Friday, September 30, 2016

THE COMPETENT AND THE GRATEFUL

Real estate is an emotional business.  Crazy emotional.  It can be a boom-bust world of big wins, painful losses and lessons learned.  It's a roller coaster, whipsaw, loop-de-loop lifestyle.  And it gets the best of many of us.

Like anyone else who has done this full-time for 22 years, I've ridden the highs and the lows.  

But after two decades, I've mellowed.  I've learned that there's a lot of stuff that happens that is simply beyond my control.  To be sure, those of you who know me know that to the best of my ability, I try to manage every variable that I can.  

But sometimes, people or circumstances can simply lurch in ways that cannot be predicted.  

Often, there's so much emotion wrapped up in a real estate transaction.  Buyers are running up against the end of a lease, sellers are trying to navigate the challenges of moving kids during the school year, lenders are dealing with ridiculous underwriting requirements and appraisers are fearful that one bad appraisal could cost them their livelihood.

Agents worry about all of it.  Trying to keep everyone moving in the same direction is like the proverbial herding of cats.  But how you go about doing it, how you communicate with buyers, sellers, lenders, appraisers, attorneys, underwriters, title closers and everyone else involved in a real estate transaction... makes all the difference.

Real estate agents come with all sorts of emotional profiles... and I've met them all.  You've got the controllers, the bullies, the ego-maniacs and the posers.  You've got the paranoid (everything is bad), the inverse-paranoid (everything is good), and the bi-polar (everything is good... oh wait, everything is bad!).  

But there are two profiles I look for above all else - the competent and the grateful.

Competence speaks for itself.  Competent agents know how to solve problems when they arise, but they also know how to head small issues off before they become larger problems.  They understand the contract, they understand the law, they understand the market and they understand human emotions.  They usually sell a lot of houses, because their services are always in demand.  

This is why I pay so much attention to who the other agent is when offers show up on my listings.  The highest offer is not the best offer if the entire transaction is likely to end up in ditch, upside down with the tires spinning.  

I'm looking for Proven Results (which happens to be the name of this blog).  I'm looking for agents who know what they are doing, because guess what... good agents usually have educated, qualified, reasonable clients.  

But there's another component to surviving this crazy business, and all too often I find it overlooked or missing entirely.  It's gratitude, the simple realization that we are blessed to have the privilege to help people through this process with the opportunity to earn a good living along the way.

When I work with buyers, I take my responsibility to advocate for them very seriously.  But at the same time, I remember that (under most circumstances) it's the seller who is paying the bulk of my commission.

Thus, whenever I have dialog with the other side of a transaction, it's always from a position of respect with a focus on solutions.  

Seek and destroy negotiations are for losers.  Zero sum games suck.  Take it leave it strategies should only be used as a last, final resort in the most dire of circumstances.

I don't want to hang out with people who build themselves up by tearing others down.    

It's critically important that you surround yourself with people you actually want to be around.  If you don't like the vibe you are getting from your clients, you should not be working with them.

Often, "no" is the most empowering word in the English language.  

I'm going to continue to sell a lot of houses.  I'm going to approach this business with firmness, seriousness, competence and respect.  And I'm also going to be grateful and I'm going to express that gratitude every chance I get.  

Most people respond well to gratitude.  It's disarming.  It builds trust.  It takes and shows confidence to express it.  I'm grateful for the other agents, the hardworking lenders, and the clients on the other side of the deal.  

That doesn't mean every transaction goes smoothly.  But I'm not consciously going to give other people the power to determine how I feel.  Gratitude will be my weapon of choice, and I will use it whenever possible to make people feel like they are meaningful, heard and respected.    

Wednesday, September 21, 2016

DODD-FRANK AND $1,000 APPRAISALS

If you're buying, selling or refinancing a home these days, chances are you're hearing a lot of complaining about appraisals.

The cost, the turnaround the times, the difficulty of even finding an appraiser to take the assignment... sometimes it feels like the whole world of appraisals has turned into a bureaucratic, over-regulated cesspool.

In fact, for the first time, I just had a client pay $1,000 for a rush order appraisal, which basically meant getting it turned around in 14 days.  

But before you complain to me (or your lender) about the soaring cost and uncertain response times of appraisers, it's worth a few minutes to explain why this is happening.

Long story short, after the subprime financing meltdown and Great Recession of 2008-2009, government regulators began doing an autopsy on the housing market collapse and much of the blame, rightly or wrongly, was ultimately dropped at the feet of the appraisal industry.

Too many incestuous relationships between independent contractor appraisers and value-dependent subprime loan originators, weak licensing standards and a lack of regulatory oversight were cited as primary reasons so many bad loans were made during this toxic era.

Agreed.

In fact, one of the main reasons I picked up and left California at the end of 2005 was the unhealthy and unsustainable practices of the mortgage finance industry.  

In much of Southern California, where I lived, home prices had doubled inside of seven years... not necessarily because of economic conditions or a massive migration of new residents who could afford $700,000 starter homes... but because in the subprime era, people could buy homes not based on qualification, but simply desire.

Hence, the market flooded with low quality, over-extended buyers.  Values surged.  The bubble inflated.  I lost faith in the market.  And then I sold my house and moved to Colorado.

But I digress.  

In the aftermath of the mortgage meltdown, the Consumer Finance Protection Bureau (CFPB) was born and became federal law in July of 2010.  Often referred to as "Dodd-Frank" (named after the architects of the new bureaucracy, who also signed off on virtually all of the polices which led to the subprime meltdown... but again, I digress), the new agency created sweeping new regulations for the mortgage, appraisal and finance industries.

Among the key provisions... 

1) Appraisers valuing homes with loans that would be sold to Fannie Mae or Freddie Mac (more than 80% of all mortgages are sold to Fannie/Freddie) would need to give up their independent contractor status and become employees of Appraisal Management Companies, a new entity that would pool appraisers together and make random appraisal assignments to avoid conflicts of interest between individual appraisers and mortgage companies and originators.

2) Appraisal Management Companies would be allowed to mark up the cost of appraisals to cover their administrative, licensing and management fees.

3) Licensed Appraisers would now be required to have at least an Associate's Degree (AA) and Certified Residential Appraisers would require at least a Bachelor's Degree (BA) in order to keep their licenses.

In addition, continuing education requirements increased and a new disciplinary process was put in place that would ensure appraisers who overvalued homes would face reprimand, suspension or revocation of their licenses.

So, six years later, here's what you have.  

In some states, as many as half of the licensed appraisers have quit or been regulated out of the business.

Appraisal Management Companies now add as much as 40% to the cost of an appraisal for "administrative, licensing and management" fees.

Individual appraisers routinely turn down assignments for any property that isn't a "slam dunk" on value for fear of having their work audited.

And many of the most experienced, most competent appraisers have opted out of the mortgage finance chain to preserve their independent contractor status.  These appraisers now focus on doing work for private lenders, divorce and estate attorneys, and others with appraisal needs that don't funnel into the Fannie/Freddie pipeline.

The bottom line is that an appraisal which may have cost $400 five years ago will cost $750 to $1,000 to obtain today.  And instead of getting an appraisal in a week, it could take a month to see a finished report.

I'm not telling you if it's good or bad... I'm just telling you why it is.  You can draw your own conclusions.  

"Reforming" anything always comes with unintended consequences.  It's debatable whether you are getting a better, more accurate appraisal than before Dodd-Frank.  But it certainly is going to cost you more, and it's going to take a lot longer to arrive.  

Thursday, August 18, 2016

SEASONAL CHANGES ARE COMING

As the days begin to shorten and we see the first tinges of fall color, the Denver housing market is also transitioning into autumn.  
 
Nothing dramatic or worthy of extreme anxiety… but a shift, nonetheless.

The market is in the process of a seasonal slowing, and it’s apparent at all price levels.  But before you panic, you must first understand how overheated and frenzied this market has been during the first half of the year (and for most of the past five years, for that matter).

Let’s start our dissection by looking at the market in terms of price points.  

Below $250,000, which is always the most heated sector of the market, there are 814 listings for sale  in the greater Denver metro area and 1,904 under contract.  Under normal market conditions, which means 2% - 3% appreciation and 45 to 60 days to sell a home, you would see about twice as many homes for sale as you have under contract.

With 814 active listings, that means 407 homes under contract would represent a balanced market.  There are 1,904, or nearly five times that amount.  Listings continue to generate multiple offers, bidding wars, and record high prices, with little relief in sight. 

In the $250k - $400k price bracket, there are 1,942 homes for sale and 4,077 under contract.  Again, a balanced market would have about 971 homes under contract… there are four times that many.  Prices will continue going higher.

From $400k - $600k, there are 2,538 homes for sale and 2,464 under contract.  A balanced market would have about 1,232 under contract.  Here you can start to see the market drifting toward more modest appreciation.  It might take a few weeks to sell a home in this price bracket, even if it’s priced right and shows well. 

From $600k - $1 million, there are 1,866 listings and 992 homes under contract.  That’s a noticeable change from the patterns with the less expensive homes, and it suggests that price appreciation is stalling out above $600,000.  Here, you need to mentally budget for 45 to 60 days of market time.  

Interestingly, while the inventory of homes in the $600k - $1 million price bracket (1,866) is very similar to the $250k - $400k bracket (1,942), in the past 30 days there have been nearly five times as many homes placed under contract in the $250k - $400k range than in the $600k - $1 million bracket.  

Selling a home in this price range is work, it will take patience, and the buyer pool will drive a harder bargain. 

Above $1 million, you have 1,127 homes on the market and just 280 under contract, which is not a positive indicator.  In fact, here you have 4.03 homes for sale to each one under contract, well above the 2-to-1 baseline ratio of a balanced market.  Despite the great economy in Denver, selling a $1 million home is a very difficult proposition and there is little evidence that prices are going to move higher anytime soon.  

There is nearly eight months of inventory here, so if this is your bracket and you’re looking to sell, you had better be ready to start carving on price because there is much more competition among high-end sellers than you may realize. 

The best way to interpret these numbers, in my opinion, is on a year-over-year basis.  There are lots of seasonal fluctuations in the Denver market, and you can get faked out pretty easily if you compare spring numbers to numbers in the fall. 

When you look at this market on a year-over-year basis, the similarities to August of 2015 are pretty remarkable. 

The overall inventory one year ago was 8,358 homes for sale… today it is 8,287, a decline of 1.2%.

The overall absorption rate one year was 1.29 months of inventory… today it is the exact same 1.29 months.

And one year ago, marketwide, there were 0.90 homes on the market to each one under contract… today that ratio is 0.85. 

In fact, the trendlines also look almost exactly the same as they did a year ago.

The overall absorption rate has increased from a low of 0.87 months in May to 1.29 months today.  A year ago, it increased from 1.00 months in May to 1.29 months in August. 

In July of 2015, 6,456 homes went under contract.  In July of 2016, the number was 6,423.

The fact is, when you study the numbers, you can see what’s coming… a seasonal slowdown that may very well mirror what happened last year.  By October, homes that attracted 5 to 10 offers in the spring may only draw 1 or 2, which gives buyers a lot more leverage than they had just a few months ago. 

But I do think the headlines are going to be more ominous than they were last year, and I think the election will play a role in that.  There is an unprecedented amount of negativity in our political arena today, and while you could probably say that in every election of the past 20 years, this one really does take the cake. 

I believe the psychology of the market is more fragile now that it was 12 months ago, and so it will be very interesting to watch what happens here in Colorado during September, October and November. 

As always, the numbers tell a story.  Right now the story is… things look just like they did 12 months ago, no better and no worse.  Entry-level homes will remain in high demand, while high end homes carry much more vulnerability to a market correction.

Saturday, July 2, 2016

A SINGLE AGENT WORLD

As someone who has carried a broker's license for 22 years, I've seen a lot of changes in the real estate business.  Contracts used to be hand-written on carbon paper, then came the advent of the fax machine, then came email, and then came electronic contracts.  Now my clients sign documents on their phones.

MLS books used to be dropped off at real estate offices every Thursday.  Then databases moved online to subscriber-based systems, then data was aggregated wildly and without sufficient oversight to 1,000 different websites, and now data is ubiquitous to the online world, sometimes accurate and sometimes not.

I believe that another round of huge changes are coming to the real estate world, driven by technology, innovation, greed, and the black hole of "leadership" at NAR, which has sat idly by on the sidelines while disruptors like Zillow and Trulia (now merged) have rushed in and, by many metrics, taken control of the industry by taking control of the consumer's online experience.  

(Interestingly, Denver is one of only a few major markets that currently has no licensing agreement with Zillow or Trulia, meaning that agents must manually upload new listings and manually take them down from these sites after they sell... which means the integrity of Z/T's data-feed in Denver is an absolute mess.)

There are serious flaws and problems with this, and you could write a 100 page thesis paper and still not address them all.  NAR extracts confiscatory annual dues from agents (usually $500 or more per year per agent in most markets), then uses that money to run television ads, lobby Congress for favorable housing legislation and hold lavish parties for itself from its Chicago-based high rise headquarters.

We can't rely solely on a myopic, fat cat, dues-fed organization that spends its time and resources inefficiently wining and dining politicians to protect our interests. 

Zillow, on the other hand, raises huge money by selling advertising to agents.  It uses that money to improve its technology, strategically advertise and promote its "Premier Agents", who qualify for that lofty title simply based on their ability to write a sizable monthly check that clears the bank.  

(Disclosure item:  Although I have nearly 100 past client reviews currently posted to Zillow, I have never spent a dollar on paid Zillow advertising, much to the chagrin of scores of Zillow advertising reps who have been relentlessly telemarketing me for years.)  

Zillow spends no money on lobbying Congress or seeking favorable legislation for homeowners.  It cares little about consumers, or real estate brokers, for that matter.  It wants nothing other than eyeballs on its website and profits for its shareholders and fully-vested senior executives.

NAR is a self-absorbed trade group.  Zillow is a self-absorbed creation of Wall Street.  And many agents are funneling thousands of dollars each year at both, but really being served by neither.  

It creates anxiety, for sure.  In some ways, it mirrors our country's political landscape, with dueling parties both serving their own interests while the real needs of its constituencies go unmet.

But I digress.  

Because of this lack of leadership, I believe the traditional role of real estate agents is going to change significantly over the next few years.  Increasingly, the two-agent system (seller's agent and buyer's agent) is likely to morph into a single agent functioning as a transaction manager, with Zillow serving as the primary matchmaker.  

There will be less representation and more facilitation.  It will also change the nature of negotiation so that it becomes less about advocacy, and more about getting the deal done.  It will put agents in the uncomfortable and ethically-questionable space of trying to serve two masters, and it will unleash a whole new batch of ethical and moral confusion.  

The tradeoff will be that consumers pay a single commission (instead of two), and because the public often under appreciates the value of a good broker, consumers will think they are saving money by eliminating one agent from the transaction when in reality they will be doubling down on the ethics and competence of a single broker, who will earn half a traditional commission for doing twice the work only if the deal closes.  

I am convinced this is the model Zillow is working to perpetuate, because it will create a class of "Super Agent" who has no choice but to advertise on its site, which will match home buyers, home sellers and so-called Premier Agents to put the deals together.  

It will seize control of the industry while keeping the legal liability and fair-housing responsibilities pinned to individual agents and brokerages.  It puts them at the center of the transaction financially while minimizing their exposure to litigation and lawsuits.  It's a beautiful Wall Street-crafted model that any one-percenter would love. 

As the number of agents declines, NAR will see its membership (and revenues) dissipate.  Its influence wanes and Zillow becomes the pre-eminent voice for real estate.  Lobbying and legislative advocacy go away.  Tax policy changes and the tax-advantaged nature of real estate erodes.  Values are negatively affected.  Brokerages close amid sharply decreased profitability and the industry consolidates.  Zillow doesn't care, any more than Enron or AIG or Bernie Madoff cared.  

When leaders fail to lead, chaos ensues.  You just saw it play out with Brexit, you're seeing it in the current US election, and soon enough, in my opinion, you'll see it begin sweeping over the real estate industry.

Could my opinions of Zillow and NAR change?  Sure, if their behavior was to change.  If I saw a serious commitment to making the world a better place for buyers, sellers and real estate brokers, of course I would get behind it.  But for now, I can't count on that.  I'm just trying to strategize my own place in a rapidly changing real estate world.

Tuesday, June 7, 2016

WHAT WOULD HAVE TO HAPPEN FOR PRICES TO STOP APPRECIATING IN DENVER

The market in Denver has been frantic for so long, it's hard to remember what "normal" looks like. 

But there is a baseline for normal, and to provide some context into what that looks like and what things look like today, it's worth a few minutes of analysis.

Over the past 10 years, the average springtime inventory of homes for sale in the Denver MLS has been just over 15,000.  The high water mark was 2007, when there were more than 31,000 active listings, and the low was in 2015, when there were 6,302 homes for sale at this time of year.  

Today, the active inventory stands at 7,122 homes, which includes both attached and detached homes.

In a "normal" market, well-priced homes take 45-60 days to sell, sellers average three to five showings a week and values go up 1% to 3% per year.  It's slow, boring and deliberative.

Today, as everyone knows, any reasonably-priced listing in the Denver metro area under $400k will sell in a weekend with 20 to 40 showings, and values have been going up in excess of 10% per year for almost four solid years.  It is not uncommon for good listings to draw five to 15 offers with serious buyers often waiving inspection, appraisal and/or financing contingencies to secure a contract.

It is high stress, high risk (if waiving or modifying contingencies) and high drama in a market that is increasingly driven by fear, desperation and greed.

So with all of this emotion sweeping over the market, are we setting ourselves up for a fall?

For equilibrium to exist in a market... that point where prices stop appreciating and the market flattens out... there will be about twice as many homes for sale as there are under contract.  The turning point in this market really traces back to January of 2012, which was the last month where we technically had a "buyers' market".  At that time, there were 10,333 homes on the market and 4,831 under contract, a ratio of 2.14 to 1.

Today, we have 7,122 homes on the market and 9,747 under contract, a ratio of 0.73 to 1 (more homes under contract than on the market).  To hit equilibrium, where prices level off and appreciation stalls, we would need more than 19,000 active listings.

There is no way that is happening any time soon.

Let's dig a bit deeper.  Using the 2 to 1 theory of a balanced market, at any point in time about 33% of the total inventory would be under contract.  If you look at homes prices under $300,000 in the entire Denver metro area, 81% of listed inventory is currently under contract.  As such, the likelihood of higher prices is essentially 100%.

In the $300k-$500k price range, 67% of the listed inventory is under contract.  This is not as high a percentage as you see in the sub-$300k market, so reasonably speaking, appreciation will continue here but not be as strong as at the entry level.

In the $500k-$800k bracket, 48% of the listed inventory is under contract.  This suggests much more mild appreciation, probably in the 4% to 5% range.

And when you go above $800,000, only 31% of the listed inventory is under contract, which means luxury homes may not be appreciating at all.  Buyers here need to be very selective and pay extra attention to location, which is the biggest driver when it comes to holding value on higher priced homes.

The market has always functioned in "tiers", and because there is always more demand for entry-level housing (which builders can't and won't build because it simply isn't profitable), your greatest appreciation will continue to be at the lower price points.

If you're a first time buyer, unfortunately, it also means that competition is going to remain extremely intense for a long, long time.  And prices are likely to go a lot higher before they even start the process of leveling off.  

Saturday, May 7, 2016

WHAT IT'S WORTH VS WHAT SOMEONE WILL PAY

There's a new reality in the Denver real estate market, and if you're looking to buy, you must come to terms with it. 

Homes aren't selling for what they are worth.  They are selling for what someone is willing to pay.

I recently listed a home in Lafayette that my client purchased as a short sale in 2012 for $196,000.  Fast forward 48 months, and my carefully crafted CMA came back with an adjusted approximate market value of $322,150 - a 65% jump in value in four short years. 

Knowing this crazy market, however, I knew that that number was likely only a starting point. 

We could easily list it at $330,000... or even $335,000... and we would probably generate multiple offers.

After weighing the pros and cons of a bidding war, my clients decided their interests would best be served by inducing one.  So we listed it at $325,000.

The first offer showed up before showings even began - $335k, cash, closing in 21 days.  The buyer gave us four hours to respond.  I advised my clients to pass.

It was our intention to be on the market four days, reviewing offers on day five, and I didn't want to shortchange the process.

And sure enough, the offers came.  Nine of them, in total. 

Using (and promoting) the first $335,000 offer as a benchmark, I soon had an offer at $339,000.  Shortly thereafter, $342,000.  A day later, $350,000.

At this point, the conversation shifted to the appraisal.  We knew it was highly unlikely to appraise at these numbers, so the question became...what happens if (when) it doesn't appraise?  I picked up the phone and began posing this question to agents. 

Soon enough, the revised offers began showing up.  $345,000, willing to pay $7k over appraised value.  $348,000, as-is, waiving the appraisal clause entirely.

Then, $355,000...but not addressing the appraisal clause.  A cash offer at $358,000.  Another offer at $350,000, as is.  $347,000, willing to pay $10k over the appraisal. 

I could go on, but you get the picture.  Ultimately, we ended up with a top offer of $365,500 (not a misprint), waiving the appraisal clause, as-is, with a 60-day rentback to my sellers. 

I am not making this up.

Of course, the home ended up appraising short of the mark, and the buyers were forced to significantly increase their down payment.  They grumbled.  They didn't like it.  But they also realized that with values in this neighborhood increasing by $100 or more per day, starting over wasn't automatically going to make their situation better.

Fast forward a few weeks, and another home in the same subdivision with similar square footage was listed...at $379,900.  They were piggybacking off of our over-the-moon price, and they knew that several of the buyers who had swung and missed at ours would likely show right back up for this one. 

One of my clients asked me about this home and we viewed it together.  I told her the backstory with my listing and what a CMA would reasonably support.  The home was perfect for her and she wanted to write on it. 

A reasonable offer would have been the middle ground between what ours appraised for what this one was listed at.  But I know that “reasonable” doesn’t work in this market, so we pushed the numbers up a bit higher. 

She offered $368,000, agreeing to pay up to $7,000 over appraised value if it failed to appraise.

We sent it to the seller’s agent, who promptly tossed it in the recycle bin.    

That home went under contract with multiple offers, likely at or above list price.  It has no chance of appraising.  Apparently the buyers don’t care. 

Now all of this happened in Boulder County.  Boulder is nuts.  Home prices have soared so far in the city of Boulder that nearby suburbs like Longmont and Louisville and Lafayette are literally on fire.  Maybe these buyers are smart, even paying unsupportable numbers. 

Because a year from now, history may judge them wise.

But it's difficult to process all this.  If you're logic-based, your hard drive is about to crash.  In the Denver metro market of 2016, two plus two equals six.  Or seven.  In Lafayette, it might equal eight. 

Will this change at some point?  Of course.  It has to.  The question is, do things flatten out in four months, or in four years? 

As I've written about before, the history of the Denver market is like a staircase, not a rainbow.  By that I mean, if you go back 30 years, the history of our market is price surges followed by pauses, not crashes.  Even the wipeout of 2007 - 2009 looks tame when you view it in the long term. 

One last piece of perspective before we hit the "post" button.  If you're coming here from St. Louis, this market looks terrifying.  But if you're coming here from California (as so many are), it still looks cheap. 

If you're from Denver, however, you're probably feeling a mix of fear, confusion and maybe even sadness.  It's never looked like this before.  Many of the middle class neighborhoods you grew up with and spent time in are no longer affordable.  Moving up is out of the question.  Holding on is the new moving up. 

It's great to have equity, but mobility is nice too. 

Large numbers of buyers from two, three and four years ago could not afford the homes they are living in today.  Which means they aren't going to be selling any time soon.  Which means inventory stays low. 

Low inventory supports higher prices, and so the cycle continues.  Until people finally decide it's time to go somewhere else. 

Wednesday, April 20, 2016

JUST KEEP SWINGING

What do you say to buyers in the face of multiple offers, bidding wars, cash-rich weed growers and well-heeled out-of-staters overrunning the Denver housing market?

Just keep swinging.

What else can you do?  The numbers in our market today are so lopsided – less than two weeks of inventory below $400k, double-digit price appreciation for a fourth consecutive year, 270 people per day moving into the state, with over half ending up within 40 minutes of Denver – that you either keep swinging or start packing.

I know it’s frustrating.  Believe me, I know.  This past weekend, I wrote offers for four separate clients which all ended up in the recycle bin.  One was $25k over list price.  Another was for a cash buyer, 14 day closing, $7k over list price.  One agreed to pay $5,000 over appraised value.  And a fourth was $11k over list price. 

Zip, zip, zip, zip.

The problem with checking out is that, for the foreseeable future, the median home price value is going to continue increasing by $94 per day.  That’s how much values have gone up in the past year, according to the most recent report from the Denver Metro Association of Realtors. 

That’s $1,000 or so every 10 days.  About $3k per month.  About $34,500 in the past year, according to DMAR.

Are these numbers scary?  Of course.  They are terrifying. 

But you have to pull back and be objective.  You have to trust the numbers.

The ten-year average for listings on the market in the Denver MLS is about 15,000.  Today there are 5,996.  In just the past 30 days, 5,667 homes went under contract.  Overall, there are more than 8,400 homes currently under contract, or essentially 140% of the active inventory.  Historically speaking, that figure should be about 33%.

Economists consider five months of inventory to be a “balanced” market, where buyer and seller demand square up.  Five months is 150 days.  We currently have 14 days of inventory below $400k!  

For bonus points, the unemployment rate in Denver is 3.2%, rents have also been rising at a 10%-plus clip and the Rockies are (however temporarily) tied for first place.  Strange days, indeed.

I’ve never seen a market like this in 22 years as a broker, but then I’ve been saying that for about four solid years.  Denver is not becoming a big city.  It is one.

There are plenty of lousy things about our explosion into a big city metropolis which I grieve on a daily basis.  Traffic, for one.  Homelessness and gentrification, for two more.  Massive and generally thoughtless big box apartment buildings blotting out the skyline.  And schools that are totally unable to keep up with the surging population, especially on the west side of town. 

But it's not all bad news, either.  Anyone who wants a job has one.  The metro area is literally floating on an ocean of equity and cash.  Older neighborhoods are being reborn as homeowners pour significant amounts of money into long-delayed maintenance and home improvements, further increasing area values.  Lawns are green.  Paint is fresh.  The kids are alright.  

If you’re one of those frustrated also-rans in the housing derby, I feel your pain.  Emotionally, it’s easy to think about quitting.  (FYI, this past Monday morning, I thought about quitting)

But you have to keep going.  Resilience is a learned behavior.  And right now, you have to be resilient.  Even if it hurts to go on. 

Monday, April 18, 2016

THE LONG GAME AND THE SHORT GAME

When it comes to a career in sales, there is one question that will govern how you act, who you work with and whether you will enjoy (or hate) your job. 

Are you playing the long game or the short game?

The short game is all about the here and now.  This deal.  This client.  This listing.  It’s about your next meal, your next car payment or whether the baby will have milk tomorrow.  It’s contentious, often adversarial and based on conquest and power trips. 

The long game is about ten years from now.  It’s about building a brand.  It’s about making decisions on criteria other than immediate gratification.  It’s about sowing seeds instead of chopping down trees. 

Truth is, it seems to me a lot of people in real estate are addicted to the short game.  As I have written about extensively in previous posts, our current market is dominated by two emotions - fear and greed. 

Fear and greed are the essence of the short game.

When you focus on the short game, you focus on the deal. 

When you focus on the long game, you focus on your client. 

When you play the short game, the payoff is the equity of the paycheck.

When you play the long game, the payoff is the equity of the relationship.

I’m not here to tell other people how to run their business.  Truth is, their business is none of my business.  But way too many agents (and people) these days are operating from a position of scarcity, a belief that every dollar left on the table is somehow eternally snatched away, never to return or be multiplied in some other form. 

Abundance is the opposite of scarcity.  Abundance is based on the belief that there is plenty of business, plenty of opportunity and plenty of money to go around.  Those who believe in the theory of abundance know that the universe loves a cheerful giver, that collaboration beats conquest, and that brand equity is your most important asset.  

Scarcity-thinking is instinctual.  Abundance-thinking is a learned discipline. 

I often say that every transaction is really three transactions, if you play it right.  It’s the immediate sale, it’s a future referral and it’s the repeat business that happens ten years down the road. 

Don't get me wrong.  I'm not saying you should roll over and be a softie.  Skilled negotiation is one of the most important survival tools for a top-performing real estate broker.  Believe me, I will fight when it's time to fight.  But playing the long game means that the battles I fight will be for my clients, not for me.  

How many of your clients are raving fans?  How many of your clients will go out of their way to refer you to someone they care about?  How many of your clients feel a sense of connection that transcends real estate?

The answer to those questions will determine if your personal brand is an asset or a liability.

To those in this business stuck in the darkness of fear and scarcity, I offer this appeal… stop playing the short game.  If you don’t like your clients, fire them.  Clear space for new opportunities.  Surround yourself with people you like.  Quit being a desperate, greedy vampire. 

Harvesting is for a season.  Planting is for the generations. 

Decide today if you’re going to be doing this in ten years, and if you are, then start acting like it.  You don’t need "deals".  You need people who trust you.

Reviews matter.  Relationships matter.  Outcomes matter.  Happily-ever-after’s matter.

I’m sick of all these agents playing the short game.  One day, when this market changes, your reputation will be your currency.  Your value won’t be determined by whether the market is hot or cold, but rather by what people think of you.

Tuesday, March 29, 2016

APPRAISAL PLUS

Here’s the current state of the market… I listed two homes this month, they were on the market a total of six days (combined), drew 86 total showings and 17 total offers.  All 17 offers over list price, and eight modified or waived the appraisal clause. 

In any other market, all 17 of these offers would have been winners.  But in this unforgiving low-inventory, high-demand environment, 15 of the 17 offers ended up as losers, with those buyers headed back to the drawing board (or the next open house) to continue their search.  

With both of these properties, our top offers were clearly beyond where these homes were going to appraise.  And since I represent the sellers, and it’s my job to get them the best price and terms possible, these deals basically now live and die with what buyers choose to do with the appraisal clause.

In short, any financed buyer is going to need a formal property appraisal.  And under traditional lending guidelines, the buyer’s lender is going to offer financing to that buyer based on the LOWER of the contract price or the appraised value.

Let me explain how this works.

Let’s say a property is listed for $285,000.  But in our supercharged multiple-offer environment, a  motivated buyer chooses to offer $300,000 for the home.  If the buyer plans on making a 10% down payment, that’s a $270,000 loan with a $30,000 down payment.

But let’s say the appraiser then does his site visit, compares the home to others that have sold in the area, and comes back with an appraised value of $290,000.  That means the lender is only going to loan 90% of $290,000 (the appraised value) instead of 90% of $300,000 (contract price).

90% of $290,000 is $261,000… but since the contract price is $300,000, that buyer would now need to bring in $39,000 instead of $30,000 for a down payment.  Is the buyer willing to do that?  And does the buyer have the means to do so?

This is the stumbling block for many transactions right now, and it’s the first topic of conversation between agents when it comes to evaluating offers. 

In the “old” days, before Denver became what it is today, a low appraisal was bad news for the seller, because 99% of the time the buyer would ask the seller to lower the contract price to match the appraisal, and with no other offers or buyers on the horizon, sellers would often capitulate.

Today, however, when a property fails to appraise, 99% of the time the seller is going to say “tough luck” (or some other variation of toughness) and the buyer is going to have to figure out how to come up with the money or lose the house.

The purchase contract states that any financed buyer has the right to get an appraisal.  The contract also further states that if the property fails to appraise, the buyer has the right to terminate the contract. 

Of course, all contract clauses can be modified by mutual agreement, and that’s where motivated buyers obtain separation from the pack.

In this environment, financed buyers basically have three choices when it comes to the appraisal clause:

WAIVE THE APPRAISAL CLAUSE – the most motivated and serious buyers will waive the appraisal clause up front.  This basically says “no matter what the property appraises for, I am willing to proceed with the contract, and make up the extra down payment required by the lender from my own funds if it fails to appraise.”  If you were selling and wanted a committed buyer, wouldn’t this be the offer you choose?  This type of offer is even more impactful when it shows up with a bank statement showing the buyer has the cash to back up his words. 

MODIFY THE APPRAISAL CLAUSE – modifying the appraisal clause says, up front, that if the property fails to appraise for the contract price, the buyer agrees to pay some fixed amount ($5,000… $8,000… $15,000… whatever number fits the buyer’s tolerance for a shortfall) above the appraised value, not to exceed the contract price.  In our example of a $300,000 contract price, let’s say the buyer agreed in the original offer to pay $8,000 above the appraised value, not to exceed the contract price.  If the property appraises at $290,000, all parties have agreed up front that the final contract price will be $298,000, with the buyer bringing in any extra funds required by the lender to cover the shortfall.

KEEP THE APPRAISAL CLAUSE – by not addressing the appraisal clause, the buyer is essentially saying if the property fails to appraise, the deal is toast unless the seller lowers the price to match the appraised value.  In this market, that’s not likely to happen.

For sellers looking at anywhere from three to 12 offers on any good piece of real estate, the appraisal clause is a critical determining factor in which offer is going to be chosen. 

As someone who lists a fair number of homes, this is where the rubber meets the road when it comes to evaluating offers.  Show me a buyer willing to write an offer representative of the market, with the fortitude to modify or waive the appraisal clause, and I’ll show you someone who is going to be under contract soon. 

Keep the appraisal clause intact, and I’ll show you a buyer who is going to see his contracts landing in the circular file again and again until all the serious buyers have come through.  Then, when prices are higher and the competition finally thins, it will be your turn, assuming you have the stomach to deal with months of rejection and you’re okay with paying five to 10 percent more than you would have paid by taking more committed action sooner. 

Which brings us back to a simple truth.  Buying a home is serious business, and it’s your job to be seriously educated.  If you believe in the law of supply and demand, that higher prices are inevitable when every home is drawing multiple offers and there is a 31-year low in inventory, that unemployment of 3.2% in the metro area and 270 people per day moving to Colorado will continue to positively impact the market… then it only makes sense that the smart move is to do whatever it takes to buy sooner rather than later.

To be jelly-legged about the appraisal clause is to say you don’t trust the market, you don’t trust the numbers and you don’t trust yourself to make a sound decision.  If that’s the case, then walking away now and signing another lease is probably the better move, because if you don’t have the fortitude to compete, it’s best not to climb into the ring.  

Wednesday, March 16, 2016

SAYERS AND DOERS

Colorado’s overall population increased by about 1.7% last year, from 5.7 million to 5.8 million. 

But there’s another subsector of the population that’s growing at a clip about five times faster – and that’s the number of licensed real estate agents now pouring into the business.

Four years of a thriving market, rising home prices and an endlessly-looping array of so-called reality real estate programming on HGTV has convinced a lot of people that, yes, you too can sell homes for a living.  (While driving a nice car and working just six hours a week!)

The first year I sold real estate in Colorado – 2006 – there were more than 17,000 dues-paying MLS subscribers in the metro area.  By 2010, after the scorched earth markets of 2007, 2008 and 2009… there were barely 10,000 agents left.

By my own informal count (done by searching the last names of agents in the MLS by each letter of the alphabet), I tally a total of 16,948 subscribers to the Denver MLS today.   

That’s up 8.2% from one year ago (15,682) and 14.3% from two years ago (14,821). 

The only thing keeping up with surging Denver home values is the commensurate rise in new real estate license applications.  

Now we need to talk about some cold, hard facts. 

The real estate business can be a difficult, unforgiving place.  In fact, NAR reports that 50% of agents who take out a license don’t survive their first year in the business, and nearly three out of four will not renew their license at the end of their first three or four year licensing cycle.

Part of this is because, regardless of how big you talk or what you aspire to do, your paycheck every two weeks is exactly… zero.  In fact, you probably owe money, since your broker is going to ding you for a desk fee, MLS access and an electronic contracts subscription fee.  Plus you have licensing fees, marketing costs and E&O coverage to pay for.  Not to mention the gas, insurance, and maintenance costs for your rolling mobile office. 

Real estate is the ultimate turnstile business, with scores of agents enthusiastically bursting through the front door, only to slink out the back door months later, broken and (often) broke. 

I am an adherent to Malcolm Gladwell’s well-known theory that mastery of any subject takes a minimum of 10,000 hours of devoted study and practice.  That’s five years, full-time. 

I have consistently ranked in the top two percent of agents in Colorado by (get ready for this)… working about 12 hours a day, about seven days a week.  And doing a great job for my clients, whom I care about deeply and invest in fully.

It takes two things to succeed a good plan, and a tenacious, badger-like work ethic. 

In my old corporate life, I mentored and trained new agents coming into the business for the world’s largest Century 21 franchise.  Truth is, it takes less than a week to figure out if someone has what it takes to succeed in real estate. 

The world is broken down into “sayers” and “doers”.  Sayers say they are going to do something.  Doers do it. 

Sayers are plentiful, doers are few.  Sayers are dreamers, doers are realists with dreams. 

Saying is easy.  Doing is hard.  Identify if someone is a sayer or a doer, and you’ll know very quickly if they’re built to last or destined to crash.  

Friday, March 11, 2016

COULD YOU AFFORD THE HOME YOU ARE LIVING IN TODAY?

Lately, I’ve been posing this hypothetical question to more and more of my past buyer clients.  Simply put, if you had to purchase the home you are living in today at today’s prices, could you afford to do it?

For more and more of them, the answer is no.

With homes prices posting double-digit percentage growth gains for four consecutive years, many homes in the metro area (especially at the lower price points) have gone up 50% or more in value since the start of 2012. 

So the question becomes… if you paid $250,000 for your home in 2012 and it’s worth $375,000 today, could you afford to buy it? 

If the answer is no, it means you aren’t moving anytime soon. 

I’ve seen this dynamic in Southern California, where I grew up and spent my first 12 years as a real estate broker.  The home I grew up in cost $42,000 when my parents bought it in 1972.  Today, Zillow estimates the value of that home (which we sold more than 15 years ago) at $833,645. 

In that type of environment homes eventually became so expensive that no one could afford to move… which is a big reason subprime financing became so popular (and abused) in the early 2000s. 

People wanted to buy bigger and nicer homes… but under traditional qualifying guidelines, there was no way to do it.  So subprime financing essentially allowed people to make up their income, buy what they wanted to buy, and supplement their insufficient incomes over time by sucking home equity out of their appreciating properties to cover the difference.

Worked great, until the whole system crashed.

Today, there is no subprime financing… and so if you can’t qualify, you’re not going to be able to buy. 

Which means a whole lot of people are never going to move, either until they die, win the lottery or move out of the metro area. 

That means the available inventory of resale homes will remain artificially low, which means demand will continue to outstrip supply… and that will go on until prices get so high that businesses and those looking to relocate here from even higher cost states decide to go elsewhere.  Then prices level off and the cycle pauses.  

(Note that I said "pauses", and not "reverses".  As long as buyers are forced to have real jobs, real credit and real down payments in order to purchase a home, the market has legitimacy and foundation  When you don't have that, the market becomes a house of cards.)

There’s not really a clean solution to any of this. 

I believe inventory is going to be low for a long, long time.  And with tens of thousands of educated transplants living in apartments and holding good jobs, the demand for resale housing is going to remain very strong.

What that means, going forward, is that when it comes to housing, the same dollars are going to get you less and less as time goes by. 

Which means buying sooner rather than later is not only a good idea, it’s imperative.  

Thursday, March 10, 2016

ABOUT BROCK OSWEILER

99.9% of the time, this blog is about nothing but Denver real estate.  Today is that 0.1% of the time it’s about something different. 

Broncos quarterback Brock Osweiler has signed with the Houston Texans.

Many of you know that at the end of 2015, my youngest daughter Elizabeth spent a total of 17 days at Rocky Mountain Hospital for Children, going through a series of three major surgeries that resulted in the loss of about half of her left lung due to a congenital birth defect. 

What was supposed to be a four-day bump in the road for a 15-year old high school freshman ended up turning into nearly three weeks of high stress drama, with numerous setbacks and complications that led to two additional surgeries and quite a bit of uncertainty about whether this chain of events would morph into a long-term hospitalization with potential lifelong repercussions. 

Her first surgery was on December 18th, which was also her 15th birthday. 

That day had started with great promise – Elizabeth went to the Jefferson County DMV at 8 a.m. to get her driver’s permit.  It ended late that night with her in grueling post-op pain, about one-third of her diseased left lung having been plucked, pulled and otherwise chiseled from her rib cage during a complex surgical procedure that took more than three hours to complete. 

The original proposition had been to either do this surgery on her birthday, with the promise of being home for Christmas.  Or celebrate her birthday at home but spend Christmas in the hospital.

As it turned out, Elizabeth spent her birthday, Christmas, and New Year’s Day hooked up to tubes, wires and breathing machines while being carted in and out of surgeries in a holiday season we will surely never forget.

So what was a dark time for everyone changed suddenly about 10 a.m. on Christmas morning when there was a tap on the door of room 4403.  A face ducked in, a face belonging to Brock Osweiler, quarterback of the Denver Broncos.  He was a wearing a #17 jersey and a blue and orange Santa hat, which almost brushed the top of the door frame as he made his way into our room.

“Is this Lizzie?” he asked. 

And with that, the room suddenly came to life. 

“I’m Brock,” he said.  “Does anybody here like the Broncos?”

His wife, Erin, walked in with a large bag full of gifts.  Good stuff… headphones, an iPod Touch, board games, blankets, socks, stocking caps, Broncos gear. 

Elizabeth smiled, and Victoria and Sherry looked at me in disbelief.

Soon, we were talking about the NFL, about whether Arizona State would be a good college choice for Victoria, about how he and Erin first met, about Lizzie and her prognosis for recovery, and what it felt like to have 300 pound linemen intentionally falling on your legs.

The Osweilers gave us about 10 minutes of their time, but it wasn't rushed, it wasn't choreographed and there were no PR people pushing them out of the room to make the next photo op.  I was struck by how legit it felt.

The girls took selfies with their suddenly new best friend, and Erin talked with Sherry about the pain of watching a young girl go through hard times in the middle of the Christmas season.

Finally, we took a group photo and Brock and Erin departed, moving on to the next room to share some holiday cheer with another family in distress.  

It almost felt like a dream, and as we processed what had just happened, both Sherry and I felt  gratitude and amazement at how we had been blessed in such an unexpected way at such an unexpected time.. 

It was Christmas morning, after all, and don’t players have families too?

Later on, one of the charge nurses told me it was at least the fourth time during the season that the quarterback had shown up, unannounced.  No camera crews, no media people. 

Just Brock and Erin, with an intern from the Broncos helping to hand out gifts that for us turned out to be nearly $500 worth of merchandise.

The nurse said that many of the athletes who show up at the Children’s hospital are doing community service, working off DUI’s or doing penance for fights at the strip club.  Not Brock Osweiler.

Three days later, Osweiler played the biggest game of his career, a high stakes Monday night matchup against the Cincinnati Bengals.  It was still unthinkable to me that on Christmas Day, 72 hours before a football game that would not only determine the Broncos’ playoff fate but make or break his long-term contract chances, Brock Osweiler was spending his off day at the hospital, lifting the spirits of sick kids and their families.

Elizabeth has never been much of a football fan, but on that frosty Monday night in our cold hospital room, she was glued to the television. 

It looked bad early on, with the Broncos falling behind by two touchdowns.  As the team struggled, the pain in her chest seemed to intensify.  Her spirit was again deflating. 

But in the second half, magic happened.  And the Broncos rallied back, with Brock leading a spirited comeback and then engineering an overtime drive to win it.

There were late night whoops and hollers all up and down the pediatric floor at RMHC.

The girl who never cared about football suddenly couldn’t stop talking about it.  We high-fived in the dark hospital room and when we finally dozed off to sleep, Elizabeth in her hospital bed and me at her side on a cold vinyl sleeper couch, we were both feeling better than we had been in many, many days.. 

Some other amazing things happened over the next few weeks.  Elizabeth finally got out of the hospital during the second half of the fateful Broncos – Chargers game on the last Sunday of the season, leaving the hospital in a wheelchair right about the time Brock was being pulled in favor of Peyton Manning.  

Two weeks later, through the extreme generosity of a long-time business associate, Elizabeth attended her first football game by sitting in the front row of the lower level for the Broncos divisional round playoff game, directly behind the Pittsburgh Steelers bench.  These were legacy seats which had been passed down from generation to generation for 50 years, and they were offered to Lizzie free of charge in a tear-jerking display of kindness.  I got to share that remarkable day with her, one of the most memorable experiences in my 16 years of being a dad. 

We took pictures of both Brock and Peyton during warm ups and cheered like crazy for the Broncos throughout the game.  Elizabeth couldn’t believe the noise from the crowd or the way the stadium shook in the fourth quarter.  She left the stadium transcendently happy. 

You can question whether Brock Osweiler’s on-the-field resume is worth $72 million, but you can’t question the integrity of his resume off it. 

Osweiler’s autographed picture has been taped to Elizabeth’s bathroom mirror for the past nine weeks.

His sudden departure has turned into a tough life lesson, that sometimes people move on even when staying seems to make all the sense in the world.