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Colorado Contracts Information for Sellers
When considering the purchase or sale of real estate in Breckenridge or anywhere else in Colorado, state law requires the terms of the purchase to be in writing. At minimum, such agreement must spell out the parties to the contract, the property address, the agreed-upon purchase price and signatures of both the buyer and seller.
Any contract to buy and sell real estate must contain the same basic elements as any other lawful contract. In order for the buy-sell contract to be enforceable, this agreement must include mutual agreement, lawful objective, and consideration (usually earnest money).
If you've bought or sold real estate, you'll recognize the process of a real estate transaction and how it fulfills contracts law. Mutual agreement is demonstrated by the offer and acceptance and by the parties signing the contract. Lawful objective simply means the seller is legally able to sell which is why a title search is done. The title company makes sure the seller has the lawful right to sell the property and it is lawful for the buyer to buy it. The consideration is something given with the promise to buy. Usually this is a small down payment, called earnest money, and is given in addition to the future promise of full payment.
The Colorado Real Estate Commission (CREC) is a state regulatory agency which, among other responsibilities, has provided boilerplate real estate contracts to ensure the public is protected against scams and deceit in real estate transactions. All of these forms and contracts, along with broker licensing information, and a wide variety of other useful real estate related information can be found at the Colorado Division of Real Estate website.
In the overwhelming majority of real estate transactions, buyers and sellers are represented by a licensed real estate agent. Within Colorado, all licensed agents are required by state regulation to use CREC approved contracts. The agent's license to engage in real estate brokerage gives that agent the ability to give limited legal advice to the public as it pertains to those contracts. In other words, a Colorado real estate agent is authorized to explain the terms and conditions of contracts and to help the public prepare and present these documents. The only exception to this rule is if either party to the transaction or their attorney drafts the contract. In this very limited circumstance, real estate agents are not allowed to offer advice on such non-CREC approved contracts; only a Colorado licensed attorney is able to do so.
There are literally dozens of different CREC approved forms and contracts designed to protect the interests of the public as well as to promote the professional conduct of all licensed real estate agents. Among all of these approved documents, however, the following three have the most relevance in the majority of real estate transactions: 1. The Exclusive Right to Sell Listing Contract 2. The Brokerage Disclosure Form, and 3. The Contract to Buy and Sell Real Estate.
The Exclusive Right To Sell Listing Contract is used when the owner of a property wishes to engage the services of a licensed real estate broker to assist in the sale of their property. Whether it be a vacant parcel of land, a residence, or a commercial building, the listing contract is the same. This form spells out the address, the owner, the length of the listing agreement, and the obligations of both the seller and the broker. Almost always, the terms of this agreement mandate that the real estate broker place the property in the Multiple List System (MLS) thereby making the property available to all of the real estate brokers within the community. In addition, once a property is listed in the MLS, it is automatically distributed to literally hundreds of consumer-friendly websites where prospective purchasers can surf for properties online.
The Brokerage Disclosure Form explains the different ways a buyer of real estate can be represented in the State of Colorado: through a buyer's agent, through a transaction broker or through a seller's agent. A terrific analogy to help understand the difference is that of a football game: A referee would be considered a transaction broker; they have to be fair to all parties, they are allowed to explain the rules of the game, but they are not allowed to be an advocate for either team and no written agreement is required. A coach would be considered a buyer's or seller's agent; they have to be fair to all parties, they are obligated to be an advocate of their team (whether working with a buyer or a seller) and they are required to have a signed contract with their team. In most cases, a buyer of real estate will work with a buyer's agent or a transaction broker. It is possible, however, for a buyer to work with a seller's agent. As an example, when a buyer walks into the sales office of a new development project, it is highly likely that the real estate agent within this office has been hired as a seller's agent. Regardless of which type of agent you work with, at the very least that agent is required to give you notice via the Brokerage Disclosure Form that different types of agents do exist within the State of Colorado.
The Contract to Buy and Sell Real Estate is obviously used when a buyer wants to make an offer on a property they wish to purchase. Although other forms can be drafted, this is the one most frequently used in Colorado transactions. The essential elements of this contract include the names of the seller & buyer, the address of the property, the purchase price, the earnest money amount, the due diligence deadline dates, the closing date, and any special conditions prior to closing. Colorado is considered a very buyer-friendly state and this contract in particular allows any buyer several free reasons for termination, most commonly based on an unsatisfactory inspection of the property or the buyer's inability to get a loan. Conversely, the seller has virtually no way to back out of the contract once they have accepted an offer, so the seller must be certain they are willing to go through with the transaction prior to signing.
The State of Colorado, when compared with most other states, makes the process of buying and selling real estate as simple and straightforward as possible. Most of the contracts that licensed real estate brokers are authorized to use are very easy to understand and usually an attorney is not necessary in preparing the various contracts and forms. As in any large purchase or sale, however, the public is always cautioned to use an attorney if there are any steps in the process that are unclear.