Selling Mountain Property 2019 9:32, July 9, 2019

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Selling Mountain Property 2019

Introduction. This is one of a series of articles available on our website with useful information concerning renting, buying or selling mountain property. Reading any one or more of these articles does not make you a client of this firm or constitute legal advice. These articles are all very general in nature; they may not answer or even address questions that may be specific to your particular transaction and they are not a substitute for advice you may obtain from an attorney. This article is not updated on a regular basis, and since posting on our website there may be changes in laws or new information not included herein.

I. Role of Brokers
If you have decided to sell your property, the first step is to select a broker. In most circumstances, we generally do not recommend a “For Sale By Owner” approach where a seller attempts to market property without a broker to avoid paying a commission. One of the primary advantages of listing property with a broker is that the property gets into the Multiple Listing Service, which brings the property to the attention of the entire broker community. Brokers also use other resources to find prospective buyers such as affiliations with national networks, open houses, mass mailings, print, radio, internet, television and other forms of advertising. Often the best way to select a broker is based on word of mouth recommendations. Look for recommendations from other sellers that have had a good experience with a particular broker. You should also consider talking to people that deal with brokers on a regular basis such as local bankers, attorneys and accountants.

II. Broker Compensation
Brokers are compensated by earning a commission. This means the broker receives a percentage of the sales price. A broker earns his or her commission by bringing you a buyer ready, willing and able to buy your property at the asking price (or a mutually acceptable negotiated price) and getting the deal closed. Typically, Colorado brokers will ask for a commission of 6%. Broker commissions can be negotiated, especially for high end properties. A broker will generally ask for a listing for a term of one year to provide time to market and sell your property. You can consider a listing just for one selling season (i.e., the summer or winter) to see how well the broker performs. Before selecting a broker, you can ask the broker to provide an explanation of the broker’s plans to market your property, including how much money will be spent by the broker for that purpose.

VI. Broker’s Relationships
Once you settle on the type of listing contract, the next decision is to determine the nature of your relationship with your broker. There are two choices and the choice is made when the listing contract is signed. A broker can act as a “Transaction Broker” which means the broker will exercise reasonable skill and care in helping you sell your property but the broker is really working for the transaction or for his or her commission. A broker can also act as a “Seller’s Agent”, which means that the broker owes you the utmost loyalty and will advocate for you in helping sell your property. Brokers in the Aspen area generally prefer to act as a “Transaction Broker.” A “Seller’s Agent” may be converted to a “Transaction Broker” if the buyer has an existing relationship with your broker or if the listing contract provides that the broker will become a Transaction Broker if the broker finds the buyer.

IV. Asking Price
After selecting a broker, you will have to decide what price to ask for your property. Your broker will pay an important role in this decision. Your motivation to get your property sold can be an important factor in determining the asking price. An unrealistic asking price may produce little interest in your property. Other resources for determining what to ask for your property are the County Assessors’ website (Pitkin County:www.pitkinassessor.org, Eagle County: www.eaglecounty.us/assessor/index.cfm, Garfield County:www.garfieldcountyassessor.org). Colorado law requires that County Assessors establish market value every two years. On residential property, this is generally based on sales of comparable property going back up to 24 months. Market value and assessment rates are used to establish Assessed Value (7.96% of market value for improved property and 29% of market value for commercial property and vacant land). Colorado real estate taxes are paid based on the Assessed Value of the subject property. Because market value is fixed every other year, and because comparable sales going back up to 24 months are used, the County Assessors’ determination of market value usually lags behind current market conditions and may not be as precise as the conclusions drawn by a private appraiser. Nevertheless, the Assessor’s website is a useful resource. Another resource may be a local appraiser. If you obtained a loan when you purchased your property, the same appraiser who provided the loan appraisal might be available to give an update. If you do not have an old appraisal that can be updated, most sellers do not obtain new appraisals, presumably because of the expense or because the seller does not believe an appraisal is necessary to establish the asking price. In Colorado, there are four levels of appraiser licenses that determine what types of property the licensee may appraise. The four types of licensures available are: Registered Appraiser (a registered appraiser has met certain educational requirements to be Board certified but must be supervised by a supervising appraiser), Licensed Appraiser (a licensed appraiser has met certain educational and experience requirements to be Board licensed and may appraise non-complex residential properties within certain parameters), Certified Residential Appraiser (a certified residential appraiser may appraise certain residential properties without regard to transaction value or complexity), and Certified General Appraiser (this is the highest level of appraiser and qualifies the appraiser to appraise, if competent, all types of property).

V. Listing Contract
Your broker will have you sign a listing contract to formally engage the broker, which sets forth the compensation, length of the listing period and other important terms. There are four general types of seller listing contracts: Net Listing, Open Listing, Exclusive Agency Listing and Exclusive Right-to-Sell Listing. In a Net Listing agreement, the broker contracts to find a buyer at a certain net price to the owner. In this circumstance, the broker will only earn a commission if he or she finds a buyer at the net price. Net listings are generally disfavored on developed property and used only with properties that are speculative in nature. In an Open Listing you can still list your property with other brokers or sell it yourself. With an Open Listing, the broker earns a commission only if the broker brings you a buyer. In an Exclusive Agency Listing, you owe a commission to the broker even if another broker procures the buyer, but you do not owe a commission if you find the buyer yourself. In an Exclusive Right-to-Sell Listing, you owe a commission to the broker no matter who procures the buyer (i.e., a commission is owed even if you or another broker procures the buyer). Most brokers in the Aspen area prefer that you sign an Exclusive Right-to-Sell Listing. If you are already dealing with a prospective buyer or know someone who may want to buy your property, you should make sure that his or her names are excluded from the listing so you will not have to pay a commission on a sale to those persons (or in certain circumstances, a reduced commission).

VI. Role of Attorney
You should to consider whether or not to involve an attorney in a sale of your property. The Colorado Real Estate Commission (the “Commission”) form, discussed in more detail below, provides that “Except as otherwise provided in this Contract, Buyer acknowledges that Seller is conveying the Property to Buyer in an “As Is” condition “Where Is” and with “All Faults”. This may create an undue sense of comfort for a seller. The Contract you sign to sell your property and related documents include disclosures, warranties and additional obligations not covered by the so called “As Is” language. As they say “the devil is in the details” and it is the “Except as otherwise provided” part that should make any seller give strong consideration to using an attorney so that the sale will close and reduce the likelihood of post-closing problems with the buyer.

VII. Contract to Sell
In Colorado, most transactions involve the sale of a home, condominium, vacant land or ranch property where the broker writes the contract on a Colorado Real Estate Commission (the “Commission”) approved form called a “Contract to Buy and Sell Real Estate”. There are five different Commission form contracts depending on the type of property involved in the transaction. These are: (1) Residential, (2) Income-Residential; (3) Commercial; (4) Land; and (5) Colorado Foreclosure Protection Act. Brokers are required to use Commission form contracts. Attorneys, unlike brokers, may but are not required to use Commission form contracts. Attorneys can also customize or make edits to commission form contracts, add riders or use an entirely different forms. The contract sets forth all the terms of the sale including names of the buyer and seller, a description of the property, selling price, inclusions and exclusions, other important dates such as when the buyer must notify you if he or she has any objections to the physical condition of the property or aspects of the property (e.g., title and survey matters) and when and where the closing will take place. Recent legislation mandates that these contracts contain due diligence provisions, including physical inspection provisions and documents that must be provided by the seller to the buyer. The Commission also provides many other optional forms and addenda to contracts to fit the specific needs of a particular transaction. At the top of the Commission form contracts there is an admonition that states the contract has important legal consequences and you should consult with legal counsel before signing. This is good advice because an attorney can do much more for you if the attorney reviews or prepares the contract before you sign it, as opposed to asking an attorney to become involved after the contract is signed.

VIII. Seller’s Property Disclosure Statement
The listing contract generally requires the seller to provide a buyer with a form called the “Seller’s Property Disclosure”. This form is given to the buyer within a specified period of time after you enter into a contract to sell your property. Some brokers ask you to complete this form when you list your property for sale. We generally do not think this is a good idea and recommend waiting to complete the form until after you sign a contract to sell the property. However, even if you do not fill out the Seller’s Property Disclosure form when you list the property for sale, we suggest that you carefully read the form to familiarize yourself with it, and to see if you will be disclosing any conditions affecting your property that could be a problem or which you can fix before you have to disclose the condition to a buyer. Consider reviewing your own personal records in advance of the listing to see if you have copies of old surveys, title work, soils report or other documents that affect the property. You may be asked as part of the contract to sell your property to produce this information, and by having it in advance you can share this information with your broker or attorney and discuss any potential issues.

IX. Personal Property Agreement Starting in 2019 a form called a Personal Property Agreement (“PPA”) will be included in the documents you are asked to sign where a property is sold furnished. Furnishings are considered personal property and the PPA treats the furnishings differently than the real estate and requires among other items that a sales tax be collected. This form is new as of 2019 and there have been many questions and concerns expressed about its use. Prior to 2019 personal property was generally treated as part of the purchase price for the real estate and any obligation to collect a sales tax was often ignored without consequences. Treating personal property separately creates new and different issues for the seller. Hiring an attorney initially before you sign the PPA may avoid potential problems later. If the property is sold unfurnished or the furnishings have only nominal value, then the PPA may not be needed or used.

X. State of Colorado and Federal Withholding Taxes
Many non-Colorado residents are surprised to learn when they sell their property that the lesser of 2% of the sales price or net proceeds of the sale is withheld at closing and deposited with the State of Colorado to be applied to any income tax liability due to the sale of the property. Gain on the sale of Colorado real property is subject to Colorado income tax whether or not the seller is a Colorado resident but there is no withholding if you are a Colorado resident. There are exemptions from this withholding that are beyond the scope of this article. In addition if you are a non-US person selling property then an additional 10% of the sales price will generally be withheld and paid to the Internal Revenue Service as a deposit toward any Federal tax liability.

XI. Tax on Sale of Principal Residence
If you are single, the first $250,000.00 of gain on the sale of your principal residence is tax-free; the balance is taxed at capital gains rates. If you are married and file a joint income tax return, the tax-free amount on the gain increases to $500,000.00. You can sell your principal residence once every two years and obtain this favorable tax treatment. You can rent the home for up to three years after you have moved out before losing this favorable tax treatment. To obtain this tax treatment, the home must be owned and used as your principal residence for at least two out of the five years prior to the sale. There are technical rules beyond the scope of this article that govern eligibility for this gain exclusion or that can cause a reduction in the exclusion amount.

XII. 1031 Exchange
If the property you are selling is investment property you may have an opportunity to defer your gain on the sale if you exchange into a like kind property under section 1031 of the Internal Revenue Code. You can acquire the exchange property through a qualified intermediary with the proceeds of the property you sell which is commonly referred to as a forward exchange or you can acquire the exchange property first through a qualified intermediary and then sell your property later which is commonly referred to as a reverse exchange. The Internal Revenue Service has strict rules which must be followed in order to qualify for this deferral. A discussion of these rules is beyond the scope of this article.

XIII. Closing
Closing is the event where you convey title to your property to the buyer and receive payment of the purchase price. Typically the closing date is the date when the seller must vacate the property and remove all items not included in the sale. Sellers should maintain homeowners insurance in place until the closing has occurred and buyers should arrange to have insurance in place as of the closing date. Typically the closing will take place at the office of a local title insurance company. Generally speaking, you do not have to be physically present at the closing as many closings occur as “mail in” transactions where the buyer and seller send all their signed documents to the title company before the date of closing. Having an attorney present at the closing or available on the closing date is a good idea in the event any last minute issues arise.

XIV. Hiring an Attorney
The firm has fully staffed offices in Aspen, Glenwood Spring and Avon. The firm also has offices in Basalt, Crested Butte and Rifle. If you are considering hiring an attorney for a real estate matter, our firm’s real estate lawyers listed below are available to help you.

In Aspen:
Chris LaCroix (moc.t1563859673hcehd1563859673leifr1563859673ag@xi1563859673orcal1563859673c1563859673, 970-925-1936 (ext. 204)
Avery Nelson (moc.t1563859673hcehd1563859673leifr1563859673ag@no1563859673slena1563859673, 970-925-1936 (ext. 222)
John Belkin (moc.t1563859673hcehd1563859673leifr1563859673ag@ni1563859673klebj1563859673, 970-925-1936 (ext. 215)

In Glenwood Springs:
David McConaughy (moc.t1563859673hcehd1563859673leifr1563859673ag@yh1563859673guano1563859673ccmd1563859673, 970-925-1937 (ext.810)
Nicole Garrimone-Campagna (moc.t1563859673hcehd1563859673leifr1563859673ag@an1563859673gapma1563859673cn1563859673, 970-925-1936 (ext. 811)
Mary Elizabeth Geiger (moc.t1563859673hcehd1563859673leifr1563859673ag@re1563859673giege1563859673m1563859673, 970-925-1936 (ext. 813)
Haley Carmer (moc.t1563859673hcehd1563859673leifr1563859673ag@re1563859673mrach1563859673, 970-925-1936 (ext. 815)

In Avon you can contact:
Kursten Canada (moc.t1563859673hcehd1563859673leifr1563859673ag@ad1563859673anack1563859673, 970-925-1936 (ext. 853)
Tracy Kinsella (moc.t1563859673hcehd1563859673leifr1563859673ag@al1563859673lesni1563859673kt1563859673, 970-925-1936 (ext. 854)
Jason Buckley (moc.t1563859673hcehd1563859673leifr1563859673ag@ye1563859673lkcub1563859673j1563859673, 970-925-1936 (ext. 851)
Paul Wisor (moc.t1563859673hcehd1563859673leifr1563859673ag@ro1563859673siwp1563859673, 970-925-1936 (ext. 119)