Buying Your Home in Colorado

In the 1990's Colorado underwent comprehensive real estate reform that provided protection for buyers who had previously been ignored in real estate transactions to their detriment. Prior to reform, if a buyer attended an open house or viewed a model home at a new home development and was interested in the home, he or she asked the agent holding the open house for information. Or if they called the agent whose name appeared on the For Sale sign, they didn't realize that in both cases the agent represented the seller's best interests and not the buyer's. That has all changed. Now Buyer Agency is the norm in Colorado. Buyers have their own representatives who have the buyer's best interests at heart. Below are some customs in Colorado that may not be your experience in your state.

It is the custom in Colorado that the Buyer's Agent is paid by the Seller's Agent. As a matter of fact, the Denver MetroList ( MLS) shows the commission offered to Buyers' Agents and Transaction Brokers (we'll get to that in a minute) commonly as 2.8%, meaning that whatever commission the Seller's Agent negotiates with the Seller, he or she can count on 2.8% of it going to the Buyer's Agent who brings the buyer. In other parts of the country, the customary commission to the Buyer's Agent is 3%. It stands to reason that the Buyer's Agent has costs involved in bringing a buyer to a transaction, and the commission offered (it can vary – if the seller wants to sell quickly, the Seller's Agent may suggest that he or she offer a higher commission; and builders routinely offer a 3% commission) goes to reimburse the agent for those costs, such as office overhead, mileage, web site maintenance, advertising and the like.

If visiting a builder's model home, as long as you bring along your Buyer's Agent, you'll be represented. But if you deal with the builder directly, the builder represents the developer's best interest, and not yours. To assure against not being represented, let your Buyer's Agent know that you want to look at model homes and ask him or her if they will accompany you. If you happen to look at model homes without your agent, be sure not to sign any contract without your agent being present. Tell the builder's representative that you are represented by your own Buyer's Agent and give them your agent's business card.

Being preapproved for your mortgage before looking for homes is critical in Colorado. A Letter of Preapproval (Lender's Letter) is customarily required by the Seller's Agent. Reforms were put in place recently to protect the seller against buyers unlikely to be approved for a home loan when an offer is made. Thus, the Buyer's Agent will ask the homebuyer for information about the buyer's Lender if the buyer has one. If not, the Buyer's Agent will refer the homebuyer to a reputable Lender with whom the agent has had experience. The Buyer's Agent will stay in close contact with the Lender throughout the transaction up until closing. (Some Lenders attend closing, most do not.) The Preapproval Letter will be given to the Seller's Agent along with the offer to purchase.

It's important in Colorado to find a lender who's competent and trustworthy, someone you can trust to have your best interests at heart. " Colorado shares the dubious distinction of current having unlicensed mortgage brokers with only one other state - Alaska.." The Denver Post, 10/23/05 That's why you need a referral from your Buyer's Agent, who has your best interests at heart. New laws are now in place that obligate mortgage brokers to be licensed and properly educated. Legislation was passed in 2006 required registration of Mortgage Brokers including a criminal background check with fingerprints. As of January 1, 2008 every mortgage broker is required to be licensed with all that this entails, including required continuing education.

And as of January 1, 2010 strict new rules have been issued by the federal Department of Housing and Urban Development (HUD) that require lenders to disclose virtually everything a buyer will need to know to allow the consumer to compare loans from different lenders, apples to apples. Lenders are now required to provide a Good Faith Estimate (GFE) no later than 3 days after receiving a loan application consisting of 1) borrower‘s name, (2) borrower‘s monthly income; (3) borrower‘s social security number to obtain a credit report; (4) property address; (5) estimate of value of the property; (6) loan amount and (7) any other information deemed necessary by the loan originator. And if the GFE is off by more than 10% at closing, the lender must refund the overage to the borrower within 30 days or face a penalty.

A personal check is commonly used for the earnest money, and is made out either to the Seller's Agent's brokerage firm or a Title Company chosen by the Seller's Agent. The check is faxed to the Seller's Agent along with the Lender's Letter and the offer. The check is commonly not cashed until the offer is accepted. Two copies of the offer (one for the Seller's Agent, one for the Seller), Lender's Letter, and the actual earnest money check is then delivered by the Buyer's Agent to the Seller's Agent. The Seller's Agent presents the offer to the seller. Delivery (a formal requirement of contract law) is normally accomplished when the whole package is delivered to the Seller's Agent, and at that time we can say we have a contract.

The Colorado Purchase Contract allows the buyer to have the home inspected, usually within a week to ten days after the offer has been accepted, and if issues arise that can't be settled between buyer and seller, the buyer has the ability to back out of the contract after giving written notice to the seller. That's good news if you're not sure about unknown defects at the time of making the offer.

After the offer has been accepted, the buyer, through the buyer’s agent, arranges for a Title Insurance Company to provide the closing, or escrow, services. In Colorado the closing is normally handled by a Title Insurance Company who researches the title to your new home, and issues a title policy that will insure the title against any defects that may arise in the future. Closing can be at the office of the title company or at the buyer’s agent's office. The day of closing is specified by the buyer in the offer, but the time of closing is generally by mutual agreement between buyer and seller

You should be aware that in the relatively near future home owner's insurance could be difficult to obtain. CLUE reports are increasingly being used to screen out buyers based on either the buyer's or the seller's past claim history. Check out your claims history and get a copy of your CLUE report at www.choicetrust.com. Making sure the home is insurable is now a part of the Colorado Purchase Agreement.

Another custom in Colorado that I try to get around is that the buyer takes possession 72 hours after closing. I believe that when the deed is delivered to the buyer, the buyer owns the house and should not let the sellers hold over. If any damage is done to the house at that time, the outcome could be risky for the buyer. Therefore I normally ask that possession be surrendered to the buyer at closing. If the Seller insists on having a day or two to move out, we can ask them to sign a lease for those extra days which will protect you in case any damage occurs during that time.

Normal time from contract to close in Colorado is about 40 days, more or less depending on the complexity of the loan. If the borrower(s) have A+ credit, closing can be in 14 days or less. If the borrower(s) credit needs more documentation, it could take another week or two. Another variable is the seller's timetable. If the seller is waiting for a builder's home to be finished, s/he may want the day of closing farther away. On the other hand, if the property is vacant, it all depends on the lender's timetable.

If you have any questions at all about the home-buying process, be sure to ask. No question is too dumb or small!