Friday, September 15, 2023
Monday, June 19, 2023
Thursday, February 16, 2023
When you purchased (or built) your home, you likely performed a home inspection.
Thursday, December 15, 2022
The holiday season. Pretty lights, family gatherings and presents under the tree. But also one of the deadliest times of the year in terms of house fires.
Just because the nights are long, the days are short and the temperatures are colder doesn't mean your home maintenance responsibilities have gone away.
Let's talk about how to keep your home safe during the holidays and all year round.
- Winter is humidifier season in Colorado. If your furnace has a humidifier, turn it on and let is keep your house (and tree) from drying out. A 30%-35% humidity setting is appropriate for the dry winter months.
Sunday, March 27, 2022
The Fed decided the best way to save the economy in 2020 was to fire up the printing presses, jack up asset values and encourage people to pull massive amounts of money out of their personal ATM's (i.e. "homes") to try and keep the economy afloat.
It was a defensible strategy, initially. But for 24 months, come on.
The Fed kept rates low so the federal government could continue borrowing without limit or reason. Stimulus checks did a great job... stimulating inflation. The American Rescue Plan "rescued" every government program, interest group and bureaucracy in the country.
State pension plans were bailed out, state Legislatures are swimming in unspent cash and student loan payments have been paused for two years. Another $17 billion in student loans has already been forgiven, with more to come. Mortgages were moved into forbearance, eviction moratoriums kept renters in place and the printing presses just kept running.
While the Fed kept stockpiling those 3% mortgages.
I have said we have compressed 8 to 10 years of traditional home price appreciation into 24 months. Now that rates are recalibrating toward reality, it's entirely reasonable to expect home prices to flatten and underperform, perhaps for years.
Another recession is unavoidable, which will likely result in the printing presses being turned on again in a few months.
The net effect of higher rates is going to be fewer buyers. But it's also going to mean fewer sellers, since virtually everyone refinanced into a 3% mortgage and the pain of letting go of that loan for a 5% mortgage on a replacement property is just too severe.
Fewer buyers, fewer sellers. And that means fewer agents and brokers. By orders of magnitude.
I've said for a while that the next market shift would be an extinction level event for half of the agents and brokerages in our industry.
Brace for impact, because that day has arrived.
Thursday, January 27, 2022
Thursday, November 18, 2021
Wednesday, October 20, 2021
In the madness that is the real estate market of 2021, I must admit it took me a while to realize how many people were "cheating" when writing contracts to buy and sell.
Nah, let's just call it what it is. Lying.
With so many properties drawing five to 15 offers and competition at a level that is hard to describe to a normal, non-real estate industry employed civilian, contract writing has become a topic of much conversation.
Historically speaking, many sellers (and agents) have equated larger down payments with stronger buyers. In other words, with 10 offers on a home, you have to come up with some mechanism for sorting, and down payment size is an easy one.
Larger down payment buyers, the theory goes, have more resources and therefore have better ability to deal with low appraisals and inspection requests that sellers more often than not simply toss in the trash can these days.
A lower down payment buyer (less than 20%), the theory goes, are already pushing all of their chips onto the table just scraping together a 5% or 10% down payment. When they offer $600k for a home and it appraises at $550k, they're dead because they don't have extra resources to bring to the deal. (And in the one-sided rout that is the Denver real estate market of 2020-21, it's highly unlikely a seller is going to lower the contract price when there are nine other contracts stacked up on the kitchen table)
So one interesting "strategy" many agents seem to have adopted is... lie about it.
Section 4 of the Contract to Buy and Sell lays out the grid showing the purchase price, earnest money deposit, loan amount and cash due at closing. The purpose of this paragraph is to show the seller, quickly and concisely, what kind of resources the buyer is bringing to the transaction.
Section 29 of the purchase contract is called the "Good Faith" provision, and it states that buyer and seller agree to work in good faith to honor the terms of the contract and failure to do so shall be grounds for default.
So what happens when a buyer states they have 20% down when they really only have 5% down? Are they breaching good faith?
The answer, as is so often the case in life, is "it depends".
Section 4.5.2 of the purchase contract actually gives the buyer the right to change financing terms, as long as the buyer stays within the same financing type (cash, conventional, FHA, VA, etc) specified in the contract.
So this can be interpreted to allow a buyer pledging a 20% down payment to close with a 5% down payment, assuming the financing type is the same as originally specified in the contract. The gray area here, in my opinion, is could the buyer claiming to have 20% down and attempting to close with just 5% down actually have honored the original down payment commitment in the contract, or not?
Because if that buyer never had 20% down, I think it's arguable (if not obvious) that buyer is not acting in good faith and thus is in default.
As I said at the beginning of this post, I'm late to the party on this because it was only after I began to see buyers claiming to have 20% down on my listings show up at closing with a much smaller down payment amount that the alarm bells went off in my head.
In theory, if the seller believes the buyer has not acted in good faith, that seller could refuse to close, claim the buyer's earnest money and leave the buyer high and dry. Of course, the buyer would then likely sue the seller, who has a good chance of winning in mediation or arbitration unless the buyer can prove he or she intended and was capable of bringing the larger down payment to the closing table.
But at the end of the day it's all a giant fistfight over ethics, integrity, honesty, honor and, of course, good faith.
If lying is part of your contract writing strategy, I would say your desperation is getting the best of you. But if your client legitimately could bring 20% down, but then downsizes to 10% when the appraisal comes in low and then realizes the home needs paint, carpet, siding and a new roof... well, in that case reducing the down payment is understandable and, in fact, logical.
With desperation a key ingredient driving buyers and their agents in a hopeless low-inventory environment, it's increasingly common for misrepresentations to be made intentionally and strategically.
It's one reason why the forms committee is about to release a major re-write of the Colorado Contract to Buy and Sell in 2022 - perhaps the biggest set of revisions to the contract in 20 years.
The contract is going to get longer, it's going to get clearer, it's going to incorporate more penalties and it's going to strip away some of the key ambiguities buyers and their agents have been exploiting to cut to the front of the line in multiple offer situations (which is pretty much everything in Denver that isn't a meth lab).
There are 100 reasons why 2021 has been the most challenging environment I have ever experienced in 27 years as a broker, but having others intentionally misrepresenting buyer qualifications on the purchase contract over and over again is one of the offenses I am most done with.
Thursday, September 23, 2021
Tuesday, February 16, 2021
With fewer than 1,900 active listings on the market and more than 6,200 homes currently under contract in the metro area, this is the most inventory-starved, one-sided market in the history of Denver.
And it's not even close.
Each of the past four months has represented an all-time low for active listing inventory. Our current number of 1,878 active listings is down 27% from one month ago, down 55% from three months ago, down 72% from one year ago and down 80% from when the market re-opened last May.
The reasons for this have been discussed here before - Covid-19 fears, eviction and foreclosure moratoriums, concerns about whether jobs will return (or be retained) after the pandemic ends, and the Fed's incendiary low rate policies that have created the mother of all frenzies among the buyer class.
So what could happen in the coming months to change this? Certainly, it has to change at some point, but what key drivers could make this happen sooner rather than later?
Here are five potential game changers:
TAX POLICY FOR INVESTORS - Whether it's changing tax rates on investment gains from capital gains to personal income (already proposed), capping or eliminating depreciation (it's been talked about) or eliminating 1031 exchanges altogether (unlikely since so many lawmakers are real estate land barons), landlords and investors are likely going to get whacked hard in whatever tax bill is coming out of Congress in the next few weeks. If these changes are made effective January 1, 2022, it would give landlords time (and massive incentive) to get out of their rental portfolios this year. If changes are made retroactively to January 1, 2021, then investors and landlords would have no exit strategy and it would make the inventory problems worse since they would never sell. If you're going to do tax reform in an effort to free up more entry-level housing, there's a right way and a wrong way to do it. I'll let you decide what the odds are of Congress doing this the right way versus completely blowing it.
PRIMARY RESIDENCE EXEMPTION - Under current tax law, owner-occupants who have lived in a home just two of the past five years are generally able to sell their principal residence with a tax-free capital gain. This truly is one of the most generous provisions of the tax code and it has created massive windfalls for many homeowners, especially in historically hot markets like Denver. In 2017, the GOP tax bill proposed changing the qualification for this exemption from "two of the past five" years to "five of the past eight" years. You may see another attempt to take some of the sugar out of this very sweet tax break in the coming months. Just as with our tax policy discussion above, there's a right way and and a wrong to do this if the goal is free up more housing. Making it effective January 1, 2022 would create urgency and incentive. Making it retroactive would have the opposite effect.
FORECLOSURE AND EVICTION MORATORIUMS - Again, we are living through a complete manipulation of the markets due to emergency government and Federal Reserve interventions. Just this morning, the Biden Administration extended (again) foreclosure and eviction moratoriums until the end of June. In simplest terms, what this means is anyone with a mortgage owned by Fannie Mae or Freddie Mac (the two government-sponsored enterprises that own about two-thirds of all mortgages) is exempt from even the initiation of foreclosure proceedings until at least June 30, 2021. If the moratorium is not extended (and at this point, who knows if delinquent homeowners will ever need to make another payment?), then banks could send out foreclosure notices effective July 1, 2021. If that happened, delinquent homeowners would have 90 days to bring their mortgages current or work out an agreeable repayment plan, or the banks would have the right to foreclosure. Let's be clear, we're not going to see foreclosures because the inventory constraints brought about by government policies around Covid have driven prices even higher into the stratosphere. Owners struggling with making payments would have to sell to avoid losing their properties to the bank, but virtually no one is actually going to make it to the point of facing foreclosure when selling would result in such significant gains.
A RISE IN INTEREST RATES - This is the scenario no one wants to see, because when it happens, it's going to have severe consequences. Home buyers are now addicted to 2.5% mortgage rates and our market is totally dependent on this cheap money for its continued viability. When rates go up, and it will happen at some point, the buyer pool will thin with each corresponding uptick in rates. When rates get to 3%, you're going to price a certain portion of the buyer pool out. When rates get to 3.5%, even more will disappear. And if we get to 4%, I think demand will be significantly impacted in the short term unless the government comes up with another creative and unprecedented way (50 year mortgages? Mortgage portability? Negative bond yields?) to keep the market liquid.
ANOTHER BLACK SWAN EVENT - Let's face it, we're tired of talking about Covid. Economically, the pandemic has had a bruising impact on the economy and we are staggered, to say the least. The Fed has shifted into money printing mode (the Treasury technically prints the money, but Fed Policy dictates it) and there are serious inflationary concerns on the backside of this Black Swan event. But what another Black Swan like a terrorist attack, military conflict or even an extreme weather event? It takes confidence in the future to buy a home, and with the discount rate at 0.25% and mortgages in the 2's, the Fed has dragged borrowing rates to the lowest point possible without negative rates, which could be a thing if we hit any more calamity. The buyer pool is fueled by cheap money and some degree of confidence in the future. If either of those is called into doubt, you'll see more inventory and fewer buyers.
The reality today is that we are all bracing for significant change in the near future that is going to reshape the landscape for both current and future homeowners. The policy prescriptions coming over the next few months are going to have huge consequences for the future of real estate and at this point, most of us are simply guessing at what that future will look like.
Right now, we have an overload of buyers and zero inventory. There are several scenarios where that could change fairly quickly.
Thursday, December 10, 2020
Wednesday, November 11, 2020
Just in the past few months, I've had listings which drew 64 showings and 16 offers, 39 showings and 16 offers, and 29 showings and six offers. Those homes sold $46k over list price, $40k over list price and $11k over list price, an all-time high for any home in that particular neighborhood.