EARNEST MONEY DEPOSIT
When a written offer is submitted, you will need to include with it a personal check in the amount of roughly 1% of the purchase price. This check is a good faith gesture, showing the seller your serious intent to buy the property. This check will be deposited into the listing broker’s escrow account upon acceptance of the offer and will remain in escrow until the time of closing. The amount is credited to you as part of your down payment. If your offer is not accepted, or in the event that your offer is legally terminated, the earnest money will be refunded to you. Also, in the event that you do not qualify with the lender for a new loan, the earnest money is refunded to you.
TITLE INSURANCE
When property is being sold or refinanced, both the lender and the buyer need a written commitment for title insurance. This commitment will indicate any recorded liens, encumbrances and recorded easements attached to the property and will show the vested owner of record and any restrictions on the use of the subject property.
Title insurance policy is required for all property in Colorado and is paid for by the seller, insuring you against defects in tile, with exceptions. However, the buyer must furnish a “lender’s policy” to protect the lenders interest in the property. You may purchase this policy from any title company and these charges will be incurred at the time of settlement as a part of your closing costs.
You will also want to be sure to get the “owner’s residential/plain language” policy with a “gap” endorsement. Some title companies call this improved protection “Owner’s Extended Coverage.“ The cost for this policy varies and is paid for at closing. When the sale is finalized, the title company records the necessary documents, and then issues a title insurance policy to the new buyer and the lender showing clear title to the subject property.
CONTRACTS
I recommend that you familiarize yourself with the Contract to Buy and Sell Real Estate. This is the approved real estate contract that we will use to write an offer to purchase. Click here to see all of the approved 2009 Colorado Real Estate Commission contracts and forms.
ATTORNEYS
I am not allowed to give you legal advice and I always recommend that you seek legal counsel for the transaction and the inspection of your evidence of title. The only caution I might give you here is that you should choose an attorney who understands real estate (some specialize in real estate). I will work with your attorney throughout the transaction.
APPRAISAL
An appraisal is required by the lending institution to determine whether the amount of the offered purchase price does not exceed the market value of the property. If you are purchasing property needing financing then the lender usually chooses the appraiser. If you are purchasing for cash, assumption or owner carry financing, you will choose the appraiser.
Appraisal is done by a licensed appraiser and a written report is turned in to the lender. You will get a copy of it at closing. The cost of an appraisal can range from $375 - $400 and the lender will sometimes collect this payment in advance.
CLOSING
The end of the journey! It can take 15 to 45 days to complete all the steps involved in a home sale, depending on the complexity of the transaction. The title company will gather all the pertinent information about the transaction and will let us know a day in advance the amount of money you need to bring to the closing. Those funds need to be in the form of certified funds, such as a Bank Check payable to YOUR NAME. The closing will take about an hour and you will receive copies of the documents you will sign during the closing.
A NOTE ABOUT CRIME
It seems that all areas have crime. I cannot know how much crime is too much crime for you. The police department has statistics on crime rates in the various areas.
There is a Federal Law called “Megan’s Law”. Megan was a small child who was molested and murdered by a convicted and released sex offender who resided in her neighborhood. The law states that people living in a neighborhood have the right to know if such a person is residing in the neighborhood. Once you locate property, you may want to check this through the local jurisdictions who are required to keep lists of these people when released and where they reside.
TYPES OF INSPECTIONS
Property Inspections
There are no licensing requirements for inspectors in Colorado. However, most inspectors acquire their education from various professional organizations. Ask about their qualifications and insurance. Following is just a sampling of some of the inspections you might need. Most inspectors will do radon and asbestos testing. They may or may not do testing for lead-based paint. Benonite soil should be a consideration. Mold could be a problem and all inspectors are not competent to inspect for mold. A structural engineer would probably be best for structural integrity.
Radon Testing
Radon is a radioactive gas which occurs in nature. You cannot see it, smell it, or taste it, but it is potentially cancer causing. Special equipment is needed to detect radon. The test takes three days & the cost ranges from $100 - $120. Please click here to download a pamphlet on “Dealing with Radon in Real Estate Transactions” from the Colorado Department of Public Health and Environment.
Structural Inspections
When purchasing a property, you might choose to have a structural engineer’s inspection. This inspection will determine the structural condition of the home, more specifically the foundation. It will show any defects, that may need correction. This service generally costs around $500.
Toxic Mold Tesing
In recent years toxic mold has become a big problem in the real estate industry. Severe sickness can be attributed to the presence of toxic mold in the home. If during your home inspection you have been alerted to the presence of mold, or have any reason to be concerned for your future health, please have a toxic mold evaluation completed by a licensed professional. Please click here for more information.
Sewer Line Scope
I strongly recommend that you investigate the condition of the sewer line. A sewer line scope inspection involves the use of a camera that snakes through the line allowing you to see the structural integrity of the line. This inspection will reveal any breaks or cracks. The cost for replacing a sewer line can run thousands of dollars, so it is critical to conduct this inspection.
Well and Septic Line Inspections
Discuss with the inspector whether the inspection will be surface or subsurface. What is involved in the inspection and the inspector’s qualifications? You can also test the well water for radon in the water.
Carbon Monoxide
Beginning July 1, 2009, a seller of residential real property containing a fuel-fired heater or appliance, a fireplace, or an attached garage will be responsible for assuring that a carbon monoxide alarm is properly installed within 15 feet of the entrance to each room lawfully used for sleeping. Click here for more information. Be sure that your inspector will test the heating system for carbon monoxide leaks.
Asbestos
Asbestos has been used in over 3,000 types of building materials including insulation, roofing, vinyl asbestos tiles, and siding materials. It must be released into the air and inhaled to be a health risk. Please consult with your inspector about the risks and remediation for asbestos.
Lead-based paint
Lead-based paint is present in approximately 75% of all homes built before 1978. It was banned in 1978 due to hazards it can cause in the body if ingested. Sellers must disclose known lead-based paint and provide the buyer with any report or records they have. Please click here for more information.
EIFS (Synthetic Stucco)
Improper installation of stucco can result in moisture damage to the house that cannot always be detected by mere observation. Please click here for more information about EIFS by US Inpect.
UFFI (Urea Formaldehyde Foam Insulation)
UFFI was used in building materials, particularly insulation in the 1970’s and was banned in 1982 and then the ban was reduced to a warning in 1985 because formaldehyde is known to cause cancer in animals but the evidence of effects in humans is inconclusive. Formaldehyde can cause respiratory problems as well as eye and skin irritation in some people. Please consult with your inspector for more information.
IMPORTANT WAYS TO PROTECT YOUR INTERESTS
A written property disclosure statement from the seller will reveal any problems with the house and the surrounding area that you need to know about.
Professional inspections deal with the mechanical aspects of a house and include: appliances, water and plumbing lines, electrical, heating and ventilating, bath and kitchen fixtures, crawl spaces, basements, garages, roofs, attics and general maintenance of the home. This inspection may also include the structural aspects and the cost depends on the size of the property. It usually costs between $250-$350 and is not refundable.
A home warranty can give you peace of mind by providing repair-or-replace coverage of major home operating systems and appliances. Depending on the coverage, cost runs from $275 to $450. There are many companies that sell home warranty policies. Read the fine print carefully as to what is covered and is not covered as well as the deductibles.
If you are financing the property, the title insurance company may require an Improvement Location Certificate. This is not a staked survey, does not guarantee the location of lot lines and may not be used for fencing or add-ons to improvements. If you contemplate improvements or want to know the exact property lines, it is best to apply the cost of the Improvement Location Certificate to the cost of a staked survey. You may work with the title company if you have a preference of surveyors.
A walk-through before closing will allow you to make sure all required work has been taken care of and that the property is ready to become yours.
