Lux Real Estate

Real Estate 101 - Helping Residential Buyers and Sellers

     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.

High Value Real Property Sales: Keep Calm, Ask Your Attorney.

     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.