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Residential Real Estate Transactions

Posted by ADMIN | PUBLISHED: November 05, 2013 at 18:36 PM | UPDATED: 18:48 PM

It is common in the Aspen area for second homeowners to upgrade by buying a larger or better located house. And most times they want to sell their existing home before they purchase the new home. I have recently seen a couple of transactions in which a prospective buyer of an upgraded home in the Aspen area has decided to offer an exchange of his existing Aspen home plus cash to the seller of the upgraded home. In both of these cases, the seller accepted the buyer’s offer. In one case, the seller was a developer who saw a new development opportunity in the exchange property. In the other case, the seller was looking to downsize his existing Aspen home.

As real estate attorneys, we are accustomed to handling transactions in which one half of the transaction is conducted through a Qualified Intermediary to facilitate a non-simultaneous tax deferred exchange under Section 1031 of the Internal Revenue Code. But it is rare that we work on a transaction involving a true simultaneous exchange in which the buyer and seller are trading properties.

One of the challenges in handling a true simultaneous exchange involves finding a good contract form. In the Aspen area, most residential transactions are driven largely by the real estate brokers. In the typical transaction, the buyer’s agent will put together a contract offer using the form provided for broker use by the Colorado Real Estate Commission. These contract forms have evolved over the last few years and have become very suitable for most residential transactions. But the Commission does not currently have an approved form for simultaneous exchanges of real estate. These exchanges require additional thought because they are really two real estate purchases. Thus, special attention must be given to insuring the seller who is trading his or her existing property for another property has all the same due diligence and closing rights that a buyer of real estate would expect. Special attention must also be given to the remedies available to each of the parties in the case of a default. For example, one of the questions that needs to be addressed is whether both parties are making an earnest money deposit for the benefit of the other, or is just one party making an earnest money deposit.

If you are a party to a potential simultaneous exchange or a broker assisting such a party, it will be important to engage the help of a qualified real estate lawyer to help make sure your contract documents address the special issues that arise in a simultaneous exchange.