Getting to Know Colorado’s Real Estate Contract

Thinking about buying or selling a home in Colorado? It’s smart to get acquainted with the contract you’ll likely encounter before you’re deep into an actual transaction. In this post, we’ll introduce the contract commonly used in Colorado and walk you through a few key details. The better prepared you are, the smoother and more successful your transaction can be!

If you’re looking to purchase or sell an existing home in Colorado (meaning a resale rather than a new build), you’ll likely be working with the Colorado Real Estate Commission’s (CREC) Contract to Buy and Sell Real Estate (Residential). Colorado real estate brokers typically need to use CREC-approved forms for residential transactions, including the Buy and Sell agreement. Because of this, it’s one of the most frequently used contracts in residential sales, and understanding some of its key provisions is important. In this blog, we’ll focus on that contract. You can take a look at an example contract here.

Before diving into specific provisions, here’s a quick disclaimer: Every real estate transaction is unique, and so are the contracts that come with them. Even if your broker uses the CREC agreement, some terms we discuss may vary for your deal or be interpreted differently.

For those purchasing directly from a builder, this contract probably doesn’t apply to you. Instead, check out our post on 7 Things to Know About New Home Contracts.

Finally, this overview isn’t exhaustive, isn’t legal advice, and may not apply if CREC updates the contract after this post is published. Please read your own contract thoroughly and seek any legal advice needed!

Here are some insights into a few notable sections in the 2021 CREC residential Buy and Sell contract:

Sections 2.5 & 2.6 – What’s Included and Excluded?

Sections 2.5 and 2.6 outline items that will be part of the sale and those that are excluded. These can include specific appliances, fixtures, or other personal property that might normally stay with the property or be taken by the seller. For instance, washers, dryers, or even outdoor items like hot tubs and fire pits can fall into these categories. It’s easy for buyers and sellers to overlook these details, but both parties need to be clear about what’s included to avoid disputes. Sellers should think carefully about anything they don’t plan to include, such as a chandelier with sentimental value, and make sure it’s listed in Section 2.6.

Section 3 – Keeping Track of Deadlines

The Colorado contract conveniently includes a grid that lists critical transaction deadlines in a spreadsheet-style format. These deadlines cover everything from the inspection to financing approval, and they’re crucial for keeping the transaction on track. Missing a deadline could mean forfeiting earnest money or, in the worst case, the entire deal. While your broker will often help manage these dates, it’s wise to stay informed and work together to meet each requirement. There can be 20 or more deadlines in a single contract, so this section is a key one to review early on.

Section 4.3 – Earnest Money

This section spells out the earnest money details, including the amount and who will hold it, typically a title company. Earnest money shows the buyer’s commitment and gives the seller a measure of security. If the deal falls apart after a deadline without a valid termination, the seller may keep the earnest money as compensation. However, if the buyer terminates within certain deadlines (for example, due to financing or inspection issues), the earnest money is usually refunded. Knowing when earnest money is at risk versus refundable is essential, so be sure you understand the contract’s specific terms.

Section 5 – Financing and Loan Obligations

Section 5 outlines the buyer’s responsibilities regarding financing. Most buyers finance the purchase rather than paying in cash, so this section is crucial. The buyer must meet certain loan deadlines, which can impact the rest of the transaction. For example, if a buyer misses a financing deadline, they might lose their earnest money. Section 5.2 may also give the buyer an "out" if financing falls through. It’s the buyer’s responsibility to stay on top of these requirements, even if the lender causes delays. Issues here are one of the top reasons a deal may fall apart, so it’s important to understand and communicate with your lender throughout the process.

Section 6 – What if My Home Doesn’t Appraise?

Appraisals help determine a property’s market value, typically ordered by the lender. In a competitive market, buyers may offer above list price, which can lead to a situation where the appraisal comes in lower than the purchase price. Section 6 addresses what happens if there’s a gap between the appraised value and the purchase price, potentially allowing the buyer to terminate the contract if financing can’t be secured. Alternatively, it may open up a renegotiation, with the buyer potentially making up the difference or the seller lowering the price. This section is particularly important in fluctuating markets, as appraisal issues can complicate or even end the transaction.

Section 7 – HOA Considerations

If the property is within a Homeowners Association (HOA), Section 7 covers HOA requirements. Buyers should review HOA documents carefully, as they detail rules on everything from property modifications to rental restrictions. If a buyer plans to make specific changes, such as adding a deck or renting the property, they should confirm these plans align with HOA guidelines before committing to the purchase. This section ensures the buyer has the chance to review the rules and terminate the contract if the HOA restrictions are a dealbreaker.

Section 8 – Title and Title Insurance

Clear title is crucial for the buyer, and Section 8 highlights the importance of title review. Title companies will research the property’s title history for any issues, such as liens or easements, that might affect ownership. The buyer has a chance to review these findings and raise concerns. This section helps ensure that the buyer receives a clean title at closing, but any problems discovered can lead to further negotiations or even contract termination. It’s wise to consult with the title company or legal professional for any significant findings in the title review.

Section 10 – Inspections and Property Disclosures

Section 10 addresses the property inspection and disclosures. The seller provides a property disclosure, outlining known issues, and the buyer typically arranges for a professional inspection to uncover any other problems. Afterward, buyers can request repairs or credits for significant issues found. Inspection findings often lead to negotiation, especially if costly repairs are needed. Buyers and sellers should be prepared to negotiate fairly, keeping in mind market conditions and each party’s priorities. The inspection process is often the number one reason transactions fall through, so managing this section carefully is essential.

Sections 15 & 16 – Closing Costs and Pro-Rations

These sections lay out closing costs and expense responsibilities. They specify who covers which fees, including items like loan origination fees, HOA dues, and taxes. Some costs, such as property taxes, are prorated to cover both parties fairly based on the transaction date. Buyers might also encounter transfer fees, especially in communities with an HOA. It’s best to review these costs with your broker or lender to understand potential out-of-pocket expenses at closing.

Section 30 – Additional Provisions

Every real estate deal is unique, and Section 30 often includes any special terms negotiated between the buyer and seller. These might address anything from repairs the seller agrees to complete before closing to specific property modifications. Additional provisions can significantly impact the contract, so review these carefully and consider consulting an attorney if the language is complex or binding. Section 30 can also include contingency clauses, which outline specific conditions that, if unmet, allow the buyer or seller to back out of the deal.

That wraps up our overview of several key sections in the CREC residential Buy and Sell contract. We hope this breakdown provides a helpful foundation for understanding Colorado’s real estate contracts!