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Real Estate Colorado,

Terms in this set (1703)

Susan Seller give her agent a 60 days listing to sell her home for $200,000. The seller specified in the Exclusions section of the listing agreement that her prized Iris plants would be removed prior to close and the iris bed repaired to eliminate the damage of plant removal.

Public records indicates the home is 2,400 square feet, has 3 bedrooms, 2 bathrooms, a 90% finished basement and a two car garage. Last year's taxes were $1,832 and have been paid.

An offer was made and accepted with a sales price of $190,000. . The buyers submitted earnest money of $3,000 under liquidated damages. The inspection objections must be made by March 27. The survey must be completed by April 10. Review of title must be completed by April 10.

The Sellers indicated in the seller's property disclosure that the water heater had leaked. The water heater was replaced and all water damage repaired. The sellers further disclosed that the concrete basement floor had lifted due to expansive soils creating a crack in the concrete floor.

Although closing was set for May 1st, a delay in the lender processing of the buyer's loan forced a change in close to May 10th. This change was accepted by both parties. The cost of the survey was $450. The closing fee charged by the closing company is $150 to be split by both parties.

The buyers did not show up to the closing, nor did they complete the loan application. The seller may:



Keep the earnest money and sue for damages
Must return the earnest money to the buyers as they did not qualify for a loan
Keep the earnest money, there is no recourse in the agreed purchase contract for a suit for damages
Here is the play: most often seen with new loans (and always on the State Exam). Net Loan Proceeds is a situation when a lender is making a loan for x and part of that loan is covering expenses that the lender is owed. In short - the lender is lending money to the buyer to cover expenses that are going to be paid to the lender. The lender does not want to send the entire loan amount to the closing and wait for a check back to cover the money they are owed, they instead take their money out of the loan up front and send the remaining balance called Net Loan Proceeds to the closer.



To show this on a settlement sheet, the closer enters a series of single entries i.e. there not a debit/credit on every line. Instead there is one big credit all by itself on a line showing the total loan amount the buyer is getting and then two or more debits all by themselves on other lines adding up to the total loan amount.



Example - a lender is making a loan for $100,000 and they are taking their 1% origination fee ($1,000) out of the loan. They send the net loan proceeds $99,000 (remember they are keeping their $1000) to the closing agent.



First up let's handle the credit, enter the entire loan amount on the sheet (put a Credit Buyer $100,000 all by itself on the loan line).



Then you need to show the deposit of $99,000 into the escrow account (Single entry all by itself on line Net Loan Proceeds, Debit Broker $99,000).



Lastly we need to account as a debit the $1,000 the lender held back (single entry all by itself on the Origination Fee line, Debit Buyer $1000).



Tah Dah! You have $100,000 of Debits and $100,000 of

credits and everything is in balance. For more info and examples of this check out the new loan examples in the chapter of the real estate manual on Closings
This is a common spot of confusion, so do not let it break your head. The situation occurs at the bottom of the 6 column worksheet when you are reconciling the columns. Let's assume for a moment you are looking at a Buyer's columns. You have applied all the debits and credits and all you have to do is reconcile the columns which have $100,000 in the Credit column (money the buyer has proven they have) and $125,000 in the Debit column (what the Buyer owes). Looks like this Buyer is a little short, but by how much? To determine this amount, you have to make both columns equal. This enables the Closing Agent to determine how much the Buyer is short; which is also how much of a check the Buyer needs to bring and be deposited into the escrow account. So you add $25,000 to the Buyer's Credit column to make both columns equal. Therefore this $25,000 CREDIT represents how much the Buyer is short, meaning this CREDIT does not represent how much they have, it represents how much they still OWE. This is how a CREDIT becomes something you OWE. We are not done reconciling yet. We have a $25,000 Credit, to balance it out we need a $25,000 Debit. That debit goes to the Broker account which represents the Escrow Account. Back to practical language - the Buyers needs to bring a $25,000 check to the closing so that they can make their Credit column (what they got) equal to the Debit column (what they owe) and the Broker (Closing Agent) needs to deposit it into the Escrow Account ($25,000 Debit). For extra points - the reverse is most common with the Seller. When a Sellers Debit column (what they owe) is lower than their Credit column (what they sold their property for), the amount added to the DEBIT column to make both columns equal represents money the Seller is receiving. The balancing CREDIT in the Broker column, reminds the Closing Agent to cut a check to the Seller out of the escrow account.
an associate is offering a guaranteed buyout arrangement as an inducement to list with his or her company

"It is the Commission's position that Rule F-7 requires use of the Buyout Addendum under the following circumstances:

1. When a licensee enters into a contract to purchase a property concurrent with the listing of such property.

2. When a licensee enters into a contract to purchase a property as an inducement or to facilitate the property owner's purchase of another property, the purchase or sale of which will generate a commission or fee to the licensee.

3. When a licensee enters into a contract to purchase a property from an owner but continues to market that property on behalf of the owner under an existing listing contract."

Having said this, the commission position goes on to say:
"If the listing licensee or broker desires to acquire a listed property solely for personal use or future resale and not as an inducement to the owner, the licensee or broker is advised to (1) clearly sever their agency or listing relationship in writing; (2) renounce the right to any commission, fee or compensation in conjunction with

acquisition of the listed property; and, (3) advise the owner to seek other assistance, representation or legal advice."

In English, this second part says that although properties bought for true investment purposes do not require the use of the buyout addendum, the commission would prefer if you adopted some of the provisions of it and put some distance between you and the seller, such as not making a commission and severing the listing contract.
Money owed by the Seller

When the Sellers credit column is less than the debit column you need to add a credit to make them both equal. This means the credit column (containing the sale price) is less than the debits (containing amoung items - money owed on the property). This Seller is "upside-down." This credit ends up representing money the Seller must bring to the Closing and give to the Broker to pay off debts. (A Broker Debit is a deposit into the escrow account and a check that has to be written).
More info:


That is a common spot of confusion, so do not let it break your head. The situation occurs at the bottom of the 6 column worksheet when you are reconciling the columns. Let's assume for a moment you are looking at a Buyer's columns. You have applied all the debits and credits and all you have to do is reconcile the columns which have $100,000 in the Credit column (money the buyer has proven they have) and $125,000 in the Debit column (what the Buyer owes). Looks like this Buyer is a little short, but by how much? To determine this amount, you have to make both columns equal. This enables the Closing Agent to determine how much the Buyer is short; which is also how much of a check the Buyer needs to bring and be deposited into the escrow account. So you add $25,000 to the Buyer's Credit column to make both columns equal. Therefore this $25,000 CREDIT represents how much the Buyer is short, meaning this CREDIT does not represent how much they have, it represents how much they still OWE. This is how a CREDIT becomes something you OWE. We are not done reconciling yet. We have a $25,000 Credit, to balance it out we need a $25,000 Debit. That debit goes to the Broker account which represents the Escrow Account. Back to practical language - the Buyers needs to bring a $25,000 check to the closing so that they can make their Credit column (what they got) equal to the Debit column (what they owe) and the Broker (Closing Agent) needs to deposit it into the Escrow Account ($25,000 Debit). For extra points - the reverse is most common with the Seller. When a Sellers Debit column (what they owe) is lower than their Credit column (what they sold their property for), the amount added to the DEBIT column to make both columns equal represents money the Seller is receiving. The balancing CREDIT in the Broker column, reminds the Closing Agent to cut a check to the Seller out of the escrow account.
Son does not get the property

All parties under joint tenancy have a right of survivorship. This means that the wife became the sole owner of the proeprty automatically upon the death of her husband. This right supercedes the will.

More about Joint Tenancy and Other Forms of co-ownership from the FreeDictionary.com :

In estate law, joint tenancy is a special form of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share equal ownership of the property and have the equal, undivided right to keep or dispose of the property. Joint tenancy creates a Right of Survivorship. This right provides that if any one of the joint tenants dies, the remainder of the property is transferred to the survivors. Descended from common-law tradition, joint tenancy is closely related to two other forms of concurrent property ownership: Tenancy in Common, a less restrictive form of ownership that sometimes results when joint tenancies cease to exist, and Tenancy by the Entirety, a special form of joint tenancy for married couples.

Joint tenants usually share ownership of land, but the property may instead be money or other items. Four main features mark this type of ownership: (1) The joint tenants own an undivided interest in the property as a whole; each share is equal, and no one joint tenant can ever have a larger share. (2) The estates of the joint tenants are vested (meaning fixed and unalterable by any condition) for exactly the same period of time—in this case, the tenants' lifetime. (3) The joint tenants hold their property under the same title. (4) The joint tenants all enjoy the same rights until one of them dies. Under the right of survivorship, the death of one joint tenant automatically transfers the remainder of the property in equal parts to the survivors. When only one joint tenant is left alive, he or she receives the entire estate.

If the joint tenants mutually agree to sell the property, they must equally divide the proceeds of the sale. Because disagreement over the disposition of property is common, courts sometimes intervene to divide the property equally among the owners. If one joint tenant decides to convey her or his interest in the property to a new owner, the joint tenancy is broken and the new owner has a tenancy in common.

Tenancy in common is a form of concurrent ownership that can be created by deed, will, or operation of law. Several features distinguish it from joint tenancy: A tenant in common may have a larger share of property than the other tenants. The tenant is also free to dispose of his or her share without the restrictive conditions placed on a joint tenancy. Unlike joint tenancy, tenancy in common has no right of survivorship. Thus, no other tenant in common is entitled to receive a share of the property upon a tenant in common's death; instead, the property goes to the deceased's heirs.

Tenancy by the entirety is a form of joint tenancy that is available only to a Husband and Wife. It can be created only by will or by deed. As a form of joint tenancy that also creates a right of survivorship, it allows the property to pass automatically to the surviving spouse when a spouse dies. In addition, tenancy by the entirety protects a spouse's interest in the property from the other spouse's creditors. It differs from joint tenancy in one major respect: neither party can voluntarily dispose of her or his interest in the property. In the event of Divorce, the tenancy by the entirety becomes a tenancy in common, and the right of survivorship is lost.
Brokerage Relationships Offered to Public
here are only three sections which are mandatory, whereas there are a number that are suggested. The mandatory ones are: written brokerage relationship policy, a policy to protect confidential information and designation brokerage relationships. The suggested ones are the long list below.

From the real estate manual: Office Policy Manuals

Commission Rules E-29 through E-32 require brokers to demonstrate reasonable supervision over all licensees and non-licensed employees, including but not limited to secretaries, bookkeepers, and personal assistants of licensed employees. To comply with these supervision Rules, brokers who employ others are required to establish an office policy manual. This is in addition to the requirements for a written brokerage relationship policy (Rule E-39), a policy to protect confidential information (Rule E-39), and designation brokerage relationships (Rule E-38), whether performing sales or management activities. The following topical guidelines (as applicable) are suggested for office policy manuals.

Sales Transactions

• Parties responsible for delegated duties/agreements;
• Preparation and review of contracts prior to closing;
• Handling earnest money deposits, disputes, and releases;
• Backup contracts;
• Closing documents and closing instructions for the broker's agent;
• Maintenance/custody of contract files;
• Escrow records and written procedures for handling business operations;
• Fair housing/affirmative action marketing;
• Staff training - dissemination of information, staff meetings;
• Use of personal assistants;
• Guaranteed buyouts;
• Investor purchases;
• Non-qualifying assumptions and owner financing;
• Licensee's purchase and sale of property;
• Listing procedures and release of listings;
• Rental occupancy before closing;
• Computer system - data control, backup, and physical security; and
• Internal audit and supervisory reviews of business operations.

Management Activity

• Operating policies and required disclosures;
• Use of unlicensed on-site managers;
• Administration of rentals and leasing activity;
• Items under "Sales" above, where applicable;
• Supervision of accounting services, records, and reporting to others;
• Cash handling, collection of delinquent rents and deposits;
• Ownership/management of rental properties by agents;
• Administration and policies for in-house services;
• Maintenance of records and business reports by any outside service;
• Advances of funds on behalf of clients/customers;
• Cancellation of agreements and termination of sevices;
• Related services performed by affiliated entities;
• Backup and disaster recovery plan for loss of business records;
• Eviction and legal action; and
• Return of security and advance deposits.
if the employing broker signs at the bottom of the addendum
If the managing or employing broker signs the Licensee Buyout Addendum, then the brokerage company is responsible. According to the form, this is the only specification for responsibility.

A is correct. A is the only verbiage listed NOT in the Licensee Buyout Addendum.

What Is a Licensee Buyout Addendum?


A licensee buyout addendum is a form used in certain real estate and property transactions in the state of Colorado. The LBA is used only in the purchase and sale of properties between licensed real estate professionals and their own clients.

History and Purpose

The Licensee Buy-Out Addendum to Contract to Buy and Sell Real Estate is intended to prevent improprieties and conflicts of interest in licensee/client transactions, as well as to make sellers contractually aware of the potential differences in selling to a licensed real estate professional as opposed to conventional buyers.

Situations Dictating Use

Licensed real estate agents are required to use an LBA when they enter into contracts to purchase properties concurrently with the initial listing of that property, when it immediately hits the market. Licensees also are required to use the LBA form when they are purchasing a property to facilitate its owner's purchase of another property, as well as when they continue to market that property to other potential buyers.

Deleted Provisions

Under the provisions of the licensee buyout addendum, several conventional provisions of standard real estate listing contracts reached under Colorado state law are deleted. Deleted provisions include a property's appraisal condition, liquidated damages or pre-assessed damages to the property, provisions related to the seller's financial default status and the broker's acknowledgments and compensation disclosure forms.

Profit and Loss Stipulations

Colorado's LBA also stands as contractual acknowledgment by a property seller that the buyer is a licensed real estate professional and any future profit or loss on a resale of the property is solely that of the buyer. Similarly, the LBA protects the property seller by acknowledging that any fees related to closing, holding and reselling the property are all absorbed by the buyer and not the property seller as the original or prior landowner.
A $30,000 check the Seller will receive from this closing
This DEBIT represents the Seller's proceeds from the sale (what they are getting).


More info:


This is a common spot of confusion, so do not let it break your head. The situation occurs at the bottom of the 6 column worksheet when you are reconciling the columns. Let's assume for a moment you are looking at a Buyer's columns. You have applied all the debits and credits and all you have to do is reconcile the columns which have $100,000 in the Credit column (money the buyer has proven they have) and $125,000 in the Debit column (what the Buyer owes). Looks like this Buyer is a little short, but by how much? To determine this amount, you have to make both columns equal. This enables the Closing Agent to determine how much the Buyer is short; which is also how much of a check the Buyer needs to bring and be deposited into the escrow account. So you add $25,000 to the Buyer's Credit column to make both columns equal. Therefore this $25,000 CREDIT represents how much the Buyer is short, meaning this CREDIT does not represent how much they have, it represents how much they still OWE. This is how a CREDIT becomes something you OWE. We are not done reconciling yet. We have a $25,000 Credit, to balance it out we need a $25,000 Debit. That debit goes to the Broker account which represents the Escrow Account. Back to practical language - the Buyers needs to bring a $25,000 check to the closing so that they can make their Credit column (what they got) equal to the Debit column (what they owe) and the Broker (Closing Agent) needs to deposit it into the Escrow Account ($25,000 Debit). For extra points - the reverse is most common with the Seller. When a Sellers Debit column (what they owe) is lower than their Credit column (what they sold their property for), the amount added to the DEBIT column to make both columns equal represents money the Seller is receiving. The balancing CREDIT in the Broker column, reminds the Closing Agent to cut a check to the Seller out of the escrow account.
written statement by Managing Broker

designated broker: a licensee designated in writing by an employing broker to serve as a single agent or transaction-broker for a seller, landlord, buyer or tenant in a real estate transaction; does not include a real estate brokerage firm that consists of only one licensed natural person.
More info:

CP-22...A designated broker is permitted to share confidential information with a supervising broker without changing or extending the brokerage relationship beyond the designated broker. Brokers may want to consult legal counsel regarding the necessity of securing the authorization of the party to whom the information is confidential before the designated broker shares that confidential information with the supervising broker. Such advice could include modifications to the listing agreement or buyer agreement that create such authorization.

More info:

This is a Colorado twist on brokerage laws. Generally, everything you learned in the National side is consistent with Colorado. That all contracts are with the company not the licensee, that the Employing Broker is responsible for the actions of the licensees under him/her and so on. The twist is in how we deal with confidential information and how we resolve what in past years was considered a conflict of interest. All of this comes under the heading of "Designated Broker."

Here is the problem as the real estate commission saw it; once upon a time, it was a conflict of interest if two agents from the same company were working opposite sides of the same transaction - even if it was a large company and the agents did not know each other.

Fact is - earlier brokerage laws were written in a time when there were no large offices or super-sized brokerages. Most were ma and pa operations where everybody knew and talked to each other.

Recognizing that times had changed, the real estate commission wanted two agents working for the same company on the same transaction, to be able to fully represent their clients in a Buyer or Seller Agency relationship and not be forced into some form of neutral relationship such as Transaction Broker or the predecessor to Transaction Brokerage, the now illegal and much hated Dual Agency relationship.

The issue was - if everybody in a company reports to the Employing Broker then that person is a walking talking potential conflict-of-interest on any transaction that occurs in the office.

So they declared that brokerage relationships only, would be confined to the licensee level and not rise to the Employing broker level. This way the Employing Broker does not have a conflict of interest with anybody.

That left one more problem and this was "imputation of confidential information". In simpleze - it would be a bad thing if two agents working on opposite sides of a transaction, went to the same Employing Broker for advice and that Employing Broker blabbed confidential information between them.

To avoid that - the real estate commission issued rules that said in the event of two agents working on the same transaction for the same company, the Employing Broker would "Designate" another supervising broker for one of the agents. Tah Dah! No conflict of interest and no chance of one Employing Broker spilling secrets from one side to the other.

Then to tie everything into a bow - they exempted one-man band brokerages from having to appoint another supervisor because... there is only one person in the company. One agent companies mostly become Transaction Brokers when double-ending a deal.
Yes, but only if they terminate in writing prior to the Record Title Objection Deadline
Zoning is a matter of Title. Buyers have the right to terminate the contact without penalty if any aspect of Title is unsatisfactory to them. However, they must due so in writing prior to either the Off-Record Title Objection Deadline or the Record Title Objection Deadline.


From the Contract to Buy/Sell:


Title Advisory. The Title Documents affect the title, ownership and use of the Property and should be reviewed carefully. Additionally, other matters not reflected in the Title Documents may affect the title, ownership and use of the Property, including, without limitation, boundary lines and encroachments, area, zoning, unrecorded easements and claims of easements, leases and other unrecorded agreements, and various laws and governmental regulations concerning land use, development and environmental matters. The surface estate may be owned separately from the underlying mineral estate, and transfer of the surface estate does not necessarily include transfer of the mineral rights or water rights. Third parties may hold interests in oil, gas, other minerals, geothermal energy or water on or under the Property, which interests may give them rights to enter and use the Property. Such matters may be excluded from or not covered by the title insurance policy. Buyer is advised to timely consult legal counsel with respect to all such matters as there are strict time limits provided in this Contract [e.g., Record Title Objection Deadline (§ 3) and Off-Record Title Objection Deadline
Truehe Commission recognizes that there are benefits to both real estate brokers and consumers in the usage of real estate broker teams. Teams may be formed within a licensed brokerage firm with the approval of the employing broker. Real estate brokers operating as teams need to ensure that they are compliant with Commission rules regarding advertising, name usage and supervision.

Advertising and name usage:

While there is no prohibition of teams, real estate brokers need to ensure that they do not advertise in a manner that misleads the public as to the identity of the brokers' licensed brokerage. Real estate brokers that function as teams should not advertise teams using the terms "realty", "real estate", "company", "corporation", "corp.", "inc.", "LLC" or other similar language that would indicate a company other than the employing brokerage firm. Advertising includes, but is not limited to, websites, signage, property flyers, mailings, business cards, letterhead and contracts. The advertising of team names should never give the impression that the team is an entity separate from the licensed real estate brokerage. If the identity of the employing broker or the brokerage firm is difficult for the public or the Commission to ascertain, the team may be in violation of Rule E-8 Advertising.

Supervision:

In addition to the supervision requirements set forth in Rules E-31 and E-32, Rule E-30 Employing broker responsibilities requires that the broker designated to act as the broker for any partnership, limited liability company or corporation, i.e. the employing broker, fulfill the following duties:

1) Maintain all trust accounts and trust account records;

2) Maintain all transaction records;

3) Develop an office policy manual and periodically review office policies with all employees;

4) Provide for a high level of supervision for newly licensed persons pursuant to Rule-32;

5) Provide for a reasonable level of supervision for experienced licensees pursuant to Rule E-31;

6) Take reasonable steps to ensure that violations of statutes, rules and office policies do not occur or reoccur;

7) Provide for adequate supervision of all offices operated by the broker, whether managed by licensed or unlicensed persons.

Pursuant to §12-61-118, C.R.S. and Rule E-29, employing brokers are also responsible for providing supervision over such activities with reference to the licensing statutes and Commission rules for all brokerage employees, including but not limited to administrative assistants, bookkeepers and personal assistants of licensed employees. Thus, employing brokers are responsible for the actions of unlicensed persons who perform functions within the real estate broker team. Employing brokers need to ensure that any unlicensed person acting within the team is not engaged in practices that require a real estate broker's license. Employing brokers also need to establish that the compensation paid to an unlicensed person for services provided is not in the form of a commission. Compensation paid to an unlicensed person is not required to to be paid solely by the employing broker. However, §12-61-117, C.R.S. requires that all licensee compensation or valuable consideration for the performance of any acts requiring a broker's license is paid solely by the employing broker.
Buyer
The buyer is responsible for such costs after possession, even if possession is before closing. BTW it is really common for students with contract questions to hunt throughout the courses for an answer. Whereas the answer is as far away as looking at the contract itself. Also, it is always a bad idea to let a buyer move into a property prior to close. Savvy agents avoid this at all costs. Nothing good ever happens when this situation occurs. First up, there is a really good chance the buyer will notice something about the house they do not like, which can throw a monkey wrench into the closing process. Lastly, what happens if the buyer moves in and then does not qualify for a loan? You could have an eviction proceeding on your hands.

From the Contract to Buy and Sell Real Estate:

Damage, Inclusions and Services. Should any Inclusion or service (including utilities and communication

services), system, component or fixture of the Property (collectively Service), e.g., heating or plumbing, fail or be damaged between the date of this Contract and Closing or possession, whichever is earlier, then Seller is liable for the repair or replacement of such Inclusion or Service with a unit of similar size, age and quality, or an equivalent credit, but only to the extent that the maintenance or replacement of such Inclusion or Service is not the responsibility of the Association, if any, less any insurance proceeds received by Buyer covering such repair or replacement. If the failed or damaged Inclusion or Service is not repaired or replaced on or before Closing or possession, whichever is earlier, Buyer has the Right to Terminate under § on or before Closing Date (§) , or, at the option of Buyer, Buyer is entitled to a credit at Closing for the repair or replacement of such Inclusion or Service. Such credit must not exceed the Purchase Price. If Buyer receives such a credit, Seller's right for any claim against the Association, if any, will survive Closing. Seller and Buyer are aware of the existence of pre-owned home warranty programs that may be purchased and may cover the repair or replacement of such Inclusions.
Notify Real Estate Commission of true selling price of home
The real estate commission does not track sale prices of homes.

CP-30 State of Colorado Real Estate Commission and Board of Real Estate Appraisers Joint Position Statement

The Colorado Real Estate Commission and the Colorado Board of Real Estate Appraisers have issued this Joint Position Statement to address mutual concerns pertaining to practices of real estate brokers and real estate appraisers with regard to residential sales transactions involving seller assisted down payments, seller concessions, personal property transferred with real property and other items of value included in the sale of residential real property.

A residential real estate transaction has a life well beyond closing and possession of the property. Accurate sales data is crucial for appraisals and comparative market analysis (CMA) work products. Both appraisers and real estate brokers can effectively work together to maintain the safeguards that accurate sold data affords.

A real estate broker can facilitate these safeguards by adherence to the following:

• Note the amount of any seller paid costs (including a seller assisted down payment or fee paid to a charitable organization on behalf of the buyer) or other seller concession in the proper transaction documents, including the Buy/Sell Contract, Closing Statements, and Real Property Transfer Declaration.

• Utilize all available fields in the multiple listing service to report sold information including all transaction terms and seller concessions. Sold information should be entered promptly following closing and be specific and detailed particularly when the sold price includes a seller assisted down payment or concessions.

• Advise buyers and sellers to consult legal and tax counsel for advice on tax consequences of seller contributions and inducements to purchase.

• Cooperate with appraisers as they perform their due diligence in asking questions about sales.
0.0419
First multiply the monthly rent $1,500 by 12 = Annual rental income $18,000. Then divide this by the property value $430,000 = the cap rate 4.19%

More on Cap Rate:

Since Cap Rate uses income, it is only used for income producing properties, not for example, the home you are buying for yourself. First let's define cap rate AKA Capitalization Rate: Cap rate indicates how fast an investment will pay for itself. For example, a 10% Cap Rate means you will get 10% of your purchase price back each year. If a commercial apartment building is purchased for $5,000,000 and it generates $500,000 a year in net operating income (the dollars left over after operating costs are subtracted from your gross income), then:

$500,000 / $5,000,000 = 10% cap rate

This means 10% of the building's purchase price is paid each year by the proceeds. Another way of saying this - the property will pay for itself in 10 years.

How do you use this tool?
Way one; it allows investors a fairly easy and quick method of comparing investment properties. For example: take two properties as identical as the cute twins you flirted with in high school, with the same net operating income. One has a cap rate of 8% (same income, priced higher) and the other a cap rate of 15% (same income, priced lower). The 15% cap rate property MIGHT just be a heck of a deal or the 8% one overpriced. BUT you have to dig deeper, because it might be that the higher cap rate property is in a bad neighborhood and the owner has to discount the price to get it sold. Higher risk means you as a buyer get more bang for the buck with the 15% cap rate property, but you are going to have to work harder for it and your spouse is mad because you haven't been able to take a vacation in years because of that "dang" property you bought. The 8% cap rate property may be more expensive and have a longer payback period, but that is because there is less risk and more investors want to buy it. The rents just come in without grief and it could save your marriage.

Way two: Cap Rate is also used in the Income Method of appraisals to value a property. Generally, investors could care less if a property is pretty; they want to know how much they are going to make off it. The Income Method allows an investor to value a property based on its income. If most like investment properties in an area have an average cap rate of 7%. You can divide the net operating income of the property your client is interested in (provided by the listing agent) by the average cap rate in the area (digging in sold comps of various MLS's) and it will give you the approximate market value of the property. For example: $225,000 net operating income / 7% = $3,214,285 market value. If the property is listed for $5,000,000 you might want to pass it by because it is overpriced for the neighborhood. If it is listed for $2,500,000 you call your client quick because you think you found a good deal.
do nothing, if the listing item is not on the property as of the date of the contract, it is not included nor necessary to cross it out

The Inclusions section lists a number of items which may or may not be a part of the property. Just being in this list does not mean the item is a part of the property. These items are included "if on the Property whether attached or not on the date of this Contract". This means a listed item is only included if it was a part of the property on the date of the purchase agreement.

From the Contract to Buy and Sell Real Estate:

Please note that the paragraph numbers in the below clause may be different in the current contract. Although the numbers change periodically, the language essentially remains the same.

Inclusions. The Purchase Price includes the following items (Inclusions):

32 2.5.1. Fixtures. If attached to the Property on the date of this Contract: lighting, heating, plumbing, ventilating and air conditioning fixtures, TV antennas, inside telephone, network and coaxial (cable) wiring and connecting blocks/jacks, plants, mirrors, floor coverings, intercom systems, built-in kitchen appliances, sprinkler systems and controls, built-in vacuum

systems (including accessories), garage door openers including

Other Fixtures: remote controls.

If any fixtures are attached to the Property after the date of this Contract, such additional fixtures are also included in the Purchase Price.

41 2.5.2. Personal Property. If on the Property whether attached or not on the date of this Contract: storm windows, storm doors, window and porch shades, awnings, blinds, screens, window coverings, curtain rods, drapery rods, fireplace inserts, fireplace screens, fireplace grates, heating stoves, storage sheds, and all keys. If checked, the following are included: Water

Softeners Smoke/Fire Detectors Security Systems Satellite Systems (including satellite dishes).

Other Personal Property:
Commence mediation, arbitration or a civil action
P-25 Commission Position on Recording Contracts

Over the years the Commission has received many inquiries and complaints concerning the recording of listing contracts to protect claims for commissions. In addition, some licensees have attempted more "creative" ways of holding up a closing, such as filing mechanics liens or notices of lis pendens, as well as recording demand letters or purchase contracts. The end result is usually a cloud on the title and sometimes a slander of title action.

Some states have passed statutes authorizing the filing of such liens. Colorado has not. Filings and recordings such as these are inappropriate and will result in Commission action.

Here is a typical scenario: Broker lists a property at $125,000 for 120 days and actively markets it. No offers come in during the first 30 days. Broker advises her seller to lower the price by $5,000 to encourage some activity. The seller is adamant that the property is worth the list price and refuses. After another 15 days with no offers, the seller reluctantly lowers the price. He also tells the broker that he doesn't feel she is trying hard enough to sell the property and he's going to take it off the market if nothing happens.

A week later an offer for $100,000 comes in from another company, which is presented and rejected. The seller is quite upset at the low offer and demands to be released from the listing. There is no further communication between the parties, but the listing is never formally terminated. Three weeks later the broker learns that the seller has entered into a contract with the same buyer for $110,000 and closing is set. The broker is very upset and wants to protect her commission. What can she do?

1. File a mechanics lien?

ANS: No. Real estate licensees are not a protected class of lien claimant under the statute except as provided in C.R.S. 38-22.5 (Commercial Real Estate Brokers Commission Security Act).

2. File a lis pendens (notice of pending lawsuit)?

ANS: No. A lis pendens relates to a title or ownership dispute involving the land itself. The broker has no legal interest in the real estate.

3. Record the listing contract?

ANS: No. This will usually have the effect of clouding title to the property, which in turn affects the closing between buyer and seller. The broker should not interfere in the process of transferring title to property.

4. Escrow the disputed commission?

ANS: Maybe. This is a touchy area. If the broker makes demand on the seller for the commission prior to closing and states her possible rights (mediation; arbitration; civil action) the parties may agree to an escrow pending settlement of the dispute. However, there is no legal requirement that the closing entity escrow funds absent an agreement.

5. Commence mediation, arbitration or civil action (as appropriate).

ANS: Yes. Nothing prevents a licensee from asserting any legal claim against a principal.

A commission dispute is an emotional issue. Sometimes a licensee has put in considerable time on a listing only to be faced with a seller who refuses to pay, attempts to renegotiate or is outright deceitful. On the other side, the Commission has witnessed instances in which the licensee had no legitimate right to a commission and was using superior knowledge and scare tactics to force payment. Clearly this is a time to consult a good real estate attorney and avoid the risk of a complaint based on a hasty decision.
True
CP-38 Commission Position on Disclosure of Affiliated Business Arrangements and Conflicts of Interest (4-5-2011)


This statement supplements Rule E-46 Affiliated Business Arrangements. §12-61-113.2, C.R.S. Affiliated Business Arrangements was enacted in Colorado to provide transparency, accountability, and consumer protection through disclosure and consistency concerning affiliated business arrangements. Affiliated business arrangements have also been regulated for many years by the Real Estate Settlement Procedures Act (RESPA). RESPA was precipitated by significant reforms identified by Congress as necessary to ensure that consumers did not pay disproportionately high settlement costs as the result of certain deleterious business practices by settlement service providers. RESPA is applicable to any residential mortgage transaction involving a federally related mortgage loan. However, Colorado law requires disclosure of affiliated business arrangements to consumers even if the transaction does not involve a federally related residential mortgage loan.

Colorado law C.R.S. 12-61-113.2(1)(a) defines an "affiliated business arrangement" as an arrangement in which:


"A provider of settlement services or an associate of a provider of settlement services has either an affiliate relationship with or a direct beneficial ownership interest of more than one percent in another provider of settlement services;"


and the provider directly or indirectly refers business to the other provider or affirmatively influences the selection of another provider of settlement services.


It is the Commission's position that real estate brokers must disclose affiliated business arrangements to consumers in all transactions intended to result in the transfer of title from one party to another. RESPA requires that affiliated business arrangements be disclosed before or at the time a referral is made to a provider of settlement services. Colorado law requires a licensee to disclose any affiliated business arrangement when an offer to purchase real property is fully executed. In Colorado, the disclosure is required to be in writing, must be given to both agents and transaction brokers, must comply with RESPA and Colorado law, and must be made using the Federal RESPA disclosure form. Colorado law requires real estate brokers to disclose their affiliated business arrangements to all parties to the real estate transaction and all parties are expected to sign the disclosure form. The Commission recommends that real estate brokers disclose their affiliated business arrangements to the party with whom they are working early in their relationship, i.e. at the time brokerage relationships are disclosed or when the listing contract or buyer broker agreement is negotiated. In those transactions where the broker does not deal with another party until the time of contracting written disclosure should be made to all parties at the time the purchase contract is fully executed.


Additionally, real estate brokers are required to make certain disclosures to the Division of Real Estate regarding their affiliated business arrangements. Colorado law requires every licensee to disclose to the Commission when they enter into or change an affiliated business arrangement. All affiliated business arrangements to which the licensee is a party must be disclosed. Disclosure is required at the time of a new application for licensure or at the time of activation of an inactive license. The disclosure must include the physical location of the affiliated business. Employing brokers are required to disclose the names of all affiliated business arrangements to which the employing broker is a party on an annual basis, at the least. The disclosure must include the physical location of the affiliated businesses. The Commission has determined that these disclosures shall be made electronically through the Division of Real Estate's website at www.dora.state.co.us/pls/real/AFB_Web.Logon?p_div=REC.


It is the Commission's position that Rule E-25 Continuing duty to disclose conflict of interest and license status, applies to all licensees including real estate brokers who perform licensed property management services and are affiliated with businesses or vendors that provide services applicable to lease transactions. For example, a real estate broker acting on behalf of a landlord is required to disclose to the landlord that the real estate broker has partial ownership of the maintenance company that the real estate broker utilizes for the landlord's property repairs. The Commission strongly recommends that this type of information be disclosed to the principal early in the business relationship, i.e. at the time brokerage relationships are disclosed or when the listing contract is negotiated. Additionally, this disclosure should be made in writing.
always sue the buyer for specific performance
"Liquidated damages" is deleted, in a licensee buyout addendum to a contract to buy and sell real estate.
More info:

What Is a Licensee Buyout Addendum?

by Maxwell Wallace, Demand Media

A licensee buyout addendum is a form used in certain real estate and property transactions in the state of Colorado. The LBA is used only in the purchase and sale of properties between licensed real estate professionals and their own clients.

History and Purpose

The Licensee Buy-Out Addendum to Contract to Buy and Sell Real Estate is intended to prevent improprieties and conflicts of interest in licensee/client transactions, as well as to make sellers contractually aware of the potential differences in selling to a licensed real estate professional as opposed to conventional buyers.

Situations Dictating Use

Licensed real estate agents are required to use an LBA when they enter into contracts to purchase properties concurrently with the initial listing of that property, when it immediately hits the market. Licensees also are required to use the LBA form when they are purchasing a property to facilitate its owner's purchase of another property, as well as when they continue to market that property to other potential buyers.

Deleted Provisions
under the provisions of the licensee buyout addendum, several conventional provisions of standard real estate listing contracts reached under Colorado state law are deleted. Deleted provisions include a property's appraisal condition, liquidated damages or pre-assessed damages to the property, provisions related to the seller's financial default status and the broker's acknowledgments and compensation disclosure forms.

Profit and Loss Stipulations

Colorado's LBA also stands as contractual acknowledgment by a property seller that the buyer is a licensed real estate professional and any future profit or loss on a resale of the property is solely that of the buyer. Similarly, the LBA protects the property seller by acknowledging that any fees related to closing, holding and reselling the property are all absorbed by the buyer and not the property seller as the original or prior landowner.
the buyer have title review by legal counsel
All are great ideas and good ideas, but of those listed, only the recommendation of title examination by legal counsel is required by Real Estate Commission rules. This occurs at the end of the Title Advisory section of the Contract to Buy and Sell Real Estate wherein the contract advises the use of Legal Counsel to review title. The others appear in the purchase contract, but do not get an actual recommendation.

See Below:

"Title Advisory. The Title Documents affect the title, ownership and use of the Property and should be reviewed carefully. Additionally, other matters not reflected in the Title Documents may affect the title, ownership and use of the Property, including, without limitation, boundary lines and encroachments, area, zoning, unrecorded easements and claims of easements, leases and other unrecorded agreements, and various laws and governmental regulations concerning land use, development and

environmental matters. The surface estate may be owned separately from the underlying mineral estate, and transfer of the surface estate does not necessarily include transfer of the mineral rights or water rights. Third parties may hold interests in oil, gas, other minerals, geothermal energy or water on or under the Property, which interests may give them rights to

enter and use the Property. Such matters may be excluded from or not covered by the title insurance policy. Buyer is advised to timely consult legal counsel with respect to all such matters as there are strict time limits provided in this Contract"
A 60 unit co-op building
The Subdivision Developer's Act affects the types of subdivisions that must be registered with the Commission. The following types of subdivisions within the State of Colorado, and subdivisions located outside the state if being offered for sale in Colorado, must be registered before offering, negotiating, or agreeing to sell, lease, or transfer any portion of the subdivision:

* 1. Any division of real property into 20 or more interests for residential use;

* 2. Subdivisions consisting of 20 or more time-share interests (a time share interest includes a fee simple interest, a leasehold, a contract to use, a membership agreement, or an interest in common);

* 3. Subdivisions consisting of 20 or more residential units created by converting an existing structure (e.g., condominium conversions); and

* 4. Subdivisions created by cooperative housing corporations with 20 or more shareholders with proprietary leases, whether the project is completed or not.

* B. Exempt from Registration under the Subdivision Developer's Act:


* 1. The selling of memberships in campgrounds;

* 2. Bulk sales and transfers between developers;

* 3. Property upon which there has been or upon which there will be erected residential buildings that have not been previously occupied and where the consideration paid by the purchaser for such property includes the cost of such buildings (this does not apply to conversions, time share, or cooperative housing projects);

* 4. Lots that, at the time of closing of a sale or occupancy under a lease, are situated on a street or road and the street or road system is improved to standards at least equal to streets and roads maintained by the county, city, or town in which the lots are located; have a feasible plan to provide potable water and sewage disposal; and have telephone and electricity facilities and systems adequate to serve the lots, which facilities and systems are installed and in place on the lots or in a street, road, or easement adjacent to the lots and which facilities and systems comply with applicable state, county, municipal, or other local laws, rules, and regulations; or any subdivision that has been or is required to be approved after September 1, 1972 by a regional, county, or municipal planning authority pursuant to Article 28 of Title 30 or Article 23 of Title 31, C.R.S.; and

* 5. Sales by public officials in the official conduct of their duties.
Credit to the broker
The documentary fee is collected from the buyer by the Title Company (broker) and is sent to the county assessor to assist in determining the true value of the property. Debit Buyer Credit Broker

"On all documents granting or conveying title to real property (CRS. 39-13-102) $0.01 per $100 consideration if consideration is greater than $500"
This answer to this question refers to the 6 column worksheet which pre-personal computer days was used to calculate the numbers for a closing. The broker engages the title company to act as scrivener and conduct the closing which includes deposits and withdraws into and out of the closing escrow account. Although the escrow account used for closings is managed by the title company closer, legally the listing broker is still responsible for it. Therefore, on the 6 column settlement worksheet the columns pertaining to the closing escrow account are labeled "Broker Credit" and "Broker Debit." Deposits into the closing escrow account are placed into the Broker Debit Column and withdrawals are listed in the Broker Credit column.

Wait a minute! How can a deposit be a debit? Unfortunately that is how it works. The 6 column settlement worksheet twists slightly the traditional rules of accounting so that the person responsible for the closing escrow account knows what checks to write and deposits to make. S/he does this by dedicating the "Broker Debit" column to deposits and the "Broker Credit" column to withdrawals. This way, for example, if the seller owes the County Treasurer for back taxes, the closer can take the money from the Seller by indicating Debit Seller and have a reminder to write a check to the County Treasurer by placing the corresponding credit into the Broker Credit column. When all is said and done accounting gods are happy as all debits and credits are in balance.
true
CP-40 Commission Position on Teams (4-5-2011)

The Commission recognizes that there are benefits to both real estate brokers and consumers in the usage of real estate broker teams. Teams may be formed within a licensed brokerage firm with the approval of the employing broker. Real estate brokers operating as teams need to ensure that they are compliant with Commission rules regarding advertising, name usage and supervision.

Advertising and name usage:

While there is no prohibition of teams, real estate brokers need to ensure that they do not advertise in a manner that misleads the public as to the identity of the brokers' licensed brokerage. Real estate brokers that function as teams should not advertise teams using the terms "realty", "real estate", "company", "corporation", "corp.", "inc.", "LLC" or other similar language that would indicate a company other than the employing brokerage firm. Advertising includes, but is not limited to, websites, signage, property flyers, mailings, business cards, letterhead and contracts. The advertising of team names should never give the impression that the team is an entity separate from the licensed real estate brokerage. If the identity of the employing broker or the brokerage firm is difficult for the public or the Commission to ascertain, the team may be in violation of Rule E-8 Advertising.
Supervision:

In addition to the supervision requirements set forth in Rules E-31 and E-32, Rule E-30 Employing broker responsibilities requires that the broker designated to act as the broker for any partnership, limited liability company or corporation, i.e. the employing broker, fulfill the following duties:

1) Maintain all trust accounts and trust account records;

2) Maintain all transaction records;

3) Develop an office policy manual and periodically review office policies with all employees;

4) Provide for a high level of supervision for newly licensed persons pursuant to Rule-32;

5) Provide for a reasonable level of supervision for experienced licensees pursuant to Rule E-31;

6) Take reasonable steps to ensure that violations of statutes, rules and office policies do not occur or reoccur;

7) Provide for adequate supervision of all offices operated by the broker, whether managed by licensed or unlicensed persons.

Pursuant to §12-61-118, C.R.S. and Rule E-29, employing brokers are also responsible for providing supervision over such activities with reference to the licensing statutes and Commission rules for all brokerage employees, including but not limited to administrative assistants, bookkeepers and personal assistants of licensed employees. Thus, employing brokers are responsible for the actions of unlicensed persons who perform functions within the real estate broker team. Employing brokers need to ensure that any unlicensed person acting within the team is not engaged in practices that require a real estate broker's license. Employing brokers also need to establish that the compensation paid to an unlicensed person for services provided is not in the form of a commission. Compensation paid to an unlicensed person is not required to to be paid solely by the employing broker. However, §12-61-117, C.R.S. requires that all licensee compensation or valuable consideration for the performance of any acts requiring a broker's license is paid solely by the employing broker.
Restrictive covenants set standards for all the parcels within a defined subdivision.



More info on Deeds:
In Colorado real estate, there are several types of deeds, depending on the type/amount of protection given and received from the seller and buyer. From the Colorado Real Estate Manual:



Types Of Deeds

There are four major classifications of deeds:

(1) General warranty deed,

(2) Special warranty deed,

(3) Bargain and sale deed,

(4) Quitclaim deed.



The types of deeds differ solely in the degree of protection that the grantor (seller) promises or warrants to the grantee (buyer). No type of deed transfers any greater or lesser interest than another. For example, if a grantor conveys title in fee simple by a general warranty deed, the same fee simple ownership is conveyed as if he or she had used a quitclaim deed.



However, the general warranty deed grantor promises to defend against any loss incurred due to any title defect, whereas transfer by quitclaim deed contains no such warrant.



1. General Warranty Deed.

A deed in which the grantor warrants or guarantees title against defects that existed before the grantor acquired title or that arose during the grantor's ownership. It does not warrant against encumbrances or defects arising from the grantee's own acts. The usual covenants or warranties contained in a general warranty deed are:



a. Covenant of seizin. Guarantees the grantor's ownership and that he or she has the right to convey it. The fact that the property is mortgaged or is subject to some restriction does not breach this covenant.

b. Covenant against encumbrances. Guarantees that there are no encumbrances or claims against the property except those specifically excluded in the deed.

c. Covenant of quiet enjoyment. Guarantees that the grantee will not be evicted or disturbed in possession of the property. Threats or claims by a third party do not breach this covenant. The grantee would have to actually be dispossessed before being entitled to seek recovery under this covenant against the grantor.

d. Covenant of further assurance. Guarantees that the grantor will procure and deliver any other instruments that are subsequently necessary to make the title good.

e. Covenant of warrant forever. Guarantees that the grantee shall have title and possession to the property. Sometimes considered part of "quiet enjoyment".



The first two covenants relate to the past, and generally do not generally "run with the land" - meaning that only the current grantee may sue the grantor for a breach. The last three covenants protect against future defect and are said to run with the land - allowing any subsequent grantee to seek remedy for breach against any previous grantor. According to Colorado statute, "Covenants of seizin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate, or of any interest therein, shall run with the premises, and inure to the benefit of all subsequent purchasers and encumbrancers." (38-30-121 C.R.S.)



2. Special Warranty Deed.

The grantor of a special warranty deed warrants the title only against defects arising after the grantor acquired the property and not against defects arising before that time.



3. Bargain and Sale Deed.

Technically, any deed that recites a consideration and purports to convey the real estate is a bargain and sale deed. Thus, many quitclaim and warranty deeds are also deeds of bargain and sale. Bargain and sale deeds often contain a covenant against the grantor's acts, whereby the grantor warrants only that the grantor has done nothing to harm the title.



This covenant would not run with the land. Examples of bargain and sale deeds with a covenant against the grantor's acts are an executor's deed, an administrator's deed, and a guardian's deed.



4. Quitclaim Deed.

The grantor of a quitclaim deed warrants absolutely nothing. A quitclaim deed conveys the grantor's present interest in the land, if any. A quitclaim deed is frequently used to clear up a technical defect in the chain of title or to release lien claims against the property. Examples of such deeds are correction deeds, and deeds of release.
sue Davis immediately for the unpaid portion of the lease

By taking possession, Mr. and Mrs. Davis impliedly accepted the agreement and would be liable for the unpaid portion. Only the lessor needs to sign the lease.

More info on Leasehold Tenancies:

Leasehold Tenancy also known as Nonfreehold Estates

A nonfreehold estate is an interest in real property that is less than a freehold estate. Nonfreehold estates are not inheritable and are said to exist without seisin. Seisin denotes ownership: an individual who is "seised" of an estate is the owner of the estate. Also known as a leasehold estate, a nonfreehold estate is created through a lease or rental agreement that can be either written or oral. The holder of a nonfreehold estate (the tenant or lessee) holds no ownership interest in the real property, and only has the right to use the property as established in the terms of the lease or rental agreement. Ownership remains with the landlord (lessor). (To learn more, see Becoming A Landlord: More Trouble Than It's Worth?)

Types of Nonfreehold Estates

Because nonfreehold estates involve tenants, they are often referred to as "tenancies." There are four types of tenancies:

Tenancy for Years

This is, also called an estate for years or tenancy for a definite term, is an estate that is created by a lease. A lease is a contractual agreement where a tenant takes a leasehold interest in a real property for a specified duration. The defining characteristic of a tenancy for years is that the term must have a definite beginning and end; that is, a beginning date and either a specific time period (such as one year or one month) and an end date must be declared. As long as a lease is for a definite term, it is identified as a tenancy for years. These leases terminate automatically at the specified end date without the need for notice by either party.

Tenancy from Period to Period

A tenancy from period to period is an estate that exists when the tenancy is for a definite initial time, but is automatically renewable unless terminated by the lessor or lessee with prior notice that the tenancy is to be ended. These estates, which are also called periodic tenancies, are of indefinite duration since they can be renewed indefinitely. A tenancy from period to period may be from year to year, month to month, week to week or even day to day, and renews for a like period of time. For example, a month to month periodic tenancy is renewable in one-month periods until it is terminated at the end of a month through proper notice by either party. (See also, 11 Mistakes Inexperienced Landlords Make.)

Tenancy at Will

A tenancy at will, or an estate at will, exists at the pleasure of both the lessor and the lessee. This type of tenancy can be terminated at any time "at the will" of either the owner or the tenant. A tenancy at will lease agreement might contain language that expresses that the lease may be terminated instantly when notice is given. In practice, a tenant is generally entitled to a reasonable amount of time in which to vacate the property. Landlords may prefer a tenancy at will when a property is for sale and any tenants would have to vacate quickly. Tenants may favor a tenancy at will if they plan on renting only for a short period of time; for example, prior to moving or while waiting to move into a new home.

Tenancy at Sufferance

A tenancy at sufferance is the lowest form of estate known to law. Also called an estate at sufferance, it exists indirectly as the result of circumstance, and is never deliberately created. This type of tenancy arises when a person goes into possession of land in a lawful manner, but remains on the property without any right to do so, and without the owner's consent. The only difference between a tenant at sufferance and a trespasser is that the tenant at sufferance had at one time a right to be on the property, but has stayed beyond the terms of the previous agreement. For example, a tenant who remains after a one-year lease has terminated, without consent or recognition from the owner, becomes a tenant at sufferance. The tenant can be evicted at any time without notice.
estate at will

A tenancy at will often occurs upon the expiration of an estate for years.



More info on Leasehold Tenancies:



Leasehold Tenancy also known as Nonfreehold Estates

A nonfreehold estate is an interest in real property that is less than a freehold estate. Nonfreehold estates are not inheritable and are said to exist without seisin. Seisin denotes ownership: an individual who is "seised" of an estate is the owner of the estate. Also known as a leasehold estate, a nonfreehold estate is created through a lease or rental agreement that can be either written or oral. The holder of a nonfreehold estate (the tenant or lessee) holds no ownership interest in the real property, and only has the right to use the property as established in the terms of the lease or rental agreement. Ownership remains with the landlord (lessor). (To learn more, see Becoming A Landlord: More Trouble Than It's Worth?)

Types of Nonfreehold Estates

Because nonfreehold estates involve tenants, they are often referred to as "tenancies." There are four types of tenancies:

Tenancy for Years

This is, also called an estate for years or tenancy for a definite term, is an estate that is created by a lease. A lease is a contractual agreement where a tenant takes a leasehold interest in a real property for a specified duration. The defining characteristic of a tenancy for years is that the term must have a definite beginning and end; that is, a beginning date and either a specific time period (such as one year or one month) and an end date must be declared. As long as a lease is for a definite term, it is identified as a tenancy for years. These leases terminate automatically at the specified end date without the need for notice by either party.

Tenancy from Period to Period

A tenancy from period to period is an estate that exists when the tenancy is for a definite initial time, but is automatically renewable unless terminated by the lessor or lessee with prior notice that the tenancy is to be ended. These estates, which are also called periodic tenancies, are of indefinite duration since they can be renewed indefinitely. A tenancy from period to period may be from year to year, month to month, week to week or even day to day, and renews for a like period of time. For example, a month to month periodic tenancy is renewable in one-month periods until it is terminated at the end of a month through proper notice by either party. (See also, 11 Mistakes Inexperienced Landlords Make.)

Tenancy at Will

A tenancy at will, or an estate at will, exists at the pleasure of both the lessor and the lessee. This type of tenancy can be terminated at any time "at the will" of either the owner or the tenant. A tenancy at will lease agreement might contain language that expresses that the lease may be terminated instantly when notice is given. In practice, a tenant is generally entitled to a reasonable amount of time in which to vacate the property. Landlords may prefer a tenancy at will when a property is for sale and any tenants would have to vacate quickly. Tenants may favor a tenancy at will if they plan on renting only for a short period of time; for example, prior to moving or while waiting to move into a new home.

Tenancy at Sufferance

A tenancy at sufferance is the lowest form of estate known to law. Also called an estate at sufferance, it exists indirectly as the result of circumstance, and is never deliberately created. This type of tenancy arises when a person goes into possession of land in a lawful manner, but remains on the property without any right to do so, and without the owner's consent. The only difference between a tenant at sufferance and a trespasser is that the tenant at sufferance had at one time a right to be on the property, but has stayed beyond the terms of the previous agreement. For example, a tenant who remains after a one-year lease has terminated, without consent or recognition from the owner, becomes a tenant at sufferance. The tenant can be evicted at any time without notice.
the buyer have title reviewed by legal counsel

All are great ideas and good ideas, but of those listed, only the recommendation of title examination by legal counsel is required by Real Estate Commission rules. This occurs at the end of the Title Advisory section of the Contract to Buy and Sell Real Estate wherein the contract advises the use of Legal Counsel to review title. The others appear in the purchase contract, but do not get an actual recommendation.

See Below:

"Title Advisory. The Title Documents affect the title, ownership and use of the Property and should be reviewed carefully. Additionally, other matters not reflected in the Title Documents may affect the title, ownership and use of the Property, including, without limitation, boundary lines and encroachments, area, zoning, unrecorded easements and claims of easements, leases and other unrecorded agreements, and various laws and governmental regulations concerning land use, development and

environmental matters. The surface estate may be owned separately from the underlying mineral estate, and transfer of the surface estate does not necessarily include transfer of the mineral rights or water rights. Third parties may hold interests in oil, gas, other minerals, geothermal energy or water on or under the Property, which interests may give them rights to

enter and use the Property. Such matters may be excluded from or not covered by the title insurance policy. Buyer is advised to timely consult legal counsel with respect to all such matters as there are strict time limits provided in this Contract"
Notify Real Estate Commission of true selling price of home

The real estate commission does not track sale prices of homes.
CP-30 State of Colorado Real Estate Commission and Board of Real Estate Appraisers Joint Position Statement
The Colorado Real Estate Commission and the Colorado Board of Real Estate Appraisers have issued this Joint Position Statement to address mutual concerns pertaining to practices of real estate brokers and real estate appraisers with regard to residential sales transactions involving seller assisted down payments, seller concessions, personal property transferred with real property and other items of value included in the sale of residential real property.
A residential real estate transaction has a life well beyond closing and possession of the property. Accurate sales data is crucial for appraisals and comparative market analysis (CMA) work products. Both appraisers and real estate brokers can effectively work together to maintain the safeguards that accurate sold data affords.
A real estate broker can facilitate these safeguards by adherence to the following:
• Note the amount of any seller paid costs (including a seller assisted down payment or fee paid to a charitable organization on behalf of the buyer) or other seller concession in the proper transaction documents, including the Buy/Sell Contract, Closing Statements, and Real Property Transfer Declaration.
• Utilize all available fields in the multiple listing service to report sold information including all transaction terms and seller concessions. Sold information should be entered promptly following closing and be specific and detailed particularly when the sold price includes a seller assisted down payment or concessions.
• Advise buyers and sellers to consult legal and tax counsel for advice on tax consequences of seller contributions and inducements to purchase.
• Cooperate with appraisers as they perform their due diligence in asking questions about sales.
the seller

The seller (vendor) retains legal title until the debt is paid in full; the buyer (vendee) has equitable title.

More info on Installment Land Contracts:

Installment Land Contracts AKA "Land Contracts" is a purchase agreement in which the owner retains legal title to a property while the buyer, usually a tenant, makes payments. ONCE THE BUYERS COMPLETES THESE PAYMENTS, THE SELLER DEEDS THE PROPERTY TO THE BUYER. Two big points here: 1) Since the buyer does not take legal ownership until they complete payments, this means the buyer, who usually has possession of the property, has no legal rights to the property beyond that of a renter. THEY DO NOT OWN IT - THE SELLER DOES. 2) Because of the number of creeps who have used installment land contracts to defraud unknowing buyers, the real estate commission does not have an approved form for us as agents to use. These contracts are not illegal, if you have clients who want to enter into such an agreement, they (notice the "they" here - I for one would not touch a land contract transaction for all the tea in China) need to bring in an attorney to draw up the necessary paperwork.

The real estate commission feels so strongly about this, they issued a position statement on it. Here it is: CP-39 Commission Position on Lease Options, Lease Purchase Agreements and Installment Land Contracts (4-5-2011)

The Commission recognizes that in order to maintain the resilience of the real estate market during times when conventional lending requirements are rigorous, alternative funding practices are utilized to sustain the market conditions of supply and demand. The Commission has received and investigated numerous complaints pertaining to lease options, lease purchase agreements and installment land contracts. Although the Commission does not have the authority to prohibit the types of real estate transactions that real estate brokers participate in, the Commission strongly cautions real estate brokers to utilize the services of an attorney licensed to practice law within the State of Colorado. It has been the Commission's observation, based on complaints received, that lease option and lease purchase transactions are complex and generally contain provisions with significant financial risk posed to the prospective buyer and seller. Installment land contracts and the other transactions mentioned in this position statement afford buyers the opportunity to take possession of the real property and make installment payments to the seller. There is a significant potential for harm to the seller, buyer or assignee if the installment land contract is not properly drafted. In all of the above transactions, the seller retains legal title to the property while the buyer may acquire equitable title. The Commission does not have an approved contract form necessary to memorialize the terms and nuances related to these complex transactions, or any jurisdictional regulations that may be germane. Pursuant to Rule F, the appropriate provisions of the license law and the brokerage relationship act (§§12-61-113, 12-61-804, 805 and 807, C.R.S.), real estate brokers are prohibited from drafting a contract document that would reflect the terms of such a transaction as it would exceed their level of competency and is a matter requiring the expertise and advice of an attorney. Additionally, such behavior may be construed as the unauthorized practice of law by the real estate broker and subject to civil penalties. The contracts for these transactions should not be prepared by a real estate broker; rather, the documents should be drafted by a licensed Colorado attorney-at-law engaged for each particular transaction.
void and not binding as it was withdrawn before acceptance was communicated to the Buyer

Standard contract law states that a contract must be signed and accepted to be binding. The Buyer has every right to withdraw an offer at no penalty before the signed contract was accepted. A signature alone is not sufficient to constitute valid acceptance: the accepting party must also communicate acceptance to the party who made the last offer or counteroffer. Since acceptance was not communicated, the purchase contract was not binding and either party could withdraw at no penalty.

To have a valid contract, it must be signed and accepted and that acceptance must be communicated to the person making the offer before the contract deadline

There is no question that written notification is preferable to a verbal one. In real life a savvy agent would have followed up the verbal withdrawal with a written one. However, in this case they are both legal.

The disadvantage of a verbal notification is the difficulty in enforcing it in a court of law, not that it is illegal.

The terms of the purchase contract are not in force until it has been signed AND accepted by both parties. Even though it has been signed, absent acceptance the purchase contract is not fully in force, general contract law is in charge and says that verbal works.

Please note that once the purchase contract is in force it specifies all sorts of places where written notification is mandatory and verbal will not do.

The preferred form of acceptance is returning the signed contract. The popularity of electronic contact has made this easy 24/7 - click and you delivered it to everybody.

BTW..interestingly enough, if the Seller agent also had called the buyer agent before the withdrawal and indicated that they had signed and accepted the contract. That would have also constituted legal acceptance and the buyer could not then withdraw the offer as it would be binding. Of course by then we possibly could have dueling verbal notifications and that is why lawyers drive nice cars.
has no holdover clause

Single party listings are confined to one buyer. These are most commonly used when an agent for a buyer approaches a For Sale By Owner. The seller is willing to pay a commission to the agent should the specific buyer purchase the property. Contractually this is accomplished by identifying the buyer in a listing agreement and limiting the duration of the agreement for a few days.
As per commission Position 13 on Single Party Listings, the termination date shall not be extended by the "Holdover Period" of this listing contract.
More info:
CP-13 Commission Policy on Single-Party Listings
Brokers often secure single-party listings because they have what they believe to be a good prospect for purchase. These listings are usually only for a few days, but occasionally the broker wishes to be protected for a longer period while the broker is negotiating with a particular prospective purchaser.
A single-party listing, when placed on a Commission approved form for an Exclusive Right to Sell or Exclusive Agency, results in greater protection to the broker than the broker needs to have and the owner is placed in a position which is unfair. The owner may not realize that if the owner signs a listing contract with another broker, the owner may become liable for the payment of two commissions even though the owner has excepted a sale to the person mentioned in a single-party listing contract.
In any and all contracting, the intent of the parties is paramount in its importance, in a listing contract, a broker is dealing with those less informed than the broker, and the broker has a duty to disclose the true meaning of the listing contract.
The Commission does not wish to limit any owner of the freedom to contract. However, the broker should fully disclose to the owner the effect of the exclusive right to sell listing contract or the exclusive agency contract.
Usually, when an owner signs an exclusive right to sell or exclusive agency agreement concerning a single party, the owner wishes to limit the rights of the broker under the listing contract. Therefore, in the space provided for additional provisions, one, two, or all of the following limitations should be inserted in this space:
provided for additional provisions, one, two, or all of the following limitations should be inserted in this space:
1. The provisions of this listing contract shall apply only in the event a sale is made to ___________________________________.
2. The termination date shall not be extended by the "Holdover Period" of this listing contract.
3. In the event a sale is made by the owner or their broker to any other party than the above names, this listing contract is void.
If an owner is misled to their disadvantage, the broker may be found guilty of endangering the public.