The Exclusive Right-to-Buy Listing Contract in Colorado (2023): A Guide for Home Buyers
Purchasing a home is an exciting journey, and understanding the legal aspects involved is crucial. In Colorado, one essential document you’ll encounter is the Exclusive Right-to-Buy Listing Contract, also known as the Buyer’s Agreement. This guide aims to break down the main points of this contract in a simple and easily understandable manner, ensuring that you can make informed decisions and protect your interests. Since many sections of the agreement are easy to understand, below are the most important or most commonly questioned sections of the agreement.
Remember, consulting with a legal professional is always recommended to ensure you fully comprehend and protect your rights.
You can click this link to open up a copy of the Exclusive Right To Buy Listing Contract in order to follow along with the Sections below.
Section 2: BROKER AND BROKERAGE FIRM
2.1. Multiple-Person Firm
If a box next to this subsection is checked, it means that the “Broker” is a specific individual chosen by the Brokerage Firm to help you, the buyer. This person is your main point of contact and will perform all the services outlined in the contract. If there’s more than one person designated as your Broker, this section says that the term “Broker” refers to all of them. Importantly, this relationship is only with the designated Broker(s), not the entire Brokerage Firm or other brokers who work there.
2.2. One-Person Firm
If a box next to this subsection is checked, it means the Broker is a one-person operation. In this case, the terms “Broker” and “Brokerage Firm” refer to this one individual, who will perform all the services for you as outlined in the contract.
In simple terms, Section 2 is all about clarifying who your Broker is and what kind of Brokerage Firm they belong to. It helps you understand who you’ll be working with—either a single individual or one of several people at a larger firm. Since I am employed at a Multi-Person Brokerage firm, I will always be checking 2.1.
Section 3: DEFINED TERMS
3.5.1. A “Purchase” of Property
This part explains that a “Purchase” isn’t just buying the property outright. It includes any agreement where you gain some sort of interest in the property. This could be a contract or even a lease. It also covers situations where you might be acting on behalf of someone else or a different entity that ends up owning the property.
3.5.2. Lease of the Property
If a box next to this subsection is checked, it means you’re giving the Broker permission to negotiate a lease for you. A lease is any agreement that allows you to temporarily use the property, like renting.
3.6. Listing Period
This section talks about the duration of your agreement with the Broker. It starts on a specific date and continues until either you complete the purchase or lease of a property, or until another specified ending date. The Broker will continue to help you until the deal is done, as long as they get paid according to Section 7.
3.7. Applicability of Terms
This part is pretty straightforward. If there’s a checkmark in a box, that provision applies to you. If it says “N/A” or “Deleted,” then it doesn’t apply. “MEC” stands for Mutual Execution of the Contract, and is the date when both you and the Broker have signed the contract.
3.8. Day; Computation of Period of Days, Deadline
This section is about how to count the dates and deadlines in the contract.
3.8.1. Day
Here, a “day” is defined as ending at 11:59 p.m., Mountain Time. So, when the contract refers to a “day,” it means a full day until just before midnight.
3.8.2. Computation of Period of Days, Deadline
This part explains how to count a period of days when a deadline is involved. The first day is not counted, and the last day is. If a deadline falls on a weekend or public holiday, this section tells you whether or not the deadline gets extended to the next business day.
Section 4: BROKERAGE RELATIONSHIP
This section is all about defining the type of relationship you’ll have with the Broker.
4.1. Type of Brokerage Relationship
If the “Buyer Agency” box is checked at the top of the first page, the Broker represents you and only you. They are your “Buyer’s Agent.” If the “Transaction-Brokerage” box is checked, the Broker is a neutral party who helps both the buyer and the seller.
4.2. In-Company Transaction – Different Brokers
This part says that if you and the seller are working with different brokers from the same Brokerage Firm, those brokers will continue to represent their respective clients. It also confirms that the Brokerage Firm can pay the broker who is working with the seller.
4.3. In-Company Transaction – One Broker
This is about what happens if both you and the seller are working with the same Broker.
4.3.1. Buyer’s Agent
If the “Buyer Agency” box is checked, the Broker represents you and treats the seller as a “customer,” meaning someone they don’t represent.
4.3.1.1. Buyer Agency Unless Brokerage Relationship with Both
This part says that the Broker represents you unless they give you a written notice saying they also have a relationship with the seller. In that case, they become a Transaction-Broker for both parties.
4.3.1.2. Buyer Agency Only
If this box is checked, the Broker only represents you and treats the seller as a customer.
4.3.2. Transaction-Broker
If the “Transaction-Brokerage” box is checked, or if neither box is checked, the Broker acts as a neutral party. They help both you and the seller but don’t advocate for either side.
In simple terms, Section 4 helps you understand what kind of relationship you’ll have with your Broker and how they’ll interact with you and the seller. It outlines the rules for different scenarios, like if you and the seller have the same Broker or different ones.
Section 5: BROKERAGE DUTIES
This section outlines the responsibilities and duties that the Broker has towards you. These duties are standard for representation as either a Buyer’s Agent or as a Transaction-Broker.
5.1 to 5.8 (Grouped Due to Similarity)
These subsections list all the specific tasks and responsibilities that the Broker is obligated to perform for you. This includes things like presenting all offers to and from you, disclosing any known facts about the property that could affect its value, and keeping your confidential information safe. The Broker is also required to provide you with any information that could benefit you in the transaction.
In simple terms, Section 5 is like a job description for the Broker. It tells you what you can expect from them during the buying process, ensuring that they act in a professional manner and fulfill their duties to help you successfully complete the transaction.
Section 6: ADDITIONAL DUTIES OF BUYER’S AGENT
This section applies only if the “Buyer Agency” box at the top of the first page is checked. If that box is checked, it means the Broker is acting as your Buyer’s Agent, and they have some extra responsibilities towards you, in addition to the standard duties outlined in previous sections.
Section 7: COMPENSATION TO BROKERAGE FIRM
This section outlines how the Brokerage Firm will be paid for their services. It’s important to note that the Brokerage Firm may also receive additional compensation, bonuses, or incentives from the seller or the listing brokerage firm. If this happens, the Broker will inform you. You may also reference this post: Understanding Real Estate Agents Compensation
7.1. Brokerage Firm’s Fee – Purchase
This subsection details the which way the Brokerage Firm will be paid when you purchase a property.
7.1.1. Success Fee: This is a fee based on a percentage of the purchase price. It’s earned following the successfully purchase a property and is payable at closing from either the buyer or the seller. If the deal falls through due to the seller’s fault, the fee is waived. If it’s your fault, the fee may still apply (See Section 7.3). This is the most common way agents are paid.
This fee is negotiable. It is always paid to the Brokerage Firm and not the individual agent. The Brokerage Firm then removes all fees and then issues the remainder to the agent. It’s important to understand the compensation structure, including any additional fees or incentives. Refer to Section 7.3 to determine who pays this fee.
7.1.2. Hourly Fee: The Brokerage Firm can also be paid an hourly rate for their time, up to a maximum total fee. You’ll receive an invoice for this.
7.1.3. Retainer Fee: This is a non-refundable fee you pay when signing the contract. It may or may not be credited against other fees you owe.
7.1.4. Other Compensation: Any other forms of compensation would be listed here.
7.2. Brokerage Firm’s Fee – Lease
This applies if you’re leasing a property. The fee structure is similar to the purchase fee but tailored to leasing terms.
7.3. Who Will Pay Brokerage Firm’s Success Fee
This subsection specifies who is responsible for paying the Brokerage Firm’s Success Fee. It could be the listing brokerage firm, the seller, or you, the buyer. If no box is checked, you’re not obligated to pay.
In my agreements, I always select the option: “Listing Brokerage Firm or Seller May Pay. Buyer IS Obligated to Pay.” The reason I select this option is for the rare circumstance where the sellers are unwilling to pay my full commission. If this occurs we will have an upfront discussion and come up with a fair and reasonable agreement. However, I negotiate hard for my buyers and I have ALWAYS had my portion of the commission fully paid by the property seller. My priority is protecting your financial interests and saving your money.
7.4. Holdover Period
This part talks about a “Holdover Period,” which is a specific time frame after the Listing Period expires. If you contract or lease a property during this period that the Broker showed you during the Listing Period, the Brokerage Firm’s Success Fee still applies under certain conditions.
In simple terms, Section 7 is all about how the Brokerage Firm gets paid. It outlines the different types of fees and when they are due, so you know exactly what financial obligations you have towards the Brokerage Firm.
Section 9: BUYER’S OBLIGATIONS TO BROKER
This section is one of the only places that protects me, the agent, in the contract. It outlines your responsibilities as the buyer towards the Broker, ensuring that all negotiations and communications about the property go through the Broker.
- Exclusivity: The first part states that you agree to conduct all negotiations for the property only through the Broker. This means that if you get any offers or communications from other brokers, sellers, or any other sources, you need to refer them to the Broker. This ensures that the Broker remains the central point of contact, which is essential for maintaining the integrity of the transaction and for the Broker to fulfill their role effectively.
- Current Agreements: You also need to indicate whether you are currently in an agreement with any other broker for buying or leasing a property. This is important to avoid any conflicts of interest and to clarify that the Broker is the only one you are working with for this transaction.
- Previous Agreements: Lastly, you need to state whether you have received a list of any “Submitted Property” from any other broker in the past. This is to ensure transparency and to avoid any complications that could arise from previous engagements with other brokers.
In simple terms, Section 9 is all about making sure that you work exclusively with the Broker for the duration of this contract. It’s the only section that specifically outlines obligations you have towards the Broker, making it a key part of protecting the Broker’s interests in the transaction.
Section 10: DEFAULT; RIGHT TO CANCEL
This section outlines what happens if either party fails to meet their obligations under the contract.
10.1. If Broker is in Default: If the Broker doesn’t fulfill their responsibilities, you, as the Buyer, have the right to cancel the contract. This also means the Brokerage Firm loses any right to damages. However, any rights you had before the cancellation will still be valid.
10.2. If Buyer is in Default: If you fail to meet your obligations or cooperate with the Broker, the Brokerage Firm can cancel the contract. They would notify you in writing. Any rights or damages that the Brokerage Firm had before the cancellation will still apply. This could include costs they’ve incurred or commissions they would have earned.
Section 11: COST OF SERVICES OR PRODUCTS OBTAINED FROM OUTSIDE SOURCES
This section clarifies who is responsible for paying for any additional services or products that might be needed during the home-buying process. These could include things like surveys, radon tests, soil tests, title reports, engineering studies, and property inspections.
- Responsibility for Costs: The Broker will only order these services or products if you, the Buyer, agree to pay for them when they are due.
- No Advance Funds: Neither the Broker nor the Brokerage Firm is required to pay for these services or products in advance on your behalf.
- Reimbursement: If the Brokerage Firm does end up paying for any of these services or products that you authorized, you must reimburse them.
Section 12 – 29:
- Brokerage Services; Showing Properties: Outlines additional tasks the Broker will perform and discusses how properties will be shown to the Buyer. It also mentions the multiple listing services the Broker has access to.
- Disclosure of Buyer’s Identity: Specifies whether the Broker can disclose the Buyer’s identity to third parties.
- Disclosure of Settlement Service Costs: Alerts the Buyer that costs can vary among different service providers like attorneys, lenders, and inspectors.
- Wire and Other Frauds: Warns the Buyer about the potential for fraud in real estate transactions, especially when sharing confidential information.
- Removal of Marketing Material: Acknowledges that it may be difficult to remove marketing material like photos and videos from the internet.
- Nondiscrimination: States that the Broker cannot violate any federal, state, or local fair housing laws.
- Recommendation of Legal and Tax Counsel: Advises the Buyer to consult with legal and tax professionals before signing the contract.
- Mediation: Outlines the process for resolving disputes through mediation before resorting to litigation.
- Attorney Fees: Specifies that the prevailing party in any arbitration or litigation will be awarded reasonable costs and attorney fees.
- Additional Provisions: Allows for any additional terms that haven’t been approved by the Colorado Real Estate Commission.
- Attachments: Lists any additional documents that are part of the contract.
- No Other Party or Intended Beneficiaries: Clarifies that the contract is only for the benefit of the Buyer, Broker, and Brokerage Firm.
- Notice, Delivery, and Choice of Law: Details how notices must be delivered and states that Colorado law will govern the contract.
- Modification of This Contract: States that any changes to the contract must be in writing and signed by both parties.
- Counterparts: Allows for the contract to be signed in separate parts, which together constitute the full contract.
- Entire Agreement: Confirms that this contract is the complete agreement between the parties.
- Copy of Contract: Acknowledges that the Buyer has received a signed copy of the contract.
- Megan’s Law: Advises the Buyer to contact local law enforcement for information about registered sex offenders if that is a concern.
In Conclusion
Understanding the Exclusive Right-to-Buy Listing Contract in Colorado is essential for not only first-time homebuyers, but repeat buyers as well. This guide has provided an overview of the main points outlined in the contract for 2023. Remember, real estate laws and contracts can and do change, and legal contracts can be complex. To fully understand your rights and obligations as a homebuyer, I recommend seeking legal counsel.
Disclaimer: The information provided in this guide is specific to Colorado and based on the Exclusive Right-to-Buy Listing Contract for 2023. Real estate laws and contracts can vary by location and change over time. It is advisable to seek legal counsel and consult with a qualified attorney when reviewing any legal contract. This guide is for informational purposes only, and I am not an attorney.