Thursday, October 25, 2018

DENVER METRO INVENTORY CONTINUES TO CLIMB AS MARKET CONTINUES TO COOL

There's a palpable chill that has fallen over the Denver market in recent weeks, and nowhere is it more apparent than in the surging number of active listings.

There are currently 8,882 active listings for sale in the Denver MLS, the highest number of listings for sale in October since 2013.  That total represents an increase of 17.80% from one year ago and an increase of 95% from January, when there were just 4,554 homes on the market.  

Rising interest rates are the clear culprit.  

Since last fall, interest rates have spiked from the high 3's to the low 5's, sending shockwaves through the market and pricing many buyers out entirely, especially at the entry level.

The surge in rates is likely a result of the tax bill passed last December, which created record corporate profits and drove expectations for the economy higher.  With the DJIA north of 25,000 and US unemployment at a generational low of 3.7%, making 30-year financing commitments in the 3's no longer makes sense in the financial markets... hence, a new era of significantly higher rates.     

Hardest hit by the increase in mortgage rates are high cost markets.  On a $400,000 loan, the 1.5% jump in rates over the past 12 months increases the initial monthly payment on a fixed-rate loan by more than $350.  That's significant, and it's taken the starch out of our market.

Here's a look at how active listing inventory has fared nationally on a year-over-year basis versus locally here in Denver since spring:

Month                    NAR (National)          Denver MLS
March 2018                - 7.20%                        - 10.00%
April 2018                   - 6.30%                        - 1.60%
May 2018                   - 5.10%                        + 0.40%
June 2018                  - 0.50%                        + 1.00%
July 2018                   + 0.00%                        + 6.80%
August 2018              + 2.10%                        + 7.90%
September 2018        + 1.10%                       + 17.80%

It's clear that higher cost markets are feeling the greatest impact.  In California, which has a median price nearing $600,000, active listing inventory in September was up 20.4% from one year earlier after starting the year down 12%, a trendline very similar to what we have seen here in Denver.  

The fact of the matter is that higher interest rates are deflating the market, and what has been manifesting as higher prices in the past is now being absorbed by significantly higher mortgage payments while more and more buyers are simply tapping out.

The only path back to growth like we've seen in the past is rates that look like what we've had in the past, and the odds of that kind of sudden rate reversal are remote.

In the span of a few short months, buyers have pulled back and the market has lost its punch.  Buyers who have spent the last several years frantically chasing after something, anything in order to get on the right side of an appreciating market have suddenly become a whole lot choosier, demanding good condition, reasonable pricing and value supported by relevant comps in exchange for having to make monthly payments that are now hundreds of dollars higher.

For sellers, we're at a crossroads.  Get in line with current realities, or cover your eyes and pretend it's still the low-rate market of six months ago.  Sellers who choose to live in the past will quickly find, however, that the market they are dreaming of no longer exists.  

Thursday, October 11, 2018

OCTOBER WEATHER, HARD FREEZES AND SPRINKLER DAMAGE

While I've come to embrace Colorado weather as a mysterious and glorious blend of beauty, elements and seasons (which often manifest in the same day)... there are two months that take the prize above all others when it comes to randomness and sudden change:  April and October.

Ironically, these happen to be the months where homeowners need to start their sprinklers for the spring/summer and shut them down for the fall/winter.

Last year, we had an extremely mild fall and many homeowners waited until early November to drain and winterize their systems.  This year, the weather has turned cold suddenly and on Saturday night, the temperature is expected to dip into the mid-teens, which will cause untold damage to thousands of unprotected irrigation systems all over the metro area.

Because I've seen this cycle play out again and again during my 12-plus years in Colorado, I adopted a mantra several years ago that has become a way of life:  I will be the last person on my block to turn my sprinklers on in April and the first person on my block to shut them down in October.  

As a real estate broker, I've spent a literal fortune on trying to spare my clients the headaches of freeze damage.  In fact, for eight years I hired a service every April and every October that would facilitate start-ups and shut downs for all of my past clients, at my expense - which eventually grew to be $4,000 - $6,000 per year.  But as the number of clients grew and the list of homeowners with yards continued to expand, it simply became unmanageable over time and so I shifted into taking care of first-year clients only, helping them start their system up in the spring and then shut it down in the fall. 

With so many transplants in Denver from other areas of the country, there are a huge number of new homeowners who have no idea how much damage a hard freeze can do.  And one of the occupational hazards of selling homes during the cold winter months is that it is very hard to determine what kind of shape a sprinkler system is in until it is de-winterized and fired up in the spring. 

Truth is, almost every year I deal with homes sold in the winter which need extensive sprinkler repairs during the spring.  And because it's not my clients' fault that the previous occupants were oblivious to the climate and/or their own home ownership responsibilities, I usually try to find a way to mitigate their cost in getting systems repaired or rebuilt. 

The net effect of all these sprinkler repairs (other than the obvious financial hit) is that I tend to be hyper-obsessed with the vagaries of spring and fall weather, and every year my clients know they are likely to receive a panicked ALL CAPS bulletin from me the first time fall temperatures unexpectedly drop to dangerous lows.

Because of the exceptionally strong seller's market we have experienced over the past several years, getting sprinkler repairs (or any other repairs) made by the seller prior to closing has been a difficult challenge for buyers.  Now, as the market softens and buyers have more choices, expect repair negotiations to become a lot more contentious for sellers as buyers demand value commensurate with the record high prices they are being asked to pay.

And that includes fixing those jacked up sprinklers that were installed after watching four minutes of video on YouTube and downing a six pack with your buddies.  

This year, I proactively had sprinkler systems at all four homes I currently have under contract blown out and winterized at the start of October.  I did so at my expense and with my own vendor, because I'm tired of paying for repairs caused by overconfident do-it-yourselfers and Craig's List cowboys.

On winterization day, temperatures were in the mid-80s and skies were blue.  Neighbors looked on in puzzlement as water vapor spewed up from the sprinkler heads and the air compressor thumped away.  We drained supply lines in the basement and declared ourselves ready for whatever may come, even while dressed in short sleeves and wiping beads of sweat from our brow. 

That was eight days ago.

Today it is 35 and snowing.  Sunday's Broncos game will be played before a national audience with temperatures in the 20s.  Before Halloween arrives, I have no doubt we'll have at least a few days where the temperature pushes 80 degrees.  Coupled with more nights in the teens.  

October.  Colorado.  Ugh.

The lesson in all of this is to realize that the $50 it costs to winterize your sprinklers now is a lot cheaper than the $1,800 you'll pay to have your yard dug up next spring. 

Next year, don't wait.  Calendar it now.  When the first hard freeze shows up out of nowhere and the neighbors are all scrambling to get last-minute help, those who were proactive will feel a calm and knowing sense of contentment because in Colorado, Mother Nature always has the last laugh.

Wednesday, August 29, 2018

THE EMOTIONAL MARKET IS GONE, THE LOGICAL MARKET IS HERE

There's a change that's been taking place in our market over the past few months, and it has a feel as palpable as the crisp morning air or the turning of the fall leaves.

Buyers have checked out, and many sellers (and agents) are chasing a market that no longer exists.

The current inventory of homes for sale in the Denver metro area - about 8,200 - is up more than 60% since April.  And pendings - the number of homes under contract - has fallen by 2% during the same period of time.

That's a real change, much more pronounced than in past years.

Here's how the market has transitioned from April (peak frenzy) to August (peak inventory) over the past three years:

2016
April Active Inventory:  5,996
April Under Contract:  8,427

August Active Inventory:  8,287 (+ 33%)
August Under Contract:  9,717 (+ 15%)

2017
April Active Inventory:  5,565
April Under Contract:  7,493

August Active Inventory:  7,733 (+ 39%)
August Under Contract:  7,786 (+ 4%)

2018
April Active Inventory:  5,013
April Under Contract:  7,175

August Active Inventory:  8,266 (+ 64%)
August Under Contract:  7,016 (- 2%)

Viewed another way, the inventory of homes always picks up through the summer months and peaks around Labor Day.  New inventory becomes much more scarce after Labor Day and the inventory generally declines through the end of the year before bottoming in December.

But contracts should also increase during the summer months, simply because we've had such strong spring markets the past few years and more listings should result in more sales.  

Not happening this year.

The spread between the growth in actives and pendings was 18% in 2016, 35% in 2017, but is at 66% this summer.  

Now before you reach for the panic button, some context.

Since April, the overall absorption rate has increased from 0.94 months of inventory to 1.63 months of inventory.  Which simply means at the current pace of sales (still strong), if we did not get any new inventory coming online all existing homes would be absorbed by the market in about seven weeks.

Five months of inventory is considered a flat, non-appreciating market.  And the last time we had more than five months of inventory was July 2011.

A year ago at this time, the absorption rate was 1.41 months, and last September it jumped up to 1.62 months (very similar to now) before dipping back down as new listings dropped off at the end of the year.

The difference this year is that we've had a lot more inventory coming online, without a corresponding increase in buyers.

What this tells me is that a whole lot of people (mostly investors) who bought homes between 2010 and 2015 have decided to start cashing out... and that's a trend worth watching.  

At street level, the market is different right now.  Homes are no longer automatically selling in a weekend with multiple offers, and the number of people visiting open houses has dropped appreciably.

It's my theory that we've simply reached a pain-point, especially for first-time and entry level buyers, who are taking the double hit of record high prices and interest rates pushing 5%.  

The same home that was $400,000 and sold with a 3.5% interest rate three years ago ($2,280 PITI payment with 5% down) would likely be $475,000 with a 5% interest rate today (nearly $3,100 PITI payment with 5% down).  

That, ladies and gentlemen, is a payment 36% higher than just three years ago for the exact same home.

Buyers feel this, whether they've done the exact math or not, and they are starting to pull back.

Unfortunately, most sellers I talk to are still holding onto headlines from April and May, when the market was radically different.  

And with the number of real estate licensees having doubled in seven years, the situation isn't helped by the number of newbie agents running around with no idea how to navigate anything but a frenzied, multiple-offer driven market.  Misinformation and, frankly, disinformation is prevalent.  Way too many agents are chasing sales instead of investing in relationships, and that's a short-sighted strategy that leads to extinction.   

If you're buying, you need to be extra attuned to seeking value right now.  The market dynamics are still healthy, but you no longer have to chop off body parts or sell your firstborn to get a home under contract.  

If you're selling, you now need to decide if your goal is to sell your home or stare at a for sale sign blowing back and forth in the wind for the next three months.  

The market is changing.  And to succeed, you must change as well.  

Friday, May 4, 2018

ALL ABOARD THE CRAZY TRAIN

There's no shortage of things to complain about in the Denver real estate market these days, but one of the most frustrating aspects of working with buyers is all of the obstacles they face in simply trying to get an offer written and presented fairly in front of a seller.

From the "Coming Soon" scams to the open house games to the agents who fail to set deadlines to the agents to set deadlines but don't enforce them... it's easy for a buyer to lose faith in the process.

Here are four things that making buying a home - and representing a buyer - highly frustrating in the Denver market.

COMING SOON - This is probably my least favorite thing in the market today.  Because listings are assets and everybody who has been in the business more than five minutes is trying to form a team and funnel buyer leads to those newbie agents, "Coming Soon" riders have become as common as dandelions growing unchecked in the summer sun.

The basic premise of "Coming Soon" riders is that listing agents want to leverage the excitement of a new listing hitting the market to field buyer phone calls.  At a bare minimum, one objective is to find new buyer clients, usually so they can be handed off to the brand new, inexperienced agents working on behalf of the team leader.  It's awesome for the team leader, who often will take 50% of the commission from the new agent if that agent somehow eventually swerves into getting a home under contract.

But the other objective is often to try and "double end" the deal.  In real estate, it's customary for a commission to be paid to the agent representing the seller, with another commission being paid to the agent who brings the buyer.  But what if one agent manages to connect the buyer and seller together in the same transaction?

Jackpot.

So here's the question... why, in the hottest real estate market in Denver history, would a seller settle for accepting an offer after just three or four buyers have seen the home?  Is it not obvious that you would almost always be leaving thousands of dollars on the table by not exposing the home to the 21,000 agents and tens of thousands of buyers accessible through the MLS?

Unless you're an 84-year old widow, and you don't understand the market or the process.  Or unless you're an out-of-state investor who has no way of monitoring what kind of exposure your longtime rental home is actually receiving from the sketchy agent you found on the Internet.  Or maybe your industrious agent told you they would lower the commission by one percent if they found the buyer.

One last thing... until a property is actually listed in the MLS, there are essentially no rules governing commission, disputes or brokerage relationships (and this includes all of the "Coming Soon" listings now posted on Zillow).  Putting the property in the MLS subjects that home to the rules of the MLS, rules which are designed to promote transparency, due process and fairness to all parties. 

The vast majority of the time, "Coming Soon" riders are designed to promote the listing agent and the interests of his or her team... not the seller.  And that's partly why so many people have a negative view of those in the real estate brokerage community today.

OPEN HOUSES - Let me be clear - open houses are a viable marketing strategy (for both the listing agent and the seller) and there is a place for them. 

If there is transparency and the seller's best interests are placed first.

But here's what they very often have become.  Marketing events designed to produce buyer leads for the listing agent's team (at best) and biased, unfair exposure events (at worst) which often result in listing agents and teams focused on double-ending the deal instead of securing the best price and terms for the seller.

As I have mentioned in previous posts, the number of agents in the Denver metro area has mushroomed from barely 10,000 after the Great Recession to more than 21,000 today (thank you HGTV).  Everywhere you look, bartenders, valets, shoe salesmen and line cooks are walking away from gainful employment to take out a real estate license in pursuit of all the "easy money" to be made in real estate.

(Fact check: nationally, 50% of all people who take out a real estate license will quit in the first year.  Three out of four will never renew their license at the end of their first licensing cycle.  This is the ultimate turnstile business, with endless scores of freshly minted agents bursting through the front door to trumpets and fanfare, only to slink out the backdoor months later, destitute and in debt.)

If the purpose of holding an open house is to gain additional exposure for the seller. leverage interest into better offers and terms that benefit the seller, while still adhering to the ethical and professional requirements of board membership and the MLS, then great, let's do them.

But if the goal on Saturday morning is to find a buyer (who may or may not be the best qualified), share the details of other offers with that buyer to improve their standing, and then persuade the seller to take that offer... you shouldn't have a license.  

Again, this is not the case with every open house, and open houses are far more legitimate than "Coming Soon" riders, in my opinion.  But there's still a significant segment of the agent population that functions and behaves as if their primary job is to maximize their own earnings, not promote the seller's interests. 

And when you see it weekend after weekend, instance after instance, it's easy to become pretty jaded about what's going on.

DEADLINES / NO DEADLINES - Lastly, there's incredible frustration for agents and buyers alike right now caused by lousy or non-existent communication.

Case in point... just this past weekend, I saw a new listing come up that was a near bullseye match for an investor client.  The property hit the MLS on Wednesday night with no notes about when showings would begin or when offers would be considered.  I immediately called to set a showing for Thursday and moved my schedule around to accommodate it.

The next morning, I got a call from the showing service.  "No showings on that one until Friday, sir." 

Okay, that's fine.  We'll make it work. 

Except that Friday was completely booked for me and my client travels for work on Fridays.  But alas, I see they are holding an open house on Saturday.  So we'll go before the open house and take a look then.

Which we did.  And as we were finishing up our showing, the rookie agent recently hired as a member of the listing agent's team showed up to host the obligatory open house.

"Have you set a deadline for offers on this?", I asked. 

She didn't know. 

"Do you know if the sellers need a rentback?"

She didn't know. 

"Do you have any offers?  Anything else we should be aware of?"

Nothing.  

So I called the listing agent, who was obviously busy with other clients (or perhaps playing golf).  I went into her voicemail.

Two hours later, I received a call back.  

"We've got multiple offers and we're going to present them tonight," she said. 

Okay... so at this point we cancel dinner plans (as happens almost every weekend in our household), call our client, and tell him we have two hours to pull an offer together. 

He has dinner plans as well, and now the question is... does he throw his family in the trash along with me to try and pull an offer together, or does he choose to kiss this one off in order to ensure domestic tranquility? 

Long story short... domestic tranquility wins. 

"Why can't they give us a deadline in advance or some kind of guidance so this isn't a flipping rodeo?" he asks.

From me... silence. 

I don't know why people can't communicate.  For the past four years, virtually every home I have listed has been marketed the same way:

"Showings begin at noon Thursday and will continue until noon on Monday.  Offers due by 6 p.m. Monday with a response deadline of 12 noon Tuesday.  Seller to review offers Monday night.  Disclosures uploaded in MLS.  Please call with any questions."

Fair, concise, understandable and respectful of people's time. 

I called the agent and explained I had a cash buyer, very motivated, and that he had been waiting for a home in this particular neighborhood for over a year.  He could accommodate a seller rentback, he wouldn't need an appraisal and he could close in 15 days.

"Can you get us an offer by 6 p.m.?", she asked.

I told her my client had Saturday night plans that were going to be hard to change.  He was debating whether to cancel to try and get his hat into the ring on this home.  It added stress on top of stress in an already stressful situation.

Thirty minutes later, my client called me. 

"All of this is just too rushed and out of control," he said.  "Forget it, we'll wait for the next one."

I texted the seller's agent to let her know we were dropping out.  She didn't reply.  

You would think that is where the story ends.  But no, in the Denver real estate market, there's always more to the story.

Several hours later, I received another text from the listing agent. 

"We're going to keep taking offers until 2 p.m. tomorrow, " she wrote.  "My sellers want a cash buyer or a larger appraisal guarantee, so let your buyer know he still has a chance." 

It was 9:18 p.m. on a Saturday night.

I texted my client at 9:20.  "Sellers are extending their deadline until 2 p.m. tomorrow.  Still interested?"

No response from my client.  The next morning, I texted again.  "Any interest in getting in one more time and having another look?  We still have a window of opportunity to get this done."

He called.  I'll save the extended details, but in his mind, he was being played.  He didn't think the seller actually had offers (he does), he felt they were trying to rush us into an over the moon offer Saturday night (they weren't, necessarily) and he now felt like they had overplayed their hand and were trying to pull us back into the bear trap.

The issue was... my client was mistaking lousy, disorganized communication and general incompetence for blatant manipulation. 

"I really don't like the way this feels," he said, echoing a thought I've had every weekend for the past six years.  "I don't know what to believe."

And with that, we officially dropped our pursuit.  

If there was one piece of information I wish buyers could easily access, it would be an "honesty and integrity" rating for the listing agent. 

There are plenty of good agents out there, and when I show their listings, I do so with the extra confidence of knowing that the playing field is level, my time is being respected and my client will have a fair shot. 

I just closed a deal for a buyer who won out in a five-offer situation.  The home was marketed with a firm beginning and end time for showings, a clear deadline for offers to be submitted and a clear time frame for seller acceptance.  All disclosures were uploaded to the MLS, the agent took and returned phone calls promptly, and everyone was kept informed throughout the process.

We had enough time to pull comps, discuss strategy, clear our plans with the lender and write our best offer.  We wrote an above-list price offer, doubled earnest money, let a portion of it go hard upon acceptance, included an appraisal guarantee and wrote a thorough cover letter.  We submitted it one hour before the deadline and called the agent to confirm receipt.  

Because my buyer was confident, qualified, educated and given time to process information, we could confidently put our best foot forward. 

In large part because of our own communication and how clean our offer was (despite the fact it was financed), the sellers chose to go with us.  

We sailed through inspections and the property appraised at value.  We closed on time and everyone got what they wanted.  It was - dare I say it - an enjoyable process.  It was how real estate is supposed to work.

Ultimately, the listing agent sets the tone for the transaction.  And that tone can be one of professionalism, structure and a focus on treating everyone fairly... or it can be a greedy grabfest of trying to leverage everything for personal gain.  

In a market increasingly driven by greed and despair, many agents have ethically lost their way.  And when this extended market run is finally over, they will be the first ones to discover that longevity and integrity go hand in hand.   

Tuesday, April 24, 2018

NOT DENVER ANYMORE

Five years ago at this time, I had four buyers under contract... at sales prices of $143k, $210k, $226k and $300k.

Today, I have four buyers under contract... at prices of $462k, $610k, $738k and $835k.  

Notice any difference?

In fact, in all of 2013, I closed three deals above $500k.  

This year, by the end of May, I will have closed seven transactions above $500k. 

These numbers may reflect the state of our current market, but they also represent a changing of the guard in Denver.  We've moved from an affordable mid-sized city that welcomed young, motivated workers from the middle third of the country to a playground for well-off Texans, a refuge for overtaxed Californians and a growing demographic powerhouse in the eyes of small, medium and large-sized employers who can't seem to get here fast enough.  

In fact, according to the latest US Census numbers, almost two-thirds of our total migration now can be sourced to Texas and California.  And while President Trump may want to build a wall separating the US from Mexico, there is a rapidly-forming economic wall going up between Denver and its less affluent neighbors to the east.  

Denver is changing, and if you last lived here 10 years ago you would be stunned at how radically different the landscape is today.  Architecturally, economically and politically.    

The rules of real estate have changed, too.  It's not just a stronger market and a desire to sell higher-end homes that have changed the dynamics of my business.  It was a conscious decision to position myself in front of where the market was headed.  

Five years ago, the Denver market was literally dripping with opportunity for first-time buyers.  The last remnants of cancer caused by years of toxic lending was finally being purged out of the market, with home prices dragged down to levels well below replacement cost due to foreclosures and short sales.

Interest rates were in the 3's, mortgage payments were cheaper than rent, and you could buy a home for $300k that would cost $375k to rebuild if it burned down the next day.  

Value was obvious, yet many buyers remained reluctant.  So I focused on the most coachable, motivated and open-minded buyers I could find.  First-time buyers.

In fact, during this era I regularly hosted first-time buyer seminars on Thursday evenings at the local library.  On Saturdays and Sundays, I held open houses on listings that weren't mine just to invite people to these workshops, hoping I could educate and coach them up into buying a first home.  

And with most sellers having little or no equity, there was no move-up market.  So trying to sell a $400,000 home and buy a $600,000 replacement home on the other side was pretty much a waste of time, energy and marketing dollars (although that was about to change).

As an agent, you fished the shallow end of the pond because that's where the fish were.  

And as a result, I closed a mind-numbing 41 deals in 2013, driven almost entirely by the obvious value found at the entry level.

Here's a snapshot of my business from 2013:

$0 - $250k:  25 transactions
$250k - $400k:  12 transactions
$400k - $600k:  2 transactions
$600k - $1M:  2 transactions

As the market evolved and began to rally strongly in 2014, the focus moved from first-time buyers to sellers who were starting to recover equity and had a real opportunity to move up.  I changed my approach and started engaging in serious conversations with past clients about the value of selling (or keeping) their first home and buying something larger.    

The inventory of homes for sale continued to plummet, falling from more than 23,000 in 2011 to less than 7,000 by the middle of 2014.  A huge shift was taking place, yet many were still missing it, or poisoned by skepticism born out of the Great Recession.  

With move-up buyers the hot new ticket, my price points also increased.  I began listing more starter homes and helping people buy move-up properties.  The composition of my 37 deals in 2014 looked very different than just one year earlier:

$0 - $250k:  13 transactions
$250k - $400k:  16 transactions
$400k - $600k:  5 transactions
$600k - $1M:  3 transactions

The point is, as a successful agent you have to read the pulse of the market and then make adjustments.  As Wayne Gretzy once famously said, "you skate to where the puck is going... not where it has been."

By 2017, our market had arrived in a completely different space, dominated by big dollar transplants and established owners with huge amounts of equity.  According to RE Colorado, from 58,000 closed sales in the Denver MLS last year, the average down payment was more than $66,000.  

Which means if you didn't have big money (or significant equity), you didn't have much of a chance.

Skating to the puck now means you have to get in front of people with resources and equity, or you will find yourself chasing after a market that no longer exists.  The playbook from 2013 is as useless today as that old VCR sitting in your basement. 

Skate to where the puck is going.  

I'm not saying this to be clever.  And I'm not saying this with glee over how much money is in the market today.  I'm saying this in the most serious tone possible.  

My first 11 years in the business, I lived and worked in Southern California, where homes prices nearly tripled while the agent population increased by 150% (sound familar, Denverites?).  I watched countless new agents burst through the front door with optimism and bravado, only to see them slink out the back door a few months later, license in hand, defeated and broken.

The only variable that ensures survival is work ethic, fueled by reputation and integrity.  In the era of HGTV, too many people think real estate is a game.  That selling houses is "fun".  That "Fixer Upper" is real life.  Way more people want to talk about Chip and Joanna Gaines than Ray Dalio or Warren Buffet.  

This is work, serious work.  With more money involved than ever before.  And more outsiders crashing into the market and disrupting traditional business models than ever before.  

Evolve.  Work.  Evolve.  Work.  Evolve.  

Do this and you will survive.

In 2017, my business looked completely different from just a few years earlier.  Last year, I closed 35 deals.  

Here is what that distribution of business looked like:

$0 - $250k:  3 transactions
$250k - $400k:  12 transactions
$400k - $600k:  12 transactions
$600k - $1M:  7 transactions
$1M and Up:  1 transaction

The point is, if you are doing the same things today that you were doing five years ago, chances are you're either already out of business or inches away from that dreaded back door departure.  

And while I want to help first-time buyers (and I mean that with every fiber within me), all too often this market chews them up and spits them out.  Along with their agents.  

Although empirical evidence counsels against it, I'm still occasionally taking on first-time buyers and playing the stop, drop and run game... chasing after new listings as soon as they hit the market and writing offers that are regularly flattened like a mouse in front of a Mack truck by high net worth out-of-staters, equity rich current owners or buyers being financed by The Bank of Mom and Dad.

All you can do is Just Keep Swinging.

But the much larger share of my business these days is tied to the financially stronger buyers who run this market.  I watched this progression in Orange County two decades ago, and I am watching history repeat itself again today.  We're a high cost market, fueled by jobs and demography, and you can wish all you want for the old days, but they're not coming back.   

Tuesday, March 27, 2018

WHAT TO EXPECT WHEN YOU'RE INSPECTING

Let’s face it – in the context of all the hopes, aspirations and emotion that goes into buying a new home, there’s one day that has the potential to undermine the whole thing.    

Inspection day.

Not always, but often enough that it is worthwhile to psychologically prepare for the ups and downs that emanate from inspection day.

Here’s the backstory.  After weeks, months or years of discussion, you’ve decided you want to buy a new home.  Then, after weeks, months or (sometimes in the current Denver market) years of looking at homes and writing offers, you found “the one”.  And then even managed to get your offer accepted.

There’s joy.  There’s excitement.  And there might even by that nervous niggle known as buyer’s remorse.  Should you really have outbid (insert number here) other buyers to get this home under contract?  It’s one bedroom short of what you wanted.  It’s on a busy corner.  It’s too far from work.  There could have been a past water leak which might have resulted in a deadly mold colony forming on the backside of the basement walls which will trigger respiratory issues in your pets and eventual death for your children. 

Deep breath.

We get it.  There’s a lot that goes into buying a home.  And part of this process, like life itself, requires that you eventually master your own emotions.

So inspection day arrives.  You show up at the home and meet the inspector.  Perhaps you’re testing for radon as well.  Or getting the sewer line scoped.  Or checking to see if there’s asbestos in the popcorn ceiling.

There’s a lot riding on the inspection, and it is important. 

But know this… in 23 years and more than 500 inspections, I’ve never had a home without at least a few inspection issues.  In fact, the most “perfect” home I ever sold came with three correctable items.  (Back in the foreclosure era, for comparison, I’ve had homes with as many as 70 items called out on an inspection report - gulp.) 

Every home is different.  Some have a history of being extremely well cared for.  Some, unfortunately, have a history of being neglected.  But in all this history of building homes, the “perfect” home has yet to be built.

There are some common, basic items that come up on almost every resale home.  Here’s a quick summary of what to expect when you're inspecting: 

HVAC – It’s never a bad idea to have the furnace and AC units cleaned, serviced and certified, especially if they are more than five years old. 

ROOF – If a roof is more than 10 years old, it’s common to have a few torn shingles or other minor maintenance items.  If the roof is older, ask for a certification.  If it’s more than 20 years old, it needs to be replaced. 

SEWER LINE – Prior to the late 1980s, sewer lines were almost always clay pipe laid in 3 to 5 foot segments, sleeved together with rubber joints.  These lines were designed to shift and move with routine ground settlement.  Root intrusion is not uncommon, nor is it the end of the world if your line has a hairline crack (or two). But if the line has a significant break or bellies where it is supposed to be flowing, you’ve got a legitimate concern.

FOUNDATION – Basement slabs are usually independent from a foundation.  The foundation is the square that the home rests upon.  The slab that makes up the basement floor is simply concrete poured over dirt.  Cracks in the basement slab are usually not a big deal, as long as they are less than one-quarter inch and there’s no evidence of water penetration.  Cracks in the foundation wall can be a bigger concern, and evidence of water coming in through the walls can be a significant warning sign.  Again, most home inspectors will consider cracks of less than one-quarter inch to be normal.  Cracks larger than this warrant further investigation and evaluation.

ELECTRICAL – For newer homes, the questions around electrical usually center around whether or not the builder (or original owner) installed an electric panel sized sufficiently for the home.  In older homes, there can be a host of electrical concerns, including whether the panel is sufficiently sized, whether outlets are grounded and whether or not the original manufacturer is still in business.  Federal Pacific, Zinsco and Stab-Lok are all manufacturers who were sued out of existence for faulty panels.  If your breakers don’t trip when they are overloaded, you have a problem. 

DRAINAGE – As my primary home inspector has me saying in my sleep, “water is the enemy of houses”.  You don’t want water running toward the foundation, or pooling against it.  Grading is usually an easy fix, as long as there is not existing damage that has already occurred.

PLUMBING – Polybutylene plumbing was manufactured for a short period of time by the Shell Oil company in the late 1980s.  Branded as “the pluming of the future”, it was significantly cheaper than copper and used by builders all over the country… until it was discovered that this plumbing material reacts badly with the mineral content in tap water and literally corrodes from the inside out.  There are only a small handful of subdivisions in Denver where polybutylene is known to exist (Powderhorn, we’re calling you out), but homeowners need to think twice about buying a home with plumbing that is pretty much guaranteed to fail at some point.

SMOKE/CO DETECTORS – These should be on every level of your home, and they should work.  Having said that, about half of the homes I have inspected have faulty or failing smoke detectors or lack CO detectors altogether.  Easy to fix, but commonly ignored. 

BROKEN WINDOW SEALS – For windows manufactured more than 10 years ago, and especially those that are south or west facing, clouding and broken seals are extremely common.  In simplest terms, these windows have two panes of glass, separated by a thin rubber seal around the perimeter.  Over time, and especially when exposed to intense sun, these rubber seals can deteriorate.  At that point, moisture gets in, the glass fogs, and the window has effectively “lost its seal”.  This is generally a cosmetic issue.  Sometimes we simply tolerate it, but other times you may have to have one or both panes of glass replaced to fix the issue.

CRACKED CONCRETE – Again, wisdom from my longtime home inspector.  “There are only two kinds of concrete in Colorado.  Cracked concrete, and concrete that is going to crack.”  Cold weather, moisture and 100 “freeze-thaw” cycles per year pretty much guarantee that a crack or two is inevitable.  Again, is the concrete cracking (relatively easy to repair by caulking and monitoring) or heaving?  Heaving is the more serious issue, and when you find heaving, often there is an underlying water issue that must be addressed. 

RADON – Radon is a colorless, odorless gas that is caused by the breakdown of uranium in the soil.  Unfortunately for us, in Colorado, radon is a common occurrence.  Radon is almost always concentrated in “below grade” areas like basements, in part because it is heavier than air and sinks to the lowest point in a home.  As uranium breaks down in the soil around the foundation, the gas that is released works its way through cracks, windows and other openings where it accumulates and sinks.  When testing for radon, inspectors will leave monitoring equipment in the basement (or lowest living area of a home) and results will be calibrated over 48 – 72 hours.  If the reading comes back at 4.0 pCi/L, the EPA recommends that the radon be mitigated.  Fortunately, if your home does test high for radon, mitigation is fairly easy.  A certified radon mitigation company can either modify the sump or drill a separate collection chamber underneath the floor, which is then sealed off with a vent pipe extending from the collection pit to the exterior of the home.  There is a fan inside the pipe that pulls air and gas from underneath the floor 24 hours a day, 7 days a week and these systems have proven to be about 98% effective in reducing radon levels down below the EPA threshold of 4.0 pCi/L.

This is not a comprehensive list of all inspection items you may run across.  But it touches on most of the common ones.  The important thing to keep in mind is that some issues are cosmetic, some can be corrected with proactive measures, and some are flashing red warning lights that should not be ignored. 

The job of your home inspector is not to tell you whether or not to buy a home.  That decision is yours.  The home inspector’s job is to find and identify every potential concern that could affect the health, safety, livability or resale value of your home.  We then work together to make sure you have enough information to make an informed decision. 

As I said at the start of this post, inspection day can be a day of emotional swings.  If you know this before your inspection begins, you’ll be better prepared to think logically and rationally through the process. 

The good news is… inspections are done for your benefit, not your detriment.  Hiring a qualified, competent home inspector is a good use of time and resources.

And who knows?  Maybe, just maybe, you’ll be that first client who finds and buys a truly flawless home!

Monday, January 22, 2018

SECURITY CAMERAS

You see them everywhere,these days.
  
Security cameras.  

Thanks to Nest, Ring, Netgear and others, home security monitoring devices are now affordable, accessible and mainstreamed.  

Every week, I walk into homes with cameras on the front porch, cameras over the front entry and cameras (sometimes hidden) in kitchens, bedrooms and home offices.  

Cameras with microphones.

"Just as a precaution, watch what you say", I am now telling my clients on a regular basis.  "Let's discuss the pros and cons after we look at it."

In the age of digital monitoring, privacy is a thing of the past. 

I have spoken and written many times before about how our market is evolving into a suburb of California, and I base those thoughts on having grown up in Southern California and having worked in that market from 1994 - 2005.  

Home prices then were twice (or more) what they were in Denver, affluence was everywhere and technology (and paranoia) were on the cutting edge.  I routinely saw first-generation home security systems in Orange County homes back in 2003, 2004, and 2005, as doctors, attorneys and those in law enforcement routinely wired their homes with security cameras and monitoring systems.

Just as I am doing now, I used to caution my clients against speaking too loudly when touring homes, lest their comments be picked up by the seller.

The truth is, people's comments when looking at homes can be ruthless.

Whether it's insulting the decor, slamming the lack of cleanliness or questioning whether or not work was done with permits... buyers (and agents) can say things that sellers can take very personally... things that will cause your offer to get tossed in the trash if you are not careful.

So the less that is said, the better.

The digital revolution is happening so quickly in home security that privacy laws really haven't kept up.  In California, it is illegal to record another person without their consent, yet the courts have wavered on the subject of whether comments recorded while touring another's home require active consent.

In Colorado, I know of no laws governing this, and so I advise my clients to simply "watch what you say".

Last summer, I was touring a home in DTC which featured empty bedrooms, minimal furnishings and nothing but men's clothes (about half full) in the closet.  

My client asked if I thought the sellers were divorcing, and whether such a vulnerability might lead the seller to consider a lowball offer.  I emailed the agent to ask about the sellers' motivations.  

"My client is not interested in being lowballed," he said in a phone conversation the next morning.  "He's pretty upset that you even brought it up."

I asked how he knew what we had been discussing, and he said every word had been recorded.  At that we lost all interest in the property, and frankly, I'll never look at another one of this agent's listings again.  

Last week, I was shocked into reality again as I was showing a home on a snowy morning.

"Please remove your shoes", said the seller through a speaker mounted in a kitchen security camera as we entered the home.  We were literally being watched (and heard) as we walked through the front door.  We felt completely violated.  Total buzzkill.  

I have now trained my eyes to look over doors, next to windows or in cluttered home offices for cameras that may be mik'd up.  Nest even has a security camera that looks exactly like a home thermostat.  

As is happening throughout our society in the digital age, privacy is increasingly a thing of the past.  It's time for the legislature to address this issue, because right now, it's becoming a real problem.