Limited Services Listing Agreements

Does Colorado real estate license law permit limited services listing agreements or list only listing agreements?

As of the publication of this article, the Colorado Real Estate Commission has not attempted to ban limited services listing agreements. They are regulated in the same fashion that more traditional listing arrangements are regulated

At its May 5, 2004, hearing, the Real Estate Commission adopted a vastly streamlined version of Rule F. Among the new rules is F-4 which reads as follows:

Frascona, Joiner, Goodman and Greenstein, P.C.

The double underlined text above reflects additions to, and the stricken text shows deletions from, an earlier draft of Rule F-4. The change makes it fairly clear that the Commission will permit a seller to accept less service from a listing broker (presumably in exchange for a lower commission rate)

However, the Real Estate Commission’s rules govern matters before the Real Estate Commission. While the Real Estate Commission rules might influence a court in a negligence action against a broker, the Real Estate Commission’s rules do not bind the court if a seller accuses a listing broker of being negligent. The Real Estate Commission’s rules also don’t absolve brokers from violating other laws, such as federal law which makes brokers partly responsible for Lead Based Paint Disclosures. As discussed below, even Colorado license law creates some ambiguity about the extent to which brokers can enter into limited services listing agreements with sellers

C.R.S. § 12-61-804 governs listing brokers when they are acting as a seller’s agent. C.R.S. § 12-61-807 governs listing brokers when they are acting as transaction-brokers. Both statutes identify certain obligations of brokers, including the duty of “presenting all offers and counteroffers in a timely manner regardless of whether the property is subject to a contract for sale or lease or letter of intent.” The statutes also impose the duty of “keeping the parties fully informed regarding the transaction.

C.R.S. § 12-61-803(5) states

Nothing contained in this section shall prohibit the public from entering into written contracts with any broker which contain duties, obligations, or responsibilities which are in addition to those specified in this part 8. [Emphasis not in original.

There is not any specific text specifically prohibiting the subtraction of duties identified elsewhere in Section 8. It remains to be seen how courts will interpret the existing statute

Independent of Colorado license law, HUD regulations impose Lead Based Paint disclosure obligations on brokers. In the listing agreement, the seller can indemnify the broker from the seller’s failure to comply with the lead based paint laws. However the value of the indemnification depends upon the broker’s willingness to enforce the indemnification and the seller’s ability to pay. The indemnification doesn’t prevent the fines against the broker

The popularity of limited services listing arrangements demonstrates that there is market demand by sellers for such arrangements. Limited services listing agreements have the potential to be profitable for brokers as they can generate passive income. They can also be a marketing device which leads to more traditional work once the seller realizes the benefits of a full service broker. Some sellers learn that they have bitten off more than they can chew when they take on the responsibility of handling all features of marketing and showing a property. Writing up the contracts, tracking the deadlines, and providing all the other services which listing brokers provide is more difficult than many sellers initially realize

In spite of the theoretical risk associated with limited services listing arrangements identified above, the Hotline is not aware of any actual complaints or litigation against limited services brokers. Sellers seem to understand the pros and cons of the limited services arrangements

The Real Estate Commission does not have a listing agreement which suits limited services listing arrangements. The Commission’s new Rule F clearly allows brokers to craft their own listing agreements when there is no suitable Commission approved form. Brokers, with the help of their attorneys, can create listing agreement to accurately reflect the deal between the seller and the listing broker, and to manage and diminish risk

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN