Q: I’m a homeowner. I want to list my Colorado property for sale. Can I do it by myself (For Sale By Owner)?
When a homeowner considers listing their property for sale, one of the first questions they typically ask themselves is: “Should I list the property through a real estate broker?”
Experienced real estate brokers can add tremendous value for sellers in Colorado, especially in a hot real estate market like the one we’ve seen recently in the Boulder and Denver metro areas. Real estate professionals will widely market the property in ways that attract the greatest number of potential buyers. They then assist the seller in negotiating the highest and best price and terms for the property, particularly in situations where a number of competing offers are received. Once under contract, the broker coordinates the transaction from contract to close.
However, For Sale By Owner (FSBO) transactions are becoming more common and might arise in any number of ways. For instance:
• A current tenant offers to purchase the property they’re renting from their landlord;
• Someone down the street mentions that they’re considering selling and a neighbor knows a friend who wants to move into the neighborhood; or
• Websites or other online applications such as forsalebyowner.com, zillow.com, fsbo.com, or craigslist.org match buyers and sellers who can agree on basic deal points.
So if a buyer and seller find each other without real estate brokers being involved, what are the next steps?
1. Agree on Material Deal Points
The first step is for the buyer and seller to agree on material deal points. These points include things like: purchase price, earnest money amount, total down payment, whether the borrower needs a loan, whether appraisals and inspections will be necessary, which party will pay for various expenses, and the expected closing date. If the buyer intends to use a loan, the parties should discuss what steps the buyer has undertaken with their lender to be pre-qualified or pre-approved.
2. Incorporate Deal Points Into Buy/Sell Contract
Once the material deal terms are agreed to by the buyer and seller, the parties should incorporate those terms into a formal contract. The Colorado Real Estate Commission (“CREC”) makes a template Buy/Sell Contract available for use by the public that is both exhaustive and balanced. Since this Contract is familiar to title companies, lenders and attorneys throughout the state, it is typically the instrument we recommend using to document the agreement. However, even though the CREC Buy/Sell Contract is widely used by various Colorado real estate professionals, it contains many nuances that may not be readily understood by buyers or sellers who do not regularly participate in residential real estate transactions.
3. Under Contract
After the parties have entered into a Buy/Sell Contract, a title company should be engaged. The title company will serve a variety of roles, including: (1) issuing a title insurance commitment; (2) preparing necessary closing documents; (3) arranging the loan payoff with the seller’s lender, (4) collecting and disbursing funds; (5) closing the transaction; and (6) issuing the title insurance policy upon closing.
The Buy/Sell Contract also typically provides a number of due diligence contingencies that the buyer can utilize to fully evaluate the property. These contingencies may include items such as inspection, title review, survey, appraisal, and loan review. Depending on what is discovered during these investigations, the particulars of the transaction may need to be fine-tuned.
The default terms of the Buy/Sell Contract also create various obligations for the seller. Sellers should especially be cautious of fully understanding their legal duty to disclose certain facts about the property, in order to avoid “failure to disclose” claims by the buyer following closing.
The end goal is to reach a successful closing, with the seller conveying the property to the buyer, subject to any buyer financing requirements. If all goes as planned, the closing happens as scheduled in the Contract and the buyer is the happy owner of a new home.
Of course, various bumps in the road inevitably arise during the course of even the best-planned real estate transactions. Those bumps are the reason that buyers and sellers who are not working with real estate brokers should work with an attorney who is well-versed in residential real estate transactions. Our firm routinely assists buyers and sellers through the purchase and sale process.
Licensed real estate brokers can offer tremendous value to sellers who want to list their home for sale by marketing the property widely, negotiating the highest and best offer, and generally shepherding their clients though the entire process.
But for those buyers and sellers who wish to navigate the home buying or selling process without a real estate broker, more and more web-based tools are springing up to match interested parties. In those situations, working with a real estate attorney who is experienced in residential transactions can be an invaluable resource. Remember that not all real estate attorneys are experienced in residential transactions. A good residential real estate attorney can ensure that the transaction is papered properly and progresses as expected, while preserving the rights of their client.
If you are considering listing your home for sale without the assistance of a real estate broker, you should consult with an experienced residential real estate attorney. Please contact me to discuss the specifics of your situation.