It's no secret, Colorado and Denver are growing fast! In 2015 Forbes ranked Denver the 6th fastest growing metropolis in the country, just behind Seattle. That influx is apparent to anyone navigating our city streets, let alone I-25 or I-70. Accordingly, real estate prices are increasing rapidly, as is the demand for high value homes, condominiums and luxury residences. While “high value” is a relative term, in Colorado it certainly includes any property selling for $1,000,000.00 or more, and arguably includes properties selling for $500,000.00 and up. Steep purchase prices and large deposits, especially when paid in cash, enable buyers to close quickly, with fewer contingencies than other buyers. Those factors should afford buyers of luxury real estate a reasonable amount of leverage and justify their insistence on fair and accurate contracts.
STEEP PURCHASE PRICES SHOULD AFFORD BUYERS SOME LEVERAGE
In ordinary residential deals with buyers purchasing a primary residence with a traditional bank loan, real estate agents, brokers and the title companies usually have the expertise needed. Conversely, an experienced real estate attorney can be essential in high value real property transactions. High value sales frequently involve complications and scenarios that aren’t addressed in the form contracts used by agents and brokers. Using form contracts as the base for high value real property sales is fine so long as the contract accurately reflects the realities of the deal and does not place buyers at an unfair disadvantage. A broker’s authority to modify the form contracts they use is restricted by law so, a skilled real estate attorney is necessary to protect buyers and help them, their agents and brokers keep complex deals on track and moving toward timely closing. Below are a few examples of how an experienced real estate attorney can help buyers acquiring high value property.
buyers should have the right to terminate a contract for any reason, or no reason, and receive a refund of the deposit until they are ready to proceed to closing
The first thing a real estate attorney should do for a buyer is to consolidate the numerous and overlapping contract termination rights and deadlines in the form contract into a single date, before which a buyer may terminate the contract for any reason or no reason and receive a refund of the deposit. I’ve never heard a strong argument against that revision. Further, large deposits should always be held by independent escrow agents, preferably the title company, in an account accruing interest for the buyer. An attorney should order an ownership and encumbrance report (O&E) and based on that, estimate the length of time a contract should allow for reviewing the property. That way, after the contract is signed, but before a buyer’s deposit is non-refundable, a real estate attorney can help buyers evaluate a property and identify any troublesome issues in the real estate records. For example, buyers planning to remodel existing structures or construct new structures or landscaping should know if an HOA and/or ArchitecturalReview Committee (ARC) has approval rights over their plans. If an HOA or ARC has approval rights, buyers should understand the process, timing and likelihood of receiving plan approval before the deposit becomes non-refundable. Additionally, a properly drafted contract should allow buyers to terminate the contract and get their deposit back if they are unable to obtain required approvals. Tax implications associated with high value real estate transfers should be understood and addressed before a purchase contract is executed. Things to think about here include any transfer taxes at the city level as well as IRC section 1031 tax deferred exchanges that either party may be closing in connection with a sale. For example, the City of Aspen, Colorado imposes substantial transfer taxes on real estate sales.
Buyers of luxury properties shouldn't feel rushed
Ultimately, when representing a buyer, its most important to protect their right to get out of the deal and receive a refund of their deposit for as long as possible until they are ready to close. In the current Colorado real estate market, with a dwindling supply of properties and seemingly unending increase in ready buyers, its easy for someone to get swept away and sign contracts reflexively. It is my opinion that buyers of high value real property should never feel rushed. Anyone considering acquiring high value or luxury property should seek the counsel of an experienced real estate attorney before signing the contract, or at a minimum, ask their agent or broker to include an attorney review contingency in Section 30 of the form contract. Buyers with an experienced real estate attorney on their team, who is aware of their activities and needs, are in the best position to react quickly and make an appropriate offer on a high value property and close those deals. Over the years, I’ve helped many buyers, and also sellers, close high value real property transfers, including sales of estate class homes, luxury condominiums, trophy ranches and even fractional properties. During a 4-year stint practicing law in Aspen,Colorado I routinely managed high value sales of properties selling for several millions of dollars. When working on any luxury or high value real property purchase, I take a team approach and work with my client’s agent or broker while keeping my focus primarily on the special legal issues necessitating my involvement, always keeping the wheels moving toward a timely closing.