Wednesday, March 31, 2010


In a market flooded with foreclosures and distressed inventory, I have been counseling my sellers lately to do the work up front – to have their home pre-inspected, cleaned, staged… and to make it shine compared to the competition from day one.

This approach is the right one, and it’s working.

If we need to do repair work up front, we do it from a position of strength. This allows us to adjust our asking price upward before we go on the market to reflect any additional improvements or upgrades we have made during the pre-listing period.

If wait until a buyer’s inspector discovers a defect when we are under contract, our leverage is gone. Under this scenario, we not only have to consider honoring the buyer’s repair request, but we see equity chipped away because we did not have the opportunity to adjust the list price to reflect the improvements prior to soliciting offers.

This is just one example of how important sound strategy is in this market.

Asking sellers to put some time and money into a property before listing it isn't for everyone. I do turn down listings when I feel a seller isn't committed to appropriately marketing his or her property... but as Brian Buffini, one of my lifelong real estate mentors, says, "I would rather turn you down now than let you down later".

Under $250,000, there is no shortage of buyers right now. This is where the best values in our market are found, where foreclosures are concentrated, and where values have eroded the most over the past few years.

But for those sellers who want to sell and have the equity to do it, selling now is an easier proposition than it has been in several years... as long as you do it the right way. Buyers are tired of deferred maintenance, difficult short sales and trashed foreclosures.

With the $8,000 first-time buyer tax credit driving entry-level buyers into the market in large numbers, there is an opportunity for "traditional" sellers to get a great outcome right now. But you have to look at the market through a buyer's eyes, and understand the challenges and frustrations they face in dealing with so much competition.

We are living in a fear-based economy, and if you can eliminate a buyer's fears by showing that your property is everything it appears to be (and more), you'll see a better offer in a shorter period of time.

Thursday, March 25, 2010


In January, I posted an article on this site about FHA's new guidelines which are being phased in on condo projects.  In short, FHA is making condo financing more expensive and less available by adding new regulations limiting the number of units it finances, avoiding projects with high concentrations of renters and by assessing the overall financial health of HOAs before making a loan.

Now, Fannie Mae is weighing in with its own set of new, restrictive guidelines.  The changes, which began to take effect in January, were part of an effort to limit risky lending in a segment of the housing market particularly hard hit by foreclosures in recent years.

Here is a brief overview of the Fannie Mae condo guideline changes:

• For new construction and newly converted condominium developments, 70% of the units must be pre-sold (closed or under contract). This guideline is being increased from 51%. This is the real Catch-22. Fannie Mae won’t approve condominium mortgages unless 70% of the units are sold, but a developer cannot sell 70% of the units without buyers being able to obtain conventional Fannie Mae compliant mortgages. Buyers who run into problems here are being forced to get loans from small local banks who hold their own mortgages and are not bound by the FNMA guidelines.

• No more than 15% of condominium units within a single project can be more than 30 days delinquent on condo fees. This is an existing guideline that is now being applied to new condominium projects. The requirement was also changed from being 15% of the total fee payments to 15% of total units.

• Fidelity insurance will be required for condominiums with 20 or more units, ensuring that homeowner association funds are protected. Presently, this requirement applies to new projects and is now being extended to include established condominiums.

• Borrowers must now obtain an HO-6 condominium unit owners insurance policy unless the condominium master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condominium owners policy, known as an HO-6 policy, typically covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.

• No more than 10% of a project can be owned by a single entity. Apparently, this was to keep the so-called “vulture buyers” from taking over project.

• No more than 20% of a project can consist of non-residential space. The new guidelines therefore severely impact most mixed commercial-residential use projects, a highly popular development scheme.

• The condominium/homeowners association must have at least 10% of its budgeted income designated in a capital reserve fund for replacement reserves and adequate funds budgeted for the insurance deductible. Many older condominium associations keep woefully inadequate reserves and operating budgets, so they are non-compliant.

• Fannie Mae and Freddie Mac have also boosted fees on mortgages for condominium units. Buyers without a minimum 25% down payment have to pay closing-cost fees equal to 0.75% of their loan, regardless of their credit score, under new rules that take effect in April. 

Watching Fannie, Freddie and FHA gang up on condo lending has been hard to take.  Because of the massive failures of high rise projects in San Diego, Las Vegas, Miami and other speculative hotbeds, condo owners in middle America are paying a steep price. 

But although it's not fair, it's here.  My hope is that over the next few years, some of these restrictions might be loosened or rolled back, because as it stands, the government is actively chasing buyers away from the condo market.  There needs to be some geographic consideration in this equation, but instead, Fannie, Freddie and FHA are throwing cold water on condos everywhere.

Sunday, March 21, 2010


It was an honor to be featured in the Denver Post this morning in a special advertising supplement honoring the top producers in the RE/MAX system for 2009.

I am now in my 16th year as a licensed real estate broker, and 2009 was one of my most productive years.  I am grateful for the support of a wonderful brokerage, a strong referral network and, of course, a fantastic group of clients. 

Those of you who have worked with me know that I take each transaction and treat it as if it were my own.  I do extensive research on homes, neighborhooods, and schools before ever writing an offer. 

For my buyers, I research sales history, foreclosures, liens, encumbrances, HOA documents and whatever else I can dig up through public records to give my clients the clearest possible picture.

My sellers know that I strongly advocate pre-inspection, staging and vast Internet exposure to get their listings sold.  I am most proud of the fact that I sold 100% of the listings I took in 2009.

There are many challenges in this market, and dangers as well.  My clients know that I take my responsibility to them very seriously, and I appreciate the fact that they eagerly refer me to others.

It was fun to see this ad in the paper today... but it was also an affirmation that we are doing things the right way.

Friday, March 19, 2010


Met with a first-time buyer last week who was excited about purchasing a HUD home.  "The lender at my credit union said I could buy a HUD home for $100 down," she said, breathlessly.  "That's what I want!"

At that, my eyes rolled back into my skull and my forehead crashed down on the table.

What is a HUD home?

HUD homes are homes that have been taken back by the US Department of Housing and Urban Development (HUD) when FHA loans go bad. 

Simply speaking, HUD homes are foreclosed properties that had FHA financing attached to them.

HUD does have a program where buyers can purchase a HUD home for $100 down... in theory.  The language in the HUD guidebook says that HUD will allow buyers using FHA financing to purchase a HUD home for $100 down, if they make a full price offer.  Sounds good, right? 

Now here's the catch:

"If your purchaser is obtaining FHA financing, and you overbid the appraised value (HUD's list price), the purchaser must pay the overbid amount in cash at closing."

Did you catch that?

HUD is notorious for lowball appraisals, and they universally slap lowball prices based on lowball HUD appraisals on almost all of their listings. 

Case in point... last week, I submitted an offer for another first-time buyer on a HUD home in Northglenn listed at $130,000.  Comps in the area ranged from the $150k's up to $193k, and this appeared to that rare HUD home that was essentially move-in ready. 

My FHA buyer bid $135,100, although I would have been comfortable going a little higher.  (HUD basically facilitates a 10 day "blind bidding" process for its listings over the Internet, where certified agents can log in and place sealed bids for their clients.  On the 11th day, HUD reviews the bids and selects a winner.)

So who won?  In the end, there were 47 bids placed on this undervalued home with the top bidder offering $151,900.  If that buyer chooses to use FHA financing, he will need to bring in $22,000, plus closing costs.  That ain't $100, folks.

In the name of disclosure, I have pulled off the $100 HUD down payment before, but it's not easy.  And if the home is in decent shape and priced below $200,000, you are looking at 10 to 50 bids right now, on average.  At least until the tax credits go away at the end of April. 

I have talked to many people at the HUD office over the past few years, and one of their great frustrations is with agents who submit bids on HUD homes thinking their clients can buy them for $100 down.  Then they bid $15,000 over list price, the offer gets accepted, and the buyer gets blindsided when he's told he needs to bring in $15,100, plus closing costs. 

A week later, the home is back on the market and the buyer is looking for a new agent.

I'm not saying that HUD homes are bad, and I'm not saying the process is unfair.  But I am saying that you need to be educated about what's happening in the market so that you can make wiser choices.

My client knew he was going to have to bring money to the table to purchase that HUD home, had he been high bidder.  I wonder how many of the other 46 bidders thought they were going to move into this home for $100 down?

Saturday, March 13, 2010


Wanted to let you know that the first edition of my 2010 Referral Directory is back from the printer and in circulation. I have distributed over 300 copies of this year’s guide, which features an assortment of quality service providers and tradespeople throughout the Denver Metro Area.

You can also find the complete roster on my referral website at

Everyone in this year’s directory is personally known to me, and I think you’ll be pleased with the quality of service and attention you receive. Have feedback? Want to be a part of my next directory? Drop me a line and share your thoughts.

Wednesday, March 10, 2010


In a market where foreclosures have presented some of the best values, there have been the inevitable challenges of working with banks.

Like, they won't fix anything.

For an investor, buying a property in "as is" condition may not be such a big deal, but with first-time buyers increasingly relying on FHA financing, it is a big deal.

In addition to a home inspection, FHA requires an appraisal process that not only seeks to determine value, but ensures the home is "move-in ready".

FHA guidelines identify 15 items an appraiser must flag in an FHA appraisal, all of which can drive a deal into the ground if not dealt with properly.

Here's the list:

 1.  missing handrails
 2.  lack of running water
 3.  plumbing leaks
 4.  cracked or damaged exit doors that are otherwise operable
 5.  cracked or broken window glass
 6.  defective paint surfaces for homes built prior to 1978
 7.  rotten or worn out counter tops
 8.  damaged plaster, sheetrock or drywall and ceiling materials
 9.  poor workmanship (a category that is wayyy to subjective)
10. trip hazards (heaving sidewalks, poorly installed carpeting)
11. trash or debris in crawl space (fire hazard)
12. lack of an all-weather driveway surface
13. inadequate ingress/egress from bedroom windows to exterior of home
14. leaking or worn out roof (again, subjective opinion)
15. evidence of structural problems

As more and more agents and buyers are finding out, FHA deals are not for the faint of heart. The good news is that good agents can still work together to solve problems, but it takes teamwork and commitment to get the job done.

Now, more than ever, who you are working with makes all the difference.

Sunday, March 7, 2010


In the mind of the seller, it's 2007. Sure, the economy has changed. Sure, other areas of town are losing value. But this home is the nicest one on the block, with great neighbors, granite counters and a finished basement.

In the mind of the buyer, it's 2012. Unemployment is at 14%, the stock market has dropped to 6,000 and employers are downsizing left and right. The buyer asks, "How much home can I afford if my wife loses her job?"

The seller is unreasonably optimistic, and emotionally attached to the past. The buyer is unreasonably pessimistic, and driven by fear.

Agents have a job to do right now, and it's called EDUCATING YOUR CLIENTS.

Show them the numbers. Explain the change in psychology. Talk about the conditions that drove values up during the first half of the decade, and the conditions that are affecting values now.

Talk about why all the builders are gone, as are half of the mortgage lenders. Talk about how one-third of the agents in business today will be doing other things in three years.

Talk about the strength in the market (under $250,000), and where the market is teetering (above $400,000). Show them MLS printous and listing histories for competing properties. Explain strategy, and why it matters.

Explain to your sellers that the tax credits are going away and interest rates are going up. Discuss the new layers of regulation that are making it increasingly difficult to finace condos. Show them why pricing their home correctly, or adjusting the price now, is essential.

Explain to your buyers that there will always be demand for the best homes in the best areas. There's plenty of junk for cheap, if that's what you want. But this present market calls for reality on both sides.

Recognize that this is a stressful market, with many stressed out participants. People are looking for agents with character and competence. Intentions don't matter. Results do. It is a professionals' market, and going forward you will be paid only for your skill (and not your time).

Selling in this market is the art of mastering what is possible. But that means finding common ground, tackling unrealistic expectations, and educating your clients to the point where they are confident in taking action.

It also means that negotiations are tougher than they have been in years. It means keeping emotion out of the deal, and fighting for your clients every step of the way.

So, should your agent tell you what you want to hear, or tell you what you need to know?

Thursday, March 4, 2010


I'll be the first to acknowledge that you should be suspect of statistics, but I've got good statistical news today for Denver and the entire state of Colorado from FHFA, the Federal Housing Financing Agency.

FHFA is reporting that the Denver MSA ranked third among the 25 largest metropolitan areas last year with home price appreciation of 5.48%, ranking only behind Alexandria, Virginia (+10.55%) and Orange County, California (+6.38%). The FHFA report studies resale homes only, and is based on information taken from Fannie Mae and Freddie Mac's portfolio of loans.

In terms of state gains, Colorado ranked second with appreciation of 2.8%, trailing only Oklahoma, which showed gains of 3.5%. Nevada was the biggest loser, showing losses of more than 17% year-over-year.

Now back to the interpretation of these numbers. As I have said again and again in these posts, we are in the most segmented market I have seen in nearly 16 years as a real estate broker. Activity continues to be overwhelmingly titlted toward the lower end of the market (two-thirds of all sales last year were below $250,000, although homes under $250k make up only about one-third of the active inventory), and many single family homes in the sub $200k price range have seen appreciation of 10% or more in the past year (driven in large part by the first-time buyer tax credit).

Single family homes are performing much better than condos, while new construction remains near all-time lows as building operations have ground to a halt.

At higher price points, the market softens noticably, and by the time you reach the $400,000 range, the market is simply out of gas. Double digit appreciation at the lowest price points with significant values losses at the higher end... mix it all together and you get a net gain of 2.8% for Colorado, and 5.48% for Denver.

It's good news, because compared to the rest of the country, we are doing exceptionally well. But interpreting these numbers today takes considerable skill, because applying the value gains cited by FHFA across the board would simply be inaccurate.

For sellers, pricing your home correctly is critical to selling it for the best possible price. And for buyers, knowing how specific neighborhoods or subdivisions are trending in terms of values, NEDs, foreclosures and inventory is essential.

Buyers and sellers both must recognize that this is not the market of 2007. The psychology is different in so many ways. Buyers are ultra-cautious, and sellers are ultra-emotional. There's skepticism all around. There's not a lot of margin for error.

Now, more than ever, you need informed, skilled and competent representation.

Monday, March 1, 2010


Just a reminder to those of you looking to buy a first home and capture the $8,000 government tax credit - you need to find a home and lock in a mortgage rate by April 5, not April 30, or you are going to be impactedly negatively by FHA's new mortgage guidelines.

To review, FHA (government-insured) mortgage financing has grown dramatically over the past four years as traditional lenders have scaled back or disappeared from the market altogether. FHA now accounts for over 40% of all new mortgage loans, whereas just a few short years ago FHA made up less than 5% of the market.

What does this mean? It means that FHA (and HUD, which oversees it) is taking on a huge amount of risk by being the dominant source for mortgages during a time when values are falling in many parts of the country. To offset this risk, FHA has been tightening guidelines and raising fees. Last year, for example, FHA raised its down payment requirement from 3% to 3.5%, and in Congress there is growing support for eventually raising the down payment requirement to 5%.

But back to today. Effective April 5, FHA will be raising its "upfront" MIP (mortgage insurance premium) from 1.75% to 2.25% of a buyer's base loan amount. On a $200,000 FHA loan, this is an additional $1,000 that will be added to the buyer's mortgage.

In addition, FHA will be raising the annual MMI (monthly mortgage insurance) premium from .50% to .55%, which will cause a small jump in the monthly payment, and reducing the amount a seller can contribute to an FHA's buyers closing costs from 6% to 3%. On lower priced homes, that 3% cap is going to mean that buyers will have to come up with money for more of their own closing costs on an "out of pocket" basis.

There will also be new credit score requirements that could negatively impact lesser-qualified buyers.

None of these changes are necessarily crippling, but they do add up. And if you're out looking at homes now, realize that you only have a very short time to take action before these new changes take effect.