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Colorado Real Estate Broker License: Free Study Course

Property disclosures: condition, environmental hazards, material facts

Real Estate Law and Real Estate Practice · 3 study hours

Bottom line: A Colorado broker must tell buyers about adverse material facts the broker actually knows (physical defects, title problems, required environmental hazards), but must stay silent about stigma facts like a death in the house.

Bottom line: If you actually know something bad and important about a property, you have to tell the people it could hurt. If it is only a stigma (a death, a crime, a past illness), Colorado says it is not a material fact and you do not disclose it.

Two kinds of disclosure

The seller discloses what the seller knows. In Colorado this is usually done on a standard Seller's Property Disclosure form: a questionnaire where the seller answers about the roof, water, wiring, foundation, and so on. It is the seller's statement, not the broker's. The broker has a separate duty of its own.

The broker discloses adverse material facts actually known. Define each word:

  • Adverse: bad for the buyer or tenant.
  • Material fact: a fact that would matter to a reasonable person deciding whether to buy and at what price.
  • Actually known: you really know it. You are not required to go hunting for hidden problems.

What the statutes say

A broker working for the seller must tell the seller about adverse material facts the broker actually knows (C.R.S. 12-10-404(1)(c)(III)). A broker working for the buyer must tell the buyer the same (C.R.S. 12-10-405(1)(c)(III)). A transaction-broker (someone who helps both sides without being either side's agent) must disclose to all prospective buyers or tenants any adverse material facts actually known, including facts about the title, the physical condition, defects, and environmental hazards the law requires to be disclosed (C.R.S. 12-10-407(2)(b)(VI)). A transaction-broker also has no duty to inspect the property or independently verify what the seller says (C.R.S. 12-10-407(4)).

What is NOT a material fact: stigma

Psychologically impacted property means a property that bothers some people for emotional reasons, not because of its physical condition. Colorado says these facts or suspicions are not material facts subject to disclosure, and no lawsuit arises against a broker for staying silent (C.R.S. 38-35.5-101). Examples written in that law: an occupant who has or had HIV or AIDS (or any disease medical evidence says is highly unlikely to spread through living in a home), and a homicide, other felony, or suicide on the property. Brokers also may not volunteer these facts without the client's informed consent (C.R.S. 12-10-405(2)(e); 12-10-407(3)(e)).

Trap: the stigma rule does not cover a physical problem left behind. If the death caused ongoing damage (a biohazard stain in the subfloor), that physical condition is a different question. Also never answer a direct question with a lie; silence is allowed, fraud is not.

Environmental hazards you must know

  • Lead-based paint: Paint with lead was banned for homes in 1978. For housing built before 1978, federal law (42 U.S.C. 4852d) requires the seller or landlord to (1) disclose known lead paint and give available reports, (2) hand over the EPA lead pamphlet, (3) include a lead warning statement in the contract, and (4) give the buyer a 10-day chance (the parties may agree to a different period) to inspect for lead before the buyer is bound. Agents must make sure the seller complies. A knowing violation can cost three times the damages plus fees (my reading of the statute; see unverified note). Keep the signed forms for three years.
  • Radon: a natural radioactive gas that seeps from soil into basements. The EPA says to fix a home at 4.0 picocuries per liter (pCi/L) or higher (a picocurie is a tiny unit of radioactivity). Colorado has high radon, so testing is routine. The Commission has a statute directing radon-disclosure rules (C.R.S. 12-10-220.5).
  • Mold: fungus growing with moisture. Mold tied to dampness can make a rental legally uninhabitable (C.R.S. 38-12-505(1)(a)).
  • Methamphetamine lab residue: chemical contamination from cooking meth. It can make a home unsafe until a certified cleanup is done. Known past use is something to disclose.
  • Asbestos: a fiber used in older insulation, pipe wrap, and floor tiles (common before the 1980s). Harmful only when disturbed and breathed in.
  • Underground storage tanks: buried fuel tanks that can leak into soil and water. Common near old farms and service stations.
  • Flood zones: FEMA maps show where flooding is likely. A lender requires flood insurance in a Special Flood Hazard Area, which changes monthly costs.

Red flags that call for an expert

You are not an inspector. Your job is to spot signs and tell the client to hire an expert (C.R.S. 12-10-404(1)(c)(V)). Typical red flags: stair-step cracks in brick or drywall, doors that stick, a musty smell, fresh paint on only one wall, a sump pump with no explanation, a very old furnace or knob-and-tube wiring, a yard with sunken dirt (septic or tank), a pre-1978 build date, and a property near a floodplain or old industrial site. Triggers: order an inspection (a trained person checks the house), a survey (a licensed surveyor measures boundaries), or a specialist test (radon, sewer scope, structural engineer).

Example with real numbers

A buyer offers $500,000 for a 1965 Boulder County ranch. Step by step:

  1. Built in 1965, so the lead rules apply. The seller gives the EPA pamphlet and the lead warning statement. The buyer takes the 10-day lead inspection chance.
  2. The radon test comes back at 6.2 pCi/L, above the 4.0 action level. A mitigation system (a fan and pipe that vents the gas) is quoted at $1,500.
  3. The buyer asks the seller for a $1,500 credit. The new price on paper stays $500,000; the credit comes off cash due at closing.
  4. The listing broker also knew the basement leaked in the 2023 rains and did not tell anyone. That is an adverse material fact actually known, so silence is a violation. If the buyer later proves $12,000 of water damage, the broker faces discipline and civil claims.
  5. Contrast: the broker knew a prior owner died there in 2018. Under C.R.S. 38-35.5-101 that is not a material fact, so no disclosure is required.

Lead penalty math if a seller knowingly hid lead and the buyer proves $9,000 in harm: 3 x $9,000 = $27,000, plus lawyer fees and costs.

Study tips

Remember the three tests: Is it known? Is it adverse? Is it material? All three must be yes. And remember the exceptions: stigma facts are out; things you merely suspect about the buyer's finances or motives are protected by confidentiality.

Law cited

Key terms

Adverse material fact
A bad fact that would matter to a reasonable buyer or tenant in deciding whether to buy and at what price.
Actually known
Something the broker truly knows; the broker need not investigate but cannot ignore what he knows.
Seller's Property Disclosure
A standard form where the seller states what he knows about the property's condition. It is the seller's statement, not the broker's.
Psychologically impacted (stigmatized) property
A property that bothers people for emotional reasons, such as a death or crime. In Colorado these facts are not material and need not be disclosed.
Lead-based paint
Old paint containing lead, a toxic metal. Federal disclosure rules apply to housing built before 1978.
Radon
A natural radioactive gas from soil that can collect in basements. The EPA action level is 4.0 pCi/L.
Special Flood Hazard Area
A FEMA-mapped area with a high flood risk where lenders require flood insurance.
Asbestos
A fiber in older insulation and tiles that is harmful when it is disturbed and breathed in.
Underground storage tank
A buried fuel tank that may leak into soil and groundwater.
Survey
A licensed surveyor's measurement and map of the property's boundaries and improvements.
Mitigation
Work that reduces a hazard, such as a radon fan system.
Transaction-broker
A broker who helps both sides without being either side's agent.

Flashcards

Which houses trigger the federal lead-paint disclosure?

Housing built before 1978.

How long does a buyer have to test for lead paint?

10 days (the parties can agree to a different period), before being bound.

EPA radon action level?

4.0 pCi/L.

Is a suicide on the property a material fact in Colorado?

No. Stigma facts need no disclosure (C.R.S. 38-35.5-101).

Three tests for a disclosure duty?

Actually known, adverse, and material.

Does a transaction-broker have to inspect the property?

No. No duty to inspect or independently verify (C.R.S. 12-10-407(4)).

Who fills out the Seller's Property Disclosure?

The seller.

What should a broker do about a problem beyond his expertise?

Advise the client to get expert advice.

Penalty for a knowing lead-disclosure violation?

Up to three times the damages, plus fees.

Can a broker lie when asked directly about a stigma fact?

No. Silence is allowed; fraud is not.

Quiz: 10 questions

Tap an answer. It shows right or wrong and opens the reason. Your score is saved in this browser and counts in the study app.

  1. In Colorado, which of these is NOT a material fact a broker must disclose?

    1. A The basement floods every spring
    2. B A homicide occurred on the property in 2015
    3. C The roof leaks and the broker saw it
    4. D The title has an unpaid lien the broker knows about
    Show answer and why

    Answer: B. A homicide occurred on the property in 2015

    Homicides, other felonies, and suicides are stigma facts, not material facts, under C.R.S. 38-35.5-101. The flooding, leak, and lien are physical or title problems that must be disclosed.

    C.R.S. 38-35.5-101

  2. Federal lead-paint disclosure applies to housing built before what year?

    1. A 1960
    2. B 1970
    3. C 1978
    4. D 1992
    Show answer and why

    Answer: C. 1978

    Lead paint was banned for homes in 1978, so housing built before 1978 is covered. 1960 and 1970 are too early, 1992 is not the cutoff.

    42 U.S.C. 4852d

  3. A buyer's broker knows the furnace's heat exchanger is cracked and the buyer does not. The broker must:

    1. A Stay silent because the seller's form is silent
    2. B Tell the buyer, because it is an adverse material fact actually known
    3. C Tell only the seller's broker
    4. D Wait until after closing
    Show answer and why

    Answer: B. Tell the buyer, because it is an adverse material fact actually known

    A buyer's agent must disclose adverse material facts actually known to the buyer. The seller's form being silent does not remove the broker's own duty.

    C.R.S. 12-10-405(1)(c)(III)

  4. A radon test returns 5.1 pCi/L. The EPA action level is 4.0. What does this mean?

    1. A Below the action level, no concern
    2. B At the action level exactly
    3. C The test is invalid
    4. D Above the action level, so mitigation is recommended
    Show answer and why

    Answer: D. Above the action level, so mitigation is recommended

    5.1 minus 4.0 is 1.1 above the action level, so fixing it is recommended. A reading below 4.0 would be under the threshold.

    C.R.S. 12-10-220.5

  5. A buyer will pay $500,000 and gets a $1,500 radon credit. What is cash due at closing reduced by?

    1. A $500,000
    2. B $1,500
    3. C $15,000
    4. D Nothing; credits are illegal
    Show answer and why

    Answer: B. $1,500

    The credit is $1,500 off what the buyer must bring to closing; the contract price is unchanged.

    Math: a seller credit lowers the buyer cash to close dollar for dollar

  6. A transaction-broker's duty to inspect the property for the buyer is:

    1. A Required by law
    2. B Required only for homes over 50 years old
    3. C None; the law says there is no duty to inspect
    4. D Required if the seller asks
    Show answer and why

    Answer: C. None; the law says there is no duty to inspect

    C.R.S. 12-10-407(4) says a transaction-broker has no duty to conduct an independent inspection or verify statements.

    C.R.S. 12-10-407(4)

  7. Which is a red flag that should prompt a recommendation for an expert?

    1. A Stair-step cracks in a brick wall
    2. B A new coat of paint on all rooms
    3. C A large yard
    4. D A mailbox out front
    Show answer and why

    Answer: A. Stair-step cracks in a brick wall

    Stair-step cracks can mean foundation movement, which a structural engineer should evaluate. A full repaint or a big yard is not itself a warning sign.

    C.R.S. 12-10-404(1)(c)(V)

  8. Under the lead rule, what must a seller give the buyer along with the contract?

    1. A The EPA lead pamphlet and a lead warning statement
    2. B A radon map
    3. C A flood certificate
    4. D A copy of the broker's license
    Show answer and why

    Answer: A. The EPA lead pamphlet and a lead warning statement

    Sellers of pre-1978 housing give the pamphlet, disclose known lead hazards, and include the warning statement. Radon and flood papers are separate topics.

    42 U.S.C. 4852d

  9. A seller knowingly hides lead paint; the buyer proves $9,000 in damages. The maximum damages under the three-times rule are:

    1. A $9,000
    2. B $18,000
    3. C $27,000
    4. D $81,000
    Show answer and why

    Answer: C. $27,000

    3 x $9,000 = $27,000, plus attorney fees. $18,000 would be double.

    42 U.S.C. 4852d

  10. Which statement about a broker and a stigma fact is correct?

    1. A The broker must volunteer it to every buyer
    2. B The broker may not volunteer it without the client's informed consent, but may never lie about it
    3. C The broker may lie if asked
    4. D The broker should record it in the MLS
    Show answer and why

    Answer: B. The broker may not volunteer it without the client's informed consent, but may never lie about it

    The statutes list stigma facts among information not disclosed without informed consent. But fraud and false answers are never allowed.

    C.R.S. 12-10-407(3)(e)

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