Hi John Goodman, here we are talking about how to address personal property in a real estate contract, specifically the Colorado Real Estate Commission approved contract for 2019. This topic has been revised in the contract. Now, let's discuss an example. We'll start with an unrealistic example to make a point. Imagine you are brokering a transaction for a motel that is selling for a million dollars. The motel is also selling with beds, furniture, desks, and chairs, which the buyer will also acquire. The buyer and seller agree that all the personal property is worth $50,000. However, what makes this unrealistic is that the buyer is purchasing the property without any financing. They are reaching into their own pocket or bank account to pay $1,050,000 for this project. In this unrealistic example, it doesn't matter whether you allocate the whole purchase price to the real estate ($1,050,000) or allocate $1,000,000 for the real estate and $50,000 for the personal property. The total purchase price for all the items together is still $1,050,000. However, in the real world, it's a lot more complicated because people tend to get financing for such transactions. Borrowed funds are commonly used to purchase these properties. Therefore, there is pressure to diminish the attributed value of the personal property and attribute it to the real estate. This allows the borrower to borrow a higher percentage of the purchase price. It is more advantageous for the buyer to get financing based on the value of the real estate ($1,050,000) rather than financing it based on an evaluation of $1,000,000 and having to come up with $50,000 out of pocket for the personal property. Cash is king, and people like to leverage their scarce cash as much as possible. Hence, the pressure to attribute the value to the...
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