Golden Real Estate’s monthly Sustainability Series continues next Thursday, April 18th, at 5 p.m. with Session #4 about electric vehicles.
Eleven people have already signed up for this session, but we have room for twice that number, so sign up if you’ve been wanting to understand the technology, economics and practicality of owning and driving electric cars.
Did you know that electric cars outsold gas powered cars until about 1915? Drivers (especially women) preferred them until, ironically, the electric starter made gasoline-powered cars easier and safer to start.
So, electric cars are not new. What’s new is the battery technology which now allows EVs to carry enough stored electricity on board to provide a range approaching that of a tank of gasoline — as high as 300+ miles.
Lead acid batteries were the only kind that the original electric cars could utilize. Today’s batteries are lithium-ion, but within a few years there will be solid state batteries.
This is just some of what you’ll learn at next Thursday’s session. To reserve your seat, email me at Jim@GoldenRealEstate.com. The session will be at our office, 17695 S. Golden Road, in Golden.
If you can’t attend, you might enjoy a 35-minute YouTube video of my presentation, “Gas Cars Are Obsolete — and Here’s Why.” It’s online at www.GasCarsAreObsolete.info.
The session is followed on Saturday, April 20th, with a “Drive Electric Earth Day” event in our South Golden Road parking lot, where you’ll be able to interview the owners of many different models of EVs about their cars and why they love them. An electric bicycle dealer is also bringing bikes to test ride! Register as either spectator of EV owner at www.DriveElectricWeek.info.
If you follow mortgage interest rate fluctuations, you may wonder how mortgage rates can drop despite several increases in the Federal Reserve’s much talked about discount rate over the past year.
The benchmark 30-year mortgage rate plummeted 27 basis points (over 1/4 percent) last week, the biggest weekly drop in a decade, creating a huge affordability window for home buyers and for homeowners considering a mortgage refinance. The last time the benchmark 30-year rate was below this level was Jan. 3, 2018, when it hit 4.10 percent, according to Bankrate’s historical data.
This can be a teachable moment, so I asked one of my preferred lenders, Scott Lagge of Movement Mortgage to explain.
According to Scott, financial markets are complex, and many factors impact interest rates. What we are experiencing currently is based to a large degree on consumer sentiment. As consumers, we can have a huge impact on the market based on what we “feel” about where the economy is headed. If we “feel” the market is getting worse, we hold onto our money, spend less, buy less, and shift our investments from short term to long term investments. Therefore, worries about slowing economic growth can change our behaviors as consumers and as investors. Investors worried about the economy slowing in the short-term start to shift their money to long-term investments such as bonds, specifically mortgage backed securities (also known as mortgage bonds). This flood of money into mortgage bonds reduces mortgage bond values and rates fall due to an over abundance or supply of bonds. In essence, it’s supply and demand.
For a more technical explanation, Scott cited this statement from Greg McBride, CFA, Bankrate’s chief financial analyst: “Worries about slowing economic growth — both domestically and abroad — and the inversion of the Treasury yield curve put investors into semi-panic, bringing bond yields still lower after the Fed indicated no more rate hikes in 2019.”
Above is a chart from www.Bankrate.com showing last week’s sudden drop in mortgage interest rates.
Changes in mortgage rates can affect home prices. To the extent that buyers use mortgage financing, what they can afford to purchase goes up or down. As mortgage rates flirted with 5%, we saw a definite softening of the long-running seller’s market. If these low rates last into the coming weeks, we may see more buyers wanting to resume house hunting and lock in a low mortgage rate.
Scott Lagge invites you to call him at 303-944-8552 if you’d like to see what interest rate you qualify for. Call me at 303-525-1851 if you’d like to go house hunting!
Q. I want to get above my listing price. If I get a full-price offer, do I have to accept it?
A. My sellers occasionally ask this question because my listing strategy involves pricing a home at or near current, real-world market value, as opposed to some hoped-for higher price. Sometimes a seller says they don’t want to sell for any amount that’s not above the listing price and asks if they’re required to accept a full-price (or any) offer.
The answer is “no.” Sellers cannot be compelled to accept an offer, irrespective of the offered price. I always explain this up front to prospective buyers (through their agent, if represented) who submit a full-price offer. The Colorado real estate contract states that if the listing agent produces an offer that matches the terms specified, the seller owes the commission to the agent. To better serve my clients’ interests I insert an additional provision stating that the seller, will not owe me a commission on any rejected offer.
At the same time, however, I point out that if the only offer we receive is for full-price (or less), then we didn’t underprice the home, did we?
Do you have a question about real estate that you’d like answered here? Put it in an email and send it to me at Jim@GoldenRealEstate.com.
Perhaps you remember Kim Taylor. She was our office manager and licensed broker associate before moving to the delightful Western Slope community of Cedaredge two years ago. Now she has a listing in that town which we’re happy to feature here. I haven’t seen it myself, but here’s how Kim describes it. This charming 3-bedroom/2-bath home with oversized garage offers one-level living in a quiet neighborhood just 1.5 miles from Cedaredge’s main street with its shops, grocery store, restaurants and the new Grand Mesa Arts & Events Center. Just a 15-minute drive north takes you to the top of the Grand Mesa with over 300 lakes, miles of trails for hiking, skiing, snowshoeing, snowmobiling and spectacular views of the mountains and valley! Just a 15-minute drive south takes you to the Gunnison River with its world class fishing, canoeing, and rafting and the modern Delta Rec Center for staying in shape “off season.” The house sits on its lot in a way that maximizes the tranquil setting! Sit on the front porch and enjoy the views of the San Juan mountains with the wildlife running through the open pasture in front of you, then relax in the hot tub on the secluded back patio and view the abundant stars at night! You will love the open floor plan designed for entertaining. Learn more by visiting www.CedaredgeHome.info or come by the open house Saturday, April 6, 1-4 pm — or call Kim at 303-304-6678.
The real estate industry is unlike any other industry in the way its sales personnel are compensated. Since it is a persistent source of confusion for the general public, allow me to explain.
Imagine you went to a Ford dealership and described what you need in a car or truck. The salesman goes to his computer and pulls up his own inventory and the inventory of all the other dealers in the metro area.
It turns out that Chevrolet or Toyota might have a vehicle that better fits your needs, and the salesman knows that he’ll earn just as much by taking you to their lots and selling you one of their vehicles, so you get in his Tesla and go car-hunting. He even takes you for test drives without a salesman from the other dealership being involved at all. You go back to the Ford dealership, where a purchase offer is signed and emailed to the dealership which has that vehicle. The salesman helps you arrange financing with a trusted lender and sends proof of cash or financing with the offer.
Although there are some “auto brokers” who function as I’ve described above (in fact, I bought my Chevy Volt using an auto broker), that’s not how most car sales transactions work. It is, however, exactly how real estate works.
You’ve probably heard of the Multi-List Service (MLS) on which real estate listings are posted. The central premise of the MLS is “cooperation and compensation.” To be a member of the MLS — essential if you’re in the real estate business — you must agree to cooperate with every other member of the MLS and to offer compensation if another member sells your listing. The percentage commission offered to other members is called the “co-op” commission. In the Denver market, that commission is typically 2.8%. There’s an interesting history of MLS-type “exchanges” dating back as far as the 1880’s, which you can read at www.NAR.realtor.
The listing contract which every agent prepares for a seller specifies the total commission (typically between 5 and 6 percent) and the co-op which the listing agent is offering to other MLS members. In the “old days,” before Taft-Hartley anti-trust laws were enforced in our industry, the Denver Board of Realtors prescribed a 7% listing commission, and prescribed that 40% of that commission (or 2.8%) be offered to other agents as a co-op. Under that formula, sellers would pay 4.2% commission to the listing agent and 2.8% to the selling agent at closing.
Once the Department of Justice said that anti-trust laws apply to the real estate industry, the Board of Realtors and the MLS could no longer dictate commission rates, and listing rates began their inevitable decline as agents competed with each other for listings. This is a good thing for sellers, but it has no real meaning for buyers. Indeed, when listing agents have tried to pay less than 2.8% co-op commission, they have found that buyers’ agents are less likely to show and sell their listings. As a result, listing agents now earn less than buyers’ agents in a given transaction, even though they are the ones laying out money for photographs, brochures, staging consultations, advertising and other expenses associated with maximizing their listings’ exposure to potential buyers.
Now and then, this commission model — wherein the entire commission is paid by the seller — is challenged, but it endures almost universally, if for no other reason than “it works.”
Where this business model causes confusion is when a broker or brokerage advertises a 1% or 2% “listing fee” in order to get a listing appointment, at which time the seller learns that this does not include the requisite (or at least recommended) 2.8% commission to the buyer’s agent.. These brokers and brokerages know that honestly advertising a 3.8% or 4.8% listing fee would garner them far fewer listing appointments.
Another source of confusion is what’s known as the variable commission. This term applies to a commission that is reduced if the listing agent doesn’t have to pay a co-op commission because the buyer has no agent of his own. However, most listing agents — 85% by my calculation — don’t mention reducing their commission in their listing presentations and hope that the seller won’t ask them about reducing their commission if they don’t have to pay a co-op commission. At Golden Real Estate, it is office policy to offer a variable commission.
As real estate values continue to increase, it’s reasonable to ask whether the commission rates — which I’ve said are typically between 5 and 6 percent) should be reduced on the theory that it takes little more money and effort to market a million-dollar home than it does to market a $400,000 or $500,000 home.
The extent to which listing agents can reduce their commission, however, is limited by that 2.8% co-op commission that we feel obligated to offer. After all, if we reduced our commission to, say, 4%, we’d only earn 1.2% after giving away 2.8% to the buyer’s agent.
Where we can be more accommodating on those higher priced homes is in agreeing to a lower variable commission. My practice is to reduce my 5.6% commission to 4.6% when I don’t have to pay 2.8% to a buyer’s agent, but I’m willing to adjust both those numbers on a higher-priced listing. By the way, that appears to be the practice of most broker associates at Golden Real Estate. Because of Taft-Hartley, I can’t dictate what they offer.
About 5% of transactions are double-ended, although that percentage is much higher at Golden Real Estate because of our more extensive marketing of listings and the fact that we offer Totally Free Moving to Colorado buyers when they are unrepresented.
Although it’s common (including by me) to talk about real estate professionals as “agents,” the proper term is “brokers,” because the term “agent,” at least here in Colorado, has a specific legal meaning which is important to understand.
One reason most of us call each other “agents” instead of “brokers” is that here in Colorado the term “broker” is commonly used when referring to the employing broker or managing broker in a real estate company. For example, I’m the “broker” at Golden Real Estate, and my agents are “broker associates.” It’s just simpler (and more common) to call them “agents.”
So what is an “agent” in the legal sense? An agent is an advocate for his or her client, serving with “the utmost good faith, loyalty and fidelity.” An agent will share with his client anything that helps in negotiating the best deal in a transaction. For example, if a broker were to reveal that his buyer is desperate to buy a home or that his seller is desperate to sell his home, an “agent” on the other side of the transaction could (and should) use that information to his client’s advantage. A good “agent” would never let that kind of information slip!
A “transaction broker,” on the other hand, has no such responsibility to his or her client and functions only to facilitate a transaction. Indeed, he is barred from disclosing to one party anything about the other party that would favor that party in negotiating a transaction.
At Golden Real Estate, as at most brokerages, it is our office policy to always function as “agents” for our buyers and sellers. The only exception is when we find ourselves on both sides of a transaction because one of our pre-existing buyer clients (for whom we’re an agent) wants to buy a property from one of our sellers (for whom we’re also an agent). Then we’re obligated to serve as a transaction broker and advise each party that we’re now a neutral facilitator of the transaction and can no longer coach either party regarding price or any other transaction issue.
So what happens when an unrepresented buyer approaches a listing agent about buying his or her listing for which he is functioning as an “agent”? The agent could choose to have the buyer sign an agency agreement, but that would require him to sacrifice his “agent” relationship with the seller and become a transaction broker. It is Golden Real Estate’s policy always to treat an unrepresented buyer of our listings as a “customer,” thereby retaining our “agent” relationship with the seller.
Did I confuse you more? I hope not! Hopefully the broker you employ knows the rules of agency relationship, as we certainly do.