The Colorado Real Estate Contract is over 30 paragraphs in length. It’s a myriad of black and white text, bold-type, all caps, numbered lines and thematic paragraphs. There isn’t a section of the contract that is simple and easily defined. The consumed is advised at the beginning and near the end that all real estate decisions carry important legal and tax ramifications and attorneys, tax professionals and other outside sources should be consulted.
When a buyer is forming an offer, or a seller is weighing the pros and cons of competing offers, these 14 pages of information can clog the intellectual arteries. Words like appurtenant, therewith, hereunder and maybe real estate brokerage company addenda only re-enforce the “let’s not do this again for 7-9 years” aspects of an important real estate decision.
The best way I have found to present the complex in a manner that is simple, is to use what my Mentor Larry Kendall calls: “The Five Parts of Negotiation”.
What’s handy about this is that for me, the real estate professional, it allows me to introduce myself at the first consult with a buyer the manner in which I negotiate. From before a buyer ever looks at a home, they have an idea as to what’s important… and it’s not just price. The entire package can be used to leverage one attribute against another. For a seller, they understand that what they’re doing with this big several thousand square foot asset that they celebrated birthdays and anniversaries in, is now economically-critical. It both cases, it helps the consumer take an abstract and emotionally complex process, and make it more tangible. It reduces the drama to accomplish the stated goals. Best of all: it allows either buyers or sellers to frame their negotiation strategy.
Quickly, a few words on each.
Price: Mostly self-explanatory, it’s important to note what price is not. Price is not the loan. Price is not when the money changes hands. Price is often seen as the gold standard of what happened with an offer, but there are perfectly valid reasons a seller may wish to take less than their asking price. Placing price alongside it’s negotiated peers gives the offer texture, in some cases capacity, and in other cases, it’s lack of capacity. All hat and no cattle becomes clear when that inflated price falls to earth under the empty requirement of a contingency like “have to sell Mom’s house in Topeka in order to close”.
Dates: The most under-utilized section of the contract in any market, dates are a way of protecting a clients’ interests, or aligning a clients’ interests with the other principal to the transaction. In a down market where buyers want to get a better price, the ability to mercifully end the transaction as quickly as possible helps. In an up market, having the earnest money not be delayed until several days until after acceptance but do-on signing, or a seven-day inspection period, that makes a buyer look better in the eyes of a seller. For a seller, having a rapid appraisal deadline and most importantly, a rapid loan objection deadline, protects their asset and increases the probability that a contract actually closes.
Terms: The most legally perilous part of a contract, terms of sale can be as simple as the dollar amount of earnest money or the value of closing costs a buyer is asking a seller to pay, or as legally trepidatious as a requirement for a seller to record a survey and replat a series of properties simultaneous with a closing at a mutually shared expense between parties, not to exceed $____ to the buyer. Water rights? Terms of sale. Loan amount and form of financing? Terms of sale. Special Warranty versus General Warranty Deed? Term of sale.
Contingencies: The most legally screwed up form of a contract is usually found when an offer is made that is contingent on another property selling. Paragraph 10.7 likes to make this easy by just inserting some basic information, but it’s often forgotten that this paragraph doesn’t indicate is said property is even for sale, if it’s under contract, if that contingent-sale under-contract is before or after inspection, etc. In an up market for sellers, a home-sale contingency often rules out other buyers. What can be forgotten is that if a seller is willing to accept the risk of a contingency, there is no need for them to also accept the risk of reducing their price.
Inclusions/Exclusions: in the 2016 contract reformatting, the State of Colorado pitched this comically as “if you were to turn the house upside down and it stayed in place, that’s an inclusion. If it falls out, that’s an exclusion.” Thanks for clearing that up, gang. So Pool Tables would fall out, and if they weren’t connected by 220 cords and hoses, so too I guess would washers and dryers (especially if you shook the upside down house just a little). Rule of thumb: always accept the offer of another man’s beer fridge. If it’s not offered, never ask to have another man’s beer fridge. Deals I’ve worked on have almost fallen apart over a pair of bedroom closet doors not being reinstalled, a hot tub, a pool table, and an 11 year old Lady Kenmore washing machine (the dryer wasn’t special).
Placing objective values to each of these categories helps a buyer buy well and a seller sell well. Even better, for the real estate professional, creating a repeatable process that goes through these five categories while producing a net sheet for a seller keeps the real estate agent from buying refrigerators that weren’t intended to stay behind, or getting a buyer to bring a load of whites to the home inspection to see if that surprise included washing machine really works.