Monday, February 20, 2012


A physical property inspection is something that I will recommend to every buyer, every time.  It's simple common sense. 

But there are limitations to what a regular home inspector will examine.  For example, the inspector's standard disclaimer will remind you that it is a visual inspection only, and limited to things the inspector can see with the naked eye.  No cutting into drywall, no tearing apart electrical systems.

Most property inspectors perform a basic, visual inspection.  And that service is well worth the $300 to $400 most inspectors charge.  If an inspector cites something unusual, or out of his area of expertise, then it is common for the inspector to suggest additional follow-up inspections.

So how far do you go with this?  The answer is, it's completely up to you.

There are nearly 20 different "secondary" inspections that a buyer can perform on a home. 

These include:

* Electrical systems
* Heating and air conditioning
* Lead-based paint
* Mold testing
* Foundation assessment
* Soil stability
* Roof inspection
* Survey
* Sewer scope
* Septic system
* Radon gas
* Asbestos
* Chimney
* Wood-destroying pests

Most buyers will not do all of these tests, or anywhere close to all of these tests.  Based on what the general home inspector finds, it's not unusual to ask an HVAC person to take a look at the furnace, or have the sewer line scoped for breaks.  But every home is different, and every situation is unique.  I'll never advise a client to skip over an inspeciton if he or she thinks it's important.

The point of this is simply to educate and inform, and let you know that as a buyer you should satisfy yourself as to the condition of the home you are purchasing before you get to the closing table.  And if you have concerns about any of these areas, you should discuss them with your agent or your home inspector as early on in the process as possible.

Sunday, February 19, 2012


The calendar says February of 2012, but it’s feeling a lot more like February of 2005 in the Denver metro area housing market.

Insatiable buyer demand for extremely limited inventory, especially at the lower price points, is resulting in multiple offers, sparking bidding wars and rapidly dropping days on market averages.  Buyers are scrambling to take advantage of low interest rates at a time when year-over-year inventory has dropped 42% overall, and by more than 60% for homes priced below $250,000.

Snapshots from the past week:

-  I searched all Broomfield listings below $160,000 for a north area client in search of a first home – there are 16 such properties in the MLS, and (amazingly) all 16 are under contract.
    -  My client then asked that I expand the search out to include Westminster.  There are 18 such properties in the MLS (including short sales), and 12 are under contract.
      Lump the two together and you have 34 properties on the market below $160,000, and 28 of them are under contract.  And most houses under $160,000 are not exactly turnkey opportunities!

      This dramatic decline in inventory, accompanied by demand that is essentially unchanged from a year ago, is sparking bidding wars and leaving many buyers utterly frustrated.  For single family homes priced below $200,000, there is appreciation happening right now in almost every part of town.

      (The condo market, as an aside, remains mostly stagnant due to ongoing financing restrictions and the fact that a majority of condo projects lost their FHA approvals at the end of last year.  Condos have also been hit harder by foreclosures, causing more homeowners to be “underwater”, which has depressed sales and caused more short sales, both of which are bad for values and further slow recovery.)

      Multiple posts in this blog over the past six months have discussed what happened to the inventory – namely, far fewer foreclosures and hardly any “move-up” buyer activity, due to a lack of equity and a lack of confidence in the economy. 

      However, the one group mostly unaffected by the economic downturn of the past four years is first-time buyers, who are looking at rates in the low 4’s, along with prices that had fallen 10% to 15% in most areas, although those prices are definitely recovering right now.

      Take a look at how radically things have changed in 12 months:

      - In February of 2011, there were 3.45 homes for sale under $250,000 to each one under contract.  That meant each seller was basically in competition with 3.45 other homes for the next buyer.
        - Today, that ratio is 0.95, meaning there are actually more homes under contract below $250,000 than there are homes on the market.  And that includes all the distressed short sale inventory, meth labs, and abandoned homes in total disrepair.  There is, frankly, hardly anything to choose from right now.
          These are not “seasonal” changes brought about by the warmer weather.  These are apples-to-apples, year-over-year comparisons that paint an entirely different picture than we saw in 2011.

          - In the $250,000 to $400,000 price range, the absorption rate one year ago was 7.11 months.
            - Today, it is 3.49 months.
              Even the higher end of the market has shown improvement, although things were so bad a year ago improvement was almost unavoidable:

              - For homes between $400,000 and $600,000, the absorption rate has fallen from 9.25 months to 4.86 months.
                - Between $600,000 and $1 million, the absorption rate has fallen from 15.13 months to 7.40 months.
                  The bottom line is that, after years of stagnation, our market is at a pivot point.  Recovery is starting at the bottom, as it always does.  The hope is that, eventually, rising entry-level prices will create enough equity to unlock the next level of “move-up” buyers, who simply are on the sidelines today.

                  Sellers, especially those with homes below $250,000, have more leverage today than at any time in the past five years.  Inventory is down to levels not seen in nearly a decade, while buyers (albeit mostly entry-level) are pouring into the market.

                  It’s a scramble out there, but it’s a healthy scramble, and one that should create positive ripple effects throughout our housing market and the Denver economy in 2012 and beyond.

                  Tuesday, February 14, 2012


                  Senate Bill 100, which was signed into Colorado law in 2006, requires sellers in Common Interest Communities (CIC's) to provide buyers with certain HOA documents by the title deadline in the real estate contract.

                  The purpose of this law was to ensure that buyers are adaquately educated about associations finances, rules and regulations, bylaws, and governance policies. 

                  In summary, Senate Bill 100 requires the seller to provide the following documents to a buyer:

                  a. the bylaws and the rules of the association;
                  b. the declaration;
                  c. the covenants;
                  d. any party wall agreements;
                  e. Minutes of the most recent annual unit owners' meeting and of any executive board meetings that occurred within the six months immediately preceding the Title Deadline;
                  f. the association's operating budget;
                  g. the association's annual income and expenditures statement; and
                  h. the association's annual balance sheet.

                  Buyers in common interest communities are required to sign a document acknowledging receipt of these governing documents, and a copy of that document is to be turned over to the HOA at closing.

                  Because the law requires it, however, does not mean that everyone complies.  Banks, for example, often will not provide these documents to buyers of foreclosed homes despite the fact they are legally required to do so.  And many HOA's will charge fees for copies of these documents... sometimes as high as $200 to $300. 

                  The bottom line is that buyers need to know what they are entitled to have, and then take steps to make sure they receive that information.  HOA's, like businesses, operate with different levels of control, regulation and financial health.  It is the buyer's responsibility to understand what is happening with the HOA and to have a comfort level before closing on a home.

                  Friday, February 10, 2012


                  What happened to the Denver housing market in January? 

                  In short, buyers are everywhere, but sellers are nowhere to be found.  In the continuation of a theme that has been evolving since last summer, listing inventory grew even more scarce in January, while buyers continued pouring into the market, particularly at the entry level.

                  As of January 31, there were just 10,443 homes in total on the market in the Denver MLS, a 42% reduction from the 17,890 we had at the end of January in 2011.  Yet over the past 30 days, a total of 3,084 homes went under contract, up from 2,667 that went under contract during the corresponding period a year ago.

                  Under $250,000, which has been the hottest segment of our market for some time, the numbers are even more amazing.  A full 63% decline in the number of homes for sale (3,333 this year vs 8,933 one year ago), with 6% more homes going under contract (1,647 this year vs 1,538 last year).

                  Are you following this? 

                  It is literally a stampede for well-priced, move-in ready inventory. 

                  Below $250,000, we actually have more homes under contract today (3,524) than homes for sale (3,333).  Eighteen years in the business, and I’ve never seen buyer demand so outstrip seller supply.

                  The story is even more complex, I believe, because while there is no metric to measure it, I have tons of anecdotal evidence that suggests the actual strength in the buyer market is more pronounced than these impressive numbers demonstrate.  The "hidden strength" in buyer demand lies with the large number of buyers (several working with me) who are waiting for the right house, the right floor plan, the right neighborhood, and/or the right deal.  For all the contracts being written, there is an army of patient, discriminating buyers who feel compelled to wait for the "perfect" deal.  

                  Have your pen ready, that's all I can say. 

                  As I have discussed month after month, this has been and will continue to be a segmented market.  Below $250,000, things are just sizzling.  From $250,000 to $400,000, the market is pretty functional.  Above $400,000, it starts tailing off and it gets particularly bad over $600,000.  Be careful about generalizations you hear, because the realities at $200,000 are wildly different than what you may see reported regarding $600,000 homes.

                  Everyone needs a place to live, but due to the economy, the $500,000 buyer of 2007 is a $300,000 buyer today.  The $300,000 buyer of a few years is a ago is a $200,000 buyer today.  And so on, until you run out of segments to downsize into.  At that point, demand so outstrips supply that prices begin to appreciate, working their way up as the market heals.  Recovery always starts at the bottom in housing market cycles, and that is 100% on display right now.

                  For those who keep waiting for the mysterious "shadow inventory" (bank-owned properties that are allegedly being held off the market until things improve), let me ask you this:  with inventory down 42% overall and 63% below $250,000, why on earth would you be holding anything off the market right now?  If the banks had piles of "secret inventory", we would be seeing it.

                  With rates in the 4’s and prices offering all-time levels of affordability, buyers are everywhere. 

                  The question remains, when will the sellers return?