Investors, assignments and a licensee buying for themself

Bottom line: an owner or buyer acting for themself is a principal, not a broker. A licensee can be a principal, but the Commission wants the other side to know they are licensed. And the moment you take a fee to market a deal that is not yours, you are doing brokerage work.

The story: Dana is a Colorado associate broker. She also invests. A homeowner in Pueblo is behind on payments and will sell for $380,000. Dana signs a contract to buy it. Then she finds an investor, Luis, who will pay more. Dana wants to pass the contract to Luis for a fee. Is that allowed? It depends on exactly how she does it.

Words you need first

A principal is a person acting for themself in a deal, as buyer or seller, not as someone's representative. An assignment is passing your rights in a contract to someone else, who steps into your shoes. The assignor passes it on; the assignee receives it. A wholesaler is an investor who gets a property under contract, then assigns the contract to another buyer for a fee. Equitable interest means a right in the property that comes from a signed purchase contract, before closing. A double close means buying the property and immediately selling it in two back-to-back closings, instead of assigning. Brokerage means doing the acts that need a license, defined in the statute.

Rule 1: disclose that you are licensed

Commission Rule 6.17.B says it plainly: if a broker sells, buys or leases real property on the broker's own account, the broker must disclose in the contracting instrument, or in a separate concurrent writing, that they are a licensed broker (4 CCR 725-1 Rule 6.17.B). Concurrent means at the same time. A text message is not a reliable choice; use a signed line in the contract or a signed addendum, and keep a copy in the file.

Why? A licensee has training the seller does not. An unrepresented seller may assume the licensee is looking out for them. Writing it down removes the confusion. The rule also sits next to the broker's broader duty to disclose any known conflict of interest in writing (Rule 6.17.A).

Rule 2: acting as a principal is not brokerage

The statute's definition of broker has exceptions. It does not apply to a person acting personally, or a corporation acting through its officers or regularly salaried employees, on their own behalf as principal in acquiring or negotiating to acquire any interest in real estate (C.R.S. 12-10-201(6)(b)(IV)). It also exempts a natural person acting personally with respect to property owned or leased by that person (C.R.S. 12-10-201(6)(b)(VII)). Two details matter. First, the exception is for acquiring or owning for yourself. Second, there are carve-outs inside the same section, so read the whole provision, not just the first line.

Rule 3: marketing someone else's contract for a fee is brokerage

The definition of broker covers a person who, for compensation or intending to receive it, offers or attempts to sell real estate or an interest in it, or negotiates the purchase or sale of real estate or an interest in it, directly or indirectly, by a continuing course of conduct or by even a single act (C.R.S. 12-10-201(6)(a)(I), (II), (IV)). It is unlawful to act as a broker without a license (C.R.S. 12-10-202).

So compare two people. Person A signs a contract in their own name, truly means to buy, puts up their own earnest money, and later sells their own contract rights. Person B has no contract and no money at risk. B finds a seller, tells investors about the deal, takes a fee for the introduction, and never owns anything. B is the textbook example of someone earning compensation for connecting parties to a real estate deal. That is brokerage, and without a license it is unlawful.

The line is thin. The conduct that matters: whether you own a real, enforceable right under a contract, whether you disclose your role honestly, and whether you are marketing your own deal or someone else's. Real estate lawyers and the Division can draw the line for a specific situation. Do not rely on an internet template.

The assignment clause in the Colorado contract

The Contract to Buy and Sell has a section on assignability, where the parties say whether the buyer may assign the contract. It has a default choice and a box to check. If the clause says the contract is not assignable, an assignment breaches it. If it is assignable, check whether the seller must approve and whether the original buyer stays liable. As Dana's broker, you must also read the section on the broker's role and the section on the parties' relationship with the broker. Do not insert personal disclaimers for the broker's protection into a standard form when the broker is not a party to it (Rule 6.14).

Money terms must also be honest. Contracts prepared by a broker must itemize the Things of Value paid and received and identify who benefits (Rule 6.14.A.1).

Colorado's 2019 wholesaler law

A common question is whether Colorado passed a wholesaler or assignment law in 2019. The statutes used for this course do not contain one, and we could not confirm a section number. So this lesson names none. Before you work with wholesalers or assign contracts for pay, read the current Colorado statutes and Division guidance on that subject and ask your employing broker. This is flagged as unverified.

Other traps for a licensee-investor

• Secret profit. A licensee must not claim or take any secret or undisclosed compensation or profit, or fail to reveal to their principal or employer the full amount of the licensee's compensation, commission, or profit (C.R.S. 12-10-217(1)(t)).
• Options. Using an option to purchase in an agreement that hires you to sell, buy or exchange for a commission is allowed only if, before or at the time you exercise it, you tell the principal in writing the full profit and get written consent (C.R.S. 12-10-217(1)(u)).
• Dishonest dealing. Any conduct that is dishonest can be disciplined (C.R.S. 12-10-217(1)(w)). Hiding that you are a licensee or that you plan to flip is the kind of act that gets complaints.
• Your employing broker. An associate broker works under an employing broker. Tell them about your personal deals and follow your office policy manual.

Example with real numbers

Dana contracts to buy at $380,000 and puts $5,000 earnest money in escrow. Luis agrees to take the contract for $395,000, so Dana's assignment fee is the difference.

1. Assignment spread: $395,000 - $380,000 = $15,000
2. Dana's costs: marketing $600, attorney review $1,400, total $2,000
3. Net profit: $15,000 - $2,000 = $13,000
4. Her $5,000 earnest money is credited back at closing, since Luis closes in her place.

On the disclosure side, Dana writes into the contract with the seller: "Buyer is a licensed Colorado real estate broker acting for herself." She puts the same sentence in the assignment to Luis, and she shows the $15,000 profit on both the assignment and the closing statement. If the seller asks, she tells the full price Luis is paying. If Luis is paying her $15,000 and she was a licensee who also had a listing agreement with the seller, the option and secret-profit rules would apply and she would need written consent. That is why she does not take a listing on this house.