1. What to expect for the exam

2. Colorado Exam: Part 1 General Powers of the Real Estate Commission Purpose of the Real Estate Commission is to protect the public in ALL real estate matters Conway-Bogue Decision Brokers may not charge a separate fee for preparing documents Brokers are allowed to practice law in a limited capacity Established RULE F: Allowed to fill out forms approved by the Real Estate Commission If an approved form is available a real estate firm may not draft their own version Language of approved forms must be used exactly as written May omit or strike-through sections that do not apply All added information must be of a different size, color or font Does not apply to new home sales Builders are not required to be real estate brokers

3. Colorado Exam: Part 1 Investigation Upon the Commission’s own motion Verified written complaint False Advertising Violating the Colorado Consumer Protection Act Failure to properly handle and manage trust monies Failure to keep documents for 4 years Paying commission to an unlicensed person for work requiring a license Request written response from licensee Commission may NOT subpoena records without cause (or prior to written response)

4. Colorado Exam: Part 1 Hearing and Penalties Hearings Dismiss the complaint Issue a letter of admonishment (warning – lowest penalty) Or send to a hearing (State Court, Administrative Law Judge) Penalties Fine not to exceed $2,500 per offense Censure, suspend, permanent revocation CREC is the ONLY entity that can suspend or revoke a license May NOT charge damages or impose jail sentences May refer to DA for criminal prosecution

5. Colorado Exam: Part 1 Audits and Ethics Audits Commission can audit a Broker’s escrow account at any time without notice Verify Broker has maintained records for 4 years Verify they have not comingled funds Verify they have provided clients with appropriate closing statements Ethics CREC has NO authority and will NOT investigate ethics violations, complaints or disputes Criminal matters handled in criminal courts Licensees should disclose IMMEDIATELY that they are licensed if they have interest in a property or if they are a principal in the sale of a property. MUST DISCLOSE IN WRITING, IN ANY CONTRACT, THAT YOU ARE A LICENSED AGENT IN THE STATE OF COLORADO WHEN BUYING OR SELLING A PROPERTY (Test Yourself Pg. 6)

6. Colorado Exam: Part 1 Licensing in Colorado Types of Licenses Broker Associate Anyone with less than two years experience must work under an employing broker Independent Broker At least 2 years experience, may work alone, may NOT hire or supervise other brokers Employing Broker May employ other brokers and is responsible for supervision Must have an office that is open to the public Non-Resident Brokers May collect commissions Must keep all trust funds and accept legal action in Colorado

7. Colorado Exam: Part 1 License Rules Renewal Every 3 years, expires at midnight on the anniversary date Continuing Education 24 Hours of CE qualifying classes every license cycle 4 hour Annual Update Course EVERY YEAR If one is missed – 3 options Take and pass state portion of the exam 24 hour Brokerage Administration (allowed only once during career) 24 hour Broker Transition (allowed only once during career) May take state portion of the licensing exam to satisfy 24 hour requirement 31 Day grace period to renew. On day 32 license becomes inactive Licensees on inactive status (voluntary or involuntary) must complete CE Requirements Business Brokerage – must be licensed if real property is involved Real Estate Options – must be licensed Real Estate Securities – securities license required

8. Colorado Exam: Part 1 Licensing Exemptions Regularly salaried employee who is an on-site manager May NOT negotiate terms of leases) Regularly salaried employee of a new home builder Attorney Inactive licensee working for either of the first two Transfer and Inactive Licenses Individual licensees and their employing broker must notify CREC when changing firms Brokerages changing physical locations Inactive licensees may NOT perform activities requiring a license or earn commissions – may perform unlicensed duties Inactive brokers do not need Errors and Omissions Insurance (E&O) Professional liability insurance

9. Colorado Exam: Part 1 Commission Rebates and Referral Fees May NOT pay a referral fee to an unlicensed person (RESPA) May rebate a commission Referral fees may only be paid to licensees with business offices Out of State Brokers Must have an office in the state where they are located Must agree to hold earnest money or escrow funds in a Colorado trust account Must agree to be subject to Colorado courts

10. Colorado Exam: Part 1 Errors and Omissions Insurance Protects Brokers against loss from oversights in filling out forms and conducting business Does not protect against fraud Who Must Carry? Every Active Licensee Includes the Employing Broker AND any corporation or LLC doing business as a firm (Test Yourself Pg. 11)

11. Colorado Exam: Part 1 Brokerage Relationships in Colorado Agency Single Agency ONLY: agent only for one party Fiduciary responsibility, act in upmost good faith, loyalty and fidelity Dual Agency is not legal Shall not disclose price, terms or motivation Care, Obedience, Loyalty, Disclosure, Accounting, Confidentiality Transaction Broker Default in Colorado If agency is not in writing you are a transaction broker (or non-agent) Facilitate the transaction NOT an advocate for either party Use “reasonable skill and care” Must disclose material facts actually known Arm’s length

12. Colorado Exam: Part 1 Brokerage Duties – Regardless of Agency Relationship Exercise Reasonable Skill and Care Perform the terms of any written or oral agreement Present all offers to and from the client in a timely manner Disclose any adverse material facts actually known by Broker Advise client regarding the transaction and when to obtain expert advice Keep the client fully informed Shall not disclose Price Terms Motivation Material information about the client UNLESS required by law or would be dishonest or fraudulent not to Stigmatized property

13. Colorado Exam: Part 1 Additional Duties of an Agent Promote interests of the client with the upmost good faith, loyalty, and fidelity Seek a price and terms that are acceptable to the client Council the client as to any material risks or benefits of the transaction actually known by Broker

14. Colorado Exam: Part 1 Designated Broker The broker that Buyer or Seller signs an agency agreement with “Designated” by the Employing Broker via office policy manual Buyer Listing or Seller Listing is owned by the office Employing Broker has no agency agreement with the client In-Company Transactions Brokers do not exchange confidential information even if they are in the same office

15. Colorado Exam: Part 1 Customers Third party who has not engaged a broker Fair and Honest Dealings Disclosure of all material facts Disclosure Disclose, disclose, disclose Broker has no duty to conduct an inspection of a property or verify accuracy of statements made UNLESS it’s obvious May only disclose confidential information with written permission of the client Stigmatized Property NOT a material fact in CO – does not need to be disclosed

16. Colorado Exam: Part 1 Rule E-35: Disclosure of agency relationship is required at the first reasonable opportunity Before acquiring any confidential information Brokerage Disclosure to Buyer OR to Seller When an agency relationship already exists Disclosure to the other party Not a contract Definitions of Working Relationships Not a contract or a disclosure Informational purposes only Defines the working relationships between a buyer or seller and a broker in Colorado (Test Yourself Pg. 20)

17. Colorado Exam: Part 1 Requirements Governing Activity Trade Names Name of your business – must be registered with CREC Brokers must do business using ONLY their registered trade name Brokerage’s name as registered must appear on all advertising Broker Associates’ info NOT required but allowed Brokerage Administration Reasonable supervision Receive, read, and sign an office policy manual All Contracts reviewed by Employing Broker High level of supervision for licensees with less than two years experience Attend or be available to answer all questions for closings Written office policy Method for designating brokers Allowed to delegate supervision

18. Colorado Exam: Part 1 Record Keeping Must be kept for 4 years! Complete copies of all agreements and documents including HUD-1 Personal Assistants May: Show property Create marketing materials Distribute materials regarding properties prepared by a licensee May NOT: negotiate terms or conditions independently draft or fill in contracts offer opinions advice or interpretations distribute any information not prepared by a licensed broker

19. Colorado Exam: Part 1 Rule E-13: Sign Crossing A licensee shall not negotiate a sale, exchange, lease or listing contract of real property directly with an owner, for compensation, if owner has written, unexpired, exclusive contract with another licensee Same for buyers Licensee may not initiate contact If licensee is contacted by buyer or seller then may respond May enter an agreement for a future exclusive right to become effective upon termination or expiration of existing agreement (Test Yourself Pg. 27)

20. Colorado Exam: Part 1 Trust Accounts Separate Account to hold money belonging to others Earnest Money, Security Deposits Must be in place prior to accepting funds Only setup by Employing Broker or Independent Brokers Required Trust Accounts Sales Trust Account - $ related to sales transactions pending closing Management Trust Account - $ in connection with property management services Security Deposit Trust Account – refundable security deposits Advance Rental – rental $ collected in advance (vacation rentals) Owner’s Association - $ held on behalf of an association Must have “Trust” or “Escrow” in the name Must be a government insured institution – NOT a credit union

21. Colorado Exam: Part 1 Setting up Trust Accounts Must have “Trust” or “Escrow” in the name Must be a government insured institution – NOT a credit union Must be in the name of the Employing Broker OR Corporation Operation of Trust Accounts Employing Broker is personally responsible for funds and supervision of the account Must be able to withdraw funds without a co-signer Broker may use personal funds to maintain the operating cost of the account Must NOT comingle operating funds

22. Colorado Exam: Part 1 Commingling and Conversion of Funds Comingling: mixing of funds belonging to others with operating funds Conversion: using one person’s funds to pay another Trust Account Documentation Account Journal – Chronological Record Account Ledger – Separates funds by a single beneficiary (SS#, Tax ID) Broker Ledger – Shows Broker’s personal funds Safeguards Frequent Reconciliation Separation of Duties Outside Audits RE Commissions Assistance

23. Colorado Exam: Part 1 Earnest Money Must be deposited within 3 business days of acceptance of the offer. May be deposited with a third party with permission of the parties Promissory Notes for EM Must have a due date prior to closing Listing Broker is responsible for presenting the note for collection from the buyer Must be “Good Funds” prior to closing

24. Colorado Exam: Part 1 Property Management Trust Accounts 5 business days to deposit money received into a trust account Deposits must be returned to tenants within 30 days unless lease states 60 days Tenant must receive an accounting for any reductions Brokers managing their own properties must have separate account for each property. (Test Yourself Pg. 34)

25. Looking Ahead Settlement Statements (Beginning pg. 57) Document fee in Colorado: $ 0.01 per $100 of property value Price paid to record a Deed Debits vs. Credits Buyer owns the day of closing 365 Day Year (Calendar Year) unless otherwise stated 6 Column Worksheet, HUD -1 Both Brokers are responsible for accuracy of closing statements Good Funds at Closing Cashier’s check from a commercial bank, teller’s check (bank check), wire transfer, cash Personal checks, business checks, money market checks, etc are NOT good funds 2% Non-Resident Seller Income Tax Withholding Closing entity must withhold either the seller’s net proceeds OR 2% of the selling price – whichever is less Principle Residences are exempt

26. For Next Time Pages 35 - 56: Colorado Contracts Review copies of the contracts as you read Exclusive Right to Buy, Exclusive Right to Sell Brokerage Disclosure to Buyer Disclosures: Lead Based Paint Disclosure, Source of Water Addendum, Seller’s Property Disclosure, Square Footage Disclosure Contract to Buy and Sell (Residential) Counterproposal Inspection Objection and Inspection Resolution Notice to Terminate and Earnest Money Release Change of Status Closing Instructions Amend / Extends (2 Types) Pages 57 – 66: Closing and Settlement Prepare the 6 column worksheet – blank version provided (make additional copies) Pages 67 – 74: Additional Topics