Your first week: employing broker, office policy, E&O, the transaction file

Meet Maya. She passed the state exam last month and holds a Colorado license at the associate broker level (a broker who works under the supervision of another broker). This lesson walks through her first week. At each step you will see the law that sits behind it.

Step 1: choose and join an employing broker

An employing broker is the senior broker (or the brokerage's top licensed person) who is responsible for the associates under them. A brokerage firm is the business name the public sees. Maya cannot work alone yet. A new license has to sit under an employing broker.

She interviews three firms and asks six plain questions: What is the commission split? Who pays desk, MLS and sign fees? What training do new associates get? Who answers my questions on a Saturday? Do you carry the group E&O policy or your own? May I see your office policy manual before I sign?

Because Maya is a New Associate Broker (less than two years of accumulated active experience, Rule 1.36), her employer must give her a "High-Level of Supervision". The rule lists it: specific training in office policies and procedures, being reasonably available to consult, help preparing contracts, monitoring each deal from contract to closing, reviewing documents before closing, and making sure an employing broker or an associate with more than two years of active licensure attends her closings or is available to help (Rule 6.3.D). Ask each firm how they will do those things. Good answers beat a high split.

Step 2: pay flows through your employer

A broker who is registered as working for another broker may not accept a commission or anything of value for licensed acts from anyone except the employer (C.R.S. 12-10-221). So when a seller or a title company wants to pay Maya directly, she says no. The money goes to the brokerage, and the brokerage pays her. One exception to know: if she moves firms, her former employer may still pay her the commissions she earned while she worked there (Rule 3.14.B).

Step 3: activate, and what a change of employer means

A license is only useful when it is on active status (you may do licensed work). Inactive status means the license exists but you may not do licensed work. The employing broker holds control and custody of the associate's license (C.R.S. 12-10-211(2)). When Maya changes employers or business location she must give immediate notice to the Commission in the way the Commission accepts. If she skips the notice, her license automatically goes inactive (C.R.S. 12-10-211(1)).

A move to a different firm is a transfer. It must be done in the manner the Commission accepts, with the fee for that request (Rule 3.14.A). And if a license goes inactive, she must stop all licensed activity, tell her employing broker, and stop advertising, including office signs and yard signs (Rule 6.26.A). The new firm's name must also be the name on her ads: no one may promote brokerage services except under the name in the Commission's records (Rule 6.10.A.2).

Step 4: errors and omissions insurance

Errors and omissions (E&O) insurance pays when a client says you made a mistake or missed something that cost them money. Every licensee must carry it, except an inactive broker or an attorney whose malpractice policy already covers the work (C.R.S. 12-10-204(1)). The Division offers a group policy through a contracted insurer, and the insurer cannot cancel an individual licensee. A licensee may instead buy a policy on their own if it meets the Division's minimums. Maya also needs proof of E&O before she can get an active license (Rule 3.9). The policy must cover all acts that need a license.

Step 5: the office policy manual

On day one Maya receives the firm's Office Policy Manual. Rule 1.37 defines it as the manual every employing broker or brokerage firm must have, holding certain policies and procedures. The employing broker must give it to every associate and the associate must sign it. It must also be available for inspection if the Commission asks (Rule 6.3.C.1). What must be in it (Rule 6.4):

• The brokerage relationships the firm offers the public, in writing (C.R.S. 12-10-408(1)(a); Rule 6.4.A).
• How the firm picks which brokers work with which consumers (the "designated broker" procedure).
• Ways to keep confidential: that a seller will take less, that a buyer will pay more, motivating factors, willingness to take other financing, and facts that might stigmatize a property (Rule 6.4.B.4).
• Permission for an employing broker to supervise a deal and also take part in it as a designated broker (Rule 6.4.B.5).
• A written policy for destroying or properly disposing of paper and electronic documents that contain personal identifying information such as Social Security numbers (Rule 6.4.C).

Maya reads the manual, asks about anything unclear, signs it and keeps her copy. Her signature is the proof that she was told the rules.

Step 6: the transaction file

A transaction file is the folder, paper or digital, that holds every required document for one deal. The Commission publishes a Transaction File Checklist on the Division's website, and the Rule says required documents are the ones on that checklist. Both the broker and the brokerage firm must keep transaction files for four years, counted from the closing date, or from the expiration date of a listing that never closed (Rule 6.20). A broker does not have to keep copies of existing public records, title commitments, loan applications or lender-required disclosures from independent closing entities after closing.

The employing broker must review executed contracts for competent preparation and check each file for the required documents. If something is missing the employing broker contacts the associate (Rule 6.3.C). So Maya builds the file as she goes, not at the end.

Step 7: what Maya may and may not do alone

• May: take a listing as the designated broker, in the firm's name, as a single agent or transaction-broker (Rule 6.6.A). Show homes, write contracts, and convey written offers.
• May not: take pay from anyone but her employer (C.R.S. 12-10-221); advertise under her own name instead of the firm's (Rule 6.10); keep earnest money on her own (earnest money goes to the holder named in the contract, and she must get a dated, signed receipt, Rule 5.12.A); or work while inactive (Rule 6.26).
• Ministerial tasks (simple, no-judgment help such as showing a property, preparing a form as a scrivener, or carrying offers) are allowed for the other side's customer after proper disclosure (Rule 6.8).

Example with real numbers

Maya's firm offers a 60/40 split (she keeps 60%). She represents a seller of a $500,000 Boulder County house. The listing agreement sets a 2.5% listing-side fee: $500,000 x 0.025 = $12,500. The firm's split: $12,500 x 0.60 = $7,500 to Maya, $5,000 to the firm. The title company pays the $12,500 to the firm, never to Maya (C.R.S. 12-10-221). Her E&O group cost, desk fee and MLS fee come out of her side. If those total $900 for the month, her pay on this deal after costs is $7,500 - $900 = $6,600. The firm then keeps the transaction file until four years after the closing date (Rule 6.20).

Bottom line: the firm gets the money and the license; you get a supervisor, a manual, insurance, and a folder that must stay in order for four years.