Stage Three: Colorado Real Estate Under Contract
The contract is a legally binding agreement with frightening potential ramifications if executed improperly. What you don’t know can hurt you, cost you money and cost you the house you desire.
Having Colorado real estate under contract means you are now committing to a certain process. Completing a series of small steps, in a specific order, down a well worn path.
The agents job is to be the guide. To help gather information to help watch for hiccups – to see and avoid, to manage stress, communicate and lead the team in the right direction in a timely fashion. Remember, each step is also governed by time. Deadlines agreed to in the Contract to Buy are binding unless there is an agreement by Buyer and Seller to change them. This agreement is executed with an Amend and Extend form.
You might remember that the agent submitted your offer with a copy of the earnest money (good faith deposit) check that you gave them. Did you make sure your agent redacted out the bank account number on the copy? It’s not a bad idea, just in case the copy gets lost or is thrown out (digitally or physically) in “as is” condition.
Now you have Colorado real estate under contract – the contract is executed – the actual earnest money check needs to be deposited. This is normally with the title company (already selected by the Seller) or in the listing agent brokerage’s trust account.
I personally recommend that the EM not be deposited with any title company or brokerage that is not reputable and long standing. In the past, way too many smaller offices have closed shop overnight and disappeared – along with money they were entrusted to hold. If I wouldn’t place my money there, I don’t recommend my clients do either. Just sayin’.
As the Buyer’s Agent, my next step involves making sure we have all the disclosures, addenda, counter-proposals, contracts and closing instructions signed and dated, to this point. My clients are now introduced to my Transaction Manager. A second set of eyes and ears that provide coverage when I’m unavailable and serve to double check that we have everything we need and deadlines are not missed.
The lender should be kept up to date at every step while under contract. They need to receive copies of the contract to buy and any counters, to get the loan process going. Your Realtor (or there transaction manager) must give you, copies of everything that you have signed so far.
A rough visual of the plan ahead can be seen in my flow chart below. For each fork in the road, the Buyer has an “out”. Essentially the ability to terminate the contract if they find something that is a deal breaker.
Your agent will help you by providing referrals and recommendations for home inspectors and specialized contractors like engineers, roofing companies, radon remediation companies, as needed. They can also help with insurance agents. I have a “one strike and you’re out” policy. No contractor I work with has a history of mistreating or failing to perform well with my clients.
Yes, I ask each client for feedback and I follow up with them or for them, if there are issues.
We all aim for a smooth transaction, friendly and fun. It’s not always the case and every transaction is different, but the way I see it is that it’s easier to figure out the bumps and hurdles before closing than looking to solve problems after closing.
Once in a while, the marriage of house under contract and new buyer is just not meant to be. Perhaps the appraisal came in low, the buyer couldn’t get the loan the thought they would or the house was considered high risk and insurance was ridiculously high priced. Yes, it happens… Consider this; The flood plain map for Boulder has recently been redrawn. Some homes that were not considered high risk and were easily covered by insurance, are now in a flood plain! Anyway, a termination of the Contract to Buy may in order.
Assuming you and your agent have been keeping a detail-oriented eye on the dates and deadlines and have not missed the one you need, a termination of contract should be fairly easy. The agent will fill out the Notice to Terminate and get the Buyer to sign and date it. After submitting it to the Seller (maybe with proof of your legitimate and timely need to terminate) we go about getting the earnest money returned to the Buyer. Bear in mind that if the Buyer defaults from the Contract to Buy by missing the deadline for that particular reason, the earnest money can be considered non-refundable!
Ok… quick story!
Mr and Mrs Buyer find the house of their dreams. The layout works, it has room to grow in and they already have friends in this neighborhood.
While chatting to the listing agent I discover that the title to the house has a lien for unpaid taxes recorded against it. According to the listing agent, the Seller has sold other properties and paid the lien, but the government is slow in removing the lien and until that paperwork is finished and recorded, the title cannot be transferred.
We can work with that, to a point… so we structure the contract to buy with a deadline for getting the title work sorted out within 60 days.
In the meantime, with a little help from Google, the Buyer discovers the Seller is in prison in Texas for unpaid taxes and the Sellers’ wife has already been deported to Thailand for similar reasons. He will be joining her in a few months, when he has completed his sentence. The properties they owned are being sold to pay the $800,000 settlement with the US Treasury. This property is number five to go.
Sixty days pass and with little communication from the listing agent and attorney that is helping handle the Sellers affairs, we wonder if progress has been made. It appears not.
The Buyers love for this house was mostly based on being able to purchase it and move in! It is waning.
Ticking the “Objection to Title” box, we submit the Notice to Terminate. The Buyers quickly recover their earnest money and the next week we find a house that is a better fit in many ways for them. As first time buyers who have had a complicated “first attempt” at buying, they are pleasantly surprised at how easy and fun it is to be under contract the second time round. You can read my post about the more ethical Seller of their new home here.
My end goal is two fold:
1. Get my buyer the house they want for the least amount of money and stress, while simultaneously protecting their interests and providing as much (clear and concise) information as possible so they can make educated decisions.
2. Structuring a professional, yet friendly and long lasting relationship, that will aid in a successful closing and continue well beyond. I work with new buyers, seasoned buyers, investors and those relocating from out of state or overseas. Nothing gives me more joy than getting a call from someone who is a repeat client or has been referred to me from a friend or past client. Actually in my ideal world my buyer would “replace themselves” with a referral to a new quality client, just like themselves! 😉
Part of strengthening the range and depth of what I can offer a client involves keeping up with the latest in real estate law and contract changes. Agents are required by the Colorado Real Estate Commission to complete a contract updates class each year, as well as 12 hours of “other” accredited continuing education classes every 3 years. In my opinion this is just a beginning. There is a wealth of classes out there and I am a class addict!
You may notice that some agents have designations – letters after their names. Each designation requires further education and may require a degree of experience too. I will publish guide to designations in another post soon. Needless to say, designations are a good indication that your agent is serious about offering a client the best they can, whether that is marketing, law, negotiation, staging or writing a darn good contract.
Don’t short change yourself. Choose your agent wisely. You are paying for good service and deserve it.