Tuesday, December 31, 2013


If you lived through the Denver housing market of 2013, this story doesn't surprise you.

The Denver Business Journal has ranked Denver's housing boom as its number one story of 2013, beating out floods, recalls and yes, marijuana.

Growth in home values created over $21 billion in new equity for Denver metro homeowners during 2013, with a median priced home gaining about $25,000 in value. This led to more consumer spending, more job growth and more new construction.

The year was marked by an unprecedented inventory shortage, overwhelming buyer demand and record low interest rates, which sparked bidding wars and market velocity which was so extraordinary that in June, over half of the homes that went under contract in the Denver MLS were on the market six days or less.

Interest rates were in the 3's for much of the year, thanks to the Federal Reserve's ongoing Quantitative Easing policy.  The Fed pumped nearly $1 trillion into the housing market nationally by funding mortgages and then purchasing the notes at discounted rates.  The Fed has announced that it will end the QE program by the end of 2014 (although I am skeptical that the Fed will have the discipline to pull the plug, especially in an election year).  

Rates rose into the 4's during the fourth quarter, as markets braced for the Fed's expected pullback in 2014.

The median home price in the Denver metro area increased somewhere between 9.3% (according to Zillow) and 10.2% (according to Core Logic), which followed an impressive 8.5% gain in 2012.  

Foreclosures and short sales, which accounted for 45% of listing inventory at the start of 2011, now make up less than 5% of the active listing inventory.  

Population growth also continued to be a big story.  According to a report released on Monday, Colorado has gained over 800,000 residents in the past three years, the fourth strongest growth rate among the 50 states.  During that same time, fewer than 100,000 new homes have been built.  

This demographic pressure has kept upward pressure on rents and prices while vacancy rates remain at historic lows.  Rents increased nearly 5% in 2013 and the vacancy rate in Denver is 4.4%, although in some markets (like Fort Collins) vacancy rates are less than 2%.

Zillow also has ranked Denver as the fifth healthiest housing market in the country heading into 2014, with the best market ranking of any major city not located in California (which saw far greater value losses during the downturn).  Zillow has given Denver a rating of 8.1, meaning that the Denver market is in better shape than 81% of all markets surveyed.

Tuesday, December 17, 2013


Don't panic - the fundamentals of the Denver housing market remain remarkably strong.

But while a botched MLS rollout and the distractions of the holiday season have some wondering if the market is slowing down, I believe that you will see a strong January with buyers back in large numbers and agents getting the hang of our new MLS system.  

For 2014, however, we’re going to have recalibrate our thinking a little bit as year-over-year statistics begin to reflect the huge changes which have occurred over the past 24 months.

Falling inventory has been the number one driver of price increases over the past two years, caused in large part by the fact that foreclosures and short sales have essentially disappeared from the landscape after dominating our market for nearly seven years.  

The numbers are going to moderate going forward, not so much because buyer demand has abated (it definitely has not), but rather because year-over-year comparisons are now going to be made against a market that has been sizzling hot for nearly two years.

Going forward, the new story will be more moderate price increases and rising inventory levels.  Get used to it.  

But before you start to worry, consider the following (from our last full month under the Prime Access MLS system):

In October of 2012, there were 3,164 homes that went under contract.  In October of 2013, however, 3,874 homes went under contract.  That's an increase of over 20%, and compared to October of 2011, when 2,850 homes went under contract, the October 2013 numbers reflect a 35% increase.

The market is just fine, thank you.

Price increases will moderate because you simply can't pile 10% price increases on top of 10% price increases for very long.  The 10% price gains in 2013 are on top of the 8.5% gain we saw in 2012.   

I've talked with clients for years about how "tiered" our market is, with different realities at different price points... and that will continue.  Lower end inventory will continue to outperform higher end inventory, especially with builders now roaring back into the market (starting at about $325k and heading north from there) and throwing up new homes at a breakneck pace.

The name of the game remains land value and replacement cost, and as long as lower end homes are cheaper to buy than they are to build, you really can't go wrong.  

The big stories in the housing market next year will be interest rates and the national economy, which continues to struggle (even while Denver has seen impressive growth, with the unemployment rate now below 6.0%).   

We have experienced a remarkable two year run in the Denver real estate market, and inventory has now bottomed out.  Expect to see more homes for sale on a year-over-year basis with value increases in the single digits.  

But while supply will increase, the place to keep your eye is on demand.

Because as long as buyer demand remains strong, the housing market will continue to function very well.

Tuesday, December 10, 2013


These are turbulent times in the world of real estate.  There are complex issues that the industry is dealing with that have heavy ramifications for the future.

One of the biggest has to do with the issue of transparency, and changes are definitely afoot.

What is “transparency”?  For the purpose of this conversation, transparency simply means making each individual agent’s sales history information publicly available online.

Why is this an issue?  It’s layered, and complex, but here are the key arguments the “anti-transparency” people make:

Consumers will be pre-disposed to choose agents based solely on sales production instead of competence, ethics or harder-to-quantify criteria like micro-market knowledge;

Agents who form teams will lump all production under the team leader’s name, which will drive consumers toward teams (which often have several inexperienced agents working under the name of a team leader) instead of better-qualified individual agents;

Sales production alone isn’t the only qualifier for what makes an agent exceptional.  There are many high quality agents who choose to sell 10 or 12 homes a year who will be passed over in favor of mega-producers and teams full of newbies.

As you can see, there are some legitimate concerns with this information going public.  There is also the very real fact that every agent who belongs to the National Association of Realtors (NAR) pays hundreds of dollars a year in membership dues, whether they sell four houses or forty.  And since the average number of transactions per Realtor per year is about 7.5, you can see how the vast majority of dues-paying agents may have real concerns about this disclosure.

NAR is going forward with a controversial new platform called “Agent Match”, which is now showing agent production in a few beta markets around the country. (Denver is not one of these test markets, but Fort Collins is) 

But here’s the problem – thanks to Zillow, Neighbor City and other third party aggregators, the data is already getting out there. 

Zillow’s solution (introduced just this year) was to simply step outside of NAR’s data reporting controversy and allow agents to certify their own production (mine can be viewed by going to www.ZillowReviews.com).

Zillow went one step further, encouraging agent reviews on their site (I currently have over 60 verified past client reviews posted, also available at www.ZillowReviews.com) which supports this growing trend of consumer transparency. 

The consumer wants information and transparency, and since NAR is engaged in a giant fistfight with its members, Zillow simply stepped around the fray and filled the void.

Agents need to get over it.  Sales production may not be the only criteria that matters, but shouldn’t we let consumers be the ones to make that decision? 

The in-fighting at NAR and in the real estate community is damaging the Realtor brand, and agents need to suck it up and realize that transparency isn’t going away. 

As an agent, it’s up to you to determine how the world views your brand.  Having a blog is a good first step.  Verified client reviews are also extremely helpful.  A social media presence make a difference, too. 

Yes, it is work to build a brand and maintain a great reputation online.  The dinosaurs in my business don’t like it, but change is inevitable.  You adapt, or you perish.

I’d rather put my energy into going forward than trying to protect a closed-data world that no longer exists.

Monday, December 9, 2013


We all know that good technology can be an accelerator, that it can increase the speed at which things happen and improve the productivity and profitability of users. 

But can bad technology do the opposite?

Unfortunately, we’re about to find out here in Denver.

On November 21, the Denver MLS went through a “hard” conversion from our previous system, Prime Access, to a new system called Matrix.  The early returns make Healthcare.gov look like it was put together by Google.

The main criticism of Prime Access was that it was “too basic”.  That it was easy to use, but perhaps not evolving fast enough to match the other technological advances taking place in our business.

Matrix, on other hand, sits at the far end of the spectrum of advanced technologies.  It includes dozens of new fields (some relevant, some not) like HERS Ratings, WalkScores, Energy Star Qualifications, Ceiling Height, Carport Square Footage, Distance to Light Rail, Amperage, Latitude and Longitude, and Solar Panel Kilowatts (to name a few) that have made entering a new listing a weeklong ordeal.

Also, the printouts we share with buyers have gone from easy to read one-page summaries of basic, relevant information to the Cliffs Note version of War and Peace, with tiny 6-point font covering multiple pages of data (such as "NAHB/ICC-700 Year Certified") for each and every property, with most fields currently left blank by agents who couldn't calculate a HERS Rating if their life depended on it.

But do you want a simple map, to show you where the property is?  Sorry, not included.  Want sales history for the thousands of homes that sold prior to the launch of Matrix?  It's gone.  

There’s a right way and a wrong way to do this type of data conversion.  The absolute worst way is to implement a “hard” cutoff, with one system shutting down in entirety the day a new system goes live.

Congratulations, Denver MLS.  You just put half of your constituents out of business.

I’m not understating the problems here.  Agents (even the smart ones) are having terrible problems searching for homes, loading data and navigating the new fields.  I believe this is already resulting in agents simply throwing their hands up and checking out for the rest of the year, while other agents who are still listing homes are seeing those properties significantly under-marketed due to the failures of the new system.

In short, everyone is angry.  And they should be.

This is a serious problem, because all 19,000 agents in the metro area have one source for real estate data, and it’s the new Matrix system. 

Now, in fairness, I don’t doubt that a few months from now, we’ll all have it figured out and most agents will be skillfully navigating the new system.  But you simply can’t do it the way it was just done – with an overnight shut down of the primary marketing systems for 10,000 homes currently on the market.

I pay fat memberships dues to NAR and the Denver Metro Association of Realtors plus sizable monthly access fees for the MLS.  We’re talking over $1,000 per year.  For that money to result in this kind of bungled rollout is cause for serious concern, and it undermines the credibility (and ability to make a living) of the real estate community.

Significantly, it also effects our clients, and that's even more important.  

Meantime, MLS “outsiders” like Zillow and Trulia are delivering quality (if not always current) data to consumers that it is getting better by the day. 

Unlike many agents, I am not “checking out” for the rest of the year, but I am "working angry".  I hope other boards and associations in other cities that are thinking about “upgrading” their MLS technology look to Denver and learn what not to do when it comes to shifting technology platforms.

Friday, November 29, 2013


By now, everyone knows that the housing market had an amazing year in 2013.  In Denver, price increase estimates range from 10.1% (most recent Case-Shiller) to an amazing 13.9% year-over-year increase (Zillow). 

But in the field, it’s not that simple. 

As I’ve advanced for years, there is not “one” single housing market in Denver, but at least three.  Those markets are essentially the entry-level market, the move-up market and the luxury market.  They are all different, and they all perform differently.

In simplest terms, the largest gains have been posted this year at the lowest price points.  In some areas of town under $200,000, homeowners have seen price gains as high as 15-20%.  At $1 million, however, any gains have been negligible. 

The biggest reason for this disproportionate gain at the lower price points has to do with the basic concept of “replacement cost”.  In most areas of Denver, the break-even point for builders starts at about $325,000, meaning they can’t build single family homes for less than this with any kind of profit.

So they don’t.

That means you have a limited and finite supply of the types of homes most people want – the affordable ones.  But at the higher price points, builders can build to meet (and exceed) demand fairly quickly, which means your upside on higher-end homes is capped by the fact there can always be an increase in supply.

Which brings us to the subject of condos.

For the past five years, condos have been the “red-headed step child” of the Denver housing market.  (For a detailed discussion about this, see my post from May 21, 2012, linked here, or my post from January 26, 2010, linked here).

With lenders unwilling to lend, homeowners walking away and HOA’s swimming in red ink since 2009, the Denver condo market has been a basket case.  Many associations have been unable to keep up with basic maintenance demands, newer associations have been awash in litigation and falling prices have sunk thousands of homeowners into negative equity positions.

In other words, it’s been a season of great opportunity for those who know what they’re doing.

It has been my contention that, because of these problems, the condo market has been lagging the housing market recovery in Denver by 6 to 12 months.  Now, with prices on single family homes soaring and the overall feel of the housing market completely different than it was 24 or 48 months ago, the condo market is next up for a major advance.

With price rising and defaults sinking, lenders are showing a new willingness to finance in the condo market.

Earlier this month I sold a condo listing to a buyer who came in with just a 5% down payment – a rarity since most lenders have required a 10% to 20% down payment on condos since the market tanked (or was blown up by FHA) in 2009. 

With FHA taking itself out of the picture, lenders responded by essentially eliminating low down payment options.  Without FHA to finance first-time buyers, investors took over the market.  And since most investors simply will not pay retail, selling a condo became nearly impossible for most private owners – unless they were willing to sell at a big loss. 

In 2010, Fannie Mae and Freddie Mac decided to impose their own set of restrictions, and with that, the freefall was underway.  

Foreclosures flooded the market, investors bought them for cheap, and the remaining “retail” owners were left with the difficult decision whether to sell short, walk away, or wait it out.

While FHA has yet to get back into the condo market, I believe that day is coming soon.

As Fannie and Freddie begin to relax guidelines (as illustrated by my 5% down payment buyer) and single family prices continue to move out of reach for many first-time buyers, the condo market is becoming much more viable.  And should FHA begin lending into more condominium communities again, the surge in buyer demand will be both sudden and dramatic.  

One last note - because HOA’s play such a large role in condo life, it’s important to emphasize that you MUST look carefully at the financials of each HOA before making any buying decisions.  Some are so deep in red ink their recovery may lag for years, but for others, who have navigated the downturn with prudence, forethought and fiscal discipline, better times are coming soon.

Monday, November 25, 2013


It seems people are always intrigued by housing market predictions.  And it’s understandable, because we all want to know how the market is going to perform and whether we should buy, sell, invest or rent.

2014 is going to be an interesting year, in large part because it will follow on the heels of one of the most remarkable years for real estate in recent memory.

Assuming there are no major economic or political disturbances (war, terrorism, global banking failures, etc.), I think the first thing you have to do is dial back your assumptions and realize that the re-calibration of our market in 2013 was caused by a few unique one-time circumstances… specifically, that after seven years of massive foreclosures we finally ran out of homes to foreclose on… at exactly the moment some 83,000 households in the seven county Denver metro area that lost homes to foreclosure between 2005 - 2008 began hitting eligibility to get back into the market.

Those factors, coupled with interest rates that were in the 3’s for much of the year, unleahsed a surge in values and appreciation that was extra obvious below $250,000, and which created enough equity for current owners of those entry-level homes to sell and use their equity gains to move up.

How much did values go up?  According to Case-Shiller, average home prices in the Denver metro area were up 10.1% over the past 12 months.  Core Logic puts the number at 10.2%, and Zillow says prices have increased an amazing 11.8% over the past year. 

What does that mean in real numbers?  Over $21 billion in equity gains for homeowners in the metro area over the past 12 months!

So what about 2014?  What does the future hold for real estate in Denver?

Again, predictions are usually exercises in folly, because there are just too many variables, but here’s what I am calling:

Below $250,000:  6% appreciation
$250k - $400k:  4% appreciation
$400k - $600k:  2% appreciation
$600k - $1 million:  Flat
Above $1 million: Minus 2%

Again, in my view, there were a number of “one-time factors” that caused our market to explode and essentially “recalibrate” to significantly higher values, especially at the lower price points.

The incredible inventory plunge coupled with the surge caused by “boomerang buyers” (foreclosure 1.0 buyers coming back into the market) really set the stage for the frenzied conditions we saw much of the year.

Going forward, buyers are going to be more cautious as rates and payments continue to creep higher, and builders are going to play a larger role in actually holding value gains in check by building far more homes in 2014 than they did in 2013.

To me, the magic number is somewhere around $325k, but that’s the price point where builders can start selling homes at a profit.  Below this number, you simply aren’t going to see any new inventory, and demand here will remain extremely strong.

Above $325k, however, new inventory will be a drag on the market because builders are once again drinking the Kool Aid and building like there’s no tomorrow.  If and when rates rise, the builders will be the first ones to feel it, and the higher end inventory that’s hitting the market by the day will be the hardest to sell if times get tougher.

Below $325,000, it’s hard to see many scenarios where values don’t hold.  You continue to have large numbers of both first-time buyers and boomerang buyers competing for finite inventory.  Rents continue to go up and there’s still value in the market when demand outstrips supply.

In my opinion, 2013 was a “once in a generation” market where unique events caused home prices to recalibrate quickly.  But the fact remains that higher rates, higher prices and higher payments are going to slow the surge in 2014, with the lower end of the market being the safest possible place and the higher end much more vulnerable to the instabilities of a still-recovering economy.

Tuesday, November 12, 2013


When people talk about surging home prices, they often think they're talking about the value of the structure itself.  But in reality, more often than not price increases are driven by land values, not home values.

John Burns Consulting, a major consultancy firm which works with builders nationwide to help them value raw land to be used in constructing subdivisions, recently released a report tracking land values in 50 major metropolitan areas of the United States dating back to 1982, 

The report looked at the median home price and then used county assessor valuations to determine on a percentage basis what part of the value was attributable to the house, and how much value was derived from the land.

In Denver, our peak "land value" year was 2001, when land value made up as much as 49.7% of the median-priced home's value.  By comparison, during the peak year of the housing bubble in Phoenix, land value made up 65.7% of the median-priced home's value. 

When land values become disproportionately high, goes the theory, there exists greater potential for a sudden and severe correction.

Today, land value makes up just 28.3% of the median priced home's value in the Denver metro area.

However, actual land value can vary widely from neighborhood to neighborhood.  Just last month, I helped a client research lot value for a small ranch home in the red hot Highlands area of Denver which sits on an 8,000 square foot lot.

Its land value, according to the Denver County Assessor - $279,300.

By comparison, my suburban home, which was built in 2005 and also sits on an 8,000 square foot lot and would sell for about the same price as the home in the Highlands (but is nearly three times larger), has a land value of $83,130.

So land really is the big driver in determining real estate values.  For that reason, home prices will almost always be more steady and predictable on the west side of town, where there is much less available land and more established neighborhoods, than in the boom/bust areas on the east side of town such as Aurora (particularly east of E-470), Parker and Commerce City.

A home's overall value really does depend on location, location, location.

An educated buyer should understand that land value, not house value, is where bubbles are created.  As a percentage of overall value, land values in Denver today are more than 40% lower than they were during our peak value years, which tells me we've still got a ways to go before anyone should worry about a bubble.

Friday, November 1, 2013


Last night, I took a group of friends, family and past clients to see Switchfoot in concert at CCU in Lakewood. 

I’ve seen Switchfoot before, a couple of times, and I love their energy, passion and creativity.  But as I’ve gotten older, I’ve changed the way I assess the effectiveness of people (and rock bands).  I look less at what people do, and more at how people create change and have impact. 

Long ago, I internalized the belief that the effectiveness of your life is based upon the quality of your communication.  And so I study communication.  I study delivery.  I study message.  And when I see a person, group or rock and roll band that has effectively mastered the art of communication, I take note.

Last night’s show was an interesting small-venue hybrid event, part documentary, part autobiography, part rock concert.  On this tour, Switchfoot launches each show with a documentary film chronicling 12 months on the road with the band, including trips to Australia, New Zealand, South Africa and Bali.

There are numerous personal interviews, concert scenes and unique behind the scenes footage of the band on the road.  The movie ends with an overview of Switchfoot’s annual “Bro Am” surf event, a one day summer beach festival that raises money for children's charities in the band’s hometown of San Diego.

The movie also serves as a platform to promote Switchfoot’s involvement with the Clean Water Project, AIDS orphans in Africa, and charitable foundations around the world.

But it’s also a narrative about purpose and brotherhood, about how a group of men can stay together for 17 years while band members are getting married, having kids, raising families and balancing real life events. 

The only way to stay unified for that long is to have shared vision and a mission that goes beyond rock and roll.  And so Switchfoot has built a message around its music, a message of hope and action and impact and redemption.

Some interesting takeaways from the documentary:

The movie’s first scene shows the band at a heavy metal mega-concert in Australia, where Switchfoot shares the bill with Steel Panther, Slash (from Guns ‘n’ Roses fame), and 20,000 hardcore metal fans… an environment hardly consistent with the band’s traditional white collar fan base.  The band calls this “the most difficult show they’ve ever played”, which is compounded when technical difficulties kill the mic and cause the crowd to turn against them.

The point of playing this show, according to lead signer Jon Foreman: to intentionally seek uncomfortable situations where you can take your message to a new and unfamiliar audience.  For us, that could mean working in a homeless shelter, approaching a difficult peer group at school or working to engage with anyone who sees the world differently.

There is also a heavy surfing theme throughout the movie.  The band admits (being from San Diego) that its true passion is surfing, and there’s footage of the band surfing some of the most famous surf-spots in the world (often with professional surfers who regularly tour with the band, and who sometimes jam onstage with them). 

But surfing is more than an idle pastime.  It’s the shared interest and joint passion that has inspired the band to stay together for nearly two decades.  It has allowed them to build a brotherhood, and it keeps touring interesting, exciting and inspiring after playing over 1,000 shows together.

Switchfoot has always focused on making a difference, and there are portions of the film directed at their work with the Clean Water Project (one in six people on earth do not have a reliable clean water supply), AIDS orphans in Africa and homeless kids in Southern California. 

There are also some poignant scenes of the band with their families, with kids riding bikes and playing instruments and growing up in a busy and increasingly fast-paced world.  Band members talk at length about how simply playing music on the road would not be enough to justify leaving wives and kids for weeks at a time.  There has to be more purpose, more meaning, to giving up such valuable time to interact with fans and strangers in cities hundreds and sometimes thousands of miles from home. 

The movie provides a unique framing for the band’s vision and purpose.  As one of Switchfoot’s signature anthems proclaims, “we were meant to live for so much more”. 

And that’s why I was excited to see Switchfoot in person last night.  We are meant to live for so much more, and whether your platform is music or teaching or volleyball or dance or selling real estate, you can have impact if you are intentional about it.  

Friday, October 4, 2013


October has arrived, and with it we saw our first dusting of snow this morning.  

It's the fourth quarter of the year.  The most dangerous quarter of the year for real estate agents, but also the quarter which offers the most opportunity. The truth is that no time of year needs to be managed more carefully than the fourth quarter, when many agents get lazy, start to coast, and focus on the holidays instead of focusing on their business.

Several years ago, a real estate mentor of mine taught me to think of September 30th as "New Year's Eve" and October 1st as "New Year's Day".  Ever since then, I've subscribed to this belief.

It is undeniable that the actions you take right now - today - are going to have a significant impact on what kind of year 2014 is going to be for you.

All too many agents will shut it down for the holidays, fatigued by the busy-ness of 2013 and the stresses and strains of our crazy market.  It's easy to coast right now, to focus on Trick or Treaters and turkeys and holiday parties and presents... until you wake up January 1 with no closings, no business, no leads and nothing in the pipeline. 

It is not an exaggeration to say that some agents are going to go five months without a paycheck because of a simple miscalculation made on October 1st.  "I've worked hard, this year's over."

No, it's not.

It's okay to take a long weekend, or maybe even a week (if you have someplace really good to go), but be careful.  With just a little bit of neglect, the weeds will take your garden.

Take a deep breath, have gratitude for the amazing market of 2013... but then get back to work.  Decide what your business is going to look like in 2014.  Put serious time into a business plan.  Set real goals with real deadlines.  Know that if you chose to back off, there's someone out there working right now, talking to future clients, perfecting a marketing plan, showing homes while others shut down.  

Come January, when the bills arrive and the holiday hangover sets in, we'll know who's been working and who has not.  The numbers will not lie.

Get to work. 

Tuesday, October 1, 2013


Some people love them, some people hate them, but almost everyone has an opinion about them.  We’re talking about Homeowners Associations, and in Colorado, it’s estimated that 2.2 million of the state’s five million residents live under some kind of HOA arrangement.

But did you know that there is virtually no government oversight and only minimal regulatory control over these powerful community management companies?

Somewhat surprisingly, only three states – Nevada, Florida, and Virginia – have government regulation and oversight of HOA’s.  In Colorado, it’s estimated that there are over 1,250 individual management companies, although the state admits it doesn't know exactly how many management companies are in business.

To better assess what’s happening in a highly unregulated environment, this year Colorado formed the “HOA Information Office and Resource Center”, which initially has a staff of three, a total budget of under $200,000 and no legislative power to investigate.  At this point, it’s basically an information-gathering entity, purposed to try and determine where regulatory oversight might be warranted and what kinds of legislative solutions might improve the HOA experience. 

Right now, things like status letter fees, transfer fees, association document fees and HOA fining authority are all virtually independent of government regulation.   

As a real estate broker, I see incredible disparity in the way HOA’s function.  Some small community-based HOA’s operate with a few part-time volunteers and a shoestring budget.  Other “Mega Management Companies” run hundreds of HOA’s with layers of community managers, sometimes charging borderline-outrageous fees for status letters, association documents or transfer fees. 

Because HOA’s can create a primary lien in Colorado, HOA’s actually have the power to foreclose for unpaid fines or association dues.  Therefore, if the association chooses to “fine someone into foreclosure” for failing to paint, taking too long to paint or painting the wrong color, chaos can ensue - and right now the consumer has very few places to turn for help.

It's a complicated mess, and it's one reason many buyers avoid HOA's altogether.

FHA financing has been a hot topic of conversation over the past few years, as much more restrictive FHA lending guidelines have caused well over half of all condo developments in the metro area to lose their FHA approval.  That means no FHA loans, which means about one-third of the market is essentially frozen out of these communities.  

To address this, some condominium HOA’s in Colorado are attempting to regain their FHA approval by restricting the number of units that can be used as rentals. That sounds great, unless you are landlord and you bought your unit to rent it out.  

There are also complex social dynamics which involve HOA’s, such as what authority (if any) an association has in regulating marijuana use in multi-unit buildings, or whether smoking of any kind can be prohibited.

All to say, HOA management has become increasingly complex and problematic, and state regulators are looking for a proper role to play. 

Regulation is certainly not always the answer.  But without clear guidelines, there are risks that many homeowners are simply unaware of when it comes to purchasing a home in an HOA community.

Sunday, September 29, 2013


I have clients right now who are somewhat infatuated with a unique, overly-improved home in a working class north metro area which is priced about $60,000 over anything around it.  It’s a 1960 ranch home in a neighborhood of ranch homes where the owners “popped the top”, adding a second story loft that really is very cool.  The second story living area adds about 700 square feet of living space, comprised mostly of a large master suite with a private retreat and sitting area.

It is, undeniably, hip  It is also, undeniably, risky to buy something that is $60,000 more expensive than any other home on your street.

There is always vulnerability in buying off the top shelf in a neighborhood.  The biggest reason for this is that your neighbors can do a lot more to negatively impact your value than you can do to bring your value up.  And because the most expensive home on the street is usually in pretty good shape, you’re limited in the number of improvements you can make to increase its value. 

Conversely, when you buy the smallest home in a neighborhood, or the most run-down home in a neighborhood, you are in control of raising the value up to the neighborhood standard.  You can remodel, re-landscape, add new windows… there are a host of improvements that you can make that will immediately launch the value forward. 

In this particular case, the home in question has been on the market for over four months.  It is currently listed for $300,000, when others in the area have recently sold between $220,000 and $245,000. 

I have communicated to the listing agent that, while it’s a nice home, my clients simply aren’t comfortable buying a Mercedes in a neighborhood of Hyundais. 

In response to the same feedback over and over, the seller recently hired an appraiser to value his home.  The valuation from the appraiser - $315,000.  Which leads to the question, if an appraiser says something is worth $315,000, but nobody will touch it for $300,000, what’s wrong?

It comes back to understanding what “value” is in a given market.  Value is not determined by an appraiser.  Value is determined by what a ready, willing and able buyer will pay in an arm’s length transaction.

An appraisal is an opinion of value, supported by factual data.  But it is not the same thing as an offer to purchase from a ready, willing and able buyer.

I have another client who called me this week to talk about the value of her home.  Recent sales of similar floorplans had shown what appeared to be a marked surge in value in her neighborhood. 

And while her home’s value has gone up, and the floorplan is essentially the same as the two high-priced sales on her street, her home simply is not the same as either of the two which broke the mold.  The improved homes both started with tremendous lots offering open space views.  They each had newer windows, fresh paint, new carpet, and remodeled kitchens.  One had an extraordinary finished basement, and the other was exquisitely landscaped. 

While an appraiser might look at the “model match” sales and make some adjustments for condition, location and improvements, the reality is that while many buyers will lunge at a show-ready home, most will swerve away from a deferred maintenance home, even if it is reasonably priced. 

The point is… an appraisal is not the same thing as a purchase offer from a ready, willing and able buyer.  You must be careful with appraisals and appraised values, because buying a home has an emotional component that is simply at odds with an appraiser’s factual analysis. 

Sometimes that emotion is positive, and it drives the price higher.  Sometimes that emotion is negative, and it will pull the value down.  A good real estate broker (and a good stager, for that matter) can help you play to these emotional components and make them work for you instead of against you.

Appraisals provide important objective data which is worthy of consideration when determining the value of a home.  But pricing is an art, not a science.  How a home is presented to the market can add, or subtract, thousands of dollars to or from its value.

Appraisals do not determine value.  Buyers determine value.  And so it is incredibly important to get in tune with what buyers want when it comes to pricing and presenting your home to the market. 

Friday, September 20, 2013


Stocks soared higher this week and interest rates dropped on news that the Fed has decided to continue its Quantitative Easing (QE) policy after declaring in June that the practice would come to an end in the fall.

What is Quantitative Easing?  In short, it’s a commitment from the Federal Reserve to be the primary purchaser of mortgage-backed securities from banks and private lenders. 

What does that mean?  It means that instead of the market determining what a fair return for a mortgage backed note will be, the Fed steps in and purchases mortgages at rates that are generally lower than what the private market would demand.

The net effect is lower interest rates and a significant increase in the money supply, since the Fed is basically dumping up to $1 trillion of QE capital into the money supply each year in exchange for mortgage notes (which might explain why gold prices have gone up over $500 per ounce since QE began in 2008).

The intention is to pump up economic activity through the housing market.  It’s been going on since the stock market crash and the Great Recession of 2008.  But while the housing market has moved firmly into recovery the mode (thanks in large part to QE), the rest of the economy has not.

Many fear – myself included – that this somewhat desperate move during the recession is becoming an accepted norm in US monetary policy.  Low rates and an increase in the money supply is like pouring gasoline on a struggling, soggy campfire (except the tiny campfire, otherwise known as the post-recession US economy, is barely flaring at all).

I am very much of the belief that the post-2008 economy in the United States brings with it a series of harsh new realities.  Globalization is killing the middle class.  Under-employment is here to stay.  The government is entering into huge obligations (i.e. healthcare) that it can’t possibly support.  Higher taxes are coming.  

The only answer is a more skilled, more motivated, better trained, increasingly efficient workforce that is willing to lean into the new realities, work harder, take responsibility, and kick some butt.  (I know, I'm in fantasyland)

Unfortunately, I don's see it happening.

The Fed’s ongoing QE policy, which is understood by few, serves the purpose of making our moribund economy look at least marginally functional, when in fact, it’s not. 

I do think the Fed’s decision to engage in Quantitative Easing in 2008, 2009 and even 2010 probably saved the economy from complete collapse.  If you’re on the brink of disaster, drastic measures are sometimes necessary.  But it’s time to dial it back and accept some new realities.

Just as baseball had its steroid era, the US economy is in the midst of its QE era.  But we can’t become permanently addicted to this juice.  It’s not sustainable.  It’s gimmicky.  And if it becomes the new norm of US economic policy, we’ll surely pay an even higher price down the road.

Sunday, August 25, 2013


Peyton Manning or Mark Sanchez?  Who do you want leading your team down the field with two minutes to go and the game on the line?

If your follow the NFL at all, the choice is probably pretty obvious.

Then why do some many home buyers and sellers choose to bring in their own “Mark Sanchez” when it comes to buying or selling a home?

I’m telling you, it is nothing short of amazing when you start to measure the distance between those who know what they’re doing and those who do not in the game of real estate. 

Part of the difficulty for consumers goes to the issue of transparency… for years, I have advocated for full public disclosure of agent sales production.  But because the MLS is technically a “private organization” (like a golf club or special interest group) and not subject to public domain, the members (agents) of the organization get to set the rules about disclosure.  And year after year, the majority of agents vote to keep individual agent production hidden away from public view.

Why?  The answer is obvious.  In real estate, 20% of the agents sell 80% of the homes.  So the vote to “disclose” by someone selling 35 homes a year is effectively cancelled out by the part-timer who sells two.  Hence, no disclosure to the public. 

I once sat down and brainstormed “100 Ways to Kill a Real Estate Deal” as a means of illustrating for my buyer and seller prospects all the ways well-intentioned real estate transactions can come off the tracks.

It really is quite a list.  You can review it by clicking here.

The point is, many of the most common derailments of a real estate transaction are avoidable.  I recently came very close to writing an offer for a buyer on a home which had $132,000 in (undisclosed) IRS tax liens.  The listing agent, who sold three homes last year, had no idea that the liens even existed until I pulled an Ownership and Encumbrance report (which does cost money, which is probably why he didn’t do it) and pointed it out to him.  Next.

I recently was involved with a complex “For Sale by Owner” transaction which involved an estate sale.  I had buyers who saw the FSBO sign in the front yard and asked me if I could help them.  I did, only to discover that the lady who owned the home had actually apportioned the ownership interest in the home into five separate and equal shares (one for each of her adult children) right before her death.

That meant five separate sets of negotiations with five grown adult heirs in three different states who had very different ideas about what the home was worth and what kind of condition it should be conveyed in… which I persevered with and successfully completed (negotiating a commission along the way) because that’s what my buyer client wanted.

Negotiation is another critical aspect of a real estate transaction.  To use the football analogy, think of it as play calling.

Less skilled agents tend to stick with one play.  Perhaps it’s the three-yard plunge up the middle.  Perhaps it’s the 50-yard bomb.  But whatever it is, they tend to revert back to it again and again.

Successful play calling, however, requires creativity, strategy, skill and execution. 

One of the strategies I consistently use in negotiation (I’m giving away secrets here) is that I often try to do the other agent’s job for him.  In other words, if I have a buyer and we’re asking for repairs during the inspection process, I bring contractors in to document the problem.  I obtain bids (sometimes from multiple sources, all of whom I trust) for different levels of repair.  I then present a couple of pre-packaged “solutions” to the seller’s agent – ones that have been researched, priced, documented and which are presented in a highly organized way so that all the seller has to do to keep the deal moving is say “yes” to one of my pre-determined solutions.

Is that more work?  Yes.  Does that take more time?  Yes.  Does it require more skill?  Yes.  Is it worth it for my clients?  Absolutely.

Foresight is better than hindsight.  Strategy is better than reaction.  Skill is better than luck.

So back to the original question.  If the game is on the line and you have one chance to win, who do you want quarterbacking your team?  Someone with 20 years of experience and the highest credentialing in the business, or someone who just wandered on to the field and picked up a helmet?

Whether you are buying or selling a home, the decision you make is often the difference between the thrill of victory and the agony of defeat.

Sunday, August 18, 2013


"Congratulations, you sure showed them!"

That’s the first line of a “mental letter” I have composed many times this year.  It’s been “written” to many so-called buyers who, over the past two years, have discarded my advice, once-in-a-lifetime financing opportunities and overwhelming demographic evidence to die on the hill called “looking backward”. 

These are people who kicked the tires on dozens of houses, perhaps wrote a handful of lowball offers, never got close to putting a deal together, and now sit on the sidelines, complaining as rates have risen and prices have gone up 10% or more in the past year.

As I said, you sure showed them.

You cannot successfully use 2010 strategies in the market of 2013.  You cannot tenaciously hang your hat on dated comparable information (thanks, Zillow) and predatory buyer psychology when inventory is down 70% from the peak and anything that shows well and is priced within reason is almost immediately subject to multiple offers.

This is now a forward-looking market.  It was over two years ago now when the giant ship finally turned and began sailing in the right direction.  Prices are not going lower, they are going higher.  Interest rates are not going lower, they are going higher.  Sellers are going to ask for more, not accept less. 

You had a unique, incredible window of opportunity, and if you chose to overplay your hand (as many did), you blew it.

Now the question is, what happens if you wait another year?  Do you think affordability will be higher 12 months from now than it is today?  Do you think prices are coming back down because banks made loans to people on homes that generally cost less than replacement value who had sizeable down payments and excellent credit? 

I’m not feeling that bubble-thingy you keep talking about… at least not yet.

As I’ve said before, I’m going to judge this market by the quality of buyer in the front seat of my car.  As long as they have large down payments, excellent credit and real jobs, this run has a ways to go.

But for those of you who cannot change in the midst of changing circumstances, that’s okay.  You keep right on renting and every month, you’ll be moving someone else (namely, your landlord) one step closer to financial independence. 

As I said, you sure showed them. 

Saturday, August 17, 2013


There’s a new breed of buyer in the market.  It’s the buyer who doesn’t care, and if you end up competing with him, you will lose.

The buyer who doesn’t care is fed up with spending Saturday after Saturday looking at homes, writing offers, and getting nothing.  He’s fed up with watching prices rise while he sits on the sidelines.  He’s fed up with watching his future monthly payments go up via rising rates.  He’s fed up with haggling over nickels and dimes while the opportunity cost of waiting is counted in hundreds and thousands.

He’s tired of expending the mental energy.  He’s come to terms with the fact it’s a competitive market, especially below $300,000.  He doesn’t want to miss any more of his kids’ softball games or dance recitals while he’s out chasing the latest “deal”.

And so, when he gets to this point, he is simply going to do what it takes to win.

I have had a few buyers who don’t care anymore in my car this year.  They are not there anymore, I’m pleased to say, as they are now home enjoying themselves on the weekends instead of sitting in Starbucks at the end of another long day throwing together the details of yet another purchase contract.

But I have been on both sides of it.  I have lost numerous homes and deals this year when competing against buyers who don’t care, because frankly, they don’t care.  If my client chooses to go conservative and someone else chooses to go all-in, we’re going to lose.  That’s just the way it is in 2013.

The point of this is not to say that the buyer who doesn’t care is good… or bad.  It is simply to educate you to the fact he is out there, he’s looking at many of the same houses you are, and for him, the search is going to end today.

He’s reached a point where it’s no longer fun.  He knows he wants a house.  He knows the market is hot.  He knows that a good market will make even marginal decisions look wise.  And so he quit worrying about the minutia and negativity that control people’s minds in a down market.

He’s going to buy a house.  And he doesn’t care anymore.  

Sunday, June 30, 2013


Many of you are familiar with this large, bulky, slightly weathered binder that I often break out during listing appointments and buyer consultations.

It is a binder full of laminated spreadsheets, over 90 of them, dating back to 2006.  Each spreadsheet provides a “snapshot” of what our market has looked like on a on a month-by-month basis, with data personally extrapolated from the Denver MLS on the 10th of each month.

In 19 years as a real estate broker, one core conviction that I have developed is that the numbers always tell a story.  And if you’re paying attention, you can see the story being written.

From 2005 to 2010, our market here in Denver went through some dark times.  Colorado actually led the nation in “foreclosures per capita” in 2005 and 2006, driven in large part due to the fact that until 2007, Colorado was one of only two states in the county (Alaska being the other) that had no kind of licensing or registration program of any kind for mortgage lenders.

Lose your license in Miami?  "Come check out the Rocky Mountains!" Busted for fraud in Vegas?  "Hey, they are hiring in Denver!"

That nonsense finally ended in 2007, when Colorado got serious about regulating its mortgage finance industry, but not until terrible damage had already been done. 

Between 2005 and 2008, over 83,000 homes were lost to foreclosure in the seven county Denver metro area.  Banks dumped homes on the market, literally piling them on top of one another, until we had more than 31,000 homes for sale in the Denver MLS by the middle of 2007. 

In 2008, over half of the homes listed for sale in the Denver MLS never sold.  Buyers were fearful, spooked, afraid.  The economy tanked.  Interest rates plunged.  The foreclosures continued, and continued, and continued.  With prices falling and few buyers to be found, new construction vaporized.  Builders abandoned communities in mid-development.  Contractors and construction workers were fired en masse.  The stock market plunged. 

In 2009 and 2010, the government got involved, offering tax credits and rebates to home buyers.  Many stepped forward, taking advantage of low rates and temporary government subsidies.  But still the foreclosures continued. 

By the end of 2010, most people had internalized a new set of beliefs about real estate.  Housing was bad.  Houses make you poor.  Smart people rent.  Only fools buy real estate.  And over one-third of the real estate licensees in Colorado quit the business (because it was really, really hard!).

And then, like a passing summer storm, it ended.

If you were paying attention, by early 2011, you could see it.  Small patches of blue sky behind the dark clouds.  Inventory began to thin, absorption rates began to drop.  Foreclosures started to dry up.  Rents began to increase.  Cash buyers suddenly materialized and became very, very active. 

At the start of 2011, there were 18,000 homes on the market.  By the end of 2011, there were 10,000 homes on the market.  Foreclosures and short sales went from 45% of our market to less than 20% of the active inventory.  Change was happening, and it was tangible.

By early 2012, the numbers were in a full reversal.  Between January of 2012 and May of 2012, the overall absorption rate for homes in the Denver MLS plunged from 5.88 months to 2.22 months – a staggering shift and a complete flip of the supply / demand ratios we had seen during the downturn.

Buyers began finding themselves in multiple offer situations.  Days on market plunged.  Urgency replaced passivity.  Prices began to rise.

Now, halfway through 2013, in most parts of town, it has turned into a shootout.  Over 40% of all homes sold in the Denver MLS so far this year were on the market less than 7 days.  I have seen properties with 7, 15, 25 competing offers.  I have sold listings before they went in the MLS, with motivated buyers pouncing on nothing more than a “Coming Soon” sign in the front yard. 

Zillow says home prices have increased 13.4% in Denver in the past year.  Case-Shiller reports a 9.8% increase.  Core Logic’s estimate is 10.5%. 

The newspapers and television stations now bemoan our “terrible inventory shortage”.  We hear new terms like “price aggression”, which is what happens when sellers list homes 10% over the most recent closed sale.  (It’s the exact opposite, by the way, of “lowballing”, which buyers practiced without fear or remorse when the market was declining)

And just this morning, I saw online that Wells Fargo and B of A are now once again offering “piggyback” loans, second mortgages which are piled on to an 80% first mortgage to lower down payment requirements. 

Interesting how everything old suddenly feels new again.

Now, there are notable differences between this market and the one that crashed seven years ago.  For one, today’s buyers must have excellent credit and real down payments.  New construction essentially ceased to exist for five years while the population in Colorado increased by 2% per year.  And even with 30-year fixed rates on the rise, the affordability of this market is just crazy compared to what we saw when prices peaked in 2006, when rates were in the high 6s and occasionally over 7%. 

That’s the power of tracking numbers.  They always tell a story.  And if you pay attention to them, it’s much easier to anticipate what the next chapters will look like before we actually turn the pages. 

Will this current run on housing last forever?  Of course not.  But before it changes, the numbers will begin to whisper.  And if you’re paying attention to them, you’ll know what to do.