Commission-approved forms and the practice of law

Bottom line: you may fill in the blanks on the right form. You may not write the contract. When a Commission-approved form exists and fits, you use it, and you tell the clients to get a lawyer if they have legal questions.

Why this matters

Drafting contracts and giving legal advice is the practice of law, and only licensed attorneys may do it. Brokers are not attorneys. Yet a broker has to put a deal on paper. Colorado solves this by letting a broker complete standard forms (fill them in) while forbidding the broker from inventing legal terms. The rule comes from the statute (C.R.S. 12-10-403(4)) and is spelled out in the Commission's Rules, chapter 7 (4 CCR 725-1 Rule 7.1 to 7.5).

The idea that a non-lawyer may fill in standard forms without breaking the law against practicing law goes back to a Colorado Supreme Court case from the 1950s, usually called Conway-Bogue Realty Investment Co. v. Denver Bar Association. In plain terms, the court said that filling in the blanks on a form is a normal part of a broker's work, but writing the legal terms or giving advice about their effect is the work of a lawyer. (Check the case name and year against your textbook before the exam; I wrote it from memory.)

What counts as a standard form

The Rule lists eight kinds of standard forms a broker may complete (C.R.S. 12-10-403(4)(b); Rule 7.1):

1. Commission-approved form: promulgated (officially issued) by the Real Estate Commission for current use. The Contract to Buy and Sell, listing contracts, and the brokerage disclosure forms are examples. Brokers get them from the Division of Real Estate's website.
2. Attorney form: drafted by a Colorado attorney for the broker or the brokerage. It must carry the attorney's or law firm's name and the broker's or firm's name, and it must say it "has not been approved by the Colorado Real Estate Commission". The broker may only complete the blanks.
3. Client form: a form supplied by a party to the deal, when the broker works for that party (as single agent or transaction-broker). The broker keeps written proof the party gave it, and only inserts transaction-specific information.
4. Government or lender form: a form a government agency or regulated lender requires. The broker only inserts transaction details.
5. Colorado Bar Association form: one approved in writing by the Bar for broker use, carrying the Bar's approval language.
6. Disclosure form: used only to give information about the property or the area, which does not try to create or waive anyone's legal rights.
7. Title company form: prescribed by the title company closing the deal.
8. Letter of intent: a letter prepared by the broker that says on its face that it is non-binding and creates no legal rights or duties.

The big rule: use the Commission form when it exists

A broker must use a Commission-approved form when one exists and fits the deal (C.R.S. 12-10-403(4)(c); Rule 7.1.A). An attorney form or a Bar Association form may be used only if no Commission form exists or the Commission form is not appropriate (Rule 7.1.B and 7.1.E). The broker also always has to tell the parties that the forms have important legal consequences and that they should talk to a lawyer before signing (Rule 7.1).

What a broker may change on a Commission form

Rule 7.2 lists the allowed changes. In plain words, a broker may:

• Add the firm's name, address, phone, email or logo, and initial lines at the bottom of pages.
• Fill blank spaces, and make blank spaces longer or shorter. Anything typed into a blank must look different from the printed form text, such as a different font.
• Delete or change printed text only if it comes from the parties' negotiation or a party's instruction, and a deletion must be a legible strike-through so the original can still be read.
• Delete certain sections that do not apply, such as the Water Rights, New Loan, Assumption, or Appraisal sections of the Contract to Buy and Sell. The heading stays and the words "omitted-not applicable" go after it.
• Add signature lines and labels.

Whatever the broker changes, the broker must explain it to the principal party and recommend they get expert advice on matters beyond the broker's expertise (Rule 7.2.J). Electronic forms must be locked so nobody can change the printed text by accident (Rule 7.2.L).

What a broker may NOT do

• No made-up clauses. An "Additional Provision" that changes the standard form must result from the parties' negotiation or a party's instruction (Rule 7.3.A). A broker may use a clause drafted by the broker's own Colorado attorney, but must understand it, use it properly, and keep a copy for four years from last use (Rule 7.3.B).
• No self-protection language. A broker who is not a party may not insert personal disclaimers or language excusing the broker. The broker may, at a principal's direction, include the negotiated commission wording (Rule 7.4.B). No contract term relieves a broker from the licensing law or the Rules (Rule 7.4.A).
• No legal fees. Brokers need not prepare legal documents. If the broker or the broker's designee does prepare one, the broker may not charge a separate fee for that (Rule 6.14.B).
• No legal advice. A broker may advise the parties about the effects of some forms where the Rule says so, but explaining what a clause means in your own legal opinion, or telling a seller whether they can win a lawsuit, crosses the line.

When the other side's contract is not a Commission form

Sometimes a builder, bank, or an "instant buyer" company insists on its own purchase contract. Before the client signs, the broker must send the client a written note advising them to seek advice from a licensed attorney, because a non-Commission contract can lead to serious financial harm (Rule 7.5).

Example with real numbers

A seller in Boulder County lists a $500,000 house. The buyer offers $480,000 with $9,600 earnest money (2%), and wants the seller to pay $5,000 toward closing costs.

1. Which form? The Commission-approved Contract to Buy and Sell, because one exists and fits.
2. Allowed: the broker types $480,000 in the price blank, $9,600 for earnest money, and $5,000 in the Seller Concession blank. The broker deletes the Assumption section by leaving the heading and writing "omitted-not applicable".
3. Not allowed: the buyer says "add that the seller must also pay for any problems found in the sewer line for five years." That is new legal language that changes the deal. The broker may write it only because the buyer instructed it as a negotiated additional provision (Rule 7.3.A), tell the buyer what it means in plain terms, and recommend a lawyer. The broker may not invent it on his own, and may not tell the buyer it "will definitely hold up in court".
4. Money check: the buyer's earnest money 2% x $480,000 = $9,600. The seller nets $480,000 - $5,000 concession = $475,000 before commission and costs.