Real Estate Brokers: CYA in 2020 and Beyond
2020 has been wild. We’ve had the global pandemic and its lockdown orders, uncontrollable wildfires (I can smell the smoke now), and civil unrest following the killing of George Floyd and others. Brexit finally happened. There were swarms of unidentified mystery drones flying at night over eastern Colorado. Murder hornets arrived, apparently. Fans were saddened when NBA legend Kobe Bryant was killed in a helicopter crash. Did you know that the Pentagon released official footage of UFOs taken by Navy aviators? The only reason I was not surprised to learn that the President of the United States was infected with COVID-19 was because I have stopped being surprised. Even the cicadas reemerged after 17 years underground so they would not miss out on the excitement that 2020 has had to offer.
It only makes sense that the Colorado Real Estate Commission would also select 2020 as the year to revamp its rules governing real estate brokers. You should know that not only were the rules reorganized and renumbered, but the commission also made substantive changes to some rules that could have a big impact on your practice. Given that the commission appears to equate the violation of any rule with incompetency, now would be a great time to review the new rules if you have not done so already. The 2020 Annual Commission Update course provides a review of some of the more important changes.
Given the wild ride we are on, would it shock you if 2020 also ended up being the year when you receive a frivolous complaint or accusation against your real estate license? Stranger things seem to continue to happen.
Other than ensuring compliance with the rules and otherwise maintaining competency as a broker, here is the best thing you can do to preemptively avoid frivolous complaints, or at least set yourself up nicely to defend yourself if an accusation does arise: take advantage of the new Rule 7.1.F.
Chapter 7 of the new rules governs the use of “standardized forms” and this is where a broker’s greatest “CYA” tool can be found. Under Conway-Bogue, a real estate broker may engage in the practice of law, so long as the broker is limited to “completing standard and approved printed forms.” Conway-Bogue Realty Inv. Co. v. Denver Bar Ass’n, 312 P.2d 998, 1004 (Colo. 1957). Rule 7.1. provides a listing of all the different things that qualify as a “standard form.” Subpart F specifically allows the use of any “form used for disclosure purposes only,” meaning it only provides information, and does not waive or create any legal rights or obligations. As a result, brokers are free to create their own disclosure forms, on any topic, so long as the disclosure relates to the real estate involved in a specific transaction or the geographic area where the real estate is located generally.
To date, I have encountered no tool more effective to negate a frivolous accusation of wrongdoing than a well-written disclosure form attached to a listing agreement or sent as an attachment to an email. As an added incentive, such disclosures help brokers do an effective job of educating their buyers and sellers on a range of important issues that may impact their deal. For example, a disclosure form providing information regarding expansive soils and the warning signs to look out for may help your buyers avoid costly purchasing errors. By providing this kind of information, you provide real value to your clients. It is an added benefit that those buyers will also be unable to claim that you breached your fiduciary duties by failing to warn them about such dangers. Have you ever wondered why a builder’s contract is about 87 pages long and full of disclosures on just about every topic you can think of? Large builders have used extensive and detailed disclosure forms for decades to inform their purchasers and shield themselves from legal liability. Real estate brokers should do the same.
The beautiful thing is, while attorney-drafted disclosure forms covering a wide range of topics are available for purchase, Rule 7.1.F. allows a broker to create and use their own disclosure forms. If that task seems daunting, just remember that it is the substance of the disclosure, and not the use of lawyerly language, that makes a disclosure effective. Moreover, a disclosure need not be long. Two or three sentences describing what the dangers are for any given topic will likely suffice.
Good luck out there!