Colorado Real Estate Law and Family Law Blog(Vol I.12)
by Craig Franklin Chambers, Esq. The Littleton Lawyer.
As a Colorado real estate attorney and divorce lawyer, and active licensed Colorado real estate broker, specializing in Littleton, Denver, Lone Tree, Jefferson County, Lakewood, and Highlands Ranch, I am often asked about the timing of a residential real estate transaction. Sometimes buyers wish to prolong the closing to coordinate the closing with their relocation needs; sometimes sellers need to remain in the home after closing, for example, for time to find a replacement property.
As with any term of a contract, the timing of a real estate transaction is a term subject to negotiation between the Buyer and the Seller.
Typically, a real estate transaction is between Buyer who desires to move soon and a Seller who also desires to move within a reasonable period of time. With the exception of a cash transaction, a residential real estate transaction usually takes a full month to close.
Before a residential real estate transaction can close, the contingencies in the Colorado Real Estate Commission purchase agreement need to removed. As soon as the contract is accepted, the Seller needs to order the title work.
The title company must issue a title insurance policy--usually paid by the Seller-- guaranteeing merchantable title to the Buyer. This simply means that the title company is insuring that the Seller actually owns the property and is authorized to sell the property--free of clear of any liens or judgments or other irregularities.
You need to allow the title company about a week to ten days to provide all of the title disclosures required by the contract. These include a search of the title with the county Clerk and Recorder for any clouds on title, a list of title exceptions which may or may not be deleted, recorded restrictive covenants and easements, and, if applicable recorded information regarding the homeowners association.
At the same time, the Buyer needs to start his loan and to set up the home inspection, if he wants one. The standard contract calls for an inspection objection deadline and an inspection resolution deadline. The inspection contingency allows the Buyer to terminate the transaction if he is not satisfied with the condition of the home he is buying.
You should allow at least a week to ten days for the home inspection and several days after the inspection objection for the inspection resolution. The extra time is need because the parties may need to get bids from contractors for any requested repairs to negotiate the resolution of inspection issues.
The Buyer can have as many or as few inspections as he wants at his own expense and the inspection can be performed by anyone the Buyer chooses. These inspections include a full home inspection, with or without an engineer's report, a radon test, a mold test, and a sewer scope or any other inspections as subjectively desired by the Buyer. The Buyer can terminate the contract at any time for any reason or for no reason during the inspection objection period.
After the inspection period ends, the Buyer will then pay for the appraisal of the property. Because the appraisal is ordered by the lender but paid for by the Buyer, the Buyer usually waits to request the lender order the appraisal until he is satisfied with the condition of the home through the inspection.
The appraisal is not a full inspection of the home, but rather a professional opinion of the home's value as security for the loan. However, the appraiser can make conditions on the appraisal if he finds defects in the home which, based on the appraisal guidelines for the type of loan, affect the value or are conditions of that type of loan.
If the appraisal comes in lower than the contract price, the transaction is in jeopardy. Because the appraisal is used as the basis for the security for the loan, a low appraisal reduces the amount of financing the lender will loan on the property. Under appraisal guidelines, the appraisal can take up to ten days after it is ordered.
The last contingency is usually the loan contingency which occurs after the appraisal deadline. This is because the appraisal is submitted to the underwriter for final approval as part of the loan package which also includes verification of the buyer's credit, income, down payment and debts.
Although most Buyers provide a pre-qualification letter from a lender with their offer, the lender cannot be certain the loan will be approved until the loan package is submitted to the underwriter for final approval. The mortgage company take several days to approve the loan and sometimes makes conditions, i.e. requests more information from the Buyer before finally signing off on the financing.
After the Buyer receives underwriter approval for his loan, the title company and the mortgage company require a few more days to coordinate the closing, promulgate the paperwork and order the funding to close the transaction.
All of these deadlines are usually managed by the real estate brokers (or lawyer if it is a FSBO) who are working on the transaction.
Given the length of time needed by the Buyer for his inspections, and the length of time required by the lender for the appraisal, a thirty-day to forty-day close is not unusual for a residential real estate transaction.