Most residential real estate transactions are handled by real estate brokers. Traditionally, sellers execute a listing contract with a seller's broker who, in return for a commission of around 6% of the sales price, markets the seller's property on a multiple listing service (MLS). Brokers representing buyers then show their clients properties of interest. When a sale closes the brokers split the commission. One common exception to the standard process described above is when a "transaction broker" represents both parties. Today, to stay competitive, many brokerage firms are starting to offer flat fees for facilitating transactions. Most straight-forward residential deals don't necessitate an attorney being involved on either side. My opinion is that in most instances, competent brokers are more than capable of facilitating real estate transfers using the form contracts produced by the Colorado Real Estate Commission (CREC) for that purpose. Also, brokers have access to resources such as the MLS, their own property databases and word of mouth intel on properties coming to market that real estate attorney can't provide. The best brokers also bring marketing expertise and property staging expertise to their clients. Therefore, until recently, my involvement in residential deals has typically been limited to helping buyers and sellers and their brokers in transfers involving high value, luxury class properties that involve significant changes to the CREC contracts, or in sales that have become contentious or involve some problem or extraordinary circumstance. So far this year has been different noticeably different.
When parties use a broker, the higher the sales price, the larger the commission due from the seller
While the bulk of my law practice remains focused on commercial real estate deals, finance and leasing, lately more buyers and sellers are asking me to get involved with their straight forward residential deals on the front end. While I'm happy to help; I've also been curious why the volume of this work has increased so noticeably. I perceive several reasons for this increase in residential deal work. obviously, since leaving big firm life in January, I'm closer to the ground (both literally and figuratively) with office space in a building dominated by younger, dynamic entrepreneurs and tech oriented tenants so, I find myself talking to a variety of people and fielding questions about real estate throughout the days rather than talking to the same old people every day, and some of these conversations lead to residential work as these folks are looking for homes in a tight market. Its no secret its a seller's market around Denver these days, with quality properties going under contract very quickly (often 24 hours or less) and commonly escalating into bidding wars. Ready buyers abound and the higher the sales price, the larger the commission due from the seller at closing; consider that 6% of $400,000.00 is $24,000.00. With buyers easier to find than ever and the supply of available properties at an all time low, I see sellers foregoing the MLS and coming together with buyers on their own through alternative means such as Zillow or most often, through word of mouth. These sellers and buyers need someone to draft the contracts, deeds and other paperwork necessary to transfer the property and to coordinate closings with a title company - that is where I come in.
these days I find myself drafting residential sales contracts between landlords selling condos or townhomes to tenants; and in seller-carryback deals.
One fact that many people outside the real estate world don't realize is that brokers don't actually draft contracts. While they offer many services a lawyer can't (see above), when it comes to drafting they simply fill in the blanks on CREC form contracts. They are actually forbidden by law to make changes to these forms other than filling in the blanks and their forms are locked. I use the same CREC form contracts as the brokers but, as a licensed attorney I have access to alterable MS Word versions. That makes these deals fun for me since I can make some changes to these contracts that benefit my clients! Since I can draft contracts and coordinate a straightforward residential closing for in between 4 to 8 hours of total attorney time, regardless of the purchase price, the sellers I work with are usually very happy that my legal fees are substantially less than the brokerage commission would have been! Buyers can also benefit from that fact and sometimes use it to bargain for a price reduction. The two most common situations where I find myself drafting residential contracts for sellers and buyers these days are: when a landlord wants to sell their condo or town-home to their tenant; and when a seller is providing the financing for the buyer and taking back a note and deed of trust at closing. I'm always happy to help sellers and buyers close residential property sales.