Wednesday, April 29, 2015


I have seen variations of a real estate marketing campaign on social media channels several times lately.  It’s a picture of Uncle Sam, finger extended, somehow implying that the patriotic thing to do in a low inventory market is to sell your house.

Excuse me?

I have also seen several recent emails and Facebook posts from agents right here in Denver with headlines like “We Need Inventory” and “Realtors Need Houses to Sell”.

Say what?

A great cleansing is coming soon in the real estate world, and it will start with agents who don’t understand that none of this is about them.  Real estate is about the consumer… the first-time buyer, the downsizing retiree, the family selling an estate home after a loved one has passed.

Looking at this business from the Realtor’s perspective is like looking backwards through a pair of binoculars.  It distorts reality, and even worse, it makes the big things (your clients and their needs) seem small when they should be at the center of everything.

In the old days, like three years ago, much of the value Realtors brought to the process was simply through access to data.  Access to the MLS, access to past sales history, access to neighborhood comps. 

In the post-Zillow world, that advantage is gone.

If your value proposition consists of knowing what Mrs. Smith’s home sold for down the street, you’re done.  Today, everyone knows what Mrs. Smith’s home sold for.  What you had better  know, if you want to remain relevant, is what the finishes were like inside the home.  Why she chose to sell it.  How many offers she had.  Whether or not permits were pulled for the basement finish.  If there were structural issues. 

If you are going to bring value to this process, knowing the basics isn’t enough. 

I’ll say it again.  If MLS data is your value proposition, you are done.

Now, you need to know how to market (starting with yourself).  You had better be able to demonstrate how you are a skilled negotiator.  You need to know how to create value.  You must have a strong network of vendors who can help you solve problems.  You must connect people to others who can help them.

Clients expect you to sell their home for top dollar, or find value on the buy side.  You need to be able to demonstrate proven results.  You have to be able to show (not just tell) somehow what sets you apart.

15,000 agents in Denver have signs in the back of their cars.  Yet 1,500 do 90% of the business.  

Third party endorsements are huge.  Reviews matter.  A lot.  When someone Googles your name, you need to make sure they find you.  First. 

You need to save your clients time.  Millennials, in particular, value time.  They have grown up as digital natives in an “on-demand” world.  They embrace disruption.  They like efficiency.  They want results.  They don’t care about how things used to be done.

Adapt or die.  Especially today.  Especially in Denver, the hottest real estate market in the country.  Millennials are now the largest demographic group in Denver.  Many work in tech-based fields.  They make their living disrupting. 

How are you going to create value for them?  What makes you relevant?

If telling them that “Realtors need houses to sell” is your pitch, you might want to start by putting a sign in front of your own house.  Because that type of thinking will soon have you moving on to another line of work, much sooner than you may have planned. 

Saturday, April 18, 2015


It’s hard to tell what is going up faster… home prices in Denver, or the agent count in the Denver MLS.

As of this morning, there are 15,682 agents in the Denver MLS, up over 8% in the past year and more than 20% since the beginning of 2012.  In a strong market, newbies are attracted to real estate like moths to a flame.

I see this every day, as offers come pouring in on my listings.  One of the first things I do when evaluating any offer is that I figure who the players are inside the transaction. 

Who is the buyer’s agent, how long have they been selling, how many homes have they sold in the past five years?  Who is the lender, are they locally or Internet-based, is there any disciplinary history with them or their company that I should be aware of?  And, of course, who is the buyer?  How many offers have they written?  Why is this home or neighborhood important to them?  And how did they get connected with the agent and lender?

Increasingly, as the market has been overrun with buyers, I am seeing more and more buyer agents with 3 lifetime transactions, or 11 lifetime transactions, or quite often, zero lifetime transactions.

With sellers, my job is twofold.  Get the best price and terms possible, and mitigate risk. 

You can look at the other agent as the co-pilot in your transaction.  If that agent has landed 100 flights safely, I feel pretty good.  If they have skidded to a stop at the end of the runway twice (in who knows how many attempts?), then that is a factor worthy of consideration.

Yes, I am biased toward accomplished agents, because I know how difficult it is to hold transactions together in an emotionally-charged market.

One reason buyers under $300k are having such a difficult time is that “it’s hard to compete with crazy.”  Some of the offers I have seen on my listings are just ridiculous…

-  A $235,000 offer (FHA, asking for closing costs, with down payment assistance) for a home on which they second highest offer was $215,000.  Did you know you can find comps in the MLS?

-  An “uncapped” escalator clause that promised to beat any offer ($1 million? $20 million?) by $1,000 and “pay $10,000 if the property doesn’t appraise”.  Pay $10,000 to whom?  To me?  To the sellers?  To charity?  Sounds like a pretty good deal for somebody.

-  And, of course, amateur hour contracts that arrive with missing deadlines, no signatures and a promissory note for the earnest money. (“My buyer has NO money!”)

As a listing agent, I have the discipline to say “no” to crazy.  But many less experienced agents do not.

I’ve said it several times, and I’ll say it again here… often, the highest offer is not the best offer, unless it speaks directly to the appraisal and it’s got an acceptable buyer/agent/lender team.  (Although that “crazy offer” can often be used to jack up escalator clauses on better qualified buyers… thank you very much)

In multiple offer situations, I look at every offer, and then break them down into contenders and pretenders.  In a market where so many buyers are being nudged or pushed into taking homes “as is” or waiving appraisal clauses, you know that many of these buyers are going to get wobbly with the slightest bit of turbulence.  You have to account for this up front, and one way to mitigate the risk is to make sure you have a competent co-pilot working the other side of the deal.

To date, there have been 13,651 closings this year in the Denver MLS.  That equates to 27,302 transaction sides.  Spread among 15,682 agents, that equates to 1.74 sides per agent so far this year. 

But of course, we all know that the world doesn’t work that way.  If we simply apply the Pareto Principle, which says 20% of the people get 80% of the results, what we really have are 12,546 agents fighting over 5,460 transaction sides (0.43 sides per agent).  Feel your collar tightening at all?  That’s not how it looked on HGTV, is it?  Hard to pay the bills on half a sale every four months.

When it’s all said and done, there is going to be a lot of roadkill in the agent world over the next few years.  A lot of buyers will go down, too, working with agents who simply don’t have the skillset or experience to succeed in such a competitive market. 

I often say that most things in life come down to odds and percentages.  While no one can guarantee any one result, the fact is there are levels of probability.  Some agents give you a 90% chance at success, some give you a 70% chance, and some give you a 10% chance. 

In baseball, these are called batting averages.  A .350 hitter is much more coveted than a .180 hitter.  Yet, remarkably, way too many people think that everyone who owns a bat, or a real estate license, is a slugger.  Check the numbers.

Information is available to help consumers make better decisions.  Go to  Google someone’s name.  Ask a friend for a referral.  Whether buying or selling, it’s up to you to get the right people on your team.

In real estate, the barrier to entry is low.  But the barrier to success is high, and it requires a price most people won't pay.  Choose wisely, or live with the consequences of hiring a batboy to do a cleanup hitter's job.

Wednesday, April 15, 2015


I’ll be the first to admit I’ve had challenges adjusting to the current housing boom in Denver.  Call me crazy, but I lived through 2006 – 2010 and I saw what it looked like.  31,000 homes for sale in the Denver MLS.  Seventy percent of the inventory bank-owned or short sales.  Retail sellers with no prayer of being able to sell in the face of gutted, discounted competition. 

You should have seen it!

What, you were there?  You saw it?  Really?

That’s hard to believe, because the people overrunning the Denver market these days bear no resemblance to the people I was spending all my time with from 2006 to 2010, the ones who swore that buying a home was like standing over a trap door.  The ones who would never offer “full price” for anything.  The ones who said that smart people rented.

So how do you reconcile that with today? 

Already this year, I have listed homes that received 32 offers, 19 offers, 14 offers, 12 offers and 8 offers.  Those homes had top offers $33k, $24k, $21k, $12k and $11k over list price.  (Not that we accepted every “top” offer… if you don’t address the appraisal clause in an offer like that, you’re not being serious)

This is the most emotional housing market I have ever seen in 21 years as a broker.  Buyers (and their agents) are literally making crazy offers to try and get homes under contract.  Often, I have to wonder if the agents want the deals more than their clients.

Working with buyers in this market has become darn near impossible, at least under $300k.  That’s because crazy now makes the market.  All too often, well-qualified, well-counseled, legitimate buyers get completely blown out by crazy agents with crazy buyers who write offers that make no sense at all. 

But too many sellers and their agents are enticed by the siren song of a crazy offer, significantly over list price with no chance to appraise.  I’ll say it again – if the buyer’s offer doesn’t speak to the appraisal clause (i.e. waiving the appraisal clause altogether, or willing to go $5k over appraised value, or whatever the buyer feels is appropriate), then you are asking for trouble.

I am spending a lot of time right of now trying to project 12 months into the future.  This kind of emotion can’t last forever.  Right now we’re number one in the country for home price appreciation.  Next year, we won’t be.  Even if we were number four or number five among all fifty states, the headlines in the Denver Post will ominously read “Denver Market Losing Steam”, or “Denver Housing Cooldown Continues.”  It’s predictable.

There will come a tipping point, probably something that none of us can see.  It could be an international event.  It could be a shake up on Wall Street.  Or maybe it will just be a surge in interest rates. 

With all of the new construction in the metro area six to 12 months from completion, what would happen if rates went to 5.5% this fall?  How many buyers under contract right now (with rates in the 3s) would fail to qualify at 5.5%?  If that happened, what would happen to the new construction market?  How many buyers would walk away?  How much unsold inventory would there suddenly be?  Who would make payments at 5.5% when the guy across the street closed on the same home 12 months earlier at 3.5%?

Do I anticipate this will happen?  No, I don’t. 

But could it?  Yes, it could.

I am disturbed at how “drunk on housing” everybody seems to be right now.  I realize that rents are skyrocketing and rising home equity is creating a massive wealth effect.  But everything has a season. 

How long will this season last?  As I wrote earlier a few months ago, the two numbers I will be watching in 2015 are the number of active homes on the market and the area unemployment rate. 

Right now, unemployment in Denver is 3.5%, statewide it’s 4.1%.  We are at the top of every national list for jobs, growth, consumer confidence and projected future appreciation.  If the employment market remains strong, then housing should continue to march in lockstep.

Today, buyers have real jobs, real credit scores and real down payments.  That wasn’t always the case in 2006, and that means our buyer pool is significantly stronger today than it was then.  Even if some of their offers are crazy, at least buyers are employed.

The inventory of homes - currently about 5,300 - is down 15% from a year ago.  The ten year average for homes on the market during the spring is around 16,000, so inventory remains incredibly tight.  

But I still have to listen to that still, small voice that says nothing lasts forever.  When everybody is heading east, you have to at least give some thought to heading west.  Or at least take a few steps in that direction.

Twelve months from now, we’ll all know exactly what we were supposed to be doing in the spring of 2015.  Buying.  I mean selling.  I mean moving to Fort Collins.  I mean moving to Charlotte. 

It’s not easy to make decisions in the moment, just as it wasn’t easy to leave California in 2005 after a ten year run on housing and move to Denver.  People said I was crazy.  I wasn’t. 

I’m not leaving Denver.  I love it here.  And I think our market is still legit.  But it’s less legit that it was a year ago, and certainly a lot less legit than it was three years ago, when people unknowingly walked into small fortunes just by signing on the dotted line. 

The numbers made incredible sense, then.  They make less sense today.  Although you would never know it if you walked into any builder’s office at 2 p.m. on a Saturday afternoon.

Thursday, April 9, 2015


It’s no secret that appraisals have been a challenge in Denver’s scalding hot real estate market.  Last month, the heat got kicked up even higher with the official launch of Fannie Mae’s Collateral Underwriter system, a new database which contains property data from over 12 million appraisals which have been completed since 2011.

The purpose of Collateral Underwriter, according to Fannie Mae, is to stop appraisal fraud by creating a database with information on what may eventually be every residential home in the country. 

Under the new system, all properties are rated on a scale of 1 to 5 in different categories.  Additionally, data is gathered regarding value adjustments appraisers make for lot size, bed and bath count, age, location, condition, views and gross living area.

Now, if an appraiser uses 123 Main Street as a comparable, Fannie Mae can see what other appraisers have said about the same property in different appraisals.  If one appraiser makes a sizable price adjustment for an extraordinary view and another appraiser gives the view no value… appraiser number one can expect to be contacted by Fannie Mae asking them to comment on why they gave so much value to the view when another appraiser ignored it.

Can you see where this is headed?

I’m not saying Collateral Underwriter is good or bad.  I am saying that it has the effect of forcing appraisers to be conservative with their adjustments, or they run the risk of having future appraisals flagged for further evaluation before Fannie Mae will accept them.

The truth is, not only does Collateral Underwriter evaluate real estate, it also evaluates appraisers.  And appraisers who want to work with Fannie Mae-approved lenders (i.e. virtually everybody who originates loans) are going to be influenced by this new program.  Get flagged often enough for questionable valuations or adjustments, and the appraiser could lose his or her Fannie Mae certification altogether. 

One appraiser I spoke with recently told me he is already rejecting over 50% of the appraisal assignments he receives, in large part because he doesn't want to touch deals that might cause friction with the Collateral Underwriter system.  He's looking for safe, clean, easy appraisals.

Which means that many of the tougher appraisals (which usually means unique homes with non-conforming features or homes under contract at prices above recent neighborhood sales) are going to start falling into the hands of the least competent appraisers, or those most desperate for business, and there is going to be more turbulence around them as Fannie Mae kicks appraisals back for additional comment and review.

What it probably means is this… it’s going to make appraisals take longer and be more expensive.  It is going to slow the loan process and delay loan approvals.  And it is going to result in more conservative valuations, which really is the reason Fannie Mae launched the program. 

If you are writing an offer that’s out of sync with neighborhood values, or if you are listing a home that falls outside the parameter of recent sales, you can bank on more scrutiny – and a bias toward lower valuations – with those appraisals. 

Collateral Underwriter is intended to serve as a damp towel on top of rising real estate values.  It is designed to hold the market in check and stop bubbles from forming.  It will make appraisers more conservative and occasionally kill legitimate deals. 

If you are a listing agent, engaging with the appraiser upfront and providing everything you’ve got in terms of comps, improvements and market demand is now more important than ever. 

And if you’re listing a home and your agent isn’t talking to you about Collateral Underwriter, then chances are you have someone who doesn’t know what’s going on… and how is that likely to turn out?

Wednesday, April 1, 2015


Yesterday, I had a client contact me about a home on Utica Street in Denver.  Built in 1907 and just one block from Sloan’s Lake, it’s a sharp little 3 bed, 1 bath bungalow measuring 1,360 square feet with a 330 square foot cellar.

Listed on Monday, it went under contract Tuesday at what is surely something close to its listed price of $350,000.

“It’s already under contract”, I sighed last night, repeating the most often used phrase in Denver real estate for the past 18 months.  “But let me do some digging and see what else I can find out.”

What I found out was this this home had an interesting, and telling, sales history. 

Foreclosed on in 2009, it was sold by the bank to a cash investor for $157,000 after being on the market for 22 days.  A few months later, it was flipped for $255,000, this time after 25 days on the market.  And now, at $350,000 in the hottest real estate market ever, it was gone in one day with multiple offers.

I have three separate listings under contract right now that were each purchased in 2011 which have seen more than $100,000 in equity gains in less than four years.  Two of the three were bank-owned when my clients purchased them, and the third was an estate sale.  Each languished on the market for weeks in 2011 before my clients bravely stepped forward to claim them.

Today, those same homes drew eight, 19 and 32 offers, respectively.  The property with 32 offers had 128 showings in four days. 

All three of those listings were starter homes, priced below $250,000, which is clearly the insane-zone in today’s market.  With no condos for sale (thanks to Colorado’s construction defects law) and nothing being built under $400k, the demand for anything resembling entry-level housing is over the moon.

The numbers in today’s market are so mind-blowing that it’s hard to comprehend.

For example…

- Four years ago, there were nine times as many homes for sale under $250,000 as there were homes listed above $1 million.  Today, there are more active listings priced above $1 million (720) than there are homes for sale under $250,000 (531).

- Four years ago, there were more than 19,000 homes for sale in the Denver MLS.  Today, there are 4,414.

- Four years ago, marketwide, there were four times as many homes for sale as there were homes under contract.  Today, there are nearly twice as many homes under contract (7,297) as there are homes for sale (4,414).

- Five to six months of inventory is considered a “balanced” market.  Four years ago, there was 6.20 months of inventory.  Today, the inventory of homes for sale in the Denver MLS stands at less than one month (0.92), which is the tightest inventory I have seen in two decades as a real estate broker.

If you are trying to buy a home in this firestorm, you had better start by figuring out how to make your offer competitive in an environment where the conversation often begins and ends with the appraisal.

Cash buyers have huge leverage because they can waive their appraisal clause altogether.  All things being equal, cash wins every time.

Large down payment buyers with reserves in the bank (to cover a potential shortfall on the appraisal) are next in line.  Then come smaller down payment buyers willing to pay some fixed amount over the appraised value ($3,000… $5,000… $10,000… whatever their comfort level is).  Then comes smaller down payment buyers who may not be able to cover an appraisal shortfall.  Then comes FHA, VA and whatever down payment assistance programs are in circulation at any given time. 

There is a hierarchy of buyers, and if you don’t have the ability to deal with a property that may fail to appraise, you’re likely to keep losing until the big dogs have all come through. 

For years, I have said that I would judge the market by the quality of buyers in the front seat of my car.  And truthfully, that quality is still pretty good. 

But eventually, all the cash and large down payment buyers will cycle through, opening up the market to smaller down payment buyers, who buy at higher prices.  Then, once they’ve cycled through, the market will open up to FHA and VA buyers, who buy at yet higher prices.  And then, if the banks are stupid enough to do what they’ve always done in the past, there will be low or no down payment programs for those stragglers who have lost out altogether, and these buyers end up shelling out absolute top dollar when the market finally stalls out. 

You can guess what happens next.

We're not close to this point yet.  For 20 years, I have always said that the numbers tell a story.  And today, the numbers are still telling us that this market has legs, and that will continue as long as people keep flocking to Colorado.