Colorado brokerage relationships: single agent, transaction broker, designated broker, customer

Bottom line: Colorado gives a broker two ways to work with a person: as a single agent (on that person's side, as an advocate) or as a transaction-broker (neutral helper). Anyone the broker does not work for is a customer. A broker may never be a dual agent. If there is no written single-agency agreement, the broker is a transaction-broker (C.R.S. 12-10-403(2)).

Key words

• Agent: a person who acts for another person (the principal or client). The agent owes the client loyalty.
• Single agent: a broker engaged by, and representing, only one party in a deal (C.R.S. 12-10-402(6)). It has four flavors: seller's agent, buyer's agent, landlord's agent and tenant's agent.
• Limited agent: an agent whose duties are only those listed in the statute plus anything added by written agreement (12-10-402(5)). Colorado agents are limited agents.
• Transaction-broker: a broker who helps one or more parties with communication, negotiation, contract terms and closing, without being an agent or advocate for any party (12-10-402(8)).
• Customer: a party the broker has no brokerage relationship with, because that person did not engage or employ the broker (12-10-402(2)). The broker still deals with a customer honestly, but does not work for the customer.
• Designated broker: in a firm with more than one licensee, the individual broker (employing or employed) named in writing to serve a particular client (12-10-402(3)).
• Subagent: a broker hired to act for another broker. Colorado's single agents and transaction-brokers may cooperate with other brokers but may not create subagents (12-10-404(5), 405(6), 407(8)).

The default: transaction-broker

A broker is considered a transaction-broker unless a single agency relationship is set up by a written agreement with the party to be represented (12-10-403(2)). Many brokers adopt an office policy limiting what relationships they offer. A broker need not offer every type (12-10-408(1)(b)).

Seller's or landlord's agent: duties (12-10-404)

The agent must: perform the written agreement; use reasonable skill and care; and promote the client's interests with utmost good faith, loyalty and fidelity. That includes seeking a price and terms the client accepts; presenting all offers promptly, even when the property is already under contract; disclosing adverse material facts the broker actually knows; counseling on known benefits and risks; advising the client to get expert help for things beyond the broker's skill; accounting timely for all money and property; and telling the client they are not liable for the agent's acts they did not approve. The agent also must follow the licensing laws, Commission rules, and fair housing laws (12-10-404(1)).

Must NOT disclose without the client's informed consent (12-10-404(2)): that the seller will take less than asking; the seller's motivating factors (like a job transfer); that the seller will accept different financing terms; any other material information about the seller unless the law requires it or silence would be fraud; and any facts or suspicions about circumstances that may psychologically impact or stigmatize the property (see 38-35.5-101).

Duty to the buyer: the seller's agent owes the buyer no representation duty, but must still disclose all adverse material facts actually known to the broker, such as title problems, physical defects, and required environmental disclosures (12-10-404(3)(a)). The agent has no duty to inspect the property for the buyer.

Buyer's or tenant's agent: duties (12-10-405)

Mirror image of the above. The buyer's agent seeks a price and terms acceptable to the buyer, presents all offers, discloses adverse material facts, counsels on risks, and so on (12-10-405(1)). Must NOT disclose without the buyer's informed consent that the buyer will pay more than the offered price, the buyer's motives, willingness to take other financing terms, or other private material information (12-10-405(2)). To the seller, the buyer's agent owes no duty, except the broker must disclose adverse material facts actually known, including the buyer's financial ability to perform and whether the buyer will live in the home as a principal residence (12-10-405(3)(a)). A buyer's agent may show the same houses to other buyers (12-10-405(4)).

Transaction-broker duties (12-10-407)

A transaction-broker is not an agent for either party (407(1)). The broker must perform the agreement, use reasonable skill and care, present all offers and counteroffers promptly, advise the parties and suggest expert advice, account for money, keep the parties fully informed, help them meet the contract terms through closing, and disclose adverse material facts about the property to buyers and about the buyer's finances and occupancy plans to sellers (407(2)). The list of things never disclosed without the informed consent of all parties includes: that the buyer will pay more; that the seller will take less; motives; other financing terms (407(3)). There is no imputation of knowledge: what one person in the firm knows is not treated as known by the party or everyone else (407(7)).

Designated brokerage

If a firm has more than one licensee, an individual broker is designated for each client. The relationship runs to that designated broker only. It does not extend to the employing broker, other brokers in the firm, or the company itself (12-10-403(6)(b)). So one firm can have one designated broker as seller's agent and another as buyer's agent in the same deal without creating dual agency (403(6)(c)). One individual broker may serve both sides as transaction-broker for both, or as a single agent for one side treating the other as a customer, but never as a single agent for both (403(6)(d); Rule 6.7). The firm still must supervise its brokers (403(8)).

Dual agency is banned

The statute says a broker "shall not establish dual agency" with any seller, landlord, buyer or tenant (12-10-406). The definition of dual agent still appears in 12-10-402(4), but the ban in section 406 controls. The same person or team may not be a single agent for one side and a single agent or transaction-broker for the other (Rule 6.7). A broker who has a single-agent client may still help the customer with ministerial tasks such as showing property, conveying written offers, and giving information about financing options, after proper disclosure (Rule 6.8).

Other points to know

• Compensation does not decide the relationship. Whoever pays the commission does not become the client (12-10-410(2)). The identity of those paying compensation must be disclosed before signing a listing or purchase contract (410(6)).
• Duration. The relationship runs until the work is done. If it is not completed, it ends at the earliest of an agreed expiration, a termination, or one year after engagement (12-10-409(1)). After it ends, a single agent still owes an accounting and must keep confidential what the client asked to keep confidential, unless the client consents, the law requires, or it became public (409(2)).
• Violations. Breaking this part of the law is grounds for Commission discipline (12-10-411).

Example with real numbers

A Boulder County seller lists with Ana, a seller's agent, at $500,000. The seller privately says, "I need to be out in 60 days and will take $470,000."

1. Ana may not tell any buyer's side that the seller would take less, or why (12-10-404(2)(a),(b)). If she does, the seller could lose up to $500,000 - $470,000 = $30,000 of negotiating room, and Ana has violated the statute.
2. A buyer offers $485,000. Ana presents it promptly (12-10-404(1)(c)(II)) and counsels the seller about it. The seller counters at $495,000.
3. Ana knows the roof leaks. That is an adverse material fact. She must disclose it to the seller and to the buyer (12-10-404(1)(c)(III), (3)(a)).
4. A different broker in Ana's firm, Ben, is the buyer's designated broker as a single agent. Ben and Ana are in the same firm but each is designated to a different client, so there is no dual agency (12-10-403(6)(c)). The firm's office policy must protect each client's confidential information (Rule 6.4.B).