The Five Points to a Contract

 

As a Colorado Real Estate Commissioner, new contracts are part of the Commission’s responsibility. Five Commissioners from the real estate and legal professions are appointed by the Governor for 3-year terms. The contracts are designed to protect all parties to the contract. Commission-approved forms avoid the need to “reinvent the wheel” and are the basis for consistency in all Colorado real estate transactions.

Recently I helped a couple with the purchase of their first home. In my experience, there are Five Points To A Real Estate Contract and it is important to understand where the strengths and weaknesses lie in your offer (buyer) or acceptance (seller).

  1. Asking price. This is the price the homeowner sets with the aid of a Realtor. I provide the homeowner all of the latest information of range in value for their home. It is up to the seller to set the price. The homeowner has control over the price they set.
  2. Market price. This is the price that buyers will offer based upon their needs, desires, and what other homes have sold for in the neighborhood. It may be different from the asking price.
  3. Bidding War”. The Northern Colorado market is tight, especially under the $400,000 price range. Never before, in my 40 years of real estate, have I been involved in so many Bidding Wars. A Bidding War is basically multiple offers that are reviewed at the same time by the seller. A Bidding War usually starts at the Asking Price and accelerates from there. Keep in mind, All Five Points To A Real Estate Contract come into play, not simply the price.
  4. Inclusions/Exclusions. The seller determines what to include with the home sale and that is provided as Inclusions/Exclusions (may be appliances, mirrors, light fixture, et al). Although those items are/are not part of the listing, they can become a negotiating point. I like to tell the story about the $8,000 refrigerator. Years ago I was involved in a contract negotiation. The buyer wanted to include the refrigerator (and willing to pay extra for it) but the seller insisted on taking the refrigerator. The buyer “walked” and after a considerable number of days on the market, the seller sold the home for $8,000 less than the original contract.
  5. Pre-approval. Today, the strongest offers come with a” Pre-Approval” from a lender, not a Pre-Qualification. The lender furnishes a letter with the exact dollar amount for a loan that the lender will fund. During negotiation, this type of letter holds a considerable amount of weight since there is no guessing whether or not the buyer can secure a loan. Once pre-approved, the sale will only be subject to appraisal, title verification, and in some cases, additional viewing of personal financial records.
  6. It would seem a cash offer holds the most strength, but the funds must be substantiated. Therefore, the buyer must be willing to show proof they have the assets.
  7. Lots of options for loans, so a buyer who chooses their lender PRIOR to looking at houses has more leverage that someone who needs to go through the process.
  8. Additional Provisions. . There is a separate Commission form for Additional Provisions. Some of the highlights include the following.
  9. As Is and With All Faults. Property being sold based upon Buyer’s investigations through inspections.
  10. Under the new TRID rules, there are loan parameters, deadlines and limitations that need to be monitored.
  11. Home Warranty. I ALWAYS make sure my clients have a pre-owned Home Warranty to protect themselves after closing if a buyer, and during the sale process if a seller.
  12. Buyer needs to sell their home before buying the new home is “Conditional Upon Sale of a Property”.  Or not subject to an appraisal.  Contingencies protect the buyer but if there are multiple offers on a property, the contingencies can affect positioning in the offer.
  13. Closing Date and Possession. Normally, the seller has a particular reason they are selling their home, therefore the closing and possession dates are of utmost importance. The closer a buyer can come to meeting those parameters, the stronger the contract.
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