Question: I am opening my own real estate company. Initially, I will be the sole broker, but over the next few months, I expect to take on associates under my license. Do I need an agency policy? Do I need an office policy manual? What other documents might I need?
Every person or company acting as a broker must adopt a written agency policy, regardless of the size of the company. (C.R.S. ’12-61-808(1)(a)). The statute requires the policy to identify and describe the “. . . relationships in which such a broker may engage with any seller, landlord, buyer, or tenant as part of any real estate brokerage activities.” The Real Estate Commission has not elaborated on the statutory mandate through rules or a published Commission position. However, at a minimum, any agency policy should address the following questions.
How will the broker work with sellers? Will the broker allow a seller to choose whether the broker is a seller’s agent or a transaction-broker? Will the broker work only as a transaction-broker, or perhaps only as a seller’s agent? When the broker is listing a property, with whom will the broker cooperate and compensate: transaction-brokers? buyer’s agents? sub-agents?
How will the broker work with buyers? Will the broker do so exclusively as a buyer’s agent, exclusively as a transaction-broker, or may consumers choose whether the broker works as a buyer’s agent or transaction-broker? And finally, the agency policy must address how the broker will handle in-company transactions: will the broker act as a transaction-broker or as a dual agent?
Transaction-broker offices should decide what counts as an in-company transaction. Must the office have an agency relationship with both the buyer and the seller, or is it sufficient for the office merely to be working with both sellers and buyers? Real Estate Commission Rule
E-33 permits a broker to work with a seller (for example) as an agent, and allows the same broker to assist the buyer with certain ministerial tasks as an agent of the seller. This can avoid the characterization of the transaction as an “in-company” sale and avoids the need to change the listing broker’s status from a seller’s agent to a transaction-broker.
Office Policy Manual
Real Estate Commission E-30 requires all employing brokers to develop an office policy manual and periodically review it with all employed licensees. The Real Estate Commission has a position on Office Policy Manuals suggesting 13 topics which the manual should address: (1) Typical real estate transactions; (2) Non-qualifying assumptions and owner financing; (3) Guaranteed buy-outs; (4) Investor purchases; (5) Office policy and brokerage relationships (addressed in the discussion of agency policies above); (6) Licensee’s purchase and sale of property; (7) Monitoring of license renewals and transfers; (8) Delegation of authority; (9) Property management; (10) Property listing procedures, including release of listings; (11) Training; (12) use of personal assistants; and (13) Fair housing/affirmative marketing practices.
Independent Contractor Agreements
While not required by the Colorado Real Estate Commission, every employing broker should have an independent contractor agreement to take advantage of the Internal Revenue Code’s safe haven establishing the independent contractor status of real estate licensees. Under general legal concepts, there is often much uncertainty about whether someone who provides services for another is an independent contractor or an employee. Internal Revenue Code Section 3508 eliminates the tax uncertainty for Real Estate brokers by providing that a real estate licensee shall be considered an independent contractor for Federal income tax purposes if: (1) the licensee obtains substantially all of his or her remuneration based on sales or output rather than time devoted to the activity, and (2) the licensee provides his or her services pursuant to a written contract.
Independent contractor agreements can vary widely among companies. But every independent contractor agreement should address the obligations that the employed licensee has to the broker and the broker’s compensation obligations to the licensee. Some offices tend to be “pure commission-split” offices, others tend to be “pure desk fee” offices, while others are a hybrid of both concepts. Within any given company, the broker can have different arrangements with different licensees, requiring a different independent contractor agreement for each type of arrangement.
Independent contractor agreements should also address what happens with listings and exclusive right-to-buy agreements (e.g., buyer agency agreements) when the broker/independent contractor relationship terminates. The listings are property of the broker and cannot be released without the consent of both the broker and the listed seller or buyer.
While there may be other documents which a Broker might find useful, virtually all real estate companies require an agency policy, an office policy manual, and independent contractor agreement.
A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.