Family Law and Real Estate Law Blog(Vol I.9)
by Craig Franklin Chambers, Esq. The Littleton Lawyer.
In my job as a divorce lawyer and a real estate lawyer, in Littleton, Englewood, Denver, Highlands Ranch, and the surrounding areas, (including Arapahoe, Jefferson, and Douglas County) I often assist in FSBO (For Sale By Owner) transactions. Does a FSBO transaction require that a buyer and a seller use the standard real estate contract?
The Colorado Real Estate Commission has created standard approved forms including a purchase and sales contract for all types of real estate transactions. The CREC has also created standard approved forms for closing instructions, addendums, for inspection objections, earnest money disbursements, and Seller disclosures including the source of water disclosures square footage disclosure, and the Seller's Property Disclosure.
These forms are required forms for licensed real estate brokers. If a Colorado licensed real estate broker is involved in the FSBO transaction, he is required to use the standard approved forms. If a broker varies from the form, any changes to the form or non-approved addendums must be drafted by an attorney.
The Commission's authority does not extend past the real estate licensees. Builders are not required to use the standard forms. New construction sellers often require a buyer to use their own contracts specifically tailored for their own project. Licensed Colorado attorneys also can draft their own documents for a real estate transaction.
Private parties are not required to use to the standard forms where no real estate brokers are involved. A FSBO real estate agreement could be scribbled on a napkin or a series of emails. The only truly necessary legal document for a Colorado real estate transaction is a quitclaim deed or warranty deed which transfers title. This deed is recorded with the Clerk and Recorder in the county where the property being sold is located.
The downside of the standard sales contract is that it is long and filled with legalese. It might be simpler to draft your own agreement, especially if the parties are getting along.
However, there are advantages to using the standard approved contract. The standard form contemplates all types of transactions such as condos, duplexes, houses and different types of financing. While it is long, much of the form may not be applicable to your transaction and can be simply excised or deleted. The document is easily customized for the specific needs of each transaction.
The standard approved form also contemplates issues and potential problems you may not consider on your own such as inspection, loan, title, survey, appraisal, default, possession, and closing issues. It offers protections for both the Buyer and Seller. The approved forms are also downloadable for free for both the real estate brokers and the public from the Colorado Real Estate Commission website.
It is natural to assume the transaction will go smoothly, but if it doesn't, the clearer and more precise the contract, the better. That's less to fight about in court or at mediation, and the dispute will be easier to resolve. In addition, the title company is very familiar with the approved form, and no doubt prefers it to a non-standard form which may or may not adequately spell out the terms of the transaction.
Should there ever be litigation over the transaction, the judge will review the document and interpret its language according to its plain and ordinary meaning. Any doubt the judge has about the intention of the parties will be interpreted against whoever drafted the document. The judge will give deference to the meaning of the language of Real Estate Commission's form rather than against the language of the drafter of a private document.
In assisting with FSBO real estate transactions, I have seen other lawyers enthusiastically run up attorneys fees by trying to rewrite the standard forms. I have also completed transactions with no forms.
Most people don't like change. With finding and negotiating the purchase of a home, arranging financing, packing up and moving, changing cable, mail, and trash service, possibly schools and other adjustments, residential real estate transactions are stressful enough without these unnecessary risks. Absent extraordinary circumstances, in assisting with a Homes For Sale By Owner transaction, I prefer to use the standard approved forms.