Relevance of a Real Estate License

Co-author: Zakary A. Kessler

Colorado first passed its license law statute in 1929.(E1) This author knows of no situation where, absent harm to a consumer, a person encountered litigation or criminal prosecution for the unauthorized practice of brokerage. In the 80 plus years in which Colorado has had real estate licensing law, the annotators of the Colorado Revised Statutes identify only 13 cases addressing the issue of defining the term “real estate broker” and describing the types of activities constituting real estate brokerage.(E2) The infrequency of litigation about this issue raises the question of why it is relevant.

Relevance for the Actor

The State of Colorado possesses limited resources to devote to the regulation of real estate brokerage. With the exception of management of residential real property, it is this author’s experience that the Division of Real Estate devotes few of those resources to shutting down the unauthorized practice of real estate brokerage, raising the question, “Why bother complying with the law?” That is, why should an unlicensed person invest their money and time in obtaining a real estate license thereby subjecting him or herself to the jurisdiction of and possible discipline by the state? In addition to the value of the education required to obtain the license and avoiding possible criminal sanctions or cease and desist actions from the Division, there are at least four reasons encouraging a person who provides brokerage activities to secure a license first.

First, some consumers of real estate services have the savvy and inclination to check whether their service provider has a license. The Division of Real Estate has an excellent website, to which the author would steer any dirt lawyer for finding information regarding whether any person is a licensed broker.(E3) From the homepage of the Division of Real Estate, a web researcher can easily find the “Licensee Database” which identifies whether an individual or company has a real estate license. Searchers can also determine whether the State has disciplined a person or entity with a license.

Secondly, perhaps the most significant reason for someone to obtain a real estate license in Colorado is access to inexpensive errors and omissions insurance. Colorado obligates real estate licensees to have malpractice insurance covering all activities that require a real estate license.(E4) The statute requires that “[t]he Commission shall make the errors and omissions insurance available to all licensees by contracting with an insurer for a group policy after competitive bid process in accordance with article 103 of title 24, C.R.S.”(E5) The statute continues that “[a]ny group policy obtained by the Commission shall be available to all licensees with no right on the part of the insured to cancel any licensee.”(E6) The statute empowers the Commission to adopt the rules it deems necessary to carry out the requirement to provide errors and omissions insurance. Colorado Real Estate Commission Rule D-14 provides more detail about the nature of the insurance.(E7)

Third, there are operational reasons for having a license. Virtually all residential property is marketed through Multiple Listing Services (“MLS”). A substantial percentage of commercial properties are also marketed through these MLS systems. The MLS systems require users to have a real estate license for full access to its data and functionality. Most real estate brokerage firms do not allow someone to show a listed property without the assistance of the listing brokerage firm, unless the person showing the property has a real estate license or works as an assistant for a license holder.

Fourth, a person who is determined to have been engaged in real estate “brokerage” without first obtaining a license has no means of enforcing an agreement to pay them for their services.(E8) Without holding a real estate brokerage license, the actor is deemed to have no right to payment for their services.(E9)

Relevance for Principals

Moses was never ordained as a Rabbi.(E10) Abraham Lincoln never took a written bar exam.(E11) U.S. Supreme Court Chief Justice John Marshall didn’t go to law school.(E12) Through various combinations of experience, talent, self-education and other things, there are a variety of persons who can provide high quality services without ever having been licensed to do so. Other than the generic reason that licensed professionals have managed to exceed some standard, are there compelling reasons for consumers of brokerage services to work with someone who has a license? There are at least three reasons. First, the consumer who is working with a licensed broker in Colorado knows that broker has errors and omissions insurance, which will likely cover any potential claims the consumer might bring against the broker.(E13) Second, prior to obtaining a license in Colorado, all brokers go through a rigorous criminal background check.(E14) Once they have a license, all brokers must notify the division of most criminal offenses.(E15) Real estate brokers occupy a position of trust in performing their professional duties. Property sellers often keep valuable items in a property during the selling process. Buyers spend time with their broker behind closed doors. Given the frequency of these situations, the criminal background screening and ongoing criminal conviction reporting required by real estate license law offers much protection and comfort to the public. Third, persons who obtain a real estate brokerage license submit themselves to the jurisdiction of the Colorado Division of Real Estate. Persons dealing with licensed real estate brokers who commit unethical or illegal acts can seek disciplinary action by filing a complaint with the Division of Real Estate.(E16) When compared to filing a lawsuit, this process is easier and cheaper for consumers of real estate brokerage services.

Endnotes:
(E1)1929 Colo. Sess. Laws 529.
(E2)See COLO. REV. STAT. § 12-61-101 (2011) (referencing annotations accompanying the official published COLO. REV. STAT.). The applicable cases cited in the annotations include: Broughall v. Black Forest Dev. Co. 593 P.2d 314 (Colo. 1978); Cary v. Borden Co., 386 P.2d 585 (Colo. 1963); Stank v. Michaelson, 506 P.2d 757 (Colo. App. 1973); Moeller v. Colo. Real Estate Comm’n, 759 P.2d 697 (Colo. 1988); Barton v. Sittner, 723 P.2d 153 (Colo. App. 1986); Amedeus Corp. v. McAllister, 232 P.3d 107 (Colo. App. 2009); Black Forest Realty & Inv. Co. v. Clarke, 282 P. 878 (Colo. 1929); Brakhage v. Georgetown Assocs. Inc., 523 P.2d 145 (Colo. App. 1974); Lemler v. Real Estate Comm’n, 558 P.2d 591 (Colo. App. 1976); Bamford v. Cope, 499 P.2d 639 (Colo. App. 1972); Am. W. Motel Brokers, Inc. v. Wu, 697 P.2d 34 (Colo. 1974); Seibel v. Colo. Real Estate Comm’n, 530 P.2d 1290 (Colo. App. 1974); Richards v. Income Realty & Mktg. Inc., 654 P.2d 864 (Colo. App. 1982).
(E3) See COLORADO DIVISION OF REAL ESTATE, (last visited May 5, 2012).
(E4)COLO. REV. STAT. § 12-61-103.6 (2011).
(E5)Id. § 12-61-103.6(1).
(E6)Id.
(E7)COLO. CODE REGS. § 725-1 (2012), available here (referencing Rule D-14).
(E8)See Brakhage v. Georgetown Assocs. Inc., 523 P.2d 145 (Colo. App. 1974); Broughall v. Black Forest Dev. Co. 593 P.2d 314 (1978).
(E9)Id.
(E10)See Rabbi, JEWISH ENCYCLOPEDIA, (last visited May 17, 2012) (online release of the unedited full-text of the 1906 JEWISH ENCYCLOPEDIA).
(E11)See STATE BAR OF CAL., CALIFORNIA BAR EXAMINATION INFORMATION AND HISTORY 3 (2006), available at http://admissions.calbar.ca.gov/Portals/4/documents/Bar-Exam-Info-History.pdf (explaining that from Delaware’s adoption of the first bar examination in 1763 until the end of the 19th century, judges conducted individual oral examinations of bar candidates in all states).
(E12)See John Marshall, BIOGRAPHICAL DIRECTORY OF FEDERAL JUDGES, FED. JUDICIAL CTR., (last visited May 17, 2012) (highlighting that the first Chief Justice read law as his method of legal education as no U.S. law schools were in existence at the time).
(E13)See Relevance for Actors section above (discussing errors and omissions insurance for real estate brokers).
(E14)COLO. REV. STAT. § 12-61-103(1)(b)(I) (2011).
(E15)Id. § 12-61-113(m) to (m.6).
(E16)The complaint process can be initiated online by filling out the Division of Real Estate’s online form, available here .

Zakary A. Kessler was a law clerk at Frascona, Joiner, Goodman and Greenstein, P.C.

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