Saturday, January 21, 2012


On Christmas morning, columnist Tom Friedman (The World is Flat) appeared on Meet the Press and made a comment that resonated with me.  He said, simply, “Average is over.”

Those three words connected deeply with me, because I have been expressing this sentiment in different ways with people for the past three years, especially in explaining why the high end of the real estate market is in such trouble.

In short, average is over. 

What that means is that average people simply aren’t going to have the opportunity to buy $500,000 or $700,000 or $1 million houses any more.  Because of global competition, outsourcing, automation… almost every big company in the world today has opportunities to hire help that is either; a) cheaper; b) more skilled; or c) both.

Because of automation, companies are constantly being presented with ways to increase efficiency by decreasing their overhead, otherwise known as “human capital”.  If you don’t become more efficient, you can’t compete.  If you can compete, you die. 

As more and more “little guys” fail, power consolidates into the hands of an ever-increasingly powerful minority.  This is the underlying premise of Occupy Wall Street. 

And as the overall population becomes poorer, the government fires up the printing presses to keep the masses fed, at the expense of future generations.  This is the underlying premise of the Tea Party.

The conditions that caused higher end housing to be so overbuilt between 2000 and 2007 – namely low unemployment and easy credit – are not coming back.

And so we have hundreds of thousands of homeowners who “overbought”, based on a confidence that no longer exists.  The number of truly qualified buyers who can afford (in today’s economy) to live in $500,000 homes is a fraction of the total number of these homes that were built. 

The result – we’re going to continue to see this sector of the market gradually lose air like a tire with a slow leak.  While there is still some demand for these types of properties, it is simply not commensurate with the supply that is available.  Higher end homes will simply keep deflating until equilibrium is reached with today’s economic realities. 

On my Facebook Business Page this week, I posted that I could sum up the housing market for 2012 in 13 words.  “Entry-level is RED HOT.  Mid-level is OKAY.  High end = PAINFULLY BAD.”

Going forward, everyone is going to need someplace to live.  But that place is likely to be smaller, and the simple fact is that we have way more people living in higher end homes than can actually afford them.

Monday, January 16, 2012


In Colorado, we have a seasonal housing market.  Historically speaking, inventory is lowest during the month of December, then builds month by month, peaking in May, June and July.  Sales activity follows a similar path, with one small adjustment - whereas the peak inventory months are during the summer, the peak sales months occur in the spring - usually March, April or May.

In other words, sellers list in the summer, but buyers buy in the spring.

So when should you put your home on the market?  Obviously, to catch the March - April - May spring buyer surge, you want to be on the market before the buyers show up.

Take a look at month-by-month listing and sales activity for 2011:



JANUARY 17,890 2,667

FEBRUARY 17,358 2,841

MARCH 17,707 3,092

APRIL 17,847 3,775

MAY 17,888 3,321

JUNE 18,026 2,903

JULY 17,583 2,960

AUGUST 16,631 2,637

SEPTEMBER 15,533 2,663

OCTOBER 14,156 2,850

NOVEMBER 12,634 2,342

DECEMBER 10,993 1,756

The peak sales month last year was April, while the peak listing month was June.  This trend is one I have seen year after year throughout my nearly 18 years in the business.

My interpretation of why this happens is that, based on hundreds of conversations through the years with buyers and sellers, buyers (especially first-time buyers) make up their minds to purchase over the holiday season and engage quickly once the new year begins.

Sellers often work on a school-year calendar, and assume that listing their home in May or June will allow them to move over the summer, creating the least amount of distraction for their families.

From a strictly financial standpoint, the best time to be on the market is starting in February or March, when buying activity is at its peak and many sellers have not yet come on the market.  (Keep in mind that many buyers look for six to ten weeks before buying a home, which means the serious looking is actually under way by late January)

Of course, no matter when you choose to list, your home must be salable.  In today's fear-based economy, buyers are going to look more critically than ever at a home's location, components, and overall value in relation to the competition.  

But if you're looking for that time of year when you have the greatest probability to sell your home for top dollar, it's the spring market.  Simple supply and demand says if you list with maximum buyer interest against less competition, you'll get the best price.

Monday, January 9, 2012


In something as complicated as a real estate transaction, let’s face it:  experience matters.

In 18 years as a broker, I have seen dozens of deals go sideways for a host of different reasons.  Sometimes they are legitimate.  Sometimes they are based on emotion overriding logic.  And sometimes they are totally avoidable with a few slight adjustments or corrections in the way certain challenges are addressed.

The fact of the matter is that, above all else, you should hire a real estate broker for his or her experience.  Contrary to the old adage that “experience is the best teacher”, in reality, the far better alternative is to learn from other people’s experience.  It’s more efficient, less costly and it doesn’t hurt nearly as much!

My goal as your broker is to help you negotiate the best possible terms, sidestep the pitfalls and use my 18 years of hands-on experience to close your transaction smoothly.

Having said that, it still must be acknowledged that we are living in a world of new and ever-changing lending regulations, underwriting requirements and a fundamental shift in attitudes about housing.  This means that closing a real estate transaction is more difficult today than at any time in recent memory, and it means there can be no room for complacency or assumptions during the contract period.

A good broker must be vigilant, diligent and always thinking one step ahead.

Here are 100 of the most common reasons real estate transactions fail to close:

The Buyer / Borrower…
1.    Fails to disclose information which disqualifies the buyer from financing
2.    Provides inaccurate information on the loan application
3.    Has late payments after applying for credit
4.    Takes on new debt after applying for credit
5.    Loses job after going under contract
6.    Underwriter refuses to accept sourcing of buyer’s income
7.    Overtime hours used for qualifying are rejected by underwriter
8.    Buyer becomes sick or incapacitated while under contract
9.    Buyers separate or divorce while under contract
10.  Anticipated gift funds fail to materialize
11.  Tax returns obtain from IRS differ from what buyer disclosed
12.  Cannot obtain certified copies of tax returns from IRS in a timely manner
13.  Buyer’s personal circumstance changes and purchasing the home no longer makes sense
14.  Bank statements do not substantiate assets buyer claimed to have
15.  Landlord refuses to verify rental history or provides negative information about buyer
16.  Rates increase before borrower locks rate in, causing buyer to no longer qualify
17.  Loan program is discontinued prior to closing
18.  Child support increases, decreases or stops altogether after buyer is under contract
19.  Buyer cannot provide or obtain divorce decree from courts
20.  Judgments are uncovered which disqualify buyer from financing
21.  IRS liens are placed against buyer’s income
22.  Borrower declares bankruptcy
23.  Underwriter declines file based on “payment shock” compared to previous rent
24.  Borrower changes jobs while under contract 
25.  Borrower has less than two years of work history in a commissioned sales position
26.  Employer refuses to verify likelihood of continued employment
27.  Too much emphasis given to commissions or bonuses in calculating qualifying income
28.  Friends or family members talk buyer out of purchasing once under contract
29.  A more attractive, competing home comes on the market
30.  Inspections cause buyer to ask for unreasonable or unrealistic repairs
31.  Veteran using VA financing cannot obtain DD-214
32.  Buyer has concerns about future planned development in the neighborhood and cancels
33.  “Megan’s Law” – registered sex offender is discovered in the neighborhood and buyer cancels
34.  Buyer gambles away funds required to close
35.  Buyer’s lender closes shop and disappears
      The Seller…
      36.  Lacks motivation to sell and refuses to cooperate (not uncommon during short sale transactions)
      37.   Cannot find adequate replacement property
      38.  Rents the home to uncooperative tenants or family members
      39.   Removes inclusions previously agreed to in the contract
      40.   Cannot clear liens against the property
      41.   Fails or refuses to complete inspection repairs to buyer’s satisfaction
      42.   Does not own 100% interest in the property
      43.   Divorcing spouse, or spouse’s attorney, kills the deal
      44.   Has insufficient equity to sell
      45.   Attempts to change closing date, possession date or inclusions after agreement is reached
      46.   Is in foreclosure and sale date arrives before contract closes
      47.   If a short sale, terms from bank are deemed unacceptable by seller
      48.   Problems with seller’s replacement home transaction derail the deal
      49.   Builder for seller’s replacement home is delayed in construction
      50.   Builder of seller’s replacement home declares bankruptcy
      51.   Seller of seller’s replacement home declares bankruptcy
      52.   Representatives of estate cannot agree on price or terms
      53.   Seller loses job and cannot complete transaction
      54.   Seller becomes sick or incapacitated and cannot close the transaction
      55.   Seller is sued and cannot complete transaction due to litigation
      56.   Seller’s HOA is sued and buyer cannot finance into community with pending litigation
      57.   Seller dies while under contract

      The Property…
      58.   Has problems discovered during inspections which cannot be cured
      59.   Has condition issues the lender requires remedy for which the seller cannot provide
      60.   Property suffers freeze damage and floods
      61.   Property has electrical issues and there is a fire
      62.   Hailstorm damages or destroys all or part of property
      63.   Lightning strike damages the home or inclusions
      64.   Is not FHA approved or loses FHA approval during contract period
      65.   Has real or perceived structural concerns that concern the buyer or buyer’s inspector
      66.  Is subject to environmental issues which cause the buyer to cancel
      67.  Square footage does match what was marketed
      68.  Property is vandalized during contract period
      69.  Property is subject to zoning change which affects desirability
      70.  Property tax increases are passed which make the home too expensive
      71.  Draws water from a source which is deemed unreliable for future needs
      72.  Existing well on the property is not permitted
      73.  Septic system fails inspection
      74.  Survey reveals faults with boundary lines, encroachments or easements
      75.  Excessive claims history makes it uninsurable
      76.  Neighboring home is damaged or destroyed, affecting neighborhood’s desirability 
      77.  Is not zoned for intended use
      78.  Has a special assessment levied against it
      79.  HOA declares bankruptcy

      The Agent(s)…
      80.   Has not properly vetted client’s ability or motivation to sell or buy
      81.   Has not educated clients thoroughly enough and they waver at buyer or selling
      82.   Loses the confidence of buyer or seller through gross incompetence
      83.   Disappears during the transaction
      84.   Is fired by the buyer or seller after contract terms have been agreed to
      85.   Lacks experience to close a complicated transaction
      86.   Does not accurately portray true contents of short sale approval until day of closing
      87.   Sues the seller for breach of contract, derailing the transaction
      88.   Sues the buyer for having multiple agency agreements
      89.   In a short sale, has misrepresented communications with the seller’s bank
      90.   Recommends incompetent or negligent inspectors

      The Appraiser…
      91.   Lowballs the value of the property
      92.   Comes from out of the area and does not know the neighborhood
      93.   Fails to adequately value certain improvements
      94.   Cannot find suitable comparables
      95.   Loses license or has lender approval revoked after the appraisal is complete
      96.   Is accused of favoring buyer at the expense of seller
      97.   Is accused of favoring seller at expense of buyer

      98.   War, natural disaster or Act of God that affects the economy during the contract period
      99.   Title company shuts down, freezing assets held in trust       
      100. Government shuts down, freezing accessibility to financing through FHA, VA and GSE’s
        My clients know that I write “tight” contracts and I don’t skip over anything when it comes to reviewing the 15 page Colorado Real Estate Commission purchase contract, the eight page listing contract or the six page buyer agency agreement.

        I often explain my meticulous approach to going over contracts by saying that “I live in the world of the one percent,” which means I am always thinking about things that have a one percent chance of happening… but when you have been licensed for nearly 20 years, you have seen what can happen to agents who haven't given thought to every contingency.  

        The point of this article is simply to let you know that the decision to hire a broker is an important one, and it should not be entered into lightly.  If your agent isn’t talking to you about the “world of the one percent”, chances are he or she hasn’t been there, or worse yet, doesn’t even know it exists.

        Thursday, January 5, 2012


        A few weeks ago, I posted a review on this site of Gary Vaynerchuk’s new book, “The Thank You Economy”.

        In the book, Vaynerchuk makes the argument that the Internet is creating an age of transparency which will create more turbulence, change and opportunity than we’ve ever seen before.

        If your product is good and your service is sincere, social media will be the fuel that propels your business to greatness.

        If your product is stale and you don’t care about the end user, social media will be the demise of your organization.

        For Vaynerchuk, there is no middle ground. You either go all in with customer service, listening to your audience and doing whatever it takes to bond with them in a real way… or you ignore them, oblivious to the consequences of neglect in the age of social media.

        Watch the video link I have embedded in this post. Just go ahead and launch it, and let it run in the background while you work on other things. Listen to what Gary says about the radical changes taking place in the way consumers shop for products and services, and tell me if his arguments don’t make perfect sense.

        Tuesday, January 3, 2012


        There has been plenty written about America’s four-year foreclosure epidemic, and it’s undeniable that the impact has been felt from Main Street to Wall Street to the entire world.

        From media portrayals, we often see “subprime borrowers” and lower middle class Americans (who saw the biggest growth in homeownership rates during the boom years) as the “big losers”.  But consider the following:

        - What percentage of this buyer group actually made a sizeable down payment?
        - To continue, what percentage made little or no down payment but then pulled freshly created equity out of their homes as values soared?

        - And what percentage of these foreclosure “victims” lived for two, three or four years without making a payment as overwhelmed and politically targeted banks dragged their feet on the foreclosure process?

        I am not saying the banks are blameless (hardly).  And I am not denying that’s it traumatizing to lose your home, no matter how long it takes for the banks to actually foreclosure or what kind of neighborhood it's in.
        But what is the percentage of buyers who had legitimate credit and income… who put sizeable down payments into their home purchase… who didn’t pillage their equity like a piggy bank… who today have lost tens (or hundreds) of thousands of “after tax” dollars as their values have plunged?
        Do they have a lobbying group?  Do they picket and protest the banks?  Do we see them interviewed on “60 Minutes”? 
        The point is… everyone should think a little more deeply about this whole crisis, how it started, and what lessons can be learned from it.  Because the guy with lousy credit putting no money down wasn’t really having much of an impact on the economy anyways… but the guy whose 401k has been wiped out, who lost his management job when it was outsourced, and who put $150,000 down on his house only to see it vaporize… that's the person whose not taking vacations, not buying new cars and generally living a much more fiscally conservative life. 
        Chances are he's still in his home, stewing about all this.  And one thing is for certain:  he's not buying another one any time soon!
        One reason I am so bearish on the high end of the market is because there's no way the homeowner who fits this profile is going to sell and move up.  He's been toasted, his equity is gone, and the last thing he is thinking about is buying a bigger home.
        Every market is different, but in Colorado, our housing market has slammed into a wall around $500k.  There is just no demand for anything above this point, and I don't see it changing for a long, long time. 

        Monday, January 2, 2012


        Here's a video that ran on Fox News over the holidays that's been making the rounds in local real estate circles.  I think it's a little bit over the top, but I do believe Denver is certainly in the top 20% of markets nationwide and a well-researched home entry or mid-level home purchase today with rates in the 4's will look good for a long time to come, especially compared to rents, which are rising rapidly.

        Take a look: