Now that the economy is on a steady ascent, you have a good job, and your 201k has turned back into a 401k, the future is looking bright, so you decide it is time to buy a house, upgrade to a nicer one, or buy that country estate you always wanted. This is how do it right.
You are making a major investment, so plan on being thorough. Consider retaining a good real estate lawyer to help you navigate the legalities, understand the issues, and ensure that any problems are identified and resolved during the due-diligence period, so that you buy happiness, not headaches.
Once you find your dream property, or at least one that will work for now, it is time to submit an offer. If you have a Realtor, he or she should draft the contract on a Colorado Real Estate Commission approved form, and your lawyer should review it. The contracts are buyer-friendly, but be diligent with its preparation. Make sure all appurtenances are described, such as any personal property, water rights, minerals and any access easements. Consult your lawyer about the deeds you should receive for the various property inclusions. You may want the seller to make warranties about his authority and ownership, certain property conditions and legal compliance. You should require the seller to provide any pertinent information, such as reports, water decrees, access permits, any issues with government authorities and any boundary issues. Some thought should be given to whether a survey is needed, who will pay for it and the type. If the seller will be providing financing, the loan terms should be described.
Once the contract is signed, due diligence begins. You and your attorney should review the title commitment and the title documents listed in the schedule of exceptions, which will contain any agreements, easements, reservations, notices or other recorded documents applicable to the property, as well as standard exceptions, such as third-party interests not of record. Determine whether all the exceptions concern the property, and ask the title company to delete any that don’t. You should understand all exceptions and their impact on the property. Make sure there is access to the property and that the title company is ensuring access. If there are mineral reservations or leases, evaluate the potential for mineral development and whether you can live with that if it occurs. If you can, you may want to request a reduction in the purchase price to account for the lack of mineral ownership and potential for mineral development. You may want to determine who currently owns the minerals and see if you can purchase them. If there are covenants, read them and decide whether the restrictions are acceptable. Review any easements across the property, and know the rights of the easement holders to use and affect the property. If a boundary is tied to a river, the title commitment will contain some exceptions related to any change in the location of the river, and any rights of others to use the river. Your lawyer should explain these exceptions and the potential effect.
If a current survey does not exist, consider getting one, particularly for land and ranch properties. An American Land Title Association survey is better, as it will show the boundaries and any pertinent features along the boundaries or within the property, including fence lines, encroachments, easements, roads and structures. Additionally, an ALTA survey will get you better title coverage, because title companies will delete the standard exceptions related to unrecorded third-party interests based on the ALTA survey. A boundary survey may not buy you better title coverage, but is cheaper and will still provide valuable information about the boundaries, fence lines and the acreage.
If the property is in the country, you should pay particular attention to water rights and well issues. If your lawyer is not well-versed in water rights, consider hiring a water attorney to assist with these issues. Determine whether the property obtains its domestic water from a well or rural water system, and evaluate the water quantity, quality and reliability. Investigate any irrigation, reservoir, groundwater and spring rights, and determine priorities, quantities, allowed uses and time periods of water availability. Check whether any water rights have been abandoned. If the water rights are delivered across other properties, make sure your access is recognized and ditch maintenance arrangements are in place. If the property receives water from a ditch or reservoir company, ensure shares are properly transferred and assessments have been paid. Evaluate the seller’s ownership so you are satisfied he owns the water rights to be conveyed.
Do a thorough physical inspection of the property, including property lines, fences, easements, water rights and structures, and hire a professional home inspector to inspect the structures and provide you with a detailed report about their condition.
If you are uncomfortable with any property issues, raise those issues or request additional information before the objection deadlines. The parties can then work on resolving them before the resolution deadline. Getting the issues on the table and resolving them before closing is beneficial to all parties involved, as it greatly reduces the chances of future problems, which could injure the buyer and result in claims against the seller and realtors. If the parties cannot resolve a potential problem before closing, they can still agree on a resolution, such as through a purchase price reduction, whereby buyer accepts the risk and is comfortable with it because he received a credit to mitigate the problem should it later arise. In the vast majority of transactions, any issues raised are resolved, the deal closes, and the buyers, sellers, real estate agents and lawyers all walk away happy.
Geoff Craig is a Durango native and attorney practicing in the areas of real estate, water rights, business law and estate planning. Reach him at firstname.lastname@example.org or 259-8978.