Tips On Drafting the Colorado Contract To Buy And Sell Real Estate (Residential)

Form CBS 1-6-21
(Mandatory 1/22 for Licensed Agents).

The Colorado Division of Real estate replaced many of the mandatory forms for licensees effective January/2022. You can view all the changes, and here is a list of the redlined forms they make available:

Updated 2022 Commission approved contracts and forms redlined for educational purposes.

And, of course the forms in non-Redline form on that same page at the Division of Real Estate site along with all the other mandatory forms licensees must use. It is there you can click on the sales contract tab and select the Contract to Buy and Sell Real Estate (Residential) which this article discusses.

This article shall cover just the Contract to Buy and Sell Rel Estate (Residential). All of these and many other useful forms can all be downloaded at no cost from the Colorado Division of Real Estate’s website as discussed above. This article and all the others are solely educational and not intended as legal advice. After all, we’ve never met and I don’t have any idea about your particular circumstances. I don’t practice for third parties anymore, and I only did after a signed retainer agreement and monetary retainer. So, I’m not your lawyer nor providing free legal advice. I wrote this article purely for educational purposes.

Besides the sales contract, there is a wealth of very useful forms available for free through the Division of Real Estate when you follow the link. Take a few minutes to familiarize yourself with what’s available. There are many informative articles and videos posted on the Cherry Creek Title Services, Inc.’s website that I’ve done covering a variety of primarily real estate related topics that you may find helpful.

Many/most licensed real estate agents have sophisticated e-contract programs that are writeable and allow for e-signatures. I find those systems very convenient. If you’re selling your home yourself with the assistance of a licensee perhaps representing the buyer, they’ll likely have access to an efficient system for the contract preparation, delivery and execution. However, it isn’t necessary. Using the commission forms; preparing them with Adobe or printing them out and filling them out with a typewriter or by hand works just as well. So does signing with a pen instead of electronically.

I would be remiss to begin by not first strongly urging you to seek competent legal counsel in the preparation of the contract and the ramifications of its many provisions. This article is not intended as a substitute for hiring an attorney nor is it intended to be a comprehensive analysis of the Colorado Residential Contract to Buy and Sell Real Estate. Rather, this article is intended to provide a general overview in filling out the contract and should not be relied upon in lieu of the advice of a competent attorney. I’m not going to waste your time giving advice or tips on obvious blanks or paragraphs containing blanks or boxes where it’s obvious how to fill them out.

As you fill out the form Contract, you’ll find that there will likely be many provisions that are inapplicable. Some are ideal for just putting n/a in the blank, and some should be interlineated (line through the language). In cases where you line through provisions, I recommend leaving the language you lined through still visible. So, you could draw a diagonal line through a paragraph to strike it yet leaving the language still viewable. Similarly, you can just draw a line through the middle of every sentence you wish to strike since that will also leave the language you’re striking as visible. Leaving the language visible that you are striking may assist in resolving any ambiguities that may arise by completing deleting or redacting through such provisions.

Finally, this may the first time you’ve used this form and do not care about the recent changes implemented January/2022, you may not care about reviewing the Redlined version and just get started with the current form. As you’ll see, this article focuses on how blanks are typically filled out unless they’re self-explanatory. It’s not an exhaustive discussion of the contract or it would be twice as long. I didn’t want to make this article longer than necessary, and those of you that I’m guessing are the minority and want to see the recent changes can easily see them without me pointing them out as they’re pointed out in the red-lined copy at the Division of Real Estate site.

Let’s Begin.

Paragraph 2.1 gives three options regarding how the buyer is taking title. Most often, one of the first two is selected. If there is only one buyer, no selection needs to be made since it will be held in Severalty automatically. If there is more than one buyer, joint tenancy gives survivorship rights to the other joint tenant or tenants. It is the election made by virtually all married people as their interest in the property goes to the surviving spouse automatically when they die and does so outside of probate. By electing to own as Tenants in Common, each owner’s interest passes according to their wills or intestate succession in the event no will exists. A classic example is two unrelated people investing in a rental property and owning as tenants in common thereby intending their interest to pass to their heirs rather than the surviving tenant in common. However, I’d be remiss not mentioning that in certain circumstances, holding as tenants in common for married people presents tax and other estate advantages. An estate attorney can advise you on that far better than I can. I’ve only seen that personally with high wealth estates. Otherwise, I see husbands and wives holding as joint tenants.

Paragraph 2.3: The seller’s name can be easily ascertained by going to the website of the assessor for the county in which the property resides. Depending on the county, you’ll see other valuable and interesting information there such as the legal description, tax information, valuation, sales history and the present owner plus more depending on the county. You can also go to Zillow.com; type in the property address and see Zillow’s estimated value (Zestimate), photos and even comparable property sales. You can always call Cherry Creek Title Services and obtain the ownership information and legal description. If you err in how you list the owner’s name or legal description, the title examiner at Cherry Creek Title will provide the correct information in the title commitment.

Paragraph 2.4: This is where you insert the legal description of the property. This can be found at the county assessor site; in the seller’s deed; in the seller’s title policy; and through a record title search.

Paragraph 2.5.3: Removed in new contract. The remainder of this paragraph doesn’t require you to fill out any blanks, but it now discusses encumbered and leased personal property as well as clarifying personal property being conveyed by Bill of Sale.

Paragraph 2.5.6: Gives you a place to describe the included parking.

Paragraph 2.6: Exclusions should include items that would otherwise be considered as included such as a light fixture which the seller is keeping, but it is also wise to list the unattached personal property such as the refrigerator, washer and dryer to avoid any misunderstandings.

Paragraph 2.7.1: If you are dealing with water rights being deeded, I’d highly suggest you hire an attorney versed in water law and let them determine the type of deed you should use. They likely will recommend a bargain and sale or quit claim deed if you’re the seller. This comes up rarely in a typical residential transaction. Water law is complex and beyond the scope of this article. However, this will virtually never come up in an urban residential transaction so you will likely be putting “n/a” in this blank.

Paragraph 2.7.2: Same advice as above. If water rights are being conveyed, likely both parties will have attorneys involved, and the selection of the deed for water rights is better negotiated by experts. Thankfully in the overwhelming majority of urban residential transactions, just put “n/a”.

Paragraph 2.7.3: If water is provided by a well, although seeking legal advice is again a wise path, at least visit the Colorado Division of Water Resources to review and verify the legitimacy of the permit. That’s the time to vigilantly look into any limitations, time frames, etc. regarding the well permit. Well issues can be complex, and obviously having water to the property is essential. The permit number can be obtained from the Seller and/or the Colorado Division of Water Resources. If you’re relying on a well for your water supply, I’d certainly advise employing an expert to inspect the well to ensure it will meet your needs.

Paragraph 2.7.4: Sometimes water rights will be transferred via stock certificates. Once again (thankfully), this is very rare in urban residential transactions. I’d highly recommend legal advice from an attorney with water law expertise in any situation involving the transfer of water rights or if a well, septic or leaching field are part of the transaction.

Paragraph 2.7.6: Seems very self-explanatory to me.

Paragraph 3:

I’ve excluded any discussion for filling out the dates as those are personal to every buyer and seller and very easy to figure out without my input.

Paragraph 4:

Like paragraph 3, I think filling out the columns regarding the financial terms is very easy and self explanatory. They should balance at the bottom. There are few other blanks in any of the paragraph 4 provisions, and they’re self-explanatory if they even apply to your transaction.

Paragraph 6.2 is filled out with the purchase price if the buyer is procuring an FHA loan. And again, the appraisal virtually always paid by the buyer since that who is getting a loan for part of the purchase price, if applicable.

Paragraph 8.1.1: I wouldn’t personally check this box.

Paragraph 8.1.2: I’d check this box electing to choose my own title insurance company, and of course I’d choose Cherry Creek Title Services. I wouldn’t let a seller pick my title insurer no more than I’d let them select my homeowner’s insurance. By reducing the offer price by the cost of the title policy, the seller is effectively paying for it via the price reduction, but the buyer is selecting who handles the closing and who is issuing the title policy of which they are the insured, not the seller. You wouldn’t let the car dealer pick your auto insurance, so why would you let the Seller or their agent pick out your title insurance? Title underwriters vary in strength, size, reserves and ratings. It does matter who issues your policy if you ever have a claim. At the time of writing this article, Cherry Creek Title is an authorized agent of the top two underwriters in the world, Fidelity (Commonwealth) and First American. We have been successfully helping “For Sale By Owner” sellers for decades and welcome their deals. The fees are absolutely no different than deals originated from real estate agents and no attorney opinion letter is required. Shop around and compare rates for closing fees and the cost of the owner and lender (if applicable) policies. Ask about whether a re-issue rate is available. Check with the Division of Insurance and verify Cherry Creek Title Services has an A+ BBB rating; a 5 star Google rating with dozens of reviews; and zero complaints since its inception in 1997 as I write this. That’s who will be holding the earnest money and preparing all the closing documents so it does matter which title company you select.

Paragraph 8.5. Usually the seller pays for the tax certificate which is very inexpensive and typically provided to the buyer with the title commitment.

Paragraph 9. A typical purchase money mortgage lender will arrange for an ILC. The other types of surveys defined in the Colorado Statutes or an ALTA survey typically do not come up in a residential transaction unless the property is being subdivided, developed or has an issue with the location of questionable easement or utilities. In that event, I’d recommend getting legal advice.

Paragraph 10.7 is where you’d insert the address of a property that the contract was conditioned upon its sale. So, if the Buyer was only obligated to purchase if successful in selling a property first, here’s where you’d list it.

Paragraph 10.8 is self-explanatory.

Paragraph 13: This blank requires the deed form to be selected. Almost all residential deals previously defaulted to general warranty deeds. Virtually all commercial deals, builders, and often Sellers represented by attorneys choose special warranty deeds. If you choose any other type of deed such as a bargain and sale or a quit claim deed, you’ll very likely run into issues with the title company being hesitant or unwilling to insure anything less than a warranty deed (general or special), and the Buyer may not accept anything less than a general warranty deed. It’s in the seller’s best interest to try and use a special warranty deed over a general warranty deed as then they aren’t warrantying the title prior to when they acquired their interest. However, I’ve sold all my houses confidently signing a general warranty deed as I received one when I bought it along with a title policy that not only insures me, but because I received via general warranty deed, it allows the title company insuring me to go back through the chain and bring in every party in the chain, and their title company, who conveyed by general warranty deed until any parties who conveyed any other way and those before them. That’s typically almost everyone in the chain as general warranty deeds in residential deals are ubiquitous.

Paragraph 15: Self explanatory, and typically sellers pay for providing the status letter and any HOA documents.

Paragraph 16.1: Taxes: For a typical transaction involving either vacant land or the sale of property with an improvement (e.g. house) that’s been there at least two years including any additions, alterations, modifications of any kind, I’d select the most recent mill levy and assessment. If the sale involves new construction or recent improvements were made to the property, I’d contact the county assessor to discuss the property. Here’s why: Typically, choosing the most recent mill levy and assessed value results in a fair proration and happy parties. Using last year’s taxes for proration purposes almost always ensures the new Buyer will not be given the seller’s fair share for the preceding year since taxes typically increase every year. Taxes are payable in arrears so 2021 axes are payable in 2022. If you close late in the year, the amount becomes more significant. For instance, say you close at the end of November, and the seller gives the buyer a credit of 11 months of taxes based on the previous year to cover their part of the bill for the current tax year that won’t be due until the following year. Since residential tax settlements are virtually always final settlement, when the tax bill comes and the buyer sees they didn’t get the seller’s fair share of the 11 months they owned the property as the assessed value and/or mill levy increased, they have no recourse. Using the most recent mill levy and assessed value is better since it will always be at least as current if not more so than the previous year’s taxes. There are special circumstances where it is worth making a more thorough inquiry regarding the taxes. See my article on the Cherry Creek Title website entitled “When Pro-Rating Property Taxes Using the Most Recent Mill Levy and Assessed Value is a Mistake & Important Contract Tip Regarding New Home Purchases. It discusses circumstances such as new construction and recent improvements made where it may be advisable to check the “other” box and choose a different solution to pro-rating property taxes.

Paragraph 16.2: The rent paragraph is obviously only applicable if the property comes with tenants. If so, the buyer and seller can mutually agree whether rents are based on rents received or using the accrual method. Typically, the buyer will want it based on rents received, and the seller would like to use the accrual method thereby getting credit for expected rents before they’ve actually been received.

Paragraph 17 is self-explanatory.

Paragraph 20 is important to understand. If the Specific Performance box is checked, and the buyer defaults, the seller has the ability to not only retain the buyer’s earnest money, but may also sue to compel the buyer to perform. Most/all buyers would prefer this box is not checked so if they default, the damages are limited to forfeiture of the earnest money deposit.

Paragraph 30: This is where terms unique to the transaction may be inserted. Attorneys, buyers and sellers have much more leeway here than licensed agents. Licensed agents are severely restricted in their ability to craft custom contract language.

Paragraph 31: Attachments that are part of the Contract such as Addenda.

Paragraph 31.1.1: This provides that a copy of the Post-Closing Occupancy, if applicable, is attached. And again, there is a Post-Closing Occupancy Agreement available through the Colorado Division of Real Estate website.

The remainder of the Contract including the signature portion is all self-explanatory and won’t be addressed in this article just as the paragraphs without blanks were not discussed. If no licensed agents are involved, I would interlineate (draw lines through) everything after it says “End of Contract”.

Please be aware that although I didn’t address virtually all of the paragraphs that have no box for you to complete, those are important provisions that should be read and understood by all parties. If you want to change any of them or write in items in the Additional Provisions paragraph, I would hire an attorney to do that for you and not try to do that yourself.

Visit www.cherrycreektitle.com to view numerous articles I’ve written primarily on Colorado real estate legal topics and many are available in video form at the Cherry Creek Title Services YouTube channel.