Legal pitfalls of buying selling with a RE license in Colorado?

Question

We are a new investor couple with one deal finally working.  My wife is an active real estate broker associate in Colorado.  Does a real estate license help or hinder making deals for wholesaling or buying and selling properties?  It seems that all of the investing books, and articles are written from a non license point of view.

• Do we have to use the approved contracts (Colorado has the longest), or
• Can I use my own contract to buy and sell?
• Can I operate totally independent of her, and if so, does that mean she can't be listed on any title?
• I guess what I am asking is there any way for her to separate her RE business from personal investing.

I don't want to do anything to jeopardize her license, but at the same time don't want to be held to the same standards that she has to follow when acting as an agent.

Are there any licensed agents out there that have experience with this?

Blaine

Bill S. · Answer

Blaine P. is and does as well. If your wife is part of the transaction, she must use the state forms. Not sure why you wouldn't do that anyway. It almost sounds like some guru got a hold of you and claims their forms, you paid for, will in some way make you bullet proof if a deal goes South.

Sure you can use your own contact but as a local RE Attorney put it, Why would you? Think of it this way. You are standing in front of a judge who asks, So why did you not use the state forms you obviously know about them because your wife is an agent? What do you say to that question?

If your wife is part of the deal (her name on title at closing) then I would say her license is on the line. You could add her to title at some point later and perhaps insulate her from your deal.

What standards does an agent have to hold to that you would not want to hold to as well?

To separate her license from your investing, do it just like you would if her business was computer consulting. Set up separate legal entities and manage them properly.

BTW the best insulation is to run both businesses (investing and RE agency) at a high standard.

Blaine P. · Answer

Thanks again, that helps to clarify.

After doing more research, I found that DORA states that a “Real estate broker” does not apply to any person acting personally acting as principal in acquiring or in negotiating to acquire any interest in real estate, or any person acting personally with respect to property owned or leased by that person....

However, Article 1 of of the National Association of Realtors code of ethics states "Realtors®, when acting as principals in a real estate transaction, remain obligated by the duties imposed by the Code of Ethics." which includes all of the disclosure requirements.

I found that the requirement to run all transactions thru the employing Brokerage comes from their rules that require them to monitor all transactions from employed brokers.

Bill S. · Answer

@Blaine P. typically yes the brokerages require that the transaction be through their office but you should ask. Most brokerages give the agents a break on fees for their own deals if they don't take a commission on the deal. I know a number who only charge a small admin fee for the broker's own deals. Obviously, if you take a commission then they take their cut.

The greatest risk to an agents license when doing investing is if they take advantage of someone in a deal and it blows up. The commission would come down on them, hard. The main disadvantage of a license in my opinion is the record keeping required (files of the forms completed), but most of it you would want to do anyway. It's just if something falls through the cracks. If you are not licensed and the deal closes and no one complains then no harm if there is no lead paint disclosure. If you are an agent and your file is incomplete (no lead paint form) then the commission has something to say about it if they audit you. You also have the time and brain damage of dealing with them. That said, if she is acting as an agent then she does that on all her other deals so your personal deals are not that much more.

I can't see that this is really any "harder" than without a license. Perhaps her current brokerage doesn't want investors in the office. I know several others that encourage that so shop around if you don't like what her current office requires.

Blaine P. · Answer

Bill, Thanks for the input.  No, I don't have any other forms to use.  I guess the real question is does she have to run the transaction thru the brokerage she is an agent for, (e.g., Remax, Metro Brokers, Keller Williams, Coldwell Banker, etc.) or can she conduct transactions as an individual.  If We/She use her brokerage forms, they have their name on them, of course.  There is also commission splits and extra office fees that I would be subject to if we have to run everything thru her office.

I certainly already do, and plan to continue to conduct business in an ethical manner, but is there any additional requirements that a licensed agent has that a non-licensed investor does not have.  I have heard that investing and doing deals is much more difficult with a license, but I have not been able to get any specific answer as to why.

Legal pitfalls of buying selling with a RE license in Colorado?

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