Last Saturday, the Lions Club of Golden dedicated to “All Golden Veterans” a gazebo it funded for the city’s Vanover Park. This is the 5th gazebo that the club has provided for city parks. Visit www.GoldenLionsClub.org for more info about the club, or call Lion Jim Smith at 303-525-1851.
It’s not uncommon for us to get a phone call or drop-in from someone who would like to buy but who might not be in a position do so at this time. They are looking for a rental, and for that we refer them to trusted companies that specialize in rentals. Sometimes the caller or visitor will inquire about rent-to-own, but we explain that it is nearly impossible to find a seller in this market who would consider rent-to-own when they can sell now for top dollar.
I’m happy to announce a breakthrough. Last week our office was presented with a new business model that could fill this gap in the real estate market. The way it works is this: we submit the prospect’s name to a company which, upon approving the person as a tenant, agrees to purchase a house, which that pre-approved tenant can rent.
Once approved, the prospect goes on the company’s website which contains all the MLS listings (sub-ject to company approval) that qualify for this program. The homes can range in price from $100,000 to $550,000. Only townhomes and single family homes qualify for this program — condos do not.
If you’ve looked online for rentals, you are familiar with the limited inventory of rental homes.
The fact that the sellers and listing agents of the qualified MLS listings are offering their homes for sale, not for rent, doesn’t matter. If a prospective tenant finds a for-sale home they’d like to rent, our partner company can offer a lease for that home which states what the rent will be for the next five years, and which also provides a pre-determined purchase price for that home over the same 5-year period.
Let’s say you find a $500,000 home you’d like to rent. If you click on that listing, you’ll find the following grid of rental and purchase prices:
As you might expect, these figures are subject to adjustment, since (1) the listed price may not be the final sale price, (2) the home may need renovation work, and (3) there may be other costs associated with purchasing and owning the property. These and other conditions are spelled out in the lease agreement that is signed by the prospective tenant.
At that point, we represent the rent-to-own company in negotiating a purchase of the identified property. To the seller and to us as a buyer’s agent, it’s an ordinary transaction by an investor. In this case, however, the investor has already identified a qualified tenant for the property.
Although the landlord is bound by the specified rents and purchase prices for five years, the tenant is only locked into a one-year renewable lease and can choose to purchase the home at any time. They can also choose to not renew the lease and simply walk away.
This flexibility will be particularly attractive, I expect, to people relocating to our area who may be able to buy immediately, but don’t want to lock themselves into purchasing the first home they find. They can rent a home they think they might want to buy, then buy another house after the first 1-year lease period is up. They can also opt to exercise their option to buy the house for a pre-determined price — an increase over what their landlord paid for it.
At right is how an MLS listing appears when displayed on the company’s website, showing the listing price on the right and the estimated initial rent on the left.
Although the prospective tenant is not our client — the landlord is — we set up showings for that tenant just like we would for any buyer. When the tenant identifies the home they’re interested in, we tell the company and together we go about buying the property so that tenant can rent it.
If you or someone you know can’t (or doesn’t want to) buy at this time, have them call any Golden Real Estate agent at 303-302-3636 or send an email to info@GoldenRealEstate.com.
In our competitive seller’s market where a listing might attract five, ten or more competing offers, submitted contracts often include something called an “escalation clause.”
An escalation clause is an additional provision worded something like this: “In the event Seller receives a competing contract with a purchase price, net of concessions, in excess of the Purchase Price in this Contract, Buyer agrees to increase the Purchase Price of this Contract to $1,000 in excess of the purchase price of said competing contract, up to a maximum of $______.” I have seen contracts offering as much as $5,000 over a competing contract.
Two things you need to know about this strategy. Most importantly, the seller is completely free to ignore the escalation clause and does not even have to accept the best offer. Secondly, when it’s you submitting the contract with an escalation clause, I recommend not inserting a maximum price. That makes it more likely you’ll receive a call from the seller’s agent telling you what that higher offer is.
This Sunday, April 22nd, is the 48th anniversary of Earth Day. Here are some of the ways you can participate in this annual event and do your part in preserving this planet for future generations.
On Saturday, April 21st, from 11 am to 4 pm, Lakewood will hold its Earth Day Celebration at the Lakewood Heritage Center, south of Belmar on the west side of Wadsworth. A no-charge bicycle valet will be on hand so your bike will be secure while you listen to live music (three different bands will play), do yoga, attend a compost workshop, learn how to create a sustainable backyard, or visit the electric vehicle expo, where a Nissan Leaf, Chevy Volt and my own Tesla Model X will be on display. I, along with other EV owners, will be there to answer questions and demonstrate each car’s features. See a full list of Lakewood’s Earth Day activities (far more than other cities, I’ve found) at www.Lakewood.org/earthday.
Recycling is a popular Earth Day activity, particularly the recycling of electronic waste. Adjacent to their Earth Day event, at 777 S. Yarrow Street, Lakewood is accepting e-waste, but for a fee. Meanwhile, the Denver Metro Association of Realtors will accept e-waste free of charge at its Jeffco office, located at 950 Wadsworth Blvd. from 8am to noon that same morning. You can drop off unused, unwanted and nonfunctional electronics. This is a great way to responsibly recycle nearly anything with a plug or battery! Recycling is open to the public and is free, with the exception of televisions and monitors, which carry a fee of $20 to $60 depending on size. There’s also a $5 charge if you ask to have hard drive data destroyed.
Residents of the City of Golden can recycle e-waste and many other items during its “Community Pride Days,” which is the weekend of May 19-20. The city doesn’t charge for this service, although proof of city residency is required. A Golden mailing address does not by itself make you a City of Golden resident.
Year-round you can bring block white Styrofoam to Golden Real Estate’s “Styrofoam Corral” behind our office at 17695 S. Golden Road. At least once a month, the 10’x20’ corral fills up and we truck it all to one of three recycling/reprocessing facilities, but ours is the only location in Jefferson County for dropping off this material. We estimate that we keep over 200 cubic yards of polystyrene (the generic name for Styrofoam) out of the landfills every year.
Other recycling:
Would you like to know when homes in your subdivision go on the market, go under contract or are sold?
As a free service to our readers, we can set you up to receive an email alert within 15 minutes of any of those real estate events occurring in your neighborhood.
To get it started, all you need to do is send an email to info@GoldenRealEstate.com,. Provide your own address and the outlines of your neighborhood or the name of your subdivision, and we’ll get you set up.
As homeowners 65 and over well know, they get a discount on their home’s property taxes once they have lived in their home for at least 10 years. It’s called the “senior property tax exemption.” For those who qualify, 50% of the first $200,000 in actual value of their primary residence is exempted from property taxation. At 100 mills, that’s worth $720. Rita and I have been in our current house for six years, so we can look forward to saving about that much on our property taxes if we stay put for another 4 years – and if the state legislature continues to fund it, as I’ll explain below.
A veteran who has been deemed permanently disabled by the VA enjoys that same discount, but isn’t subject to that 10-year rule. He/she only has to have owned and lived in the house on Jan. 1st of the tax year. There is also a little-known program by which qualified seniors and veterans can defer the payment of property taxes. Under that program, the state of Colorado pays your local property taxes, creating a lien against your home for the deferred amount, which is paid off like any lien when the house is eventually sold. Conditions apply, of course, which you can read by Googling “Colorado senior property tax exemption,” as I did.
What you may not know is that any buyer, irrespective of age, enjoys that same property tax exemption for their first calendar year in a home they purchase from a senior citizen who earned that discount.
My new listing (below) brought this topic to mind. The sellers, who are over 65, paid only $1,221 in property tax last year, and the property tax bill will probably be the same for this year’s property taxes, which are payable in April 2019. Whoever buys the home in the next month or so will enjoy that senior property tax exemption next April and won’t begin paying the full property tax amount until 2020. The reason for this mini-windfall is that state law specifies that the exemption only requires that an eligible senior owned and lived in the house on Jan. 1st of the tax year.
Something else you may not know is that this property tax exemption does not cost the county or other local tax jurisdictions a penny. The state reimburses the jurisdictions for the discount given to qualified seniors. After making their annual revenue and expense estimates, the state legislature determines how much of a discount qualified seniors will earn. It wasn’t funded in 2009, 2010 and 2011, but it was restored in 2012 and remains in effect. Because the state’s balance sheet is expected to look good for the coming year, there’s certainly reason for optimism.
My only complaint with the senior property tax exemption is that it requires 10 years’ ownership of a home before seniors quality. This poses a disincentive to downsizing, which often makes sense for seniors, especially after one of them has died.
Last week I got a call from a reader who sold a house with structural defects last year, defects he had properly disclosed. He was concerned because he thought the current seller might not be disclosing those same defects to prospective buyers. He feared that the seller had simply covered up the defects when he finished the basement, hiding them from unsuspecting buyers.
What safeguards are in place to protect buyers from being sold a home with undisclosed defects? The primary safeguard, of course, is basic honesty — that most sellers and agents are forthcoming, as I’ve found, when it comes to disclosing defects. Another is that the listing agent could lose his real estate license if it can be proven that he or she conspired in failing to disclose a major defect. Unfortunately, should you purchase a property directly from a seller who is not himself a licensed agent, you don’t have that same protection.
A buyer’s recourse against an unlicensed seller for failing to disclose a defect is civil in nature. The buyer would have to sue the seller and rely on a judge or jury to decide in his favor and rule that the seller must provide compensation for their deceit. Even if successful, though, the buyer still has to deal with the defect, which can be a hassle. And what if they’re not successful? Well, along with having to fund the repair of the defect themselves, they’re out whatever time and money it took to work their way through the court system. On the other hand, it costs virtually nothing for that buyer to seek damages from a licensed agent: just go to the Colorado Real Estate Division’s website and fill out an online complaint.
My personal experience is that both sellers and their agents have been forthcoming in disclosing known property defects using the very detailed Sellers Property Disclosure form provided by the Colorado Real Estate Commission.
This January, a simplified version of the disclosure was issued, and some agents, including myself, are not entirely pleased with it.
Prior to January 1st, the Sellers Property Disclosure asked sellers to answer “Yes,” “No,” “Do Not Know” or “N/A” to each item, as shown on the disclosure at right from one of my own transactions.
The Sellers Property Disclosure that all listing agents were required to begin using on January 1, 2018 asks only whether there is (or was) a problem, but doesn’t provide an opportunity for the seller to affirm that there is no problem. Below is the same section of the new disclosure as completed by the seller of one of my 2018 listings.
What was nice about the previous version was that it required an answer to every item, even if that answer was “do not know” or “not applicable.” I’m not a lawyer, but it seems to me that if there were to be a civil trial over a failure to disclose a known defect, it would be more convincing to show that the seller answered incorrectly rather than simply remained silent on the issue at hand.
One reason agents are unhappy with the new form is that there will often be entire pages of the form with no checkmarks at all, raising the question of whether the seller even completed the form.
Despite this development, you can be comfortable with the fact that listing agents and their clients take seriously their responsibility of disclosing all material facts about a property. The next time someone compares real estate agents to used car salesmen, you can tell them it’s a bogus comparison. Failure to disclose a used car’s defects isn’t a crime.
Conventional wisdom suggests that the low inventory of homes for sale is due to homeowners not putting their homes on the market. For months I’ve been pointing out that this is not true, and the chart at right proves my point. In creating it, I excluded all sales by builders, banks, corporations trusts, and government—all sellers except individuals. To the extent that an increasing number of individuals have their homes in the name of a trust or corporation, the numbers are understated.
Homes are being put on the market in record numbers. The only reason that active inventory is low is that homes are going under contract more quickly than ever. Median time on market was 64 days in 2008, 11 days in 2014, and only 8 days in 2017. That’s why acting quickly on new listings and knowing how to compete successfully in a bidding war is so important, as discussed in today’s other posting.
Going on three years now, the current seller’s market has allowed agents to hone their bidding war skills – something the agents at Golden Real Estate have come to do quite well. In this week’s column, I’ll share some of ways we find success for buyers in this challenging market.
Of course, agents from other brokerages use many of the techniques I’ll describe here, and occasionally we learn from them, as they do from us. In our weekly sales meeting at Golden Real Estate, we share what works and doesn’t work, cognizant of the fact that what is effective in one situation might be ineffective in another.
The more contingencies buyers waive, the stronger their offer will be. The first and biggest contingency is the sale of an existing home. A buyer may want to sell his current home in order to purchase the replacement home, but if he can demonstrate he doesn’t need to do so, his offer can omit this contingency. If the contract includes a loan, his lender can provide a letter indicating he is qualified or pre-approved for a loan without selling his current home. Even better is when a buyer can show liquid assets that can be sold in order to pay cash at closing. If he goes under contract with, say, a 45-day close, and allows us to price his current home correctly, it’s entirely possible that we can negotiate an earlier closing on his current home than on the new home. Under such a scenario, although the assets are in place to complete the purchase without selling his current home, the buyer is able complete the transaction without having to deploy those assets or close on a new loan. We have accomplished this for many buyers.
For example, I had a buyer who was already under contract for a new home in Arvada. I listed his existing home for $275,000, got competing offers and was able to negotiate a sale at $315,000 with a closing the day before the seller’s closing on his new home. He had arranged a bridge loan to buy the new home, but was able to cancel that loan and pay cash for the new home. That’s just one of many such successes we’ve had.
Waiving inspection and appraisal contingencies are common practices when competing with other buyers, but my preference is to leave those deadlines in the contract and include additional provisions that 1) the buyer will use the inspection deadline only to terminate, not to demand any repairs, and 2) the buyer will not demand a price reduction if the home doesn’t appraise for at least the contract price. Note, however, that if you inform the listing agent you are going to terminate because, say, the furnace needs replacing, the seller is likely to make that repair, knowing that they’d have to disclose that condition to the next buyer and they don’t want to start over. A similar scenario can often work if there’s a major appraisal problem. Perhaps the seller will compromise with a minor price adjustment, if not lower the price to the appraised value.
“Love letters” written by the buyer to the seller can pose Fair Housing problems but are still a common practice — and they can be effective. Just this week I saw my first one in the form of a video clip showing the cute couple standing next to their wedding picture on the wall. (The seller accepted their offer over several others.) In composing the buyer’s message, it helps if you know something about the seller. I recently submitted a buyer’s offer that was $20,000 below the listing price, despite being told there were two other offers. We didn’t submit a “love letter” but I did say in the cover message that my elderly buyers loved the home because they’d be close to their daughter who lives in that subdivision. To my surprise, the listing agent said that if we could raise our offer by $10,000, the seller would accept it over other offers they received.
At Golden Real Estate, we do have one “ace up our sleeve” when the sellers still live in their home and are moving locally. We offer free moving for the seller using our own trucks, moving boxes, packing materials, and even, on occasion, the labor. This has won the bidding war for our buyers more than once!
In last week’s column, I demonstrated statistically that when sellers allow their listing agent to sell their home without putting it on the MLS, they could lose 2% or more on the sales price of their home. A reader pointed out that I ignored one way in which sellers can save even bigger — by not employing a listing agent at all.
That reader’s email betrayed two misunderstandings that lead many sellers to try for-sale-by-owner (FSBO). First, that the typical listing commission is 6 or 7%, when it really averages about 5.5% according to the National Association of Realtors; Second, that a FSBO seller can sell their home for as much as they could if they employed a listing agent.
Selling without an agent might be somewhat effective in ordinary market conditions, but it makes little sense in a seller’s market. That may sound counter-intuitive, but it is absolutely true. It’s one thing to manage your own negotiation with a single buyer, but do you really have the time (not to mention the skill-set) to negotiate with, potentially, multiple buyers? How do you vet prospective buyers, safely handle showings, and properly analyze the strengths and weaknesses of competing offers? Even if you’ve sold your own homes in the past, it’s pretty unlikely you’ve done so in the type of market we’re in now. Indeed, I’ve even had licensed real estate agents hire me to sell their own property. Why? Because they recognized that I had more tools and was better suited to navigate the tricky waters of our current market than they would have been.
In addition to overestimating what they’d pay to a real estate professional, FSBO sellers often overlook the fact that most buyers are represented by their own agent who will be expecting to earn 2.8%. Because of that, smart FSBO sellers will offer to pay a co-op commission, reducing their savings from, say, 5.6% to 2.8%. With MLS listings selling for more, as I demonstrated last week, what is the gain? And do you really want to be the only party in the transaction without professional representation?
Recognizing that a FSBO seller will sell their home for less than they would have if they’d had professional representation, chances are good they will ultimately net less money. So, by going it alone, they get to deal with all the pitfalls and difficulties that can accompany a real estate transaction, they get to do more work than they expected, and they end up with less money – all to avoid paying a commission.
Call us, and we’d be happy to address other concerns and considerations and show you how Golden Real Estate’s agents earn what sellers pay them.
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