After reviewing more information and discussions with lenders, brokers, and committee members, VanEd is updating our Inspection Process Discussion for our real estate students and affiliates. Here you can find an update on the new Colorado Inspection Notices discussion that began when the Colorado Real Estate Commission (CREC) updated the new forms. We will continue to monitor the discussion and update our members when appropriate.

The start of a new year brought with it changes to the real estate forms and contracts in Colorado. Among those changes are fairly drastic changes to the Inspection notice forms, including the removal of both the possible seller agreement with buyer requests for repairs, but also the seller’s alternative resolution (counteroffer). Students have begun asking what they need to do to properly prepare the new Inspection Objection and Inspection Resolution forms. In this post we will go through this situation.

The Inspection Process

The inspection process is critical to the transaction. The buyer will generally perform or have an inspector perform the inspection. After reviewing the report the buyer will then inform the seller of any repairs or credits that the buyer is requesting. This is completed through the timely use of the Inspection Objection notice.

Prior to completing the Inspection Objection form the buyer will want to contact their lender or Mortgage Loan Originator (MLO) to ensure that the items being requested will not alter the terms of the financing that the buyer is seeking. The buyer should carefully consider any changes that may occur to their financing because of the resolution BEFORE submitting a notice to the seller. Once prepared, the buyer or buyer’s broker will deliver the notice to the seller or seller’s agent.

The seller now has the opportunity to review the requested repairs and determine what, if any, of these the seller is willing to take responsibility for completing. Once the seller makes a decision they will need to communicate that to the buyer or buyer’s agent.

How Does the Seller Agree to the Terms of the Inspection Objection or Make a Counteroffer to the Buyer?

Here the Commission has left the brokers and consumers without direction, so let’s take a look at the options.

1. If they agree to repair the items requested by the buyer, the seller or seller’s agent can deliver a signed Inspection Resolution form which is an amendment to the contract (a signed Amend/Extend form can also be used).
2. If the seller is making a counteroffer they can still send signed Amend/Extend or Inspection Resolution forms to the buyer with the counteroffer included.
3. The seller could instigate contact via phone, email or fax to negotiate final terms.
4. The seller could mail a letter to the buyer (or buyer’s agent). Obviously this is not the most timely idea.

The takeaway is that by submitting an Inspection Objection notice to the seller, the buyer has begun a new round of negotiations. The resulting agreement will need to be memorialized in the Inspection Resolution form which will function as an amendment to the Contract to Buy and Sell (CBS).

In preparing for this round of negotiations, consider that the first option is for the buyer to terminate the contract. This would be done using the Notice to Terminate, not the Inspection Objection form.

Other than Terminating the Contract, the Colorado Real Estate Commission suggests that there are generally five alternatives to address inspection issues. These are:

1. Seller can repair the property prior to closing.
2. Seller can agree to pay concessions or contributions at closing.
3. Buyer can make repairs after closing without assistance from seller.
4. Buyer and seller can reduce the sales price.
5. Seller can escrow funds or pay a contractor at closing.

All of the above amend the Contract and must be memorialized on the Inspection Resolution or Amend/Extend (not both) and provided to the buyer’s lender.

The CREC wants one point to be clear, and this is the primary reasoning for the change to these forms; Any resolution of the inspection will likely amend the contract and could impact the financing available to the buyer. The buyer needs to disclose the amendment to their Mortgage Loan Originator (MLO). This means that before submitting an Inspection Objection notice the buyer should consult their lender, and once the agreement between the parties is formalized in a final Inspection Resolution that is signed by all parties, a copy of that agreement should be submitted to the lender.

If negotiations take place via phone, eMail, fax, twitter, Facebook, FedEx or regular mail does not matter. Just like notes taken or copies of documents prepared during the initial contract negotiation process, the real estate broker should retain a copy and notes of the entire negotiation process in their files.

Written and Published by: VanEd

Dear VanEd: Another agent in my office recently suggested I purchase “tail coverage” to cover a period of time when my license was inactive. What is tail coverage? And should I get it?

From VanEd: Good question! This is simply a type of Errors & Ommissions (E&O) coverage that will bridge the gap between activities that occur when you are licensed and a period of time after your license expires, is placed inactive, or you retire. This type of coverage is only applicable to acts that occur during your real estate license period.

Extended Reporting Period (ERP or ‘Tail Coverage’) Announcement

Below is a copy of an announcement about “Extended Reporting Period” (ERP or “tail” coverage) from one of the Errors and Omissions providers in the country.

Protection After Your Policy Expires

If an insured licensee retires, places his/her license on inactive status, or allows his/her license to expire, the … policy insures the licensee for claims made and reported within 90 days of the expiration date of the policy, provided the error or omission upon which the claim is based took place after the retroactive date and before the expiration date. Claims made more than 90 days after the expiration date will not be eligible for coverage consideration under the … policy, unless an optional Extended Reporting Period (ERP) Endorsement is purchased.

Optional ERP Endorsement

Optional ERP Endorsements are available to licensees who are currently insured … under a policy and who are not renewing their coverage for any reason, including because they are retiring, inactivating their license, or obtaining insurance through another carrier.

An ERP endorsement may be purchased within the first 90 days after the licensee’s policy expires and allows the insured to report claims made after the expiration date and during the ERP. The optional ERP Endorsement is important because many professional liability claims are not made until years after the underlying transaction occurred. If a claim is made after the … policy expires and there is no applicable ERP, then the claim will not be covered under the … policy. Licensees with coverage expiring … may obtain an optional ERP endorsement for one year (plus any applicable endorsement premium), two years (plus any applicable endorsement premium) or three years (plus any applicable endorsement premium).

Note: The fees listed have been removed from the announcement as they will likely vary from provider to provider. Also, not all providers will offer this type of coverage so it is important to contact your E&O provider directly to determine your eligibility and the costs associated. And don’t forget to ask for specifics regarding what the tail coverage will cover in case it is not an all-inclusive type of coverage. And licensees should be aware that, as stated in the announcement, this is usually not a new policy but rather an endorsement to your current policy. That means if your current carrier doesn’t offer this type of endorsement you may need to look into changing carriers if you desire to put this in place.

Written and Published by: VanEd

Dear VanEd: I am just about to finish my real estate pre-licensing course online and wanted to know if you have any tips on how to decide where I am going to hang my real estate license? There are lots of companies out there!

Glen M.

You are right, Glen, there are a ton of companies, many business models and an almost overwhelming number of ideas on what an Employing or Managing Broker should do for new real estate licensees. Don’t even get us started on best practices! And while we have some considerations that you may want to take into account, remember that your license is a commodity and you should be interviewing the brokerage firm and managing broker as much as they are interviewing you!

Start by interviewing with at least three brokerage firms in your area, even if you think you already know where you are going to start your new career. This will give you ideas on commission rates, splits and current licensing fees as well as how the firm can help you get started. We suggest to new brokers that the following items should be considered when considering hanging their brand new real estate license at any brokerage. When choosing a brokerage to work for as a real estate agent make sure to discuss the following topics with the Employing or Managing real estate broker:

• The Company: Image, Location, Convenience, Environment, Size – is camaraderie important in your firm? In your local sales area?

• Franchise vs. Non-Franchise: And the fees that are associated

• What Training and Educational Opportunities are Provided

• Is Membership in a REALTOR Organization Required or Optional

• Office Support: Clerical, equipment such as telephone system, voice mail, copier, fax, scanner, office vs. personal computer, access to the Internet, Board membership(s), personal assistants, Off-Hours services – answering service, setting showings

• Broker Support: Assistance in review & preparation of market analysis, listing presentation, drafting contracts, etc. vs. a competing/selling broker or buddy system? Team approach?

• Earnings/Commissions: Traditional splits, 100% concept and/or associated fees, desk fee and transaction costs, other creative programs

• What Might the Real Estate Agent’s Personal Expenses Be, including:

  
  

  • Licensing Fees
  • Insurance Requirements/discounts
  • Association Memberships – Local, State, National Dues, MLS membership fees/books
  • Monthly computer access fees
  • Office supplies & equipment (Palm pilot, Day timer, organizer, computer, Top producer software, calculator, cell phone, etc.)
  • Marketing Materials (Farming, Promotion)
  • Business Stationary & Cards
  • Signs, Riders, Lock-boxes, Key-Pads
  • Training – Continuing Education, Graduate REALTOR® Institute programs, Seminars
  • Personal Appearance and Image
  • Vehicle
  • Other? _____

  
  

   

Don’t exclude any question – remember, take charge of your interview and you will find the perfect fit when selecting a company to start your new career with.

Wondering what to do in the first few weeks? Go through the Getting Started and Staying on Track real estate continuing education course online. All VanEd pre-license students are given this course for free so that they can get off on the right foot! It’s online in your new CE Account so you can see exactly what steps need to be taken in the first five weeks as a real estate professional.

Have a question you would like VanEd to answer? eMail us at info@vaned.com or post it on one of our social media channels!

Written and Published by: VanEd