ON TURKEYS AND TURNKEYS

The overall absorption rate, which stood at 5.00 months when the tax credits expired April 30, now stands at 9.17 months. In simplest terms, the market is suffering from a post tax credit hangover.

Not entirely unexpected, but not enjoyable, either. For well over a year, tax credit incentives pullled first-time buyers off the sidelines and into the game.  The challenge that sellers face now is that without first-time buyers, who historically make up about 40% of the market, there simply aren't enough traditional buyers left to soak up the existing inventory.

We’ve seen the biggest drop in activity at the lower price points, which is not surprising, given that that’s where the tax credit “juice” was aimed. Market time for homes priced below $250,000 has risen from 3.36 months to 6.42 months, and for homes in the $250,000 - $400,000 range, it has increased from 5.20 months to 10.12 months.

While most of us believed there had to be an adjustment period in the post tax credit era, sellers need to know what's happening today, because the market that whisked homes away at a brisk pace in March and April is gone, even with rates now sinking into the mid 4’s.

So what is selling right now? Based on what I'm seeing, it's TURKEYS and TURNKEYS.

Turkeys are those “investor specials”, with moldy basements and broken windows, shag carpet and missing sinks, foot-high weeds and leaky roofs.

Turnkeys are those homes fixed up, or homes that have been updated and upgraded… with new electric panels, new roofs, new carpet, new granite, new paint, new appliances… there is still a market for quality, and in difficult economic times, buyers are drawn to value or quality, or both.

Turkeys make up about 10% of the market, and right now, they’re still selling.

Turnkeys make up about 10% of the market, and they’re still selling.

For the 80% in the middle, it’s not so easy.  In my opinion, sellers now need to determine if their home plays to value or plays to quality.  Whatever your home's strength is, play to it.  If it plays to neither, start cutting the price, or pull it off the market altogether and wait for the hangover to pass.

For the first time in three years, overall inventory is rising again.  Like it or not, you are in competition.  Serious, serious competition.  Which means only serious sellers will have success during this transitional period.

CRIME REPORTS

Let me start this post with a disclaimer - in the Colorado Real Estate Commission buyer agency agreement (sec 25), the contract plainly states that it is the buyer's responsibility to figure out who your neighbors are and whether or not you are comfortable with that.  When it comes to neighborhoods, buyers (and not agents) make the call.

I will always recommend checking with the Sherrif, local police or whatever other law enforcement agencies are important to you to get a feel for a neighborhood before you purchase a home.

Having said that, there's a good online resource I use to track what's happening in my area called "Crime Reports" (http://www.crimereports.com/). 

Simply speaking, Crime Reports lets me type in a physical address and then asks me what kinds of crime I'd like to be made aware of.  Each week, I get an email report showing law enforcement activity that has occured in my neighborhood.  Not always pleasant, but very, very valuable information.

Keep in mind that Crime Reports data is pulled from public records and may not always be complete or 100% accurate.  But it's a good starting point for knowing what's happening in different neighborhoods and areas.

7065 INGALLS COURT, ARVADA

Wanted to take a few minutes to promote a beautiful new listing at 7065 Ingalls Court in Arvada.  This is a meticulously maintained three bedroom ranch with a long, long list of updates and improvements made over the past few years. 

* new kitchen countertops and cabinets (2008)
* new roof (2007)
* new vinyl windows upstairs and in the basement (2005)
* 200-amp electrical service upgrade (2004)
* full sewer line replacement with outside cleanouts (2004) *
*permitted dining room addition (2000) that adds a 160 square foot dining space to the kitchen. 

Just down the street from Swanson Elementary and priced to sell now at $200,000.  Check it out!

THE "RON APPROACH" TO SELLING

Late yesterday afternoon, I popped into Costco to scratch an itch that has been bothering me for 10 years. You see, while I am not a big television person, I’ve had the same 100 pound Panasonic box-monster color television set since the early 1990s. Uncool, I know. And yes, I’ve heard it from my family.

So we decided it was finally time to contemporize.

Being a deliberate person, I wanted to start by doing my research. Maybe look at a couple of different models, jot down some notes, then do hours of research on the computer. At least that was my plan, until I met Ron.

Ron is a man in his mid 60s who sells televisions at Costco. Nice guy, personable. Ron approached me as I was staring at the different models, which all looked strikingly similar to my untrained eye, save for price.

“What are you looking for?” Ron said.

“Just checking things out, taking some notes,” I said.

And from there, over the next 10 minutes, Ron proceeded to share enough information with me to make me an expert on flat screens. He explained the difference between plasma and LCD (plasma does better in dark settings, like a basement, while an LCD views better in a bright space), why higher HZ settings are better for sports or action (lower HZ settings blur during camera movement), and how many video games and Blu-ray players require 1080 pixels for the best image while most television channels are fine with 720 pixels.

In the end, we found a nice “mid-range” flat screen that is bringing joy to my household already.

Thanks to Ron, I didn’t overbuy for what I needed. I had confidence about what I was doing. And he let me make the decisions. Frankly, it was about the best sales experience I’ve had this year.

Which brings me back to real estate... because our clients certainly deserve to have at least as much clarity about what they’re doing in buying a home as I did in buying a flat screen. Ron took me from “apprentice” to “expert” in a short period of time, and because of it, I would buy from him again in a second.

I have always taken the “Ron approach” to selling real estate. I just didn’t know what it was called. My hope is that my clients feel the same way at the end of the process as I felt when I pushed that big cart out of Costco yesterday afternoon.

BEWARE OF SEWER SCAMS

With all of the older homes in the Denver metro area that have turned over in the past few years, one recurring point of caution for buyers is checking the condition of the sewer line.  For any older home, I will almost always recommend that this service be performed during the inspection period to ensure there are no costly breaks or "bellies" (sags) in the line that could lead to a sewage backup.

Sewer scopes are not glamorous events.  And not all companies are reputable.  Here are a few tips for protecting yourself from sewer scams.

* Check references and obtain price quotes from several different companies before contracting with a plumber or drain cleaning company

* Find out what warranties, if any, are offered with the service

* If your line needs to be cleaned, make sure the plumber or drain cleaning service uses a three or four inch cutting blade, as most residential sewer lines are four inches in diameter.  A small blade may be easier for the technician to use, but it may not effectively cut the roots and the line will clog again in a shorter period of time.

* If your sewer line is scoped (inspected with a video camera), make sure you get a copy of the DVD showing the camera's journey through the line, and that the DVD you receive is actually for your sewer line and not someone else's.

Finally, realize that there is no such thing as a "perfect" sewer line, and that different inspectors may have slightly different opinions about the severity of a situation.  By all means, if you are concerned, get a second opinion or make sure that the inspector has adaquately explained his findings. 

Sewer line repairs and replacements are costly... and I am stunned at how often buyers (and sellers) of older homes don't even know that they should be inspected and cleaned.

One last thing... some local municipalities (like Arvada) will actually volunteer wastewater division staff members to review your sewer line DVD with you to help you assess the condition of your pipe.  Check with your city or municipality to see if they provide any similar service.

Sewer line repair scams are costly.  The best protection against scams is a solid education, so make sure you understand the situation precisely before making any major decisions. 

IN THE "ATC" ERA, IT'S A STANDOFF

In the After Tax Credit world of real estate, I find myself being asked the same question again and again... how's the market?

And, much to the dismay of my audience, my answer remains... it depends.

A good home in a great location at the right price will sell in any market, including this one.

A good home in a great location that's not priced right will get activity, but it won't sell.

And an "okay" home in an "okay" location that isn't priced aggressively is a dead listing, at least right now.

Buyers tend to be ahead of the market.  Sellers are living behind it.

By that I mean, most buyers today are operating from a very cautious perspective.  They have seen others get burned in the market.  They are attuned to the negative headlines in the news.  And bottom line, they want a deal. 

They assume things will get worse and they want pricing based on calamity that isn't here yet.

Sellers, on the other hand, are married to the past.  I have probably talked to a half-dozen sellers this year who have referenced appraisals that were done in 2007.  An appraisal done in 2007 isn't worth the paper it was printed on today.

There is a very large perception gap in the market, and it's a difficult one to bridge. 

Therefore, for many buyers and sellers, we are now in standoff mode.  People make decisions based on how they feel.  Buyers feel cautious.  Sellers feel angry.  Bad match, a lot of the time. 

Agents need to bridge the perception gap.  If you have a listing, you need to explain why it's priced where it is.  You need to provide current comps.  You need to itemize the features and sell the benefits.  Do not send me an appraisal from 2007.

If you are working with a buyer, you must provide a reality check.  Interest rates are in the 4's (are you kidding me?).  Values at the lower price points have adjusted and corrected.  Values in mid-market are steady.  Values at the high end are soft and getting softer.  

Educate, educate, educate.

Deals are getting done in this market, even after the expiration of the tax credits.  But it's reasonable sellers and reasonable buyers who are meeting at the closing table.  For everyone else, it's a standoff.

WINNING VERSUS BEING RIGHT

I have been privileged to know a lot of smart people in my life, and I have been blessed with the collective wisdom of a lot of very successful real estate professionals during my 16 years as a broker.

One of the most important lessons I learned early on in my real estate career was the difference between "winning" and "being right".

In simple terms, winning is solving a problem.  Being right is being right.

What I have found is that solving problems pays extremely well, and being right often pays little or nothing.

So what does this conversation have to do in the context of real estate transactions?  A lot, especially now, especially since deals are harder to put and hold together than they have ever been before.

Every deal is going to have some drama, somewhere along the line.  It's a given.  Whether it's inspection drama, appraisal drama, financing drama, buyer drama or seller drama, there's no such thing as a clean deal anymore.

And in every situation that calls for communication, negotiation or interpretation, we have a choice to make.  Is our choice to solve the problem (winning), or is our choice to skillfully assign blame on whoever we perceive the offending party to be (being right)?

Sadly, I have seen many transactions where people have blown up perfectly salvagable deals because ego overrides purpose.

Our purpose, as I define it here, is to protect the interests of our clients, negotiate on their behalf, and leave them in better shape than when we found them.  We should know enough about our clients to know what their interests are, and if we don't, we haven't done enough frontwork to adaquately represent them.

The truth is there are "difficult" people in the world.  Sometimes they dress up as buyers.  Sometimes they are dressed as sellers.  Sometimes they are agents.  Our job is to navigate around personalities and focus on solutions, which exist to almost every problem. 

Sometimes those solutions are painful.  Sometimes they just take different thinking.  But if you are focused on "who's right" instead of "what is the best outcome I can devise for my client", you're missing something. 

We're not paid to be right.  And our clients don't hire us to win ego wars.  We're paid to advise, consult, negotiate and close.  We're paid to defend and protect our clients.  We're paid to solve problems. 

Every day, you will find someone standing in the road, blocking traffic, in the name of "being right".  If you can skillfully learn to drive around that person, you will never be at a loss for business.  

LATEST CASE-SHILLER NUMBERS SHOW 4.4% PRICE GAIN IN DENVER

For the sixth month in a row, home prices in the Denver area showed a year-over-year price increase in April, rising 4.4 percent from April 2009, according to the latest Case-Shiller Home Prices Index, which was released earlier this week.

The increases came during the last month of the federal homebuyer tax credit, which expired April 30 and resulted in a flurry of first-time buyer home purchases.  Denver was one of 13 cities in the 20 city Case-Shiller survey that showed a year-over-year increase in prices in April.

However, as I've stated repeatedly in the blog, we continue to find ourselves in the most segmented housing market in many years, with fair-to-strong demand at lower price points and soft-to-no demand at the highest price points.

The 4.4% increase reported by Case-Shiller is actually a combination of the momentum of lower priced homes slightly outweighing the negative drag at the higher end of the market.  As of mid-June, there were about 2.5 actives for sale under $250,000 to each one under contract, compared to nearly 19 homes for sale at prices above $1 million to each one under contract.

Low-end warm, high-end cold. 

The 4.4 percent rise was Denver’s largest year-over-year price increase of the last six months. As compared to a year earlier, Denver prices climbed 4.1 percent in March, 3.6 percent in February, 2.6 percent in January, 1.2 percent in December 2009 and 0.5 percent in November 2009.

November 2009’s rise was the first overall year-over-year home price increase in the Denver area since November 2006.  Between those months, Denver had 36 straight months of year-over-year price declines.

As recently as early 2009, Denver was showing year-over-year home price declines of 5 percent or more, peaking at a 5.7 percent drop in February 2009.

THE SLIGHT EDGE

"Do the thing, and you shall have the power."

                                   - Ralph Waldo Emerson

What separates winners from losers?  What causes one to succeed where another may fail?  In Jeff Olson's "The Slight Edge", the author asserts that it is a fine line that separates most people from their dreams, and that it is the timely, consistent application of personal discipline that launches people toward great results.

According to Olson's philosophy, time will be your friend or time will be your enemy.  Time will reveal the quality of your work, or it will reveal your failure to prepare.  Like compounding interest, simple disciplines repeated daily yield amazing results.  Failure to take action, on the other hand, leads to a slow drift down a lazy river until one day you wake up at the crest of a great waterfall.  Tony Robbins calls this phenomenon "The Niagra Falls Effect".

Olson says that the world is full of negative people "because it takes far more creativity and skill to construct a building than to demolish it."  As a result, Olson says most people are in the wrecking business.

To overcome this negativity, we need to set and clearly articulate our goals.  We need to have deadlines.  And we need to work on the margins of each day to make sure we are constantly improving, constantly adding skills, and finding new ways to create value.

Olson's Slight Edge philosophy can be summarized well by a Chinese proverb:  "Be not afraid of going slowly - be only afraid of standing still."

The Slight Edge is about moving foward, all the time.  It's about working effectively, efficiently and with purpose.  It's a philosophy for gathering momentum, which leads to completion. 

In my business, it's about making one extra phone call.  Sending one extra note.  Going back to a stalled negotiation one more time.  The Slight Edge is about the doing the little things most people won't do so that you generate results that most people will not. 

It's not science, but discipline.  And personal discipline has always been the fuel that propels people to achieve their highest potential. 

ARE YOU AN "AUTHENTICK"?

Saw an absolutely fascinating article in Realtor Magazine recently about psychographics, the study of backgrounds, lifestyles, beliefs and aspirations to develop portraits of consumer behavior.

Years ago, Tony Robbins educated me on "Auditory, Visual, and Kinesthetic" learning. In other words, all people learn differently, and if you can tell whether people learn and communicate best by sound, sight or touch, it will greatly improve the quality of your communication and presentations. It's a high level skill and one I really enjoy applying in my business. (I'm a visual, by the way)

Psychographics seems to take it to the next level.

Dennis Cahill, who runs the Ohio-based company that created psychographics, uses the following chart to educate salespeople on how to communicate with different types of clients:

ACHIEVERS - are ambitious, hardworking and family-oriented. They often want a high-end home that reflects their success. They are looking for a sophisticated, low-key marketing approach that appeals to status.

AUTHENTICKS - are individualistic, community-oriented, environmentally conscious and aware of world affairs. They tend to like open, airy floorplans with large windows and plenty of space. They choose an agent based on relationships, driven by personal connections and referrals.

HEARTLANDERS - are guardians of traditional values, like family, country and community. These people are often drawn to established subdivisions and put an emphasis on community, but they do not like dramatic change.

TRENDERS - are early career strivers who want to grow up to be ACHIEVERS. They like popular neighborhoods and convenient urban locations that offer lifestyle as well as a place to live. They're often techy, and want you to be techy too.

SELF-SUFFICIENTS - are often blue collar workers or tradespeople. They lean toward traditional styles, but are not averse to fixer uppers. They like value and comfort, and don't want to be dazzled with statistics.

Of course, there are variances to all of these generalities, but the conversation is interesting. The goal is always to communicate clearly and deliver the information your clients need in a way that connects with them.

If ours is a service-based business, then part of that service has to be learning to communicate in the most effective ways possible. It means being a lifelong learner in all areas - not just in market statistics and home design, but in communication methodologies as well.

LIFE AFTER THE TAX CREDIT - CHAPTER ONE

Can't say this is a surprise, but the real estate market in Denver hit a wall in the 30 days immedately after the tax credits expired.  The absorption rate for homes priced below $250,000 rose by over two full months, from 3.36 months to 5.42 months, while the inventory of homes priced between $250,000 and $400,000 rose from 5.20 months to 7.75 months.  

"Absorption rate" is a mathematical calculation that shows how many months it would take to clear out all inventory in a given price range, assuming no new inventory was to come on the market.  For example, if there were 100 homes for sale in a given price range and 10 of them went under contract in the prior 30 days, you would have a 10 month supply of inventory.

Real estate economists will tell you that six months of inventory represents a stable market, favoring neither buyers nor sellers.  Any number below that (like the 3.36 months supply of sub-$250k homes we saw in April) represents a seller's market, while inventory above six months is considered to be a buyer's market.

Overall, during the past month the inventory of homes in Denver has risen from 5.00 months to 7.53 months, which basically reflects a 50% increase in the absorption rate.  Any way you cut it, May was not a good month to be selling your home.

We knew with the flurry of activity at the tax credit deadline, things were bound to cool off in May.  And they did.  In my opinion, it's going to be a good 60 to 90 days before the market stabilizes and we figure out what "normal" looks like going forward. 

Rates are still low, but with tax credits now out of the picture, the focus goes 100% back toward the overall economy.  No jobs, no recovery.  No jobs, no buyers.  No jobs, more foreclosures. 

I would gladly take a 1% increase in interest rates for two points off the unemployment rate.  When jobs return, there will be pent up demand for housing.  But until then, we're just in a holding pattern. 

The next move forward in the housing market is spelled J-O-B-S. 

  

IT'S NOT OVER UNTIL IT'S OVER...

When working with buyers and sellers, I sometimes use what my clients consider to be cliches:

"Don't count your chickens until they hatch."

"Buying (selling) a home is a process, not an event."

"It ain't over till it's over."

They're not cliches!

Truth is, in this environment there is no such thing as a "clean" deal.  And to emphasize that point, Fannie Mae has just rolled out its loan awaited LQI - or Loan Quality Initiative.

What is the Loan Quality Initiative?

Well, in simple English, it means there is no such thing as an "Approved Loan", ever.  At least, not until you get to the closing table and funds are wired by the lender. 

Under LQI, any lender wishing to sell a loan to Fannie Mae must re-verify pertinent credit application data prior to closing.  Obviously, if a buyer loses his job or changes employment, the approval is likely going down the drain. 

But what if, while a buyer is under contract, a collection agency files a $37 collection against him for an unpaid teeth cleaning bill from 1974?  Bye bye approval.  Hello default, and potential loss of earnest money.

What if the buyer purchases a new sofa for his new home on credit, one week prior to closing?  See above.  What if a buyer talks to a car dealer and gives permission for his credit report to be pulled (which can affect his credit score) while under contract to purchase a home?  Flush.  

We are undoubtedly living in the tightest, most restrictive lending environment in the past 40 years.  Lenders are scared, plain and simple.  They don't want to lend.  I see it every day.

From backup credit reports to secondary home inspections to third appraisals, lenders seem to act as if they are paid not to make loans.  It's crazy, really.  And it's a huge reason the economy is not turning around as fast as anyone had hoped.   

So when you're sitting with your loan officer for that initial consultation, don't zone out.  Don't daydream or otherwise lose focus.  Because when the loan officer tells you to cut up your credit card and not replace it until after you have closed on your home, she means it.