CREC Adopts new updates to Rules F-1 and F-2

April 17, 2016

At the April meeting of the Colorado Real Estate Commission, updates were adopted to Rules F-1 and F-2. Below is the brief initial synopsis. F-1 was amended to simply reflect changes to current forms. F-2 however was modified so that brokerage firms might create their own standard forms in certain situations. Read more below. Both of these rules fall under Rule F. USE OF COMMISSION APPROVED FORMS and are available online using the links below.

Rule F-1: Permitted and prohibited form modifications (click for rule)

This rule explains what sections or language in a contract or form may be deleted or modified as necessary or appropriate for the given transaction. This rule will still apply to all contracts and forms created for any transaction, even after reviewing the new rule F-2.

F-2. Additional Provisions (click for rule)

There are two key updates to Rule F-2 that will have an affect on the contracts immediately.  First, a broker may, at the direction of a principal party, include language regarding payment of the broker’s or brokerage’s commission if this is a term of negotiation between the principal parties of the Contract to Buy and Sell. A Buyer agent, when directed by buyer, may ask the seller to pay the buyer's commission, but cannot tell other brokerages to pay the commission. That negotiation would be between a seller and the seller's listing brokerage firm.  This last part is now codified in rule and brokers are encouraged to be clear in writing contract clauses that are directed towards a seller and not a brokerage firm. 

For example, this might be appropriate in one transaction to be added into the Additional Provisions of a Contract;

The buyer requests the seller to pay an additional x.y% of the sales price identified in this contract as additional compensation above and beyond what is being offered as a cooperative fee from the listing brokerage in the MLS listing information.

There are a ton of ways to do this and ours is just a quick example, but the key point is that the buyer must ask and the seller should not be directed to negotiate with the listing broker again (remember that they already negotiated the commission rate during the listing phase of the transaction).

Another big change comes from the ability of brokerage firms to insert attorney written clauses into the contract.  From the rule;

A broker who uses a transaction-specific clause or clauses drafted by the broker’s licensed Colorado attorney must ensure that the broker understands the clause, and the clause is used and completed appropriately. The broker must retain the clause(s) prepared by the broker’s licensed Colorado attorney for four (4) years from the date that the form was last used by the broker. The broker must provide those clause(s) and the name of the licensed Colorado attorney or law firm that prepared the clause(s) upon request by the Commission.

By maintaining this information the Commission is likely hoping that the brokerages or brokers who use attorney prepared clauses take greater care in how these are derived and used in the course of business.  This new section in no way limits the ability of the buyer or seller to write or insert their own language into the contract.  i.e. "Insert THIS specific item into the contract, please." 

Brokers should create a method for maintenance of clauses that are written by their attorney so that the Commission may review this information during the course of a regular audit. 

Live Chat