THE DIFFERENCE BETWEEN AN INSPECTION AND AN APPRAISAL

Real Estate Law Blog

By Craig Franklin Chambers. Esquire

Vol.1.77  September 22, 2016

The Littleton Lawyer

As a Colorado attorney focusing on residential real estate transactions, real estate and real property law in Littleton, Lakewood, Denver, Highlands Ranch, and Jefferson, Arapahoe, and Douglas  County,  I  often encounter problems with both inspections and appraisals . Many home-buyers are confused as to the difference between the two.

The standard Colorado Real Estate Commission-approved contract provides for the buyer to perform an inspection of the property.  A typical buyer usually performs several inspections, including, without limitation, to a home inspection by a professional home inspector, a radon test, and sewer scope to check the viability of the sewer line. Inspections are usually performed early on in the transaction.

There are no home inspector licenses in Colorado, and home inspectors are not regulated. A home inspector is usually a person with experience in construction who gives you a critical  view of the physical  characteristics  of the home.

Under the terms of the standard contract, the sale is contingent on your subjective satisfaction of the home’s condition; you can terminate the contract based on unsatisfactory conditions, use the condition of the home to negotiate repairs from the Seller or you can waive the inspection requirement,  There are no licensing requirements for home inspectors and what he produces in terms of an inspection report is a checklist indicating the minor and major problems with the home.

The standard Colorado Real Estate contract also has a contingency for the appraisal of the home. The appraisal is usually performed after the home inspection, closer to the closing date. The appraiser is licensed by the Colorado Real Estate Commission, and the appraisal report he provides is performed in accordance with standardized professional guidelines. The appraisal is required by the lender to assure the lender that the lender’s interest is secure in loaning on the home.

Although an appraiser can make conditions on the appraisal regarding the condition of the home as part of the loan process, and although the appraiser views the property, the appraisal is not an in-depth assessment of the condition of the home. The appraiser is only concerned with the overall condition and the market value of the home as based on comparables in the area sold in the past 6 months.

In sum, the inspection is paid for by the buyer to determine if the home’s physical condition is acceptable to the buyer. The appraisal is ordered by the lender to ascertain the value of the home so the lender can give the buyer the loan.

5 PROBLEMS WITH FIX N FLIPS

Denver Real Estate Law Blog. (Vol 1.76)  August 18, 2016

By Craig Franklin Chambers Esq. 7851 S. Elati Street #101, Littleton,  CO 80120

The Littleton Lawyer.  

As a Colorado real estate  lawyer who focuses  in civil ligation, real estate law and divorce and family law in Denver, Littleton,  Centennial, Englewood, Lakewood, Highlands Ranch, and Unincorporated South Jeffco, I often help people with legal problems related to “fix n flips.”

A “fix n flip” or a “fixer-upper” is when an investor buys a home at a discount with hopes of renovating the home and selling the home quickly at a profit.

No doubt some people are good at fix n’ flips. My wife watches shows on tv which make buying and flipping a home look profitable and easy. My own observations as a real estate broker, real estate investor, and real estate lawyer are not quite as positive. Here are a few tips based on my 36 years of experience as a broker and 19 years experience as a lawyer.

  1. Put the Property in an LLC.  As with any investment, you do not want to risk your own home or personal funds. Create an LLC or similar corporate entity for the fix n flip project. This will not necessarily protect you from all kinds of personal liability,  but it does create one layer of protection for your personal assets. Anyone suing you for issues with the property will be suing the corporate entity and not you personally. Make sure and keep accurate records of your costs and do not use personal accounts for any cost related to the project.
  2.  Chose your partners wisely. If you enter into a partnership or a Limited Liability Company  as owners of real property, it is like entering a marriage. If you need a partner,  make sure that the partner you choose is financially stable and has financial needs similar to yours.  Avoid deals where one partner offers labor or services instead of money as his contribution to the transaction.  These will types of business relationships  are usually doomed from the start.
  3. Choose a property in close proximity to your home or office. You will be making many many trips to the fix ‘n flip property from purchase, through the fix-up process,  to closing and if it is an inconvenient location, these trips will grow old fast. This type of investment is rarely passive, and decisions will need to be made as you go through the process. Make sure you are buying the property at a good price, verifying the value with recent sold comparables of similar properties of the same floor-plan in the same area.
  4. Assume the fix up will cost more than anticipated. The best fix and flips only require minor cosmetic repairs, but frequently the contractors are unreliable or their bids are inaccurate. Choose reliable and reputable contractors. Ask for lien waivers from the general contractor as the work is completed. Even with the best contractors, unforeseen problems often arise, and the renovation work will take longer and cost more than anticipated.
  5. Assume the carrying costs, and time on the market will be higher and longer and that the ultimate net sales price will be lower. Realtors and investors tend to be overly optimistic about the ultimate resale price in deals like this, the market is often inconsistent, and buyers often require concessions such as closing costs or a reduction in purchase price.

All of these factors will result in a lower net profit after the close of the renovated property. Also the time for the renovated property to be on the market is likely to be longer than anticipated, because of the market and  because buyers need time to qualify.

If after all of these considerations, the transaction is still worth pursing financially, go for it.

As a last recommendation,  it is a mistake to be too greedy. Once the home is renovated  and ready for resale, the sooner you get out of the property the better, and pricing the home too high only results in higher carrying costs and less profit.

A Short Q&A for Hiring a Lawyer to Close A FSBO (For Sale By Owner)

Littleton Real Estate and Family Law Blog

Vol. 1.75  June 15, 2016

By Craig Franklin Chambers, Esq.

The Littleton Lawyer

  1. Does an attorney need to be present at closing?

No. Colorado is a title insurance state. The title company promulgates the closing documents and closes the transaction as per the terms of the real estate contract.

  1. Other than disclosing known material defects, what are the additional disclosure requirements in Colorado?

Colorado case law requires that the Seller disclose all known “latent” defects in the property. This has been interpreted as known “material” defects. For homes built in 1978 and before, the EPA requires a “lead-based paint” disclosure along with an EPA pamphlet to be provided to the buyer at the time of or prior to the time of contract.

As a licensed Colorado attorney and a licensed Colorado real estate broker, I generally recommend using the same standardized forms as required by the Colorado Real Estate Commission for brokers in closing a FSBO.   The standard contract asks for a Seller’s Property Disclosure form to be prepared by the Seller, but this is not mandatory; it is a term in the real estate contract. The Colorado Real Estate Commission requires a source of water disclosure and a square footage disclosure. These are not required without a real estate broker involved, but I recommend them.

  1. Are there any special requirements with the sales contract that need to be addressed in Colorado?

Colorado passed a statute that requires the Seller to install before closing a carbon monoxide detector within 15 feet of each bedroom in a home being sold or rented. This term should be in every Colorado real estate contract.

  1. What legal documents does the seller need to provide during closing?

A government ID. All other documents are prepared by the title company unless the deal is an owner-carry. With an owner carry, an attorney needs to draft the promissory note and deed of trust.

5.Are other documents required for the sale of condos, town-homes, etc?

Yes, but the title company contacts the homeowner’s association and includes those documents in the closing.

  1. Assume a seller was selling a $250,000 house, You helped the seller withe disclosures, sales contract, and other required legal documents required for the closing. The closing was moved once and one amendment was needed to cover that. How much would you charge for services and documents.

I charge $200 per hour which is typical if not low for a real estate attorney in Colorado. A typical FSBO transaction costs between $700-$800 for 3.5 to 4 hours, including attending the closing.

  1. Are there any other legal fees required at closing? If so, what are they and what do they cost?

There are no other legals fees, but either the Buyer or the Seller needs to pay the title company for title insurance. This cost is a percentage of the purchase price, and for a $250,00 house would run around $1,300. There is also a title company closing fee of approximately $400 that is customarily split between the parties.

  1. What geographic area do you service: the entire Denver Metro Area.

Colorado Real Estate Transactions: What is a “Coming Soon” Listing?

Littleton Real Estate and Family Law Blog

Vol. 1.74  May, 1, 2016

By Craig Franklin Chambers, Esq.

The Littleton Lawyer

A “Coming Soon Listing” is a listing that is not available to be shown but the Seller has signed a listing agreement and wants to announce that the listing is coming on the market soon. “Soon” could be a few days, or a few months, there is no industry standard; but the sign rider announces that the home will be coming on the market.  Usually, the Seller is prepping the house for showings and the delay is a week or more.

The concept is not new. A Coming Soon Listing is traditionally called a “pocket listing” and it is a listing that is not open yet to the real estate community but is for sale only through the listing broker.

To understand the problem with the Coming Soon Listing, keep in mind that in a Colorado real estate transaction the traditional real estate commission is conceptually divided in two parts: a total commission paid to the listing broker’s company, of say, 5-6%, usually 2.8% of that is reserved to be paid to the broker who brings the buyer, the selling broker, the remainder being paid to the listing broker.

Both the listing broker and selling broker real estate commissions are paid by the Seller. Some listing brokers offer a discount if they also bring the buyer because they are receiving both commissions; others simply make more money if they “double-end” the deal.

While buyers working with real estate brokers are instructed to wait until the listing comes on the market, buyers without brokers can contact the listing broker and possibly view the home. The listing broker then will earn both commissions and sell the home before it ever hits the market.

In a market like the current one, in which inventory is tight, and listings are rare, A Coming Soon Listing allows the listing broker the opportunity to market the home before it even goes on the market .

Sounds good? Well, it’s not fair to the buyers working with a real estate broker. And its not fair to the Seller, unless the Seller agrees with the strategy in writing.

In fact, the Colorado Real Estate Commission urges brokers to refrain from the practice unless the Seller is fully apprised of the risks associated without withholding the home from the open market.

A wiser strategy is to put the home on the open market and see what the market will bear. A Seller can price his home at any price point he chooses, but only the market can speak to the fair market price of the home.

If the home is priced too high, it will sit on the market. If it is priced to low, the Seller will get multiple offers, and the broker can bid the home up in price.

A coming Soon Listing or Pocket Listing denies the Seller that possibility, usually benefits only the listing broker, and it denies access to all of the other brokers who may have a potential buyer.

3 Things to Consider in Selling a Home in a Colorado Divorce

Littleton Real Estate and Family Law Blog

by Craig Franklin Chambers, Esquire

Vol. 1. 73  

April 2, 2016

The Littleton Lawyer

As a family law and divorce attorney and a real estate attorney in Littleton, Lakewood, Denver, Centennial, Highlands Ranch, Ken Caryl, and the surrounding areas, home values often come into contention. A home is often the parties’ most valuable asset, especially now that the market is appreciating.

The marital home value is an important issue in the equitable division of property in a divorce which is also a factor in determining spousal maintenance or alimony. Colorado law provides for an equitable division of property.

The first question is whether the home is marital, non-marital or pre-marital. The Court only has jurisdiction on marital assets, which are assets acquired during the marriage.

If one party owned the home prior to the marriage, the home is pre-marital, and the equity established prior to the marriage is not subject to division. Similarly, if the home is inherited, the home is non-marital property, and not subject to division.

However, in both of these instances, the appreciation of the home during the marriage is subject to division by the Court. Further, if the party who owned the home outside the marriage places the other party in title — including a refinance of the home — the home becomes a gift to the marriage, and the entire amount of equity is divided as marital.

The second thing to understand, the division of marital property is not necessarily equal. Colorado is not a 50/50 state. A judge will divide the asset equitably, basing his decision on the factors in the statute which includes the abilities of the parties to meet their financial needs and the necessity of stability for the children in the marriage to remain in the marital home.

If the home is a primary residence, the courts often divide the home 50/50; if the home is a rental property, an argument can be made for the division to be based on the contribution of the parties.

The third thing to consider: if the home is sold, either by agreement of the parties or as a court-order made by the judge at permanent orders, the proceeds are divided after all of costs are paid at closing, including the real estate commission and closing costs. If  the home is not being sold, the costs of sale are not considered in the valuations. This could be a 6% commission plus closing costs.

A 6% total real estate commission on a $300,000 home is $18,000 which is not included in the math if the home is not to be sold. For this reason, the parties in the divorce need to plan what will happen to the property in the divorce.

Is one person able to cover the mortgage until Permanent Orders? Do the parties want a quick sale or are they not in any  hurry? Are there tax consequences to the sale? Is the sale court-ordered or is one party going to try and buy out the other party? These are some of the issues you need to consider in developing a strategy in your divorce.

Call Now
Directions