Agency basics: who you work for, duties, how relationships start and end

Bottom line: before you do any real estate work for a person, you and they must be clear about the relationship. In Colorado the default is the weaker one, transaction-broker. Single agency needs a signed written agreement. A broker may never be the agent for both sides.

The basic vocabulary

The principal is the person who hires the agent. An agent is someone allowed to act for another person, the principal, and to bind the principal in dealings with others. A client is a party the broker has agreed to represent. A customer is a party to a transaction with whom the broker has no brokerage relationship because that party did not engage or employ a broker (C.R.S. 12-10-402(2)). You still owe customers honesty and fair dealing, but you are not their representative.

A fiduciary is a person held to the highest duties of trust: put the other person's interests ahead of your own. General agency law gives six classic duties:

• Loyalty: put the client's interests first; no secret profit.
• Obedience: follow the client's lawful instructions.
• Disclosure: tell the client what you know that matters.
• Confidentiality: keep the client's private information private.
• Accounting: account for every dollar and document you receive.
• Reasonable care: use the skill and care expected of a competent broker.

Colorado writes its own list instead of the common-law label. Colorado calls the single agent a limited agent, with specific duties.

Colorado's three relationships

A broker acting in a transaction may act "as a single agent or transaction-broker" (C.R.S. 12-10-403(1)).

1. Seller's or landlord's single agent (C.R.S. 12-10-404(1)). Duties include: perform the terms of the written agreement; use reasonable skill and care; promote the client's interests with "the utmost good faith, loyalty, and fidelity," which includes seeking a price and terms acceptable to the client, presenting all offers in a timely manner, disclosing adverse material facts actually known, counseling on known benefits and risks, advising the client to get expert advice, accounting in a timely manner for all money and property, and informing the client they are not vicariously liable for the broker's acts unless they approve, direct or ratify them.
2. Buyer's or tenant's single agent (C.R.S. 12-10-405(1)): the same list, turned to the buyer's side.
3. Transaction-broker (C.R.S. 12-10-407). "A broker engaged as a transaction-broker is not an agent for either party" (subsection (1)). The transaction-broker helps with communication, advice and getting to closing but is not an advocate for either side. Duties include reasonable skill and care, presenting all offers, suggesting expert advice, accounting for money, keeping the parties fully informed, helping them comply with the contract, and disclosing adverse material facts actually known (subsection (2)).

A transaction-broker must not share, without all parties' informed consent: that a buyer will pay more than offered, that a seller will take less than the asking price, any party's motivating factors, that a party will agree to other financing terms, or psychologically impacting (stigmatizing) facts about the property (C.R.S. 12-10-407(3)(a)-(e)).

The presumption: who is the broker working for?

"A broker shall be considered a transaction-broker unless a single agency relationship is established through a written agreement between the broker and the party or parties to be represented by the broker" (C.R.S. 12-10-403(2)). So transaction-brokerage is the presumed relationship. If a broker wants to be a single agent, before doing any of the licensed activities the broker must "enter into a written agency agreement with the party to be represented" that lays out the duties in sections 12-10-404 or 12-10-405 (C.R.S. 12-10-408(2)(b)). A transaction-broker must disclose in writing, before engaging in the activities, that the broker is not acting as agent for the party, with a signature block for acknowledgment (C.R.S. 12-10-408(2)(a)). If the party refuses to sign, the broker notes that on a copy and keeps it.

A broker may also work with a buyer as the seller's agent. That requires a written disclosure to the buyer saying the broker is the seller's agent and not the buyer's, listing the tasks the broker will do for the seller, and stating the buyer is not vicariously liable (C.R.S. 12-10-408(2)(c)). A brokerage does not have to offer every relationship, but it must adopt a written office policy that describes the ones it does offer (C.R.S. 12-10-408(1)(a)-(b)).

Designated broker

A designated broker is an employing broker or employed broker designated in writing by the employing broker to serve a particular party as single agent or transaction-broker (C.R.S. 12-10-402(3)(a)). In a firm with more than one licensee, the relationship attaches to the designated broker and does not extend to the rest of the firm (C.R.S. 12-10-403(6)(a)-(b)). So two designated brokers in one firm may each be a single agent for opposite sides of the same deal without creating dual agency (C.R.S. 12-10-403(6)(c)). Knowledge is not imputed to other brokers in the firm who were not designated (C.R.S. 12-10-403(6)(f)).

Dual agency is not allowed

The statute is one sentence: "A broker shall not establish dual agency with any seller, landlord, buyer, or tenant" (C.R.S. 12-10-406). Dual agency means representing both sides as an agent. What Colorado does allow is one individual broker being designated as a transaction-broker for both parties, or a single agent for one party treating the other as a customer, "but not as a single agent for both" (C.R.S. 12-10-403(6)(d)). The relationship must be disclosed in writing.

How the relationship starts and ends

The relationship begins "at the time that the broker is engaged by a party" and continues until the agreement is performed or completed (C.R.S. 12-10-409(1)(a)). If it is not performed, it ends at the earliest of the agreed expiration date, a termination or relinquishment by the parties, or one year after the engagement (C.R.S. 12-10-409(1)(b)). After it ends, a seller's or buyer's agent owes no further duty except to account for all money and property and to keep confidential what the client asked to keep confidential, unless the client consents in writing, the law requires disclosure, or the information becomes public through the client or another source (C.R.S. 12-10-409(2)). A transaction-broker must still account for money and property (C.R.S. 12-10-409(3)). A written broker engagement contract for a residential property cannot run with the land, cannot create a recordable lien, and cannot be assigned without the owner's notice and agreement (C.R.S. 12-10-403.5(2)).

Example with real numbers

A Boulder County house is listed at $500,000. The seller signs a written listing agreement making the broker the seller's single agent, with a 3% total commission ($15,000), of which 1.5% ($7,500) is offered to the buyer's side. Privately the seller tells the broker, "I would take $475,000."

1. The broker is the seller's single agent, so the broker must keep this confidential and not tell the buyer (duty of confidentiality; also see C.R.S. 12-10-409(2)(b) for confidential information after the relationship ends).
2. Now suppose the broker were a transaction-broker for both sides. The statute lists "that a seller is willing to accept less than the asking price" as something that cannot be shared without informed consent of all parties (C.R.S. 12-10-407(3)(b)). The same outcome, but for a different reason.
3. The buyer offers $480,000. The broker presents it promptly (required in both relationships).
4. Savings math: $500,000 - $480,000 = $20,000 off the list. Commission at 3% of $480,000 = $14,400, versus $15,000 at the list price, a difference of $600.
5. If the seller's agent had told the buyer's side about the $475,000 floor, the buyer might have bid $475,000: $5,000 less for the seller. That is the loss the confidentiality duty protects.

Timeline example: a buyer signs a buyer-agent agreement on March 1 and never buys. With no earlier end date and no termination, the relationship ends one year later, on March 1 of the next year (C.R.S. 12-10-409(1)(b)(III)), unless the written agreement ends it sooner.