duty to Supervise" is a specific term that applies to Employing Brokers. In other words, if something went wrong an Employing Broker could not avoid liability (or reprimand from the Real Estate Commission) simply by saying "I absolved myself of the Commission-required 'responsibility to supervise' by giving that to someone else." Yes - all the time Employing Brokers put other brokers in charge of things and give them the responsibility to supervise a transaction or department, etc. However, in doing so the Employing Broker is not "giving away" (assigning) their overall duty and responsibility to supervise and be responsible for all the licensees under their employment.
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Quiz #26 and #27 -
Quiz Question #26 States, "All of the following contracts fall within the purview of Rule F except?
a. Counterproposal
b. Lead Paint Disclosure
c. Settlement Statement
d. Worksheet for Real Estate Settlement"
The book states the answer is D, but on about page 15-50 it is right there as under purview of Rule F under the Optional Forms.
Then Quiz Question #27 states, "Which of the following forms do not fall within the purview of Rule F?
a. Earnest money promissory note
b. Lead-based paint obligations of seller
c. square footage disclosure
d. Seller property disclosure form"
The book states the answer is B, but on about page 15-50 it is also listed under optional forms.
Does this mean that the optional forms do not fall under review of Rule F?
The simple answer is located in Rule F-7:
F-7 Forms Promulgated by the Commission
Real Estate brokers are required to use Commission-approved forms as appropriate to a transaction or circumstance to which a relevant form is applicable…. In instances when the Commission has not developed an approved form within the purview of this rule, and other forms are used, they are not governed by Rule F…"
“Not governed by Rule F” is the exact same thing as saying “NOT Under the Purview of Rule F.”
Admittedly, the R/E Commission confuses things, because there is a list of forms (Mandatory and Optional) and then they put right at the top the misleading statement, “THE FOLLOWING ARE THE FORMS PROMULGATED BY THE REAL ESTATE COMMISSION AND ARE WITHIN THE PURVIEW OF RULE F:”. So your confusion is understandable.
Even though they confuse the issue this way, these quiz questions are there to set things straight: There are Forms that Fall Under the Purview of Rule F, which means they are Mandatory forms. It also means that the Commission has created the forms and requires their use if the licensee is in that particular situation.
Then there are Optional forms: Those are forms, like the Settlement Statement and the Lead Paint Obligations form, that the Real Estate has found and done licensees the favor of providing. They are not Mandatory – the broker may use these forms if in a particular situation, or may use a generic version or one that their company has provided (created by an attorney).
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Quiz #28 - #30 - Regarding generating contract forms: I can't find any reference that states that no blank spaces
may be filled in prior to negotiations between the parties, and it also doesn't correspond to my experience, which is that
the broker representing or working with the buyer writes up the contract and presents it as an offer. In order to do that,
they have to fill in the spaces with the offer information. What am I missing here?
The answer beginning "no blank spaces" is a summary of Rule F-1. (It actually used to be the exact wording, until they rearranged Rule F in 2006.)
But the point is that the broker must use the form exactly as approved, must leave the "blanks" of the form un-filled-in until the actual transaction.
For example, say a broker only does buyer-agency, so s/he wants to go into the computer and type "n/a" in every blank space of the sales contract having to deal
with seller agency (perhaps to save time later on.) This is not allowed, because the blanks may not be filled-in in advance.
When it says "negotiations of the parties" it does not mean "prior to the parties sitting down and meeting face-to-face." The offer that the buyer (and buyer's broker)
fill in on the Sales contract is part of (actually the start of) negotiations. So, Offer = Negotiation.
So the offer is when you start the negotiations and therefore does not run afoul of this rule or the question. So the Rule is saying that the "blank spaces" must
remain blank until each individual transaction - and the broker cannot fill it in (we're assuming on the computer software) in advance.
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CHAPTER 16 - COMMISSION POSITION STATEMENTS
Homebuilders exemption says they don't need RE license to sell their property, but elsewhere in the book it says they do. What is the rule?
Homebuilders themselves do not need a broker’s license to sell their own homes (it’s sort of like a corporate “for sale by owner”). However, if
they hire someone else or another company to market and sell their houses, that company must have a broker’s license.
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What exactly is a "referral fee" or a "finder's fee"? In what type of situation would these fees be paid?
A referral (finder’s) fee is an amount of money that a broker would pay someone else in return for giving them a “lead” – the name of a buyer or seller. For example: I give you (a r/e broker) the name of a friend who is looking to buy a house. You contact that person, establish a brokerage relationship with them, they eventually do buy the house, you get your sales commission, and then give me a check “in appreciation” for that “tip”.
Note that this happens in any kind of industry, not just real estate. It is just a small payment to encourage people to send business your way.
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Can a Colorado broker pay a referral fee to an unlicensed person?
Regarding "referral fees", the R/E Commission has addressed this issue in many different areas - but the answer is still clear as mud. I'll reproduce the appropriate sections of the License Law and Rules and Regs: But then it says:
12-61-203.5. Referral fees – interference with brokerage relationship
(1) No licensee under parts 1 to 4 of this article shall pay a referral fee unless reasonable cause for payment of the referral fee exists. A reasonable cause for payment means:
(a) An actual introduction of business has been made;
(b) A contractual referral fee relationship exists; or
(c) A contractual cooperative brokerage relationship exists.
But then it says:
12-61-113. Investigation - revocation - actions against licensee.
(1) The commission…shall investigate the activities of any licensee …and the commission …has the power to impose an administrative fine not to exceed two thousand five hundred dollars for each separate offense and to censure a licensee, to place the licensee on probation and to set the terms of probation, or to temporarily suspend or permanently revoke a license when the licensee … is guilty of:
(j) Paying a commission or valuable consideration for performing any of the functions of a real estate broker or real estate salesperson, as described in this part 1, to any person not licensed under the provisions of this part 1; except that a licensed broker may pay a finder's fee or a share of any commission on a cooperative sale when such payment is made to a real estate broker licensed in another state or country.
So, a broker splitting his/her fee or paying a “referral fee” to an unlicensed person is prohibited. Except when that person is the buyer. Then it is called “rebating”, and it is okay. Here is the R/E Commission’s official Position Statement to that effect:
THE BROKER'S PAYMENT OR REBATING A PORTION OF AN EARNED COMMISSION
The License Law forbids a broker from paying a commission or valuable consideration for performing brokerage functions to any person who is not licensed as a real estate broker or salesperson. Thus, "referral fees" or "finder's fees" paid as the result of performing brokerage activities are prohibited.
The question of whether or not a broker may make payments from their earned commission to a buyer or a seller in a particular transaction will arise because usually neither the buyer nor the seller are licensed.
However, the License Law also permits any person to sell or acquire real property on such person's own account.
In a listing contract, the broker is principal party to the contract and the consideration offered is the brokerage services. The broker may add to this consideration the payment of money to the property owner in order to secure the listing. This is not a violation of the License Law.
Also, in a particular real estate transaction, the broker may pay a portion of commission to the unlicensed seller. This is merely a reduction in the amount of the earned commission and does not violate the License Law.
Payment to the unlicensed purchaser is often referred to as "rebating" and the intention to pay money to the purchaser is sometimes advertised and promoted as a sales inducement. The payment to the purchaser in itself is not a violation of the License Law because the broker is licensed to negotiate and the purchaser may negotiate on their own account. However, a broker representing the seller in a transaction should take care to insure that such payments do not conflict with fiduciary duties. For example, the "rebate" of a portion of a commission to a purchaser to be used by the purchaser as a down payment could distort the purchaser's financial qualifications and ultimately harm the seller. Additionally, a purchaser who does not receive a promised rebate of a partial commission may try to hold the seller liable for the wrongdoing of the broker on the theory of respondent superior. The Commission recommends that brokers disclose such payments to the seller and obtain the seller's consent prior to acceptance of any offer to purchase.
Gratuitous gifts to a purchaser subsequent to closing and not promised or offered as an inducement to buy would also be allowed (i.e., a door knocker or dinner). Such gifts would not require disclosure and consent inasmuch as fiduciary duties would not be involved.
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But then doesn't it say: "if the payment is simply for the referral of a name, it will
not be considered a violation.” Can a broker pay a referral fee to an unlicensed person or not?
Since, as it indicates at the end of that section: “Complaints and inquiries are dealt with on a case-by-case basis”,
the actual implementation by the Commission of their Position is not set in stone. Therefore, in “real life” –
the payment of a referral fee, (for “successful sales leads”, etc.) may be innocent enough to not warrant action.
But – in the case of the state license exam, you must err on the side of caution: You must go with the “letter of the law”
on page 16-1, which is the official Commission position - and therefore what will be tested on the state license exam:
"Section 12-61-113(i)(j) of the license law forbids a broker from paying a commission or valuable consideration, for
performing brokerage functions, to any person who is not licensed as a real estate broker or salesperson. Thus, "referral fees"
or "finder's fees" paid as the result of performing brokerage activities are prohibited. Thus, payment of a referral fee to
an unlicensed person depends upon the acts being performed."
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Concerning the Discussion of "Referral Fees": What is an example of an activity that would NOT be classified as a "brokerage activity" and therefore the broker(age) could legally pay "referral fees" or "finder's fees"?
If it isn’t a brokerage activity, then we (and the real estate commission) don’t care about it… In other words, it isn’t in their “purview”, and they aren’t going to have a rule. So, the answer to your question is actually, “If it doesn’t have anything to do with the sale or rental of real estate, then it is not a “brokerage activity”, and therefore it is okay to pay a referral fee if it is.
Bottom line with this rule is simply that only licensed brokers can get a commission – so a licensed broker can’t “split” their commission (by paying a “referral fee”) to someone without a license.
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For what may a licensee legally accept a fee – other than their commission?
On the Uniform exam - and in the common law rules of Agency - a broker may accept no other fee other than their commission.
However, on the Colorado exam, it is completely different, because there are a million exceptions to the Rule (most notably in Rule E-18)
so if the wording or situation is posed differently, the broker might be allowed to accept a different fee... (Usually this requires requiring
the seller's - and maybe the buyer's - written authorization... which usually is automatically including in the Commission-approved Listing agreement.)
In Colorado, by Rule and Statute, with varying degrees of (written) authorization the broker may accept a fee for almost anything –
EXCEPT from a title company, AND EXCEPT for Preparing Closing Documents (“Commission Position on Closing Costs”
and the Supreme Court Decision on the Practice of Law by Brokers (Conway-Bogue case), both in Chapter 16).
Rule E-18 specifically says that a licensee may generally accept a fee – for anything which is legal - if they have the written consent of the parties
(including a fee from a lender financing the transaction.)
But Rule E-28 says that no fee is allowed home warranty companies: “A licensee shall not accept… a fee… from a preowned home warranty
service company… for services rendered in connection with the sale of a preowned home warranty service contract.
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I am unclear on the earnest money check and who gets it if the transaction doesn't close. Doesn’t it just go back to the buyer (the person who wrote the check)?
It would only go to the buyer if it was the seller’s fault that it didn’t close. But if it is the buyer’s fault, then they breached the contract and should not get the money back (that would be “damages”, as defined in detail in Chapter 21). If buyer backs out of the contract (= “breach”), then the earnest money would go to the seller. (That is, after all, the whole point of the deposit – right?)
Where it gets tricky is when there is a dispute: Seller blames it on buyer and buyer blames it on seller. So – who gets it then? That’s when the issue of interpleader comes in.
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Can a broker agree to pay for closing costs? I always thought this was negotiable between the buyer and the seller only?
Just because “who pays for closing costs” is negotiable between the buyer and the seller, doesn’t mean that they are only payable by either the buyer or seller (or both). So, again, you have to be careful about generalizing.
Nevertheless, note that the question you are asking about on the exam does not state it this way. (So, in other words, my sentence above doesn’t “give you” the answer.) Note that most exam questions will specifically refer to the Contract to buy and sell real estate, or Listing Contract, etc. (in Chapter 21) – so you can find the exact answer to this and all questions that ask about that and the other contracts by reading through them very carefully.
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What is the difference between a "selling broker" and a "listing broker"?
This is important – so you absolutely must master this concept. It is really the crux of Chapter 2, and is defined there and in the Uniform Q&A:
b. A Listing Broker represents the Seller, owing all their duties of loyalty, etc., to the seller. While the Listing Broker can not commit fraud, etc., on the buyer, they do not represent the buyer and owes no duties to the buyer.
c. The Selling Broker does not exist in Colorado anymore (because he was basically replaced by the Transaction Broker). Although the Selling Broker works with the buyer (helping him find a house, going to closing, etc.), they actually represent the seller! It seems strange, but the old, common law way of doing things was that all the brokers (even though the "selling" broker was working with the buyer) owed all their duties and loyalty to the seller. It is an outdated concept, but one that exists in many states, so it is very likely to be tested on the (Uniform portion of the) state license exam
Bottom line: Despite the confusing terminology, the Listing Broker works with the Seller, and the Selling Broker works with the buyer.
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ASSIGNMENT OF CONTRACTS AND ESCROWED FUNDS:
"3. A broker converned with an executory contract is not a party to the contract itself and has no voice in its assigment.
The Broker signs the sales contract only as the receipting agent..." What does that mean?
“3. The broker concerned with an executory contract is not a party principal to the contract itself and, therefore, has no voice in its assignment.
The broker signs the sales contract only as the receipting agent.”
This means that only the parties to the contract (i.e., seller and buyer) can get
out of the (listing) contract with the brokerage if that brokerage transfers their business to another brokerage and they (seller or buyer) don’t want
it to be assigned. The individual broker who is representing the seller or buyer can’t either prevent their company from selling (assigning) the listing
to another company, and definitely cannot force the seller or buyer to hold to the contract.
In other words, if a company assigns its business to another company, the sellers and buyers can choose to get out of the listings,
but the individual brokers cannot force the parties to stay with them.
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I am having trouble understanding the sale of items other than real estate. Could you give me an example?
The “Commission Position on Sale of Items Other Than Real Estate” says that Brokers can be paid for items other than real estate (with proper disclosure, etc.) This has nothing to do with say, selling things at a garage sale, or some side business.
The second paragraph in that section is talking about selling items in conjunction with some real estate transaction they are involved in. For example, they may sell a refrigerator to a tenant (when they have a management agreement with the building’s owner) or to a buyer of a property in which they are the buyer’s broker for a purchase of a home. In cases such as these, the fees for the sale of the item (in this example, the refrigerator) would have to be processed through their employing broker(age).
The third paragraph, they are talking about a broker getting a fee for a sale of some item (i.e., the refrigerator), when it is outside the scope of some specific real estate transaction. For example, if a broker moonlights as a salesperson at a refrigerator store, they are not required to run the fee through their brokerage. (Or even disclose it, because it has nothing to do with their real estate transactions.)
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What is a Single-Party Listing?
A better term would be to call it a “specific-buyer” listing. A Single-buyer listing is a short term listing for a seller to sell to a particular buyer. The listing doesn’t last past that buyer, if that buyer chooses not to buy from seller at that time; the seller and agent would need a general (“Exclusive Right to Sell”, etc.) listing for agent’s obligations to market the property to continue. (Or for seller to be liable to agent for a commission if she finds a buyer.)
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Under Rule F, it says Deeds of Trust fall under the purview of Rule F, and then later in the chapter it says Deeds are
not covered under Rule F. Are deeds are covered under Rule F or not?
“Deeds” are not the same thing as “Deeds of Trust”… and this is no minor point, because they are entirely different animals.
In fact, they are so different, that they have different chapters in the Uniform course, so you will want to go back for a quick
“refresher course” on Chapter 7 (Deeds) and Chapter 10 (Liens & Encumbrances, which details what is a Deed of Trust).
However, basically a “Deed” is an instrument that transfers title. A “Deed of Trust” is a financing instrument, similar to a mortgage.
So, when Rule F says that it covers Deeds of Trust but not Deeds, it means that if a licensee is using a Deed of Trust on behalf of
their client, they must only use the Commission-approved Deeds of Trust (Chapter 21 and the Closings course). On the other hand,
since Rule F does not require a licensee to use a particular Deed, then if they are using a deed in any particular transaction,
they can use any basic deed that you can find in an office supply store.
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What does the last line in the second-to-last paragrap of the "PAYMENTS TO A WHOLLY OWNED EMPLOYEE'S CORPORATION" section mean, "interposing the corporate form"?
The licensing statutes (CRS 12-61-103(9)) require that a licensee by licensed under their own name.
You can not get your license under "XYZ Corporation", just to shield yourself from liability for negligence, like Corporations can do.
However if you own your own corporation, you may still have your commission check issued to that corporation. (It's a tricky tax maneuver.)
This does not violation that law prohibiting your licensing name being issued to the corp.
That last statement "It is not the intent of this position statement that the employed licensee be relieved from personal civil responsibility for any licensed activities by interposing the corporate form." means
that the Commission does not intend this Position Statement, ("You can have your commission paid to your corporation") to mean that they are telling you that you don't have to pay taxes OR that you can shield yourself
from liability for negligence or Rule violations, just because you put your corporation's name on checks.
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What's the deal with the Commission Position on Payments to a Wholly Owned Employee’s Corporation?
The Commission's point here is that It is the person who is licensed, not the corporation. So it would be "Jane Doe, employing broker for XYZ Corporation." The commission for a transaction must be initially be paid to the Employing broker...then the employing broker pays the employed (Associate) broker their share of the commission. If the Associate Broker owns a corporation (a "wholly-owned employee's corporation", then the Employing broker may make the commission check out to the employee's corporation (instead of the employee's individual name). However, the last paragraph stresses that the Employing Broker cannot "employ" the corporation... they must employ
(hang licenses) only individuals.
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What are Short-term Occupancy Agreements?
Note that the article says: "Activities relating to these agreements are exempt..." and then "brokers have objected to holding money belonging
to others in their trust accounts... if the activity itself is exempt."
"Short term occupancy" situations arise are in hotels or temporary housing that is especially for companies that bring in employees from out of
town for a couple of weeks to a couple of months (i.e., "short-term occupancy"). The time-period is not long enough to set up an apartment rental,
but too long for your average downtown hotel. These places are night-to-night or week-to-week, so they aren't "rental" agreements - so a broker's
license is not required to be, say, a manager of these companies (unlike a property management company.) Hence, the "activity is exempt" from the
requirements of license law.
However, the problem arises when a particular company or hotel requires from these people a "deposit" of sorts, and that company is represented by
a brokerage and wants that brokerage to hold these deposits! So, this Commission Position simply states the obvious: you are not required to do
this (by license law), but if you do, you must escrow the funds and do the proper record keeping according to the Commission Rules.
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Can an unlicensed Assistant show a property without a licensee being present?
Yes… but as you can imagine, the difference between “showing a property”, “conducting and open house” and negotiating is pretty blurry. In “real life”, brokers (and assistants) get away with a lot. But, then someone gets burned and sues the broker (for violation of this rule and improper supervision), and the real estate commission comes down on brokers and issues new statements.
As the Commission Position of Personal Assistants says (Chapter 16), these are the things an unlicensed assistant can specifically do. Note that #3 doesn’t say “conduct an open house”… which (to me) implies that they are doing the negotiating, etc. In answer to your question, it DOES imply that this may be done WITHOUT a licensee being present! (Which happens all the time)… as long as that line of “negotiating” doesn’t get crossed.
1. perform clerical duties for an employing broker or broker associate which may include the gathering of information for a listing;
2. provide access to a property and hand out preprinted, objective information, so long as no negotiating, offering, selling or contracting is involved;
3. distribute preprinted, objective information at an open house, so long as no negotiating, offering, selling or contracting is involved;
4. distribute information on listed properties when such information is prepared by the broker or broker associate;
5. deliver paperwork to other brokers;
6. deliver paperwork to sellers or purchasers, if such paperwork has already been reviewed by a broker;
7. deliver paperwork requiring signatures in regard to financing documents that are prepared by lending institutions; and
8. prepare market analyses for sellers or buyers on behalf of a broker but disclosure of the name of the preparer must be given, and it must be submitted by the broker.
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Can unlicensed assistants take people to show properties without the agent present?
I get a lot of resistance to the following answer - especially from students who are "in the business" (especially those who are "assistants" to brokers). But let me warn you that brokers stretch this rule as far as they can get away with... but that certainly does not mean that they are correctly following the rule, or that the fact that they give their assistants an excessive amount of responsibility is "legal".
“Show properties” is a gray area. They cannot “stand in” for the broker simply because the broker can’t make it to the showing. (Isn’t that really the broker’s main job in the first place?) In other words, the assistant can’t answer questions about the sellers, the property, etc., because that is supposedly what the broker has a license for! What an unlicensed personal assistant may do, is explicitly stated in the article, “USE OF PERSONAL ASSISTANTS”:
2. provide access to a property and hand out preprinted, objective information, so long as no negotiating, offering, selling or contracting is involved;
This means only to unlock the door and let people in. It does not mean either “take people to” a property or to “show properties” to people.
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Don’t title companies prepare all of your documents for closings?
Generally, yes.
I was confused when the text stated that Title Companies couldn't hold escrow services?
You are referring to the Title Guaranty
case in this Chapter 16. Note that this case is
50 years old, and has been modified a great
deal over that time (just like the Conway-Bogue
case, above it.) Title companies can most certainly
perform escrow services and can also prepare documents.
What it is saying is that title companies can not draft
(“prepare”) legal documents (or charge for
“document preparation”) because only lawyers
are licensed and trained to do that. This refers to
drafting their own contracts (writing the language),
deeds, etc. The title company employee (usually called
a "closer") can fill in Commission-approved forms,
but they cannot create their own. This is exactly
what Rule F (and the Conway-Bogue case) says about Brokers.
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Do you have to have a real estate license when you are managing a building?
The list of “people” who must be licensed (if they conduct those activities) is contained in Chapter 14 (CRS 12-61-101). Please note that one of the answers to a Question on the final exam does not just say “managing a building”… it is much more specific than that. You must know this specific language (that is contained in this law) – because while the general language (for example, “managing a building”) might not be the answer to a question, the specific exact language of the statute could be correct. (Or vice versa.)
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Under “Seller Assisted Down Payments”: In the paragraph discussing the purchaser offering a higher price, I'm not sure I understand this concept. Can you please provide a numbers-based example for this? Isn't this providing false information for the lender? Wouldn't there be problems with the appraisal?
Note that it says that the buyer may pay more than the listing price – not the agreed-upon sale price. In other words, the buyer is agreeing to pay more than the seller is asking. In return for the extra money, the seller agrees to take the “downpayment” off the “back end”… In other words, not to require a down payment at all. This does not run afoul of the loan or lender, because they aren’t changing the sales price after they agreed to it at a lower amount – they aren’t defrauding the lender at all. (Sure, the loan amount – which is a percentage of the loan, say 80% - would be incrementally higher… but we are presuming that this will not be an outrageously different amount than had the seller required a down payment in advance.)
An example might be these situations: a) Sale for $200,000, with a $10,000 down payment. The loan will still normally be 80% of $200,000, or $160,000. This way, buyer – having already come up with the $10,000 down payment – will need to come up with $30,000 at closing; b) Sale for $210,000, but seller agrees not to require a down payment – they will get that money later, at closing. So, the loan is still 80% ($168,000), but the seller is going to throw back that extra $10,000 into the pot. So that means that buyer will have to come up with ($210,000 – 168,000 - $10,000 = ) $32,000 at closing. Note that the buyer still needs to come up with extra money – but this is in return for not having to come up with the down payment in advance.
This might be a problem with providing an accurate figure for value in the appraisal – but that is what is the point of the paragraph in that article: The broker must point out seller-assisted down payments in the documents so that the value does not look inflated.
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How does a "Seller-Assisted Down Payment" work? Isn't it illegal for the seller to agree to reduce or eliminate down payment as long as the buyer pays a higher price than the selling price?
A seller-assisted down payment, in and of itself, is not illegal. However, if it is done to defraud – then it could lead to legal action or voiding the sale.
It is okay if the buyer says that they can’t afford the $5000 down-payment and the seller (wanting to get the sale done) says, “Since I am taking additional risk – not getting a down payment that protects me if you back out of the deal – they you should pay me $3500 more for the house.”
It is not okay (and the agent, seller and buyer, could all be exposed to being sued by the lender) if, for example, the seller and buyer collude to “cook up” a false contract with a higher sales price, so that the buyer can get a bigger loan. (And then, presumably, the seller gets some money for this from the buyer “under the table” – out of the increased loan proceeds.)
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Isn't it strange to have a "Seller-Assisted Down Payment" where the buyer pays a fee to a charity which pays the down payment for them?
The “charity” example would be pretty rare. But it would be the way that the parties could “legitimately” work the higher price and defuse any claims of fraud (by the buyer’s lender, for instance). “Since I am taking additional risk they you should pay $3500 more for the house... but so I am not accused of trying to defraud the lender, we’ll pay that extra money to a charity rather than us (seller or buyer)”. (The charity then keeps some of that money, but then “gives” the rest to the buyer. Seller gets a tax benefit – for donating to charity – and buyer gets a benefit for having the seller indirectly contribute to their own sale price.)
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CHAPTER 16 - SHORT-ANSWER QUESTIONS
Quiz Question 80-What were the three issues decided by the court in the Title Guaranty case?... I don't understand the three answers.
Question 80 lists the three issues that were decided by the Title Guaranty case. They ask the questions (that the court was there to decide) and then answers them:
a. Yes, a Title Company can prepare loan documents in connection with a loan made with corporate loan funds.
b. No, a Title Company cannot charge a fee for preparing loan (closing) documents.
c. No, Title Companies could not conduct the closing if they also sold the title policy.
The bottom line is that lawyers used to do the closings in Colorado, and sued the title companies to prevent them from conducting closings as a kind of “one-stop-shopping” for the buyer and seller – while they were issuing the title insurance. After the court’s ruling (above), title companies adjusted their practices to skirt the issues decided by the court. They eventually forced the lawyers out of the business of closings, and now the title companies conduct all closings! (I guess the attorneys should have kept quiet.)
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CHAPTER 16 - QUIZ QUESTIONS
Quiz #2: I know that C and thus D are not correct. But what is wrong with B (“A real estate broker may pay compensation to which of the following parties?... b) To licensed employees of a cooperating broker”)? I thought A(“To brokers or salespeople employed by the broker”) was a trick because if someone has an employing broker, don't they have to be paid, not the broker directly?
Answer “a” is correct because the salespeople/associate brokers are merely “employees”, so of course they get paid by their employers. Either way, the Listing Broker “pays” (part of their commission, usually, with) their employees – their associate brokers, and the Buyer Broker “pays” their employees – their associate brokers.
Fundamentally, however, it is the Listing Broker who gets the whole commission – from the seller. Then the Listing Broker(age company) “splits” the commission (according to the Listing Agreement with the seller, which you asked about previously, I believe) with the cooperating broker(age) – the one representing the buyer. That is why answer “b” is not correct – because it proposes a situation where the Listing broker(age) is directly paying the employees of the cooperating broker.
So – no matter whether it is the “traditional” (common law/uniform) agency situation, or the Colorado version – it is always the Listing broker(age) who gets “paid” the commission from the seller. The listing broker(age) then pays their employees (the associate broker who actually did all the work) and pays the cooperating brokerage (which then pays their employee – the associate broker who actually did all the work.) The listing brokerage never directly pays the employees of the cooperating broker.
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Quiz #4: I almost answered C on this, but then I realized that C's answer applied specifically to earnest money deposits, but not necessarily all types of escrow. Aren't there types of escrow that wouldn't necessarily belong to the seller?
This question not only deals specifically with earnest money deposits, but especially interest on earnest money deposits. That’s why it belongs to the seller (if the deal succeeds). The answer is “c” (“To whom does the interest on escrow accounts belong?... c) The seller if the contract is consummated.”) because of the Commission’s Position statement on Interest Bearing Trust Accounts (page 16-4): “accrued interest normally belongs to the seller if the contract is consummated…”
There are different kinds of escrow (i.e., tenant security deposits – which would belong to the tenant, and not the landlord.) And circumstances where the earnest money deposit itself would not belong to the seller – such as when the seller caused the deal to be defeated, through no fault of the buyer. But this question is specifically asking about interest.
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Quiz #6: “I was under the impression that due to the court rulings, licensees could not delegate closing docs to title companies.”
Just the opposite. You might be getting confused by the article(s) based on the Conway-Bogue case and the Title Guarantee case (and I'll admit, the Real Estate Commission's position statements - which we reproduce exactly - are not very clear about these things.)
The Conway-Bogue case says that real estate licensees may not charge (separately) for preparing closing documents - only lawyers can do this. To charge for ("legal") document preparation would be the "practice of law". This was brought about in the 1950's because lawyers used to do all the closings, and didn't want brokers moving in on their territories. What it actually resulted in was that lawyers were pushed out of the "closing" industry because brokers (and the courts) interpreted the Conway-Bogue case to mean that brokers can do closings, but they just can't charge to prepare the closing docs. Broker's can (and always do, now) appoint someone else - title/closing companies - to do the closings.
In the same way that the Conway-Bogue case said that brokers can't charge for doc prep, the Title-Guaranty case said that title companies can't charge for doc prep. But they can still prepare the docs (they just can't charge!...) as long as they are "standard" docs - i.e., settlement statements, filling in deeds, etc. Also, as the question asks (trickily), the cases say that a broker may delegate the duty of doc prep and closing to the title company, and pay the costs of closing!
This question comes straight out of "COMMISSION POSITION ON CLOSING COSTS" in Chapter 16.
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Quiz #12.
On this question, "who does the licensee give notice to when they are giving an estimate of value?"
Does this mean that they must notify an official organization when they're meeting with a prospective seller client with a competitive market analysis?
No. This answer ("Licensees preparing estimates of value, must... (d) give notice, according to the Rules of the Board of Real Estate Appraisers")
is not saying that the agent must give notice to the Appraisal Board. It is saying that if the agent prepares a value estimate, the Appraisal Board’s
rule is that they must provide notice… to the potential seller or buyer that the agent is not a licensed appraiser and does not have the same expertise.
PREPARATION OF MARKET ANALYSES AND REAL ESTATE EVALUATIONS USED FOR LOAN PURPOSES
•The broker or salesperson preparing an estimate or evaluation must at all times comply with the statutory requirement in Sections 12-61-702 and 12-61-718, Colorado Revised Statutes, for a written notice that they are not an appraiser. The wording and use of the written notice are specified in Chapter 14 of the Rules of the Board of Real Estate Appraisers. The required wording is: "NOTICE: The preparer of this appraisal is not registered, licensed or certified as a real estate appraiser by the State of Colorado".
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Quiz #13. Is the answer to Question #13 "none of the above" because "prepare" implies a legal term? In other words, is this because
only an Attorney can "prepare" a legal document, and a broker can only "fill in" standard documents?
It is CORRECT to say, "only an Attorney can "prepare" a legal document, and a broker can only "fill in" standard documents.
However, this time this particular question is not keying on the word "prepare".
Instead, the answer to Question #13 is actually “none of the above” is because of the wording of the question,
“may prepare legal documents for anyone”, and it is referring to a specific section of text from the decision of the Conway-Bogue case.
What that passage of text is saying (and therefore this particular Quiz Question is referring to) is that a broker can’t just help their neighbor or relative
“prepare” (including “fill in”) real estate forms: “The real estate broker could not, for instance, prepare these documents for a
friend who was selling his or her own house.” This comes straight out of the text on about page 16-27.
The reason for this is given in that same section of text, which also says that the broker must be connected with
the parties as their broker. This is the point of Question #14: “First, the broker's office must be connected with the transaction as a broker.
This means that the broker must be acting as a real estate broker involving the particular transaction. In short,
the broker must be receiving a commission.”
So these two quiz questions are perfectly consistent and are simply asking about the text of the decision of the court in the
1959 Conway-Bogue case.
However, when it comes to the license exam, you have to read the question very carefully, if it uses a term such as "prepare documents".
If it is using the
term “prepare” or something similar (implying that they are creating the doc from scratch) especially if it says
“legal documents”, then the question may be asking about the need to have an attorney do it. On the license exam
(and MacIntosh exams), when it is talking specifically about
a broker’s (legal) ability to “prepare” documents (“document preparation”) it is envisioning a broker “creating”
a contract “from scratch” – which only a lawyer can “prepare” such legal documents. It is not talking about merely
filling in the blank spaces of a Commission-approved contract form, (Chapter 21.)
Most importantly, license exam questions are really concerned about the broker charging for “document preparation”.
(Such as charging for filling in the sales contract, for instance.) The broker can NOT charge for "doc prep".
By the way, in "real life" closings, you will often see a line item on the settlement statement for "document preparation". Note that this is lender or mortgage broker (not the real estate broker)
that is charging this, so it is perfectly acceptable. In other words, lenders can and will often charge for "document preparation" of their own loan docs.
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Quiz #16.
The correct answer to question 16 ("d" - "none of the above") indicates that title companies may not prepare any of the forms listed as part of the escrow service.
According to the Q & A for Quiz question 6 it says that in the Title Guaranty case,
they can prepare docs as long as standard forms are used. Is this a trick question based on the wording?
This isn't a trick question, but one that is based solely on the text of the chapter:
Chapter 16: "Companion Decision of Practice of Law (affecting Title Companies)
Also on June 10, 1957, the Colorado Supreme Court decided ... Colorado Bar Ass'n. v. The Title Guaranty Co... The second question was whether
the title company could prepare documents as an escrow service. The Court determined that title companies could not do so, and restrained
them from preparing legal documents in connection with closings... These rules still apply today, even though the practice may be different."
This question just asks what the Title Guaranty Case said, and does NOT reflect current *practice*; after all, this case was decided 60 years ago:
Title Companies DO prepare the settlement sheets; the way they get around the Rule is that they are technically acting as "scrivener"
for the loan company, acting on their instructions. So they may only "prepare" these docs, in the sense that they are filling in the blacks and following instructions
from the lender or parties.
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CHAPTER 17 - RELATED REAL ESTATE LAW
Regarding UNIFORM STATUTORY FORM POWER OF ATTORNEY ACT (15-1-1301):
How often is a power-of-attorney used? Are there specific purposes this is usually used for?
What is the difference between a normal agency agreement and one in which there is a power-of-attorney?
A power of attorney is discussed in Chapter 2 (about pg 13), and defined in the Glossary in the first Instructional folder:
power of attorney A written agency agreement given by a principal to an attorney-in-fact to act on his or her behalf.
general power of attorney A broad power given by a principal to an agent that enables the agent to act for the principal. (A specific power of attorney allows the agent to act only in the manner and area specified.)
And yes – it is almost always for a specific purpose or range of activities (i.e., a person is going to be out of town and needs someone to sign certain documents on their behalf.)
An agency agreement is a contractual relationship in which one person (an agent) represents another (a principal). In our case, it is used when you hire someone to help you sell/market or buy a property. A POA is different, because it doesn’t involve a contract, but a document (the POA) which defines some activity that one person is going to do on behalf of someone else. In other words, agency is where you hire someone to help you do something because they are an “expert” in that area, but a POA involves having someone else do something in your place – as if they were “you”.
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Under RELIEF OF RESIDENTIAL TAXPAYERS FROM LIEN OF SPECIAL DISTRICT TAXES FOR GENERAL OBLIGATION INDEBTEDNESS: What is a "special district - and - What is a "general obligation debt"?
A special district is simply an area – a subdivision (neighborhood), part of a county, etc. – that is legally set up for some reason. For example, because of the local soil, the terrain around a group of subdivisions may need to be graded and treated before the houses are built. This would be so that the soil does not buckle under the weight of the houses in a few years – causing considerable damage. Since this is a massive expense that is not “normal” for the cost of building houses, the city or developer (house builder) may have to borrow a large sum of money to treat the soil. This money would then be paid off by the homeowners who eventually buy the houses.
The money that is borrowed is through a “bond” – or general obligation debt. They borrow it from the city/county and then the county will collect it at tax time in 5 years or so. The homeowners are expected to “pay back” the money when they pay their normal yearly property taxes that year.
Let’s say that the expense will cost $500,000, and there will be 100 homes in the affected subdivision that will have to “pay back” the bond/gen. oblig. debt/loan when the development is completed. That means in 5 years or so, they will each get a bill (on top of their normal yearly property taxes) for $5,000. Surprise!
This exact scenario happened in Castle Rock in the early 1990s. Proper disclosures were not made and the homeowners each got a surprise bill for $5000 - $10,000. It bankrupted many of them, and many were forced to walk away from their homes because they couldn’t come up with the money. As a result, the Colorado R/E Commission required full disclosure in all the contract forms and at the time of closing – so the new homeowners know that they may be in store for paying off that “general obligation debt” in a big lump-sum sometime in the near future.
What is the purpose of the General Obligation Indebtedness?
Very basically, housing developments, subdivisions, cities, etc., have to install and maintain “infrastructure”: Streets, lighting, sewers, sidewalks, etc. This costs a lot of money, and they will often finance these projects by issuing bonds. (It’s a lot like borrowing money – but on a very large scale.) This means that the residents of the subdivision or city will end up paying back their share (i.e., one house out of 100, over 10 years) incrementally.
Sometimes it is not gradual payments, but the bond will come due all at once. So that means, instead of each house paying off their share over, say, 10 years – one day they’ll get a bill for $20,000 due immediately.
This happened about 20 years ago in Castle Pines North. The developer and all the homeowners went from happy and prosperous to bankrupt over night.
This law states that all sales contracts have to have big, bold lettering warning the homebuyers that there might be a bond (General Obligation Indebtedness) that might come due. It also advises developers and city agencies to better structure their borrowing instruments (mortgages/bonds) so there is no giant surprises that will bankrupt everyone suddenly.
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Under COLORADO FORECLOSURE PROTECTION ACT (6-1-1103), what is the Holder of Evidence of Debt?
Holder of Evidence of Debt – is usually the lender, or any company they have appointed to collect the payments for them (called the “servicer”.)
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Under EQUITY PURCHASERS (6-1-1111), What does an equity purchaser actually do?
equity is defined in the Glossary, as “The difference between the value of a property and the liens against it; the owner’s interest in the property”. An Equity Purchaser is an individual or business that buys someone else's equity in property (the amount of “value” over and above the loans against it). These equity purchasers will likely not assume any responsibility for paying back the loan balance.
Think of it as like those commercials for companies that will give you a lump-sum for a yearly payoff on a lottery or court victory. (When you sue a company and win a big judgment – they usually don’t pay the total amount off immediately. They will, say, pay off 1/20th of the total amount per year – for 20 years.)
Same for equity in your home. If your home is worth $250,000 and you owe $200,000 in mortgage loans, you have $50,000 in equity. If you need money fast and don’t want to try to sell your home, you may sell the $50,000 to an Equity Purchaser for, say, $20,000. They get $50,000 of value in your home – you get fast cash – but you still have to pay off the remaining $200,000 owed on the loan.
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Under EQUITY PURCHASERS, Cancellation (6-1-1113)
A presumption is something that is accepted to be true. To rebut is to “prove wrong”. Therefore, a rebuttable presumption is some legal fact that is assumed to be true, but we admit that we could be proved wrong at some time in the future.
So the passage under 6-1-1113 simply means that if the court (in the foreclosure) doesn’t have any evidence to the contrary, it will presume that the contract between the defaulting homeowner and the equity purchaser is still valid – not canceled.
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What is tributary vs non tributary?
Tributary vs. non-tributary waters are defined in two different places in this chapter, under “WATER RIGHTS AND OTHER WATER CONSIDERATIONS”
About 17-64:
Tributary water is water in related aquifers. In Colorado, this is owned by the public and is subject to the doctrine of prior appropriation. Ground water other than tributary ground water is allocated by different rules as described below. It is automatically presumed under Colorado law that all surface water and ground water in Colorado is tributary (to a natural surface stream.) This means that someone (a company or farmer) wishing to divert and use water for their manufacturing or agricultural use, must prove the water to be non-tributary, before they can divert it.
About 17-66:
Non-tributary water is “Ground water [that] may be so physically separated from surface water by impermeable layers or great distances so as to have little or no hydraulic connection with surface water. If such ground water is located outside of a designated ground water basin, and its withdrawal will not within 100 years deplete the flow of a natural stream at an annual rate greater than one-tenth of one percent of the annual rate of withdrawal, it is classified as non-tributary groundwater.
“[T]he right to use non-tributary ground water is generally allocated based on the ownership of the overlying land, rather than the prior appropriation system. [As with tributary – public – water.] The owner of the overlying land may obtain a right to use nontributary ground water by obtaining a well permit … or may seek to have the Water Court determine the … water rights before drilling a well.”
So, if you want to use the water on or near your land for business or agricultural purposes, you have to prove to the state that it is either not on a public (tributary) waterway, or will not deplete the river, aquifer, etc.
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CHAPTER 18 - SUBDIVISIONS
Definition of Subdivision: The two passages defining Subdivisions (18-1 and 18-9) seem to conflict?
These two passages are actually talking about two different things: The first passage, on page 18-1: "'Subdivision' means any real property divided into twenty or more interests intended solely for residential use and offered for sale..." This is talking about the requirements for registering as a subdivision Developer. In other words, if you own a piece of vacant land and survey it into twenty different lots, then you must register as a developer and the subdivision must be licensed.
The second passage, which runs from the bottom of page 18-9 to the top of 18-10, is more general. It is talking only about Planning and Zoning laws (within cities), and is saying that the laws regarding Planning and Zoning will apply to any piece of real property (land or buildings) which consist of more than one parcel of land or building.
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"Registration is NOT required for: #3 - Residential property not previously occupied which is to be constructed and where the consideration paid includes the cost of the residential building(s) or new home(s).” If I'm reading this correctly, in a practical sense, it seems to say that a developer building new homes never need register the project as a subdivision under any circumstances. Is this correct?
Not exactly - that's too broad a blanket to throw over this passage. It is actually not a broad exception, but a narrow one that - I believe - would only apply in the most limited of circumstances
You do not need to follow the registration-as-a-subdivision requirements IF all of the following is true: 1) you are a developer/building company; 2) it is vacant land and you intend to build a development; and 3) the price you paid was for not only the land but included the buildings you ultimately will build (or will pay the seller to build).
To be honest, I have never understood the last qualification myself. However, I think that this was a specific exception for a specific builder at least 15 years ago - because I just can't imagine how often this comes up. (I closed commercial-builder real estate sales and loans for 8 years, and never saw this as an issue. As far as I knew, every subdivision was registered and so was every developer.)
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Regarding #3, is this then referring to a 'bulk' sale between developers where the buying developer pays the selling developer for all the lots in an area, and the selling price for this 'area' includes the cost of the land as well as the structures which have yet to be built on each of the lots?
That’s pretty much the gist of it.
The only distinctions I will make is: 1) With the term "bulk sale". This is a term of art which refers to the sale of personal property (as opposed to "real property"). Therefore, when developers or builders sell construction materials amongst themselves, this is not a sale of real property (because it is not a structure built on land yet) and therefore they don't need to register as a subdivision (have a license); 2) the land does not necessarily have to be subdivided into lots & blocks at that point, it may simply be unplatted land. However, this would - I presume - normally be the case, anyway, because if they have gotten to the point of planning for the homes and selling the land that way they have already platted the subdivision into lots and blocks with the infrastructure.
Anyway, you have got the basic idea when you summarize, "sale between developers where the buying developer pays the selling developer for all the lots in an area, and the selling price for this 'area' includes the cost of the land as well as the structures which have yet to be built on each of the lots".
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Under "COUNTY PLANNING LAWS" it states that "Division of land which create parcels of 35 acres or more and none of which is intended for use by multiple owners are exempt" (subdivision act) what do they mean by "multiple owners"?
This is saying that if someone buys a parcel of land that is 35 acres or greater, they are exempt from the rules of subdivision (i.e., file a plat, get licensed as a subdivision, etc.) IF that land is only going to be owned by ONE PARTY. If they buy a 35 acre piece of land and then divide it up and sell the parcels to more than one ("multiple") party - then that is still subdividing and the seller would have to file a plat, get licensed as a subdivision, etc.
Sounds like a restatement of the obvious, I know. But you would be surprised how people would try to take advantage of the "loophole" created by not stating it all sorts of different ways. ("When I BOUGHT it, it was 35 acres, so I don't need to qualify as a developer even though I LATER SOLD it in smaller pieces to different people.")
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Short Answer Question #4: Why are “property where residential buildings will be erected and consideration paid includes the cost of the buildings” and “lots which are located on streets that are improved to the same standards as set by the local governmental entity and have a plan for water, sewer and other utilities” not considered under the requirements for Subdivisions?
I honestly, truly, cannot speak to the history of these two particular “exemptions” to subdivision registration. Although I actually tried to research it (because I have had the same question in the past – not only in my own mind, but students have asked several times in the past) I have found nothing specific.
In my experience as an attorney, I can tell you that these two exceptions are so specific that they were each put in place to specifically address a specific situation. To be very cynical, I suspect that someone leaned on a legislator 30 years ago to slip in an exception for their particular development – and it would never come up again (other than real estate license exam questions.)
You can tell, because the other three exceptions are very general (campgrounds, transfers between developers and city business), but the language of these two are so specifically crafted that it could only apply to one person/company at one time in the past.
In other words, they do not apply to “normal” people (or developers) who wish to improve their property. Everybody simply must register as a subdivision and follow the planning steps outlined at the start.
By the way, this is (another) good example of verbiage that is much easier to understand if you cut out all the repetition and minute legalese. This is what I do when I need to summarize something to more easily remember it. These two passages are much simpler if reduced to:
“Property where are built residential buildings that have not been previously occupied and where the price includes the cost of such buildings” and “Lots which are situated on a street (and street system improved to standards at least equal to streets maintained by the county, city, or town); have a feasible plan to provide potable water and sewage disposal; and have telephone and electricity facilities which are installed and in place and comply with laws.”
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CHAPTER 19 - FARM & RANCH
Quiz #4:
Where in this chapter does it talk about licenses or permits for cattle to graze?
It isn’t covered in the Chapter, and the reason why is detailed in an entire section of the Instructions booklet, and several places in the Uniform and Colorado Q&As (in response to other students who have had questions about a Quiz that asks about a topic, but can’t find any discussion in the particular chapter.)
There are several reasons for this: 1) There aren't any good sources for material on this; 2) It is not a particularly important topic; 3) It is never tested on the license exam; 4) But the R/E Commission requires that we cover the basic topic. So - it's been covered... and with just this quick question, you've gotten everything you might be expected to know in either the basic course of "real life" real estate or on the license exam.
(And if you're frustrated ly lack of warning, remember the Instructions section of the first booklet warns that "Quizzes and Short-Answer Sections supplement information covered in the text": "The chapter short-answer questions and quizzes are meant to be instructional and self-evaluation tools, to inform the student as to not only what the Real Estate Commission expects the student to be proficient, but also what might be tested on the state exam. As such, the short answer and quiz questions are not simply 'mirror images' of the text, and occasionally present new information, or a different 'angle' than the preceding information.")”
So – bottom line is that it is an extremely minor issue, and to devote any text to it might mislead the student into thinking it is something that merits significant studying or memorization. It doesn’t, so a quick Quiz Question fulfills the R/E Commission’s desire to cover the issue of a “Grazing License”.
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CHAPTER 20 - BUSINESS OPPORTUNITIES / AFFILIATED BUSINESS ARRANGEMENTS / MORTGAGE BROKER LICENSING
What is a “Chattel Mortgage”?
A "chattel mortgage" is a security instrument putting personal property as security for a loan. A (“regular”) mortgage puts real property (land and improvements) up as security for a loan; if the borrower defaults, the lender can foreclose on the property and sell it to satisfy the loan.
However, a mortgage does not work to secure any “personal” property – even if part of the loan was used to purchase personal property; with just a mortgage, the defaulting borrower could take any personal property away and the lender would have no recourse.
This is (was) ONLY important for construction loans - where the lender lends money to both pay the builders and purchase the materials – lumber, etc. The lumber is not attached to the ground yet, so it is personal property. Therefore, if the borrower defaults on the construction loan – the lender would not have any security to foreclose upon and recover some of the loan balance.
Therefore, the old “chattel mortgage” and now the UCC-1 serves as the security instrument for the personal property. (The UCC-1 system has replaced the chattel mortgage over last 50 years in all states.) The lender will make the borrower - usually the builder/developer - sign and record a UCC-1 to serve as the same level of security as the mortgage (or deed of trust, in Colorado) in case of default.
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When and where does the Colorado Use Tax apply?
The Colorado Use Tax applies when someone (business) buys a business which includes as part of the purchase price, some equipment or goods (personal property). In that case, the buyer will have to pay a Use Tax – similar to when you or I buy any goods at the store, we have to pay a Sales Tax.
This is imposed on the buyer by the state so that buyers can’t avoid paying a tax simply by saying, “Oh, I was buying a business” (no tax), instead of “I bought a business and everything in it” (Use Tax).
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12-61-113(2)(a) says that an affiliated business arrangement is permitted where the person referring business to the affiliated business arrangement receives payment ONLY in the form of a return on an investment and where it does not violate the provisions of section 12-61-113. What would be considered a "return on an investment"?
“Return on an Investment” simply means that you own stock in a company (perhaps as diverse as a small part of a mutual fund), and you may get the increase in value of the stock over time, or the quarterly dividend, etc. That’s okay.
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I understand that as a broker you cannot accept any kickbacks or unearned fees from lenders, title companies etc, for referring their company to your client. (12 USC 2607) Does that mean I CANNOT refer them to say, a friend who is a mortgage broker, Or a good insurance agent - in the interests of both networking and providing good service to my client?
First, 12 USC 2607 deals with RESPA: a Federal Act, that mostly restricts the actions of lenders (in Federally-subsidized and governed loans): What they can and cannot do, what they must disclose to the borrowers, etc. So lenders can’t give kickbacks to brokers, because it would amount to failure to disclose a relationship where the borrower is potentially not protected. “Unearned” means that there isn’t an “official” relationship (i.e., a mortgage broker who has a contract where the lender will pay a 1% origination fee to the mtg. broker for bringing the borrower in, processing the loan application, etc.) A real estate broker who simply induces (suggests) a buyer to go with a certain lender, and the lender gives them a fee under the table – that is a (simplified) violation of RESPA.
Colorado’s License Laws and the Affiliated Business Arrangements laws deal with similar issues – but from the broker’s angle. The Commission prohibits the broker from receiving kickbacks from lenders or title companies (even minor “gifts”) , because that would mean that the broker is looking out for their own best interests (and those of their favorite lender or title company) instead of their clients.
Neither of these laws prohibit you – as a broker – from simply referring or suggesting a company for them to go with. But it does make specific rules about making sure that you have to fully disclose if you have some ulterior (financial) reason… and it requires that you disclose that there are other options (and the client is not required to go with your suggestion.)
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When discussing Mortgage Brokers, what is the surety bond for?
Surety Bonds are like insurance when professionals are handling other people’s money.
This means that the insurance company (issuing the bond) will pay for the loss if the mortgage broker steals or loses someone’s money through negligence.
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Short-Answer Question #1:
The answer says NO. What? Page 20-1 states: The sale of a business opportunity requires a real estate broker's license when the transaction involves a change of ownership of real estate or leasehold.
What would be an example where the sale of a business opportunity WOULD NOT require a broker's license?
The question asks “Does the sale of a business opportunity always require a real estate license?” and the text says that “The sale of a business opportunity requires a real estate broker's license (only) when the transaction involves a change of ownership of real estate or a leasehold”. In other words, I don’t need a license (or if I use a broker – s/he cannot receive a commission) to sell you my business, if it does not involve real estate. Many (most?) sales of businesses only involve the sale of personal property (equipment) and good will, corporate papers, etc. – and don’t involve real estate. (Especially if that business does not own a building or the lease is expired, etc.)
Quiz #2: What is Blue Sky as an intangible in a business?
Note that the Glossary and Index (in the back of the Third/Dark Blue book) defines “Blue Sky” laws as: “Security registration requirements to protect consumers against investments in fraudulent schemes.” Believe it or not, a law that requires a business to “follow the rules” (i.e., for above-board stock registration, etc.) creates trust in that business, and therefore “good will”. Good Will does provide value in a business, but is certainly difficult to define the true “price”… therefore it is an intangible in a business.
Quiz #2: What exactly is this question asking when asking about intangibles?
“Intangibles” are things that add value to a business, but are not something you can see or touch (or even necessarily put a specific dollar value to.) Your business’ good reputation (“good will”) is the best example. If you have a bad reputation or haven’t been in business very long – this will negatively affect your business’ value. On the other hand, even though it is “intangible”, if you have mostly repeat customers or referrals and a good “name” then this will make your company more salable and give it more “value”.
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Quiz #3
Answer "a" means that the UCC is legally... "superior" to the "chattel" system of the old common law. Therefore, this is true because of the text on page 20-3: "The Uniform Commercial Code repeals the past laws on chattel mortgages. Under the current code there must be a security agreement of some type between the parties." Apparently, the old "chattel mortgage" (a security instrument putting personal property as security for a loan) did not require a recorded instrument or formal foreclosure proceedings... Now the UCC-1 Financing Statement must be recorded to formally provide this security.
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CHAPTER 21 - CONTRACT FORMS
LIST of Real Estate Commission Mandatory (Rule F) Forms - Page 7
Will we be required to know specific section numbers, dates, etc. for the License Exam?
The state license exam will be very specific as to language on some questions - so you will have to know the specifics. You must know things from each paragraph/section like: who is supposed to be doing something (buyer/seller/broker); what they are supposed to do (provide loan info, provide appraisal, etc.); whether it is mandatory (shall, must) or optional (may).
Specific dates are usually not important, because they are different according to each situation. The wording of the standard form is extremely important... However, the exact wording of what you filled in on our examples/problems is definitely not an issue. We are only giving you these problems as an exercise in learning what everything says and where it is - the state license exam will not have you fill in any forms (except the worksheet for real estate settlement for the Closings problem, which you will cover extensively in the Closings course) and will not ask you something like "What would you put in this blank?" So don't worry that you didn't get the same, exact language we put in our filled-in forms.
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Will we be tested on the general purpose of the forms, or on the exact wording... or BOTH?
Both - so you will need to know it all. No, seriously. There are no short cuts on this Chapter 21.
You will be tested in many questions on what a contract says in its preprinted exact wording. In other words, they won't give you a sample fact-situation and ask you what fact goes in line 101. They will ask you (just like on our final exam and Prep exam questions), "What does the contract say about..."
But they will be very minute details - not general at
all. For example, a question may ask something like,
"According to the Colorado Contract to Buy and Sell Real
Estate, if financing is to be accomplished by means of
seller or third-party financing, which of the following
is correct? A) Seller shall provide to buyer...;
b) Seller may provide to buyer...; c) Buyer shall
provide to seller...; d) Buyer may provide to seller..." Note that there is only one word difference in each choice and the parties are switched - so you will need to know the exact wording of the actual form in order to get this type of question correct.
However, the answers on the license exm will not make it obvious, by putting the key words (such as "buyer" vs. "seller", and "shall" vs. "may") in italics.
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Is there a list of what actions take place, and in what order with a Buyer? Seller?
Yes - in Chapter 21, and then again in the entire Closings course. It isn't an outline-style list, but it is the closest thing you will ever get. Since every transaction is different, the order of events or steps taken will always be different - there is no "set" order of things. (Although there is some obvious things - like you obviously can't have a counteroffer before an offer, etc.) But we give some examples of basic things and the order in which it should happen.
As for "real-life" considerations as to when things happen, who to call, and what forms to fill out... you can relax for now. These are definitely not things that will be tested on the state license exam - they are far too "practical" or "procedural", and that is not what it is concerned about. More importantly, this is something that you will learn when you go to work for a brokerage... it is something that they will insist on training you. In fact, this is definitely something they do not want schools even trying to teach you, because they want to train you how to do things their way.
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When a prospective buyer would like to make an offer on a house, is that done verbally or is that where the buy/sell contract comes in? How is it countered...verbally or written?
This should never be done verbally (although on the Uniform exam, it is technically possible... but would be "unenforceable" in a court of law, under the Statute of Frauds). This is the purpose of the Sales Contract ("Colorado Contract to Buy and Sell Real Estate"). In other words, when the buyer wants to make an offer s/he will have her/his broker fill out the Sales Contract and present it to the Seller's (Listing) Broker. If the Seller accepts that offer "as is" (rare) s/he will sign that Sales Contract. If the Seller wants to change the terms, s/he will use the Counteroffer. Then, counteroffers could go back and forth endlessly - until the parties settle on the terms. The original Sales Contract plus the Counteroffers could be used (messy) or the brokers could draw up a new Contract and have the parties sign that.
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Which forms are Commission-approved (= "required") Rule F forms, which are merely provided to brokers by the Commission for "convenience".
And - are there forms that we use (or will be tested on) that the Commission doesn't address, but we will still use?
Take a look at the first part of Chapter 21. Note the first list contains those forms which DO fall under the purview of Rule F ("Rule F forms"). The second list are those forms provided by the Real Estate Commission merely for the convenience of the broker. In other words, those forms on the second list are NOT Rule F forms (are not mandated). The list of forms that follows that section is simply the list of ALL forms (mishmashed together). We are required to provide this list to you, but we don't want to ignore it completely, because you need to realize that there are other variations of the forms that we actually walk through. (For example, we go through the Exclusive Right to Sell Listing agreement line-by-line, but you should also realize that there is also the Exclusive Brokerage Agency Listing agreement, etc. This form is almost identical to the Exclusive Right to Sell agreement, so we don't need to go through the similar form line-by-line again, but you still need to know there are similar Rule F forms. What's the difference between Exclusive Right-to-Sell Listing and Exclusive Brokerage Listing? Refer to the Listings Chapter in the Uniform course for the answer!)
So, for instance, the reason the Real Estate Settlement Worksheet and Real Property Transfer Declaration are listed, is because a question on the state license exam may (will) ask you something like "Which of the following forms does not fall under the purview of Rule F?" If it is one of those forms, then that would be the answer. (However, watch for some trick-question that might say "Which of the following forms is provided by the real estate commission? Then the answer would be different!)
There will certainly be forms that you will use in the "real life" broker business. However, these will be specific to the company you work for, and will not be tested on the license exam.
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Exchange Addendum
Rule F-3: Why would an addendum NOT originate from negotiations of the parties that also needed to be prepared?
F-3(a) is talking about “standard” addenda, such as
the Square Footage Disclosure, Agency Disclosures, etc.
In such cases, those addenda do not need to be prepared
by an attorney, etc.; the broker may use the standard
form. If the terms of those “standard” addenda are
changed, or they want some special provisions, then
an attorney or the parties themselves must draft it –
the broker cannot create such legal documents.
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Where is the Exchange Addendum reproduced in the materials?
The Exchange Addendum is not reproduced in the materials… intentionally (because it is just another form to overwhelm students). If you really want to look at it,
it is reproduced - and may be found by clicking this link - on the Commission’s website: EXCHANGE ADDENDUM
The only part of the form which has any significance is the first line (just like many forms): “This Exchange Addendum is made a part of a Contract to Buy and Sell Real Estate…”
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What is the point of the Exchange Addendum?
As you know, when you sell a piece of property any "Gain" is taxable by the IRS. (Gain is roughly equivalent to the price you sold it for, less the price you bought it for. Think of it as "profit".) Obviously, people don't want to pay taxes on hundreds of thousands of dollars of gain if they don't have to, and the IRS realizes that people will never sell their property (thus discouraging an active real estate market, thus collapsing the economy in general) if they get slammed with crushing taxes when they merely sell their house (intending to take the profit and buy another - presumably more expensive - property).
So, the IRS has what is called a "1031 Exchange" (named after Section 1031 of the IRS Code) which says that if the seller of a property (the "Exchangeor") takes the profits of that sale and puts them in a specially-created trust, and re-invests that money in the purchase of a similar property (i.e., if Seller sold a house they have to buy another house - not, say, a shopping center) within 18 months, then the "Gain" from that first sale tax-free.
In order to do this, however, the Seller ("Exchangeor") must first create that trust, appoint another party to act as an "Intermediary", and follow all the correct steps... Mostly, the Seller can't touch the money - it has to sit there until being re-invested. One of those steps is to get the buyer of the first property and the seller of the second property (the one that Exchangeor is later buying as their "re-investing" property) to consent in writing to all this after full disclosure. THAT is what the Exchange Addendum is all about.
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Is this form merely to provide notice to the other party?
Yes – because when a 1031 Exchange is done, a third-party (called a “qualified intermediary”) actually steps into the shoes of the party doing the 1031 – so the contracts, deeds, etc., look like the property is being sold to/bought by someone else entirely.
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Does the cooperating party need to agree and sign this document?
Yes, that is their job. It is not an “unofficial” person – but a company hired to do just that.
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Licensee Buy-Out Addendum
What is the point of the Licensee Buyout Addendum?
The three circumstances described on about page 16-21 and also about21-34 are actually describing the similar situation, but from different "perspectives".
Situation #1 ("concurrent with the listing of such property"): Broker(age) will list the house and if it doesn't sell (by a certain date - probably when the seller closes on the house they are buying), then broker(age) will buy it;
Situation #2: They commonly do this with "relocates", guaranteeing that if they don't sell it by the time seller moves (or buys their house) that the brokerage will buy it off of them.
Situation #3: broker(age) agrees to buy the seller's house if the seller agrees to use that brokerage to help seller buy a house. In other words, the seller is agreeing to hire the broker as a listing broker (for current house, #1) and a buyer’s agent (for the purchase of a future house, #2).
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On the Licensee Buyout - why are the provisions (appraisal, broker relations, time of essence) deleted?
On a “normal” sales contract that involves an arms-length transaction between a seller and buyer, those provisions are put in the contract for the protection of the parties – especially the buyer. This is because the seller and the brokers are in a position of superior knowledge, and we want to make sure that they don’t take advantage of the typical buyer.
However, with the Licensee Buy-Out, the “buyer” is a real estate brokerage. They know all about these things, and the purpose of their particular contract (with the seller) is to buy the property on behalf of the brokerage. (Perhaps the brokerage has agreed to buy the property if it doesn’t sell within a certain period of time, or as an incentive to let the brokerage be their broker for their new home purchase.)
So, basically – those items are deleted, because they simply don’t apply to the situation involved in the LBO.
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Item #5 Reimbursement on License Buy Out Addendum: Can the buyer terminate the contract and if so, does buyer reimburse seller for expenses?
Note that this is just an addendum to the regular Sales Contract, which allows the broker to buy the property from their client. The terms and provisions of the normal Sales Contract apply – including what the buyer gets if the seller backs out.
I don't understand the Notice to Seller clause on the last page of the Buyout Addendum: "This contract is binding only upon the buyer (who is the licensee) who personally signs above, UNLESS the supervising broker of the brokerage firm working with seller signs here:" I get that it is binding when the licensee signs - so if the brokerage signs also then the brokerage performs?
Yes – when the Managing/Employing broker signs the contract, that means that the brokerage will buy the property. (This is not uncommon: Some companies specialize in corporate relocations. Although I am not sure how often they will commit to buy a property in a down market… The price would have to be pretty agreeable.)
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Lead Paint Disclosure
General Discussion:
All we can go on is what the Real Estate Commission relies on for their questions. For instance, the "LEAD BASED PAINT DISCLOSURES" article: "The Forms Committee recommends the following procedures to be utilized by real estate licensees, who are required to comply with the Federal Lead-Based Paint Disclosure rules for "target housing", i.e. residential property built prior to 1978." "...in the event the Buyer is interested in a home built prior to 1978, the Selling Agent should review them with the Buyer."
The Listing Contract, explanatory material: "Subsection (2) requires the Seller to provide a Lead Paint Disclosure if the house was constructed prior to January 1, 1978."
The Sales Contract explanatory material: "9. LEAD BASED PAINT. This contract will be void if the house was constructed prior to January 1, 1978, and seller does not provide a signed Lead Based Paint Disclosure."
And the Lead-Based Paint Disclosure (Sales) form itself: "Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978..."
Ultimately, however, the difference between "built" and "permit issued" is minute. It makes sense to say "permit issued", because you can determine a date certain when construction started. "Built" does not mean "completed" (before 1978), because obviously it is painted before it is completed.
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Rule F-3: Wouldn't a lead-based paint disclosure be an addendum that didn't originate from negotiations? But this doesn't have to be prepared by an attorney because a Commission approved form exists, correct?
The key word is that the standard form is “modified” or “adds”. If such is the case, then the parties or an attorney must do this – not the broker.
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Brokerage Disclosure to Buyer
General Discussion
At the first opportunity, the broker has a conversation with a buyer and discusses the agency options. Basically when the buyer is talking about hiring you to find a house, you have to discuss in what way (what form of brokerage) they are going to hire you. At that time, you are supposed to explain the different forms and have them sign the disclosures.
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Brokerage Disclosure to Seller (FSBO)
General Discussion
The Brokerage Disclosure to Seller (For Sale By Owner) basically says the same thing as the Brokerage Disclosure to Buyer: it is simply telling the Seller what are the different kinds of agency. Remember that when Seller is selling their own property (FSBO), they are unrepresented and therefore at somewhat at a (potential) disadvantage when dealing with the broker representing the buyer. Therefore, this form would normally be provided to the seller by the broker representing the buyer to describe what that broker does or should be doing (i.e., if it is a “buyer brokerage”, then that broker will be representing the buyer, looking out for the buyer’s interests, and not under any obligation to represent the seller in any way.
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Definitions of Working Relationships
What is the difference between all the Disclosures and the “Definitions of Working Relationships? What is the point of all these forms?
As you know, the whole concept of "Agency" vs. "non-agency" in Colorado is very confusing. And if you - who are studying this - are confused, think about the average buyer or seller of a house! So, the real estate commission requires a couple of things: 1) that there are "Disclosures" to the buyer or seller, defining the different types of agency available in Colorado, so they can make reasonably-informed decisions as to which form might be best for them; and 2) that the broker give these disclosures (in the appropriate situation) to the party with whom they are working.
So - both of the forms (Disclosures) you mentioned are intended to disclose to one party or both exactly what the brokers will be doing for them and the other party. In other words, what they can and should disclose about you to the other party, who they "represent"...
The Brokerage Disclosure to Seller is specific to the situation where the Seller does not have representation (yet). The broker could either be trying to convince the seller to let broker represent him/her - and therefore telling the for-sale-by-owner seller what types of agency or representation are available to him/her... OR the broker in question may represent the buyer and is required to tell the for-sale-by-owner seller what it means for the buyer to be represented (by the broker) and the seller is not represented by anyone.
The Brokerage Disclosure to Buyer must be given by the one or the other broker (seller's or buyer's) for the same basic "informational" reasons - to let the buyer know - at the outset - what are the responsibilities of the various brokers (i.e., Seller's Agent, Transaction Broker, etc.) and who "represents" (in an "agency" sense) whom.
The Definitions of Working Relationships is just another of those Disclosures - to tell the person whom you are trying to represent what are their choices... i.e., the level of "representation" that each form of agency or non-agency (i.e., transaction broker or "customer") offers.
So... really, these are all ways to CYA for the broker, so that no one can come back later and say that they didn't realize that X broker worked for the other guy, etc.
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Change of Status
How could there be a situation where a seller has an agency agreement with the broker and the broker convinces the
Seller to switch to a transaction broker agreement? If the broker is a seller agent, how is it a loyal representation of
the seller to convince him/her to accept a "lesser" form of representation, for essentially the same commission fees?
The case would be where the broker or broker’s firm also brings the buyer into the transaction. If one or both of the parties doesn’t change to TB, then it would be “dual agency” – which is illegal. As far as “loyalty” is concerned – the argument is that you can’t “represent” (in the full agency sense) both parties, and remain loyal to each. Therefore, you would be representing their interests better by saying, “I will be a TB for each of you… That way, I don’t disclose any confidences to the other party.”
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In this same situation, why can't the seller retain the broker as an agent and have the buyer have the transaction relationship? I thought that this was permitted.
The same broker cannot represent one party as a single agent and the other as a TB.
In that case, they would have to use the Change of Status form and get one of the parties
to switch to “customer” or have both parties agree to TB relationship. However,
two brokers from the same company can have that relationship:
Single agency for one party and TB for the other.
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How does the "customer" relationship work? Can a person without a broker of any kind transact with someone who is represented? Are they then completely unrepresented and do they take on the responsibilities that an agent would typically have?
Sure… it happens all the time. That’s what a “For Sale by Owner” is (FSBO), and buyers go out and find their own houses to buy.
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In the middle scenario does it assume that the listing agent will represent the buyer as a transaction broker? If so, isn't consent of the seller required?
No, because it says the buyer is unrepresented. They are just buying the property for themselves.
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Square Footage Disclosure - Article: “Hey! What’s up with Measuring Property?”
The capitalized text and the following text indicates that the seller has vicarious liability. I thought this wasn't the case in Colorado.
Not true. The seller will be liable (to the buyer) if they make representations that the broker “passes on”. However, the broker cannot rely on that, and must be careful to verify all statements that they should verify. (A very tricky and subtle distinction that is dependent on the facts – always.)
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Closing Instructions
Section 14 is meant to be a section to be filled in, correct?
Yes, or reference made that attachments will be made if the “additional provisions” are too lengthy to fit in this space. You will be doing this later on with the contract forms you will be filling-in.
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Can this text be drafted by the broker? I thought no, but in my personal experience as a buyer this has happened.
It should be filled in by the broker – because supposedly they know what they are doing. However, the “additional provisions” included therein will probably be due to the negotiations between the parties themselves.
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Closing Instructions, Section 2: “Closing Company… agrees to prepare… all documents, excluding preparation of legal documents…”
"Legal Documents" are those documents that only an attorney can prepare. The distinction is that Brokers and Closing companies (title companies) can fill in the Commission-approved forms (i.e., Listings, Sales Contracts, etc.) but cannot create from scratch their own contracts, non-standard deeds, etc. After all, the official reasoning goes (as does the Colorado case law in Ch. 16), Brokers and Title Companies are not attorneys and are not trained or licensed to draft (create) legal docs.
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Exclusive Right-to-Buy Contract (All Types of Agency)
Section on “Success Fee” - Buyers agent, can they be paid both commission and a success fee?
The "success fee" IS the "commission". It's just not called a "commission" because here we are dealing with a BUYER'S AGENT. Section 6 is talking about whether the BUYER will pay the broker anything, because normally, it is the seller who pays the commission to their agent ("Listing brokerage") who SPLITS that fee with the broker who brought in the buyer. Normally, therefore, the buyer will not have to pay their agent anything, UNLESS they agreed in advance (with this buyer agency agreement) to pay a success fee. So: Seller's agent = "commission"; Buyer's agent: "success fee".
But, you're probably asking whether the buyer's broker can "collect" twice: Once from the seller (through the listing broker's split) and again from the buyer? I am not aware of any Rule that prohibits this, but in normal circumstances, I would think that this is pretty unethical.
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What if the buyer’s broker really doesn’t do much and still tries to collect a Success Fee. How strict is the requirement of "submitted its address"?
The passage about "submitted its address" is simply a specific to prevent the (buyer's) broker from trying to collect a fee if, after the term of the brokerage agreement with the buyer expires the buyer actually buys a property. It is really a "proof" kind of thing if there is a dispute (lawsuit) over whether the broker has earned a commission. For instance, if the broker merely "mentioned" the property to buyer, then the agreement expired, then the buyer eventually buys said property - then absent any written evidence to the contrary the broker would not have enough "proof" that s/he had earned a commission. However, if there is some written proof, (a letter specifying this address or even a "shopping list",) and buyer eventually bought it, then the court (or arbitrator/mediator) could reasonably find that the broker was the procuring cause - entitling him/her to a commission.
As with any case, the test of whether the broker had provided the specific information entitling him/her to a commission would be determined on a case-by-case manner, and would be based on "reasonableness". For instance, the letter specifying that property would be perfectly reasonable. But handing the buyer the MLS book would clearly be unreasonable, an ethical violation, and likely be cause for penalty by the Real Estate Commission. Since it would be subject to Real Estate Commission interpretation after the fact (after a problem arose) there really are no specific guidelines for practice than general common-law of agency, specific Rules and Regs and REC opinions (Ch. 16) and basic ethics.
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CONTRACT PROBLEMS (Including Listing/Sales Analysis and Answer Keys)
Why aren't some of the boxes checked, or why are specific instructions not included for some items on this or other forms that we are filling out?
The point of this chapter is to use fill-in-the-blank exercises to oblige the student to find the appropriate passages in the forms so that you will learn what those passages say and mean. The point is not to make sure that you get all blanks completely filled-out exactly the correct way with all the T’s crossed and I’s dotted. This is because it is distracting from the main goal of learning the content and meaning of the forms with unimportant detail.
So – we created these forms and problems with simplicity in mind: Each problem has a dozen or so facts where you have to find the passage, where it will “force” you to read and understand that passage. One problem is that the R/E Commission annually (or twice-annually) changes around the passages, renumbers them, adds or subtracts a bot. The addition of all these details would either mean that we would have to complicate the problems and answer keys or ignore some of the minor details so that students can focus on what is really important.
Since we don’t want to students to get lost in the forest, but focus on only the big trees – we are leaving out some of the details. So… if you find a detail where a box is unchecked or “Inc.” is missing, etc. – that means nothing significant: Just that we want you to focus not on the detail that gets filled into the passage, but on the passages that are asked about/filled in. Remember that every transaction is different, so what goes in every blank or box will be different: So we are not trying to teach you a “standard” of what gets put on every contract (because there is no such “standard”) but familiarize you with the contents of the contract. That way you will not only be able to know what the license exam questions are asking and will be able to find those important passages in the “real life” of the real estate world. Yes – you will need to be accurate in “real life” – so this is not a suggestion that you don’t have to complete things properly. Instead, that this is a learning exercise and not an exact practical application.
By the way – all this applies even more in the Closings course – where we have you fill out contracts, but leave out a lot of details. As the Instructions section mentions – the point is to familiarize the student with the “flow” of transactions and what the forms look like.
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LISTING CONTRACT
Section 3.2: Is it incorrect or will it cause problems with the contract, if I just put "Awesome Real Estate", instead of "Awesome Real Estate, Inc.", as it states in the Answer Key?
It absolutely does not matter whether “Inc.” is in there or not.
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Section 3.4: There was no property description listed in the problem. I know that I would either have to get it from the current deed or pull it up on public records, correct?
In the sales contract, the broker rarely knows the legal description. The title report will be ordered – and the title company will deal with the public records – immediately after the sales contract is completed. That is one of the first things you will do as a broker after the parties sign the contract: Submit it to the title company, so they can do the research.
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Section 4.1: Brokerage Relationship:
The broker may pursue other, backup, offers in case this one falls through. This section, however, says that it is not unethical (= not a violation of the contract or Rules) to stop pursuing other offers while this one is under contract and (hopefully) closes. Ordering your listing broker to pursue other offers (requiring legal "obedience") would be a tricky business, since it would start to raise legal dilemmas. The listing contract says the broker need not pursue other offers, so that is what is legally controlling - in other words, the seller (probably) couldn't later sue the broker therefore for failure to do so.
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Section 4.2: In the problem facts, it says broker will represent the seller under an agency relationship and represent the buyer under transaction brokerage. I thought that you're either a transaction broker to both parties or have an agency relationship with one. In this scenario, how is the buyer different from a customer?
Normally, the broker is supposed to do as you say (seller = agency, buyer = customer OR both seller and buyer as Transaction Brokerage). However, this refers to the Listing agreement section 4(f)(2), which refers to the situation where a broker already has seller under a listing agreement and buyer under an agency representation agreement OR transaction broker agreement and then brings them both together. This implies that if the broker has the buyer under an agency agreement, then broker will have to get buyer to sign a change-of-status/transaction broker disclosure (effectively switching to transaction broker.
In the situation where the broker is an agent to the seller and TB to the buyer, then there will be differences than if the buyer was a "customer". Although the broker will not owe agency duties to the buyer the broker will have to perform and not-reveal secrets, just like a transaction broker must do.
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4.3.1.2 - In the Answer Key - Why wouldn’t the box be checked given the instructions from the sellers indicate they want a buyer to be treated as a customer?
Note that the instructions (facts of this problem) say, “If the ultimate buyer comes from this broker or another broker in the same company,
sellers wish that buyer to be treated as a customer, rather than shifting their own agency relationship to Transaction Broker.”
This is indicating that sellers specifically are instructing their (Listing) Broker to choose Section 4.3.1.1 Seller Agency Only,
rather than Section 4.3.1.2. (Because by checking the box next to Section 4.3.1.2, you would be eliminating the provisions of 4.3.1.1.
It’s an either/or situation.)
In 4.3.1.1, if there is an In-Company transaction (two brokers from the same company)
Sellers in this case do not want a Brokerage Relationship with both parties.
They want listing agent to be their broker and the other broker must treat the buyers as customers.
Otherwise, by checking 4.3.1.2, the sellers would be saying that they would be willing to change to the Transaction Broker status if
the buyers have a Transaction Broker. (Note that the instructions say, specifically, “rather than shifting their own agency relationship to
Transaction Broker”.)
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Section 5.8 – What are the reasons that a seller would not want to share with a potential buyer that other offers are on the table?
This is all speculation, but I can imagine a rare case where the (potential) buyers get together and “collude” to lower their offers, or Buyer 1 – upon learning of Buyer 2’s expected offer – realizes that his/her offer was way too high. “Oh, you were only going to offer $200,000. I was going to offer $250,000 – but now I know I can beat your offer by merely proposing $201,000.”
Naturally, this would mean that seller lost out on almost $50,000 because the brokers shared information.
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Section 7 - Does the seller really determine what kind of split between you as the listing broker and a cooperating broker?
Yes. Remember that this money is coming out of seller’s “pocket” – the seller is paying all of this… so the listing broker and the seller are deciding in advance (since this is the listing agreement) what the seller is willing to pay. This may also change later on, depending on the negotiations with the eventual buyer.
Section 7 - I understand that commissions are agreed upon between the broker and the seller. However, when the seller says he will pay 6% of the sales price to the broker and 2.8% to other brokers, is that a total of 8.8%?
No, that 6% (example) is the total amount. It means the Listing Broker gets the 3.2%.3.2 Answer said Awesome Real Estate, Inc. - I just put in Awesome Real Estate. Is "Inc" included because other wise it would be in the broker's name and the other box would be checked?
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Section 7.3.3 – Even though there is a default, shouldn't you check the “Shall Not” box?
Perhaps. Seller might want to check the box “Shall Not” in 7.3.3 – so that broker would not get a commission in the event of default.
(Of course, the broker would want to check the “Shall” box.) If push came to shove in a court of law, and neither box was checked (as here)
the court would certainly decide in favor of the seller anyway. So, it would be as if they checked the “Shall Not” box anyway.
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Section 7.5 - If this is filled out, does this obligate the seller to the amount (percentage) entered in addition to the amount set forth there?
Or are these percentages taken out of the amount indicated in section 14?
Section 7.1 sets out what amount or percentage the seller will pay their own listing broker. Then, Section 7.5 sets out what amount or percentage the seller will pay the cooperating broker – the one working with the buyer. Remember that the seller (usually) pays the entire commission – both to their own broker (listing broker) and the broker working with or representing the buyer.
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Section 9: In Listing contract #1, it states that the Swans consent to the broker submitting the listing to either MLS or
Property Info Exchange. But in Listing Problem #1 Answer Key, # 16 has BOTH MLS and Property Exchange checked off. Shouldn't it be one or the other?
The statement isn't meant to imply that the Swans insist on "one or the other". On the contrary, it is implying that they are being flexible, by consenting to either (both). Therefore, the "check-boxes" on page 21-69 are following their wishes.
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11.2 Terms – if the seller is willing to allow 45 days to wait for buyer financing, why would we not check the VA and FHA loan boxes?
Although it is not specifically spelled-out in the instructions (but it is indicated in Section 11.4) the sellers do not want to allow the buyers to get either
VA-guaranteed or FHA-insured financing – so it would not be unreasonable to check these boxes. On the other hand, the sellers in this problem appear pretty reticent
to bear any additional costs – and one thing about VA or FHA financing is that buyer is not allowed to pay certain fees. In that case, the seller usually has to pay
these things – and our sellers might back out on this deal if it cuts significantly into their proceeds.
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Section 11.4: Buyer’s Closing Costs (FHA/VA). What is put in here? A specific dollar amount? Or a general statement that whatever costs are disallowed will be payable by the seller (to cover your rear)? Especially at this point, you have no idea what kind of loan the buyer will get.
This is simply a statement of what seller is willing to pay (presumably a maximum amount) if the eventual buyer gets an FHA or VA loan and is prohibited from paying certain closing costs. It may become a non-issue - especially if the ultimate buyer doesn’t get an FHA or VA loan. But this is a way to set down in writing what the seller is willing to pay if this happens, so that there is no conflict (between the seller and broker, or seller and buyer) later on that kills the deal. But the main thing here is that both seller and his/her broker are agreeing as to seller’s “max”. Therefore, if the amount of (the eventual buyer’s) disallowed costs is greater than the maximum amount seller had agreed to, then it might be the seller’s broker who will have to pay the costs (unless s/he wants the deal to fall through)!
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Section 11.4, Closing Costs, Documents and Services: How Does this affect the requirement that a broker must bear the cost of their own services (i.e., advertising) and may not charge for document preparation?
Anyone may pay closing costs - the buyer, seller, broker, lender, neighbor, etc., (subject to FHA or VA requirements, if that is an issue.) What you are referring to is the requirement that a broker must bear their own costs (as discussed above), or that the broker may not charge their client a "document preparation" fee, since only lawyers are legally allowed to "create" legal documents. But that is a totally different issue than what Section 14 of the sales contract is dealing with. That section is simply saying that each party will pay its customary closing costs (i.e., Seller pays "Owner's" title insurance, Buyer pays the "Lender's" title insurance and loan closing fee, they customarily split the sales closing fee, etc.) unless they negotiate differently. (In fact, if the deal is in danger of falling apart, the broker often agrees to pay some costs out of their commission, just to "get the deal done".)
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Section 11.5: Is there a “standard” amount of earnest money?
There really is no standard amount, because of all the variables. The "rule of thumb" is that it should be enough that if the buyer defaults, the seller will be adequately compensated for having taken it off the market for that time... but not too much that it would scare away potential buyers. Variables would include: the asking price of the house, concessions the buyer is asking from the seller (such as a seller carry-back loan), length of time until anticipated closing, and of course - how eager the buyer or seller are to consummate the deal. Deposits could be as low as $500, or as much as $10,000.
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Section 11.7, Advisory: Tax Withholding:
Colorado law requires the closing company to withhold 2% of the sales price (or seller's net proceeds, whichever is less) if the sellers are "out-of-staters" (even if they lived in Colorado and are now moving out). This is because it is income taxable (because earned) in the state of Colorado. The IRS also requires the closing company to withhold proceeds if the seller legally resides in (or is a citizen of) another country. Basically the state and the feds want to tax them while they've got them (at the closing table). In addition, some mountain resort cities (possibly Vail, a town in Eagle County, Colorado,) impose a 1% or 2% transfer tax on the purchase of property in the city limits.
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Section 12, Deposits:
This section is simply in the Listing Contract for disclosure of the broker's responsibilities to the seller, and perhaps as a reminder to the broker of his/her Rule E responsibilities. You don't need to worry that it has any unique or greater importance in this context.
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Section 13, Transfer of Title
Yes, the seller may certainly choose the type of deed. Ultimately, seller's choice here is not really controlling since the buyer may want, and negotiate a different type of deed. The type of deed really affects the amount of legal protection that the seller is giving the buyer, so the buyer will want a General Warranty deed, (and the seller would want a quitclaim deed if s/he really could get away with it). Generally, title will be transferred by General or Special WD, depending on how knowledgeable and careful are the parties.
The General WD offers the greatest protection of the state of title from the seller to the buyer (and also warrants those protections to all future grantees), while the Special WD basically warrants that the seller (grantor) has title as stated (in other words, not otherwise encumbered and not already granted away) but does not make these "promises" to any (future) grantees other than the present grantee.
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Section 13 – What exactly is a “material defect”?
Something that is “material” to the contract is something that goes to the “heart”, or purpose of the contract. It would be different in every contract and every property (which is why there are lawsuits – to determine whether someone was sufficiently “damaged”.) So, what is a defect (problem to the property) that is “material” in one property might be different than for another property. However, there are a few things that every contract for the sale of property would consider material: What do you buy a house for? Shelter, safety, etc. So, if it turns out that the roof has a big hole in the middle of it (but the seller did not disclose that) then that would go to both the “shelter” aspect as well as probably “safety”.
Other things can be made material because one part makes it an important issue. For example, if you state in the contract “I am buying this house because it has more than 4000 sq. ft” and it turns out that the measurements were incorrect and it only had 3800 sq. ft… then that could be “material” enough to set aside the transaction.
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Section 13.1.5, Water Rights: This was left blank. Shouldn't you list that water rights and well are not conveyed with the property?
“n/a” indicates that there are no water rights. Therefore, you would not fill in whether the water rights will or will not be conveyed. (That blank line is only to be filled out if there are water rights – and you need to indicate that they are or are not going to be conveyed.) Note – water rights rarely are part of the property. (Same with mineral rights.) They were gone long, long ago – probably retained by the Federal or State govt. when the land was originally sold to the first individual land owner.
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In Section 13.1.5, Water Rights, the owner said no water rights to be conveyed. Would it be better to spell that out? Wouldn’t we at a minimum want to “n/a” the blanks here?
There is already a “n/a” in the big blank – indicating that there are no water rights to be conveyed. Therefore, it wouldn’t make any sense to put “n/a” in those following blanks, because essentially we would be saying, “The water rights – that don’t exist – will be conveyed by – nothing… etc.”
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Section 14: Do you have to be very specific about the language or wording here? I just had VA loan of $54,500.00.
Not specific – but descriptive. You don’t know the exact balance at the time of the contract, so it is sufficient to simply mention the loan.
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Section 28: Where does it say that these items must be attached with this agreement?
This is simply giving an example of where this information should normally go.
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SALES CONTRACT (Introduction)
Sales Contract
Section 3 - "Dates" Matrix. How do you figure the dates in this contract?
Regarding the “dates” in the Matrix on the front of the Sales Contact, and the specific calculations for these and other things in these examples: Don’t worry about the dates on the contracts, and how they were figured out. Of all the things you need to know, this is one thing that is without a doubt NOT IMPORTANT. The dates that are in our examples are frankly completely unrealistic because we have compacted all of them so that everything happens much quicker than in “real life”. (Sort of like on TV courtroom dramas.)
The main thing is that you shouldn’t spend too much time worrying about the exact dates that go in the blanks. For our purposes, this is not the kind of things that are definitely not "etched in stone", nor anything you would need to know for the state exam. That's why the problem just generally says "Account for these contingencies..." - to give you a lot of leeway in what dates to use.
Since the point of the exercise is to familiarize you with the function and language of the forms (plus give you a little experience with how "real life" works) - there is no set answer (as long as you follow the parameters given, such as when the closing is supposed to occur).
In addition, since the “filling-in dates” is a practical exercise – and in “real life”, the possibilities for any particular transaction are subject to the negotiations and whims of the parties, this is not something you would (or could) ever be tested on. Yes – you will be tested (on the Colorado exam and the state license exam) on the language of the contract and what it means. However, you will never be tested on what “answer” goes in a particular blank space.
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Section 4.2: In the problem facts, it says the earnest money is to be held by Douglas Realty. Isn't Douglas Realty the firm that represents the buyer? I thought the earnest money is to be held by the listing broker.
Yes - ultimately the earnest money will be held in the Listing Broker's trust account. However, this is merely the "offer" at this stage - from the hopeful buyers to the sellers (and note that the sellers are going to counteroffer). So, right now they are just saying that "their" (the offering buyers) broker will hold the earnest money.
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Section 4.3: In what forms can “cash at closing” be? I'm thinking that people don't bring big suitcases full of cash to closings.
"Cash" means good-ol greenbacks! Otherwise, it would have to be a cashiers check or bank wire transfer.
Believe it or not, as a closer for a title company for 8 years I saw people bring in wads of cash a few times. However, we would make them go down to the bank and convert it to a cashiers check (because we didn't have the capabilities to handle large sums of cash.) Remember, however, that this wouldn't be the entire purchase price (i.e., $250,000), but just the amount that buyer had to bring to closing (i.e., $4,500, etc.)
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Section 4.6. Assumption, I didn't know where to find info on what the escrow included?
As far as the “Assumption” provisions: Everything you need for this problem is included in the Sales Contract instructions. But keep in mind that the reason the Real Estate Commission (and therefore Mac R/E School has you fill out contracts is so that you are familiar with how things will work in “real life”. We also know from experience that it is the best way for students to learn the contents of (the wording) of these forms – which is what you will be tested on the license exam.
But there is a point where people are spending way too much time on the details of “what number goes in what blank” – and not what the specific provision of the contract says. So, we have to do some trimming somewhere – because it is simply not productive or conducive to learning the specifics you need to learn.
You hit that point – where you are not only failing to see the forest for the trees, but you’re even focusing on the branches! So, just step back and don’t spend any more time trying to find the specific details that go in the blanks of our sample contracts. Focus on the contracts themselves – because that is what you need to know right now.
In “real life”, you will get plenty of practice filling out the specific contracts exactly how your employing brokerage wants you to fill them in. You will see how there are so many variables that it is counterproductive to be trying to cover them in your pre-license schooling.
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Section 4.7 - Seller or Private Financing: Where did you get that payments would commence on 9/1/20xx?
If the closing occurs some time in July, the first payment would normally commence on the first day of the month after the first full month following closing. (We deal with this issue several times in the Closings Course, to follow.)
Section 4.7 - Seller or Private Financing: Interest on lender disbursements will be 18% - where did it say that?
Disbursement Rate: This is such an unimportant concept – you will not be tested on it nor will you see it in real life (because it applies mainly to large construction projects, etc.) that we are leaving it off the “Instructions” for the contract. We just want you to ignore it.
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Section 8.2: What are “Matters of Record” ("Off-Record Title Matters")?
Matters that are "of record" means that they are recorded (in the county clerk's records). Examples would be easements, prior deeds, etc. Matters that are "off record" means that you wouldn't be able to find them in the public records... you would have to see them personally or be told about them. Examples would be Tenants (or even trespassers) living on the property, or things that a survey would show - such as encroachments.
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Section 24 - Earnest Money Dispute. Under item #1, if the broker receives written instructions agreed upon by both buyer and seller, why would you need to do #2 (interplead the money with the court)?
You wouldn't necessarily - but that's not what the explanation is getting at. That explanation is trying to describe the order of events, which is why it stresses that the broker MUST FIRST try to see if the parties can resolve their differences... AND ONLY THEN can get rid of the money: First await instructions, and then (having first "waited") you can interplead. (But in no case may the broker make the decision for the parties.)
In addition, note that the description does NOT say "wait for instructions which say either buyer or seller get the earnest money" - it says "written instructions agreed upon by both"; those written instructions may indeed say that they can't agree on who gets the money, so the broker should give the money to the court.
The point of this entire section and our explanation on page 21-78, is that if there is an earnest money dispute the broker MAY NOT take it upon themselves to decide what to do with the earnest money (i.e., keep it as their "commission", or give it to whichever party they decide deserves it): The disposition of the earnest money in the event of a dispute is ONLY for a court to decide AFTER a proper presentation of the evidence.
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Counterproposal - Problem #1
How do you come up with the figure for Cash at Closing (when the Counterproposal says that the difference between the original offer and the counteroffer is to be paid in cash)?
In the language in the problem facts, it says “The difference between the original offer and the counteroffer is to be paid in cash”, doesn’t mean the actual dollar figure at closing (Balance Due from Buyer). That passage just means that the buyers are going to have to come up with the increase in the sales price themselves (from the original $104,500) - the sellers are not going to increase the amount of their carry-back loan. So "cash at closing" would mean $106,000 - $20,000 carry-back - $54,000 assumption = $32,000. The point here is to basically get in writing that the buyers know they are going to have to come up with about $32,000 "cash" (including their deposit) over and above 3rd-party money.
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Why do the Swans name appear formally (John A. Swan and Mable B. Swan) on the contract for sale but on the counter and agreement to extend do they appear as Johnie and Mabel Swan?
This is intentional - to give the flavor of how informal these things can be. The names will sometimes change, because the buyers are sitting there with their broker filling in a form and the sellers are responding with another form, and they are more concerned about the terms of the contract (what stays, what goes, problems with financing, etc.) and completely ignoring the "details"... it's just not something they are typically concerned about at the time.
This is not a problem, and certainly would not invalidate the contract. The only time it would be a problem is if the spelling of the sellers/grantors on the deed (to the buyers/grantees) is different than how they are currently in title. However, to be honest, the deed is a document that the title company will put together for the brokers so you would not need to worry about it (in "real life"). If for some reason there is a typo in that deed, then since they are insuring the state of the title they will get it corrected.
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Where do you get (or how are you calculating) the Dates on all these forms?
Don’t worry about the dates on the contracts, and how they were figured out. Of all the things you need to know, this is one thing that is without a doubt NOT IMPORTANT. The dates that are in our examples are frankly completely unrealistic because we have compacted all of them so that everything happens much quicker than in “real life”. (Sort of like on TV courtroom dramas.)
The main thing is that you shouldn’t spend too much time worrying about the exact dates that go in the blanks. For our purposes, this is not the kind of things that are definitely not "etched in stone", nor anything you would need to know for the state exam. That's why the problem just generally says "Account for these contingencies..." - to give you a lot of leeway in what dates to use.
Since the point of the exercise is to familiarize you with the function and language of the forms (plus give you a little experience with how "real life" works) - there is no set answer (as long as you follow the parameters given, such as when the closing is supposed to occur).
In addition, since the “filling-in dates” is a practical exercise – and in “real life”, the possibilities for any particular transaction are subject to the negotiations and whims of the parties, this is not something you would (or could) ever be tested on. Yes – you will be tested (on the Colorado exam and the state license exam) on the language of the contract and what it means. However, you will never be tested on what “answer” goes in a particular blank space.
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Is there a standard amount of time that should be allowed for the Acceptance Date?
There definitely is no "standard", because it all depends on the situation and how fast everyone wants/needs to move on the closing. In this example between the Swans and Hoppers, the timing and deadlines are a little more "cramped" than most transactions should be - especially because they keep running into problems and then not really giving themselves enough time to work them out! But such is the job of the real estate broker - and that is why we've constructed this as just one example of how you will have to "think on your feet".
Don't worry about the specific verbiage of your answers. Remember that you won't be asked on the state exam to fill these forms out (we just had you do it for exposure to the contents of the contracts)... but you definitely will need to know what the pre-printed forms say.
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Agreements to Amend/Extend
On the 1st agreement to amend and extend due to the title issues, I couldn't find an answer to the question about whether the Swans could require someone else to correct the title defect. According to the earlier description, they bought the property from United Air Lines and received a special warranty deed, which would seem to indicate that United wouldn't be responsible for correcting previous defects in title that didn't occur under their ownership. And I couldn't find any references to a theory that seemed to fit, except perhaps the possibility of doing a quiet title suit--and who would be responsible for that?.
As for the "defect" question, we put it in just to see how closely students were paying attention to this kind of issue
(and connecting the "theoretical" concept of the chain of title and effect of a special vs. general WD with the
"real life" aspect of who would correct that particular defect.)
The theoretical (rule) answer is that since it was a SWD with United Airlines, they are out of the loop.
In other words, they don't have to correct it, even though they were the earliest "grantor" in our little scenario.
The current sellers would - yes - have to do a quiet title suit. Either that suit would be against the grantors who caused
the problem (However, that is only if they wouldn't agree to do so voluntarily... the problem could be easy to fix)
OR if those grantors are deceased - then the suit would just be to have the court determine the current state of title.
(Having been a real estate lawyer way-back-when, I can tell you that this is a nightmare, because most judges are not very well-versed
about this kind of property law.)
The "real life" answer (which would not be tested, say, on the state exam) is that when United Airlines and any
previous grantors sold the property, they most certainly had title insurance. That is the kind of problem that the
title company would have to correct. So, in "real life" - the distinction between what a SWD and a GWD "covers" is
pretty much non-existent. (Now that you know that... FORGET IT!... until when you are actually working as a broker.
Then you'll find out that title companies take care of all those "title" matters. However, for now that is "real life"
and our exams and the state exam do not test on that. They will test on the theoretical: the rule, such as the
differences between a SWD and GWD.)
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On the second agreement to extend, I am wondering why use that form since no dates are changing?
Although it is the same form, the “Agreement to Amend/Extend” is used either for when the dates are changing or when a new condition has been put in the deal. The first Agreement is to extend the deadlines to account for contingencies that arose and allow the parties time to comply… the second Agreement is to amend the terms of the original contract (remove the encroaching fence, repair the roof, water heater.) See page 21-146.
Note that the dates don’t have to change for the Agreement to Amend/Extend to be used – and note how it says “If a date or deadline is left blank, it means “no change”.
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