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Wholesaling Real Estate in Colorado, Legally: Free Course

The license line in Colorado

Wholesaling the legal way · 1 study hours

Bottom line: Colorado forbids acting as a real estate broker without a license, and the definition reaches selling an interest in real estate and acting as an option dealer, so whether a wholesale deal crosses the line depends on the facts and a lawyer should check it.

Bottom line first. Colorado makes it unlawful to act as a real estate broker without a license (C.R.S. 12-10-202). The definition of broker is wide, and the exemptions are narrow and fact-based. Wholesaling sits near that line. This lesson shows you the words of the law so you can see where the line is, and why the honest answer for any edge case is: ask a Colorado real estate lawyer. We could not reach any statement from the real estate commission for this course, so we do not claim to know how the commission views any particular deal.

Who the law calls a broker

A real estate broker is anyone who, “in consideration of compensation by fee, commission, salary, or anything of value or with the intention of receiving or collecting such compensation,” does certain acts, “directly or indirectly, by a continuing course of conduct or by any single act or transaction” (C.R.S. 12-10-201(6)(a)). Read that slowly:

  • Compensation includes “anything of value,” and the intention to be paid is enough. A fee, a spread or a bonus all count as value.
  • One deal is enough. The law says “any single act or transaction.” You do not have to do this as a career.
  • Directly or indirectly. Using someone else to do the acts does not remove them from the definition.

The acts include selling, buying or leasing real estate “or interest therein”; offering to sell; negotiating a purchase or sale; listing a property for sale; and “buying, selling, offering to buy or sell, or otherwise dealing in options on real estate, or interest therein, or improvements affixed thereon, or acting as an ‘option dealer’” (C.R.S. 12-10-201(6)(a)(I), (II), (IV), (V) and (VII)).

Option dealer

The law defines an option dealer as a person who “directly or indirectly, takes, obtains, or uses an option to purchase, exchange, rent, or lease real property or any interest therein with the intent or for the purpose of buying, selling, exchanging, renting, or leasing the real property or interest therein to another or others.” It applies “whether or not the option is in that person's or its name and whether or not title to said property passes through the name” of that person (C.R.S. 12-10-201(4)). Whether a particular purchase contract that you plan to assign counts as an “option” or an “interest” is a question for a lawyer. The text shows why the question is not silly: it describes taking rights in a property in order to pass them on to others.

The exemptions, in plain words

The law then lists people the broker definition “does not apply to” (C.R.S. 12-10-201(6)(b)). Three matter most to a new investor:

  1. Acting personally as a principal in acquiring. A person “acting personally” on that person's own behalf “as principal in acquiring or in negotiating to acquire any interest in real estate” (C.R.S. 12-10-201(6)(b)(IV)). A principal is someone dealing for themselves, not for another. Notice the word “acquiring.” This is about the buying side.
  2. A natural person acting personally with respect to property owned or leased by that person (C.R.S. 12-10-201(6)(b)(VII)). A natural person is a human being, not a company. This exemption, and the similar ones for corporations and principal officers, each say “except as provided in subsection (4)”, which is the option dealer definition above. The corporate-officer exemption also “does not include any corporation selling previously occupied one-family and two-family dwellings” (C.R.S. 12-10-201(6)(b)(IX)).
  3. An attorney acting for clients in the practice of law (C.R.S. 12-10-201(6)(b)(V)).

Each exemption turns on facts: who owns the property, who is acting for whom, and whether the person is an option dealer. A wholesaler has a contract, not the deed, so “property owned by that person” is not an obvious fit. Do not stretch an exemption to cover what you want to do.

Two very different situations

Situation one: you contract to buy a house and then sell your contract. You are on the buying side first, which is where the “principal” exemption speaks. But you then offer your interest to others for a fee, which is the selling side and where the option dealer language and the “interest therein” language point.

Situation two: you market a house you have no contract on. You are not buying anything. You advertise someone else's house to investors and hope to be paid. This looks much more like “offering to sell” or “listing” for “compensation” than situation one does. It is the clearest broker territory, and the facts that make situation one arguable are missing.

Facts that change the answer

  • Do you hold a signed contract, or only a conversation?
  • Are you buying for yourself, or acting for the seller or the buyer?
  • Do you market the house, or your own contract rights?
  • Do you intend to close on the house yourself if no buyer appears?
  • How are you paid, and by whom?
  • How often do you do this, and through what entity?

Example with real numbers

Made-up numbers. Priya signs a contract at $200,000 and finds an investor who will pay $212,000 total, so her fee is $12,000 ($212,000 minus $200,000). That $12,000 is “compensation” under the definition. Whether her acts fall in the list, and whether an exemption fits, depends on the facts above, so she pays a lawyer to read the contract and her plan before she markets anything.

Now the cost of getting it wrong. The commission can investigate “any licensee or any person who assumes to act in the capacity of a licensee,” and can fine a licensee up to $2,500 for each separate offense, plus censure, probation, suspension or revocation (C.R.S. 12-10-217(1)). Three separate offenses is 3 x $2,500 = $7,500 at most in fines. The law also says it does not relieve any person “from civil liability or criminal prosecution under the laws of this state” (C.R.S. 12-10-217(5)). Our sources do not give a specific penalty for unlicensed activity, so do not rely on a number from anyone, including us.

Getting licensed

The application is made to the commission (C.R.S. 12-10-203(1)). An applicant must be at least eighteen, complete fingerprint-based background checks, show approved education, and pass an exam (C.R.S. 12-10-203(1)(b), (4) and (5)). The education is 48 hours of real estate law and practice, 48 hours on Colorado real estate contracts, and 72 hours of other listed topics, for 168 hours in total (C.R.S. 12-10-203(4)(a)). A newer broker generally cannot practice independently without two years of active service (C.R.S. 12-10-203(5)(c)(I)).

A license does not remove other rules. A licensed broker may be disciplined for “claiming, arranging for, or taking any secret or undisclosed amount of compensation, commission, or profit,” and for paying a commission for broker functions to a person without a license (C.R.S. 12-10-217(1)(t) and (l)). So a licensed broker cannot simply pay an unlicensed wholesaler a fee for finding deals either.

Bottom line again: the license line depends on facts. Never accept “just assign it and it is fine” from anyone. Bring your contract, your marketing and your payment plan to a Colorado real estate lawyer first.

Law cited

Key terms

Real estate broker
Anyone who, for pay or the intention of being paid, does listed acts such as selling, offering to sell or negotiating real estate or an interest in it.
Compensation
Pay of any kind; the law says 'anything of value', and intending to be paid is enough.
Interest in real estate
A right connected to a property, such as ownership, an option or other rights, not only the deed itself.
Option dealer
A person who takes an option on real property with the intent to sell or pass it on to others, whether or not the option is in that person's name.
Option
A right, usually bought, to buy a property at a set price within a set time.
Principal
A person dealing for themselves, not as the agent of someone else.
Natural person
A human being, as opposed to a company.
Exemption
A listed situation where the broker definition 'does not apply' to a person.
Commission (real estate)
The state real estate commission that issues licenses and disciplines brokers.
Employing broker
A licensed broker shown in commission records as employing another broker.
Administrative fine
A money penalty imposed by an agency after a hearing; for licensees it is up to $2,500 for each separate offense.

Flashcards

Which section says a license is required?

C.R.S. 12-10-202, titled 'License required.'

How many deals make someone a broker under the definition?

One can be enough: the law says 'any single act or transaction.'

What counts as compensation?

'Fee, commission, salary, or anything of value,' or the intention of receiving it.

Define option dealer.

Someone who takes or uses an option on real property with intent to sell or pass it to others, in their own name or not.

What does the principal exemption cover?

A person acting personally as principal in acquiring or negotiating to acquire an interest in real estate.

What exception do the owner and corporate exemptions carry?

'Except as provided in subsection (4),' the option dealer definition.

Which situation looks more clearly like broker work: selling your own contract, or marketing a house you have no contract on?

Marketing a house you have no contract on.

How many education hours does a broker applicant need in total?

168: 48 + 48 + 72 (C.R.S. 12-10-203(4)(a)).

Maximum administrative fine per separate offense for a licensee?

$2,500 (C.R.S. 12-10-217(1)).

Who can pay a commission for broker functions to an unlicensed person?

A licensed broker may be disciplined for doing it (C.R.S. 12-10-217(1)(l)).

What is the honest answer for an edge case?

Ask a Colorado real estate lawyer before you act.

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. Which section of the Colorado statutes is titled 'License required' for real estate brokers?

    1. A C.R.S. 12-10-201
    2. B C.R.S. 12-10-203
    3. C C.R.S. 12-10-202
    4. D C.R.S. 12-10-217
    Show answer and why

    Answer: C. C.R.S. 12-10-202

    Section 12-10-202 makes it unlawful to act as a broker without a license. Section 201 holds the definitions and 203 is the license application, which are the tempting mix-ups.

    C.R.S. 12-10-202

  2. How many transactions does the broker definition say it takes to be covered?

    1. A A single act or transaction can be enough
    2. B At least three in a year
    3. C Ten or more
    4. D It depends on the profit being over $10,000
    Show answer and why

    Answer: A. A single act or transaction can be enough

    The definition reaches conduct done 'by a continuing course of conduct or by any single act or transaction.' It sets no minimum count or dollar amount.

    C.R.S. 12-10-201(6)(a)

  3. Which best describes an 'option dealer'?

    1. A Only a licensed broker who sells options on stocks
    2. B Only someone who holds title to the house
    3. C Only a bank that lends on options
    4. D A person who takes or uses an option on real property with intent to sell or pass it to others, whether or not it is in their name
    Show answer and why

    Answer: D. A person who takes or uses an option on real property with intent to sell or pass it to others, whether or not it is in their name

    The definition covers taking an option to buy, rent or lease with the intent of selling or leasing to others, in the person's name or not. The other choices add limits the text does not contain.

    C.R.S. 12-10-201(4)

  4. Which of these is NOT part of the broker definition?

    1. A Doing the acts for compensation or with the intention of being paid
    2. B Holding title to the property
    3. C Doing an act such as offering to sell or negotiating
    4. D Acting directly or indirectly
    Show answer and why

    Answer: B. Holding title to the property

    The definition turns on pay (or intent to be paid) and the listed acts, not on holding title. A person can be a broker for a house they do not own, which is why it matters here.

    C.R.S. 12-10-201(6)(a)

  5. The exemption for a natural person acting personally with respect to property owned or leased by that person carries what exception?

    1. A It does not apply on weekends
    2. B It does not apply above $500,000
    3. C 'Except as provided in subsection (4)' of the section, which is the option dealer definition
    4. D It does not apply to anyone who has a lawyer
    Show answer and why

    Answer: C. 'Except as provided in subsection (4)' of the section, which is the option dealer definition

    Section 12-10-201(6)(b)(VII) says 'except as provided in subsection (4) of this section,' and subsection (4) defines option dealer. So an option dealer cannot assume that exemption fits.

    C.R.S. 12-10-201(6)(b)(VII)

  6. A broker applicant needs 48 hours, another 48 hours and 72 hours of listed education. What is the total?

    1. A 168 hours
    2. B 96 hours
    3. C 120 hours
    4. D 72 hours
    Show answer and why

    Answer: A. 168 hours

    48 + 48 + 72 = 168 hours. 96 leaves out the 72 hours of other listed topics.

    C.R.S. 12-10-203(4)(a)

  7. Marcus advertises a neighbor's house to investors, has no contract on it, and expects a $6,000 fee. What is the best statement?

    1. A This is always fine because he owns nothing
    2. B This is always a crime
    3. C This is fine because the fee is under $10,000
    4. D The facts look more like offering to sell or listing for compensation, so he should ask a Colorado real estate lawyer first
    Show answer and why

    Answer: D. The facts look more like offering to sell or listing for compensation, so he should ask a Colorado real estate lawyer first

    He is not buying anything, so the principal exemption does not describe him, and the broker definition lists offering to sell and listing. The law does not set a dollar floor, and only a lawyer can apply it to his full facts.

    C.R.S. 12-10-201(6)(a)(II), (V)

  8. A licensee commits three separate offenses that each draw the maximum administrative fine. What is the most in fines?

    1. A $2,500
    2. B $7,500
    3. C $25,000
    4. D $75,000
    Show answer and why

    Answer: B. $7,500

    3 x $2,500 = $7,500. The commission may also censure, suspend or revoke, and the law does not remove civil or criminal liability.

    C.R.S. 12-10-217(1), (5)

  9. A licensed broker pays a $3,000 fee to an unlicensed person for doing broker functions. What does the law say?

    1. A It is encouraged to reward finders
    2. B It is allowed if the fee is under $5,000
    3. C Paying a commission or valuable consideration for broker functions to an unlicensed person is a ground for discipline
    4. D Only the unlicensed person can be punished
    Show answer and why

    Answer: C. Paying a commission or valuable consideration for broker functions to an unlicensed person is a ground for discipline

    Section 12-10-217(1)(l) lists this as a ground for discipline, with an exception only for certain out-of-state or foreign brokers. There is no dollar threshold.

    C.R.S. 12-10-217(1)(l)

  10. Why is a lawyer check the answer for edge cases?

    1. A The definition and exemptions turn on facts like who owns, who acts for whom and whether an option is involved, so only someone who reads your documents can apply them
    2. B Lawyers can issue broker licenses
    3. C The law bans wholesaling outright
    4. D Exemptions apply automatically to anyone who hires a lawyer
    Show answer and why

    Answer: A. The definition and exemptions turn on facts like who owns, who acts for whom and whether an option is involved, so only someone who reads your documents can apply them

    Each exemption is fact-specific and the option dealer carve-out can change the result. A lawyer reads the actual contract and plan; the law does not ban wholesaling by name.

    C.R.S. 12-10-201

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