Wednesday, March 16, 2011


Many real estate professionals have mixed feelings about  On the one hand, it is an amazing source of data and it can help to educate both buyers and sellers about what is happening in local real estate markets.  But on the other hand, Zillow's algorithms are far from perfect and quite often, these "Zestimates" of value can be off by 10% or more.

I think anything that provides information for the consumer is valuable, so I'm generally a pro-Zillow kind of guy.  But that doesn't mean I trust their information.

For example, Zillow's information is based on what is available in public records.  But what if someone finished a basement without pulling permits?  Should Zillow not award any additional value for the work that was completed?

And because Zillow places an emphasis on geographic sales activity, some higher end communities get undercut by sales in neighboring subdivisions with smaller, less expensive homes.  Conversely, many smaller subdivisions "piggyback" their way to higher valuations by being close to more expensive subdivisions, or worse yet, McMansions, which universally are the worst performing category of home on the market today.

I do love the aerial photos on Zillow, and I also like that they will report recent sales data (although that sales data does not reflect seller concessions, whether the property was bank-owned, and other important pieces of information).  The bottom line is that the world is a better place with Zillow in it, but just realize that much of the data is raw and it's algorithms cannot universally be trusted.

Tuesday, March 8, 2011


While the overall median home price in the Denver metro market was relatively flat in February compared to a year earlier, there's some buzz being generated by a Coldwell Banker report that shows the luxury home market (defined as $1 million and up) saw a 7.2% increase from February of 2010.

Does that mean the high end of the market is recovering?  In my opinion, the answer is "no". 

The median price is a figure that gets a lot of play in the media, but like all statistics, it is subject to manipulation and interpretation.  In short, the median price is that price at which half of the homes sold for more money, and half sold for less.

Here's what a rising median price in the million dollar market means to me:  it means home that were listed a year ago for $1.9 million are selling today for $1.4 million.  The difference is that a year ago, they weren't selling at all (because they were overpriced), but today values have adjusted down to meet the market and buyers are stepping in, albeit cautiously, for the most attractively priced luxury homes.

The increase in sales activity and median price at the higher end of the market does not mean that the luxury market is improving, but simply that the downward trajectory is bottoming out.  If you owned what used to be a $2 million dollar home (which may only generate an offer of $1.6 million on the open market today) and you saw a report that said median prices had gone up, you might be fooled into thinking your home was in better shape than it is.  The only high-end sellers truly in touch with the realities of today's market are those who are trying to sell into this very stiff headwind.

The reality is that buyers are still totally value-driven, and the median price only reflects those homes which have sold.  And with few exceptions, the homes that are selling are those that are priced most attractively.

Wednesday, March 2, 2011


A few years ago, very few home buyers could tell you if they were working with a mortgage banker or a mortgage broker.  Financing was so readily available you could get a loan almost anywhere... brokers, bankers, credit unions, pawn shops... everyone had money to lend.

Today, that distinction makes all the difference.

In short, mortgage bankers lend their own money, while brokers "shop" loans to different lenders and deliver that loan file to the selected lender, who then must underwrite, approve and fund the loan. 

So which option puts you in the stronger position?  And which one is more likely to lead to heartbreak at closing?

Let's look at the basics for an answer.  With a mortgage banker, there is usually only one entity which is underwriting, approving and funding the loan.  And that is the mortgage bank itself.

With mortgage brokers, there is a layer of risk because the mortgage broker does not have a direct association with the lending underwriter, and it's rare that a broker can ask for a management review or take other steps to win an approval on a difficult file.  (And just because you are a well-qualified buyer does not make your file "easy".  Appraisal conditions, liens, title issues and other conditions totally beyond a buyer's control can turn a seemingly simple transaction into a very high risk, stressful and uncertain ordeal.)

There are good mortgage bankers and mortgage brokers.  But the brokers have been scapegoated to a large extent for many of the bad loans that were made over the past few years.  Because brokers are not lending their own money, there is a perception that they have "less skin in the game", and because of that, a broker's loan file is going to be looked at more closely than an in-house mortgage banker's file. Anything from a broker channel that feels the least bit risky is likely to be hit with a wall of resistance. 

Whether you choose to go with a broker or a banker is up to you.  But if you choose to go the mortgage broker route, you better trust that your loan officer is totally competent and that your file is totally clean... because your margin for error is next to nothing. 

Many banks have completely eliminated their broker channels, while others have imposed strict buyback requirements that will put a mortgage broker out of business with one bad loan.  So do you homework, make sure you understand the difference, and realize that circumstances totally beyond your control could cause you to show up at closing without the funds to close the deal if your transaction hits the smallest pocket of turbulence.