Author: Jim Smith, Broker

A successful real estate firm that got its start in Denver is spreading its business model nationwide.  I’m not giving its name, only because the company is prone to suing those who speak negatively about them.

How successful are they in the Denver market? Currently they have 147 active listings, 90 listings under contract, and 741 sold listings in the past 12 months. Their roster currently includes 23 licensed agents, only 8 of whom have been with the company over 12 months.

This non-Realtor firm’s approach is to assail Realtors for “overcharging” sellers, claiming that they will sell any home, regardless of price for $5,000.  Half that amount goes to them — with $500 paid upfront, whether or not it sells — and $2,500 as their suggested commission for buyers’ agents. What they don’t disclose is that the vast majority of their clients end up paying much more than $2,500 to buyers’ agents.

Agents for this firm work on salary, get 4 weeks paid vacation, health insurance and can turn off their phones after work. It sounds like a nice place to work, but is it a model that provides the best service for real estate clients?

This firm promotes how much it saves sellers by citing 6% as the typical commission — in fact, the average commission is in the mid 5’s —  comparing that to their $5,000 flat fee.  On their website they boast about the millions of dollars their model would save sellers by multiplying all transactions in a given market by $5,000 versus 6%.

That’s a great way to get a listing appointment, but that listing appointment typically ends with sellers agreeing to offer a much higher co-op commission. Sounds like “bait and switch,” doesn’t it?

The proof is in REcolorado, Denver’s MLS. Of this company’s 147 current active listings, only 14 are offering $2,500 co-op commission. More than three times as many (44) are offering the typical 2.8% commission, and another 33 offer at least 2%.

Moreover, all 14 of those listings offering $2,500 commissions to buyer agents (and most of the listings offering higher amounts) have the following statement under “Broker Remarks” — remarks not seen by the public but visible to every buyer’s agent: “Commission listed is not a fixed rate and is NEGOTIABLE. Buyer and buyer agents can request additional commission if needed by putting the following into Additional Provisions: ‘Buyer directs Seller to pay Buyer Agent’s Brokerage an additional $XXXX on top of the MLS advertised XXXX for a total of $XXXX’.”

Given that explicit instruction, it’s reasonable to assume that a majority of those listings offering only $2,500 to the buyer’s agent will end up paying a good deal more.  Unfortunately, the MLS doesn’t require the disclosure of the buyer agent’s commission actually paid at closing.

This brokerage claims to offer full service, but three-quarters of its listings have the following statement under Broker Remarks: “Seller has requested no Sunday deadlines and that all deadlines be 5 pm. All offers must be received by 8 am for same day response.”  Personally, I’m offended by this blatant misrepresentation. The seller did not request no Sunday deadlines, although that “request” might be in the listing agreement signed by the seller.  (Remember, their salaried agents are told they can turn off their phones when they go home.) Also, I couldn’t find a single listing that advertised an open house.  Full service?  Not to me.

I should note that my own recent experience selling one of this brokerage’s listings was quite positive. For one thing, it paid me a 3.1% commission.

Also, I must say that I was impressed by this company’s use of technology and that they communicated and responded more effectively than their Broker Remarks indicated they would.

Notwithstanding this recent experience, I don’t appreciate the way this company misleads the public in their advertising and on their website. They do save sellers on the listing commission, charging a flat $2,500 instead of 2% or more. That’s a pretty low amount for listing a home, but then again, they don’t spend much in the way of time or money on their listings — I didn’t see magazine-quality photos or video tours, for example — and their goal is clearly to make up for their low listing commission with a high number of listings.

Do sellers benefit from their business model?  That’s debatable given the lack of time and resources that sellers receive from a full-time, experienced agent who can price their home right to draw competing offers and then bid those offers up to net the highest price for their home. For example, they priced a home in my own subdivision for $100,000 less than my valuation software suggested. (As a non-Realtor firm, they don’t have access to the same sophisticated valuation model, called RPR, that I use.)  Then they went under contract in one day.  This is not a good idea, because if an offer comes in on the first day it’s pretty likely that other offers will soon follow.  I’m confident that my neighbor left a lot more money on the table than he “saved” by listing with this “flat-rate” brokerage.  (FYI, this seller offered $12,500 co-op, and may have paid more.)

This brokerage will continue to be successful with their business model, and I will continue to show and sell their homes — getting a pretty good deal for my buyers because of their low listing prices, while earning the kind of commission which any hard-working buyer’s agent should expect to earn.

Buying a home is not something that most people do every year or even every decade, and the process has certainly changed with the advent of the internet age. Let me describe what the process is like nowadays.

Most people have a computer and an email address. A cell phone — hopefully a smart-phone — is another tool that will make your home search easier not just for the your agent, but for you, too. If you don’t have a smartphone, some companies offer short-term plans for very low fees. If you don’t have a computer or email address, you can get a free email account and receive and send emails on your temporary smartphone.

Hire a buyer’s agent. They are typically paid by the seller’s agent, not you, so it costs you nothing to have an experienced professional on your side. I’ve written before about how to select the best agent. Or just call me!

Homes can sell quickly, so it’s important to get email alerts, which your agent can set up for you. Within minutes of a new listing being entered on the MLS, you’ll receive a mobile-friendly email alert with pictures and details about any listing that matches the search criteria you’ve provided to your agent.  There’s even a notes section available for your use.  Make notes on those listings you find most interesting and your agent will immediately see what you’ve written. For example, if you write, “I’d like to see this at 4 pm today!” your agent can set up the showing and get you in that quickly.

If you like the home and want to submit an offer, your agent will use online software. You can print the documents for reading and for your records after signing, but you’ll be able to sign on your smartphone or computer with a few clicks, or just sign with your finger.

You will be signing paper documents at the closing, which will take 30 to 90 minutes, depending on whether you are paying cash or have mortgage financing. Your lender (or you, if paying cash) will wire the funds to the title company which conducts the closing.

Once you get used to it, you’ll find that the process is a lot easier now.

Golden Real Estate is experienced in all aspects of the buying process. Our free moving truck and packing materials are just one benefit of hiring us.

This week’s column is about a federal law that makes home buyers responsible for paying withholding tax owed when buying a home from a “foreign person.”  If you’re not careful about this law, you could, for example, buy a home for $500,000 only later to receive a bill from the US government for $50,000 withholding owed by the seller. Pretty scary for a buyer, isn’t it?

This law is 38 years old, but it only came to my attention this year because it is featured in the 2018 Real Estate Commission update class that all licensees must take.  Most agents like to wait until year-end to take this 4-hour class, but it is our policy at Golden Real Estate to have all agents take it in January — a private class in our own office. Most of us were a bit shocked to learn about this law and its implications.

Researching it further, I discovered that most title companies have the seller sign an affidavit at closing attesting to their legal status at closing.  It’s my understanding, however, that not every title company takes this step, hence the need for buyers and their agents to perform their own due diligence

Because of this provision of the Foreign Investment in Real Property Tax Act of 1980, buyer agents would be wise to insert in all contracts to buy and sell real estate a paragraph such as the following one inserted in a contract for one of my listings:

Seller shall inform Buyer in writing whether Seller is a “foreign person” as defined by the Foreign Investment in Real Property Tax Act (“FIRPTA”) no later than 10 days after Seller signs this Contract. If Seller is not a “foreign person” pursuant to FIRPTA, Seller shall provide to Buyer and Closing Agent, no later than 20 days after signing this Contract, a written certification of non-foreign status under FIRPTA, under penalties of perjury, certifying to Buyer and Closing Agent that no withholding is required by Buyer pursuant to FIRPTA. If Seller does not provide such certification of non-foreign status to Buyer and Closing Agent on or before twenty (20) days after signing this Contract, then Buyer, at buyer’s sole option, may 1) withhold, pursuant to the provisions of FIRPTA, a portion of the Purchase Price as required by FIRPTA or, 2) terminate this Contract pursuant to Section 25 hereof. Buyer and Seller are advised to seek legal counsel and tax advice regarding their respective rights, obligations, reporting and withholding requirements pursuant to FIRPTA. 

I surveyed the owners of three title companies and the broker/owners of the three largest real estate brokerages in the Denver metro area and none of them have heard of a buyer being stung by this issue… yet.   The unfortunate fact is, as long as FIRPTA exists then so does the possibility that someone will be.  One broker/owner, who is on the Forms Committee for the Colorado Real Estate Commission, says that the 2019 version of the Contract to Buy & Sell will contain language regarding FIRPTA. Copies of new forms are typically made available in September but can’t be used until January 1st.

Land Title has an excellent web page — www.ltgc.com/articles/firpta-increase — where it explains, among other things, how FIRPTA exempts from withholding homes sold for less than $300,000 that will be used by the buyer as a residence.  The withholding rate is 10% on homes between $300,000 and $1 million if it is to be used as the buyer’s residence, but is 15% otherwise.  The withholding rate is 15% for homes above $1 million, whether or not used as a residence.

To qualify as a “residence” the buyer or a member of his/her family must occupy the property at least 50% of the days that the property is occupied. Thus, if you buy a vacation home and you don’t let others occupy it for more than the number of days your own family occupies it, the home is considered a “residence” no matter how few days that might be.

One tricky item is that if the buyer does not take title in his own name but in the name of an entity — for example, a family trust — then the rate would be 15%, irrespective of the sale price.

Sometimes a buyer will change plans and arrange at the last minute to take title in the name of an entity.  That requires last-minute work by the title company and might delay closing briefly, so the appropriate forms can be prepared and signed.  Don’t forget that this withholding tax applies only in a situation which no one I know has yet experienced — that they unknowingly purchased a home from a “foreign person” and the withholding tax was not paid from seller’s proceeds at the closing. Nevertheless, it’s important to be aware of that possibility.

Land Title reports that they collect FIRPTA withholding 6 to 10 times a year, primarily on resort properties. Still, with foreigners purchasing more and more American real estate each year, this could become more of an issue in the future.

Buyers’ agents need to keep in mind that if that worse case situation arises and they didn’t alert their buyer to the possibility, they could be at risk of having an errors & omissions claim filed against them.

I started creating narrated video tours of my listings over a decade ago. To provide a sense of how long ago that was, the first iPhone had not yet been introduced. I remember demonstrating how to create and edit video tours using a handheld video camera at a marketing session of the Jefferson County Association of Realtors (now part of the Denver Metro Association of Realtors).  None of the Realtors in that meeting seized on the idea and even today I know of only two Realtors outside my brokerage who make a practice of shooting video tours of their listings.  Why?

Video tours are an effective way of providing a “virtual” tour of a listing, allowing people anywhere in the world to join the listing agent on a narrated walk-through of his listing. Many buyers have “toured” my listings on the internet and submitted offers sight-unseen, which they probably would not have considered had they viewed still photos alone.

A key component in a video tour is the narration. It’s what allows the listing agent to note that a fireplace is wood-burning or that a countertop is Corian. Without narration, a video loses much of its value.   With zooming and panning, video allows for a better depiction of views than still shots can provide.  It  allows you to pan upward to point out a skylight or Solatube or maybe a vaulted ceiling. Video, unlike still photos, can provide a sense of the flow of a floor plan, which is why it’s important to shoot each level in a single clip.

It’s unfortunate that the term “virtual tour” was introduced in reference to a slideshow of still photos, often accompanied by music instead of narration. Sometimes that slideshow is converted to an mp4 file, uploaded to YouTube and touted as a “video” tour.  Not!!

The only “virtual tour,” in my mind, is a virtual video tour of the home — a tour in live action, not a collection of still photos, with or without captions.

It’s common for listing agents to receive calls from appraisers asking about the condition of their sold listing, which they want to use as a comp. I simply tell them to have a look at the virtual tour, where they can see entire house and hear a description of each room. They never need to call back with questions, because the video did, in fact, fully describe the home’s condition.

Click here to visit my YouTube channel.

In a highly competitive real estate market, it’s not uncommon for buyers to submit letters to sellers saying how much they love the seller’s home and hope the seller will select their offer. However, this carries a big risk for sellers when it’s clear that a rejected buyer is a member of a protected class which, it might surprise you to learn, is most of us. Buyers bear little risk, but it’s something sellers and their agents need to be aware of.

This beautifully finished ranch home at 20062 W. 95th Place has 3 bedrooms and 2 full baths. The master suite has a spacious 5-piece bath with a very large walk-in closet. It has a 3-car garage pro-viding added storage space. The house is loaded with upgraded features. The kitchen has an oversized granite island, double ovens, stainless appliances, and full cut-glass backsplash. The large foyer, great room and kitchen area have hardwood flooring. The home comes with a solar plan which keeps the costs of maintaining this home very low. The back yard has a covered deck and a large paver stone patio. Candelas features miles of trails, nearby lakes and ponds, two fitness centers with outdoor swimming pools and a newly opened King Soopers. See video tour at www.CandelasRanch.info.  Open Sunday, July 15, 11 a.m. to 3 p.m.  Or call David Dlugasch at 303-908-4835 for a showing.  Listed at $553,900. 

Welcome to Centre Pointe Station, 4600 E. Asbury Circle, and this updated 2-bedroom, 1-bath condominium (Unit 301), which is centrally located just across the pedestrian bridge from the light rail station just east of Colorado Blvd. Hardwood floors greet you as you enter this bright unit with large covered balconies and mountain views!  This condo features granite countertops, stainless steel appliances, newer sliding glass doors, room air conditioning, included washer/dryer unit, updated lighting, fans and fixtures. The building features reserved parking, a secured entry, fitness room, and owner’s storage. See more exterior and interior pictures at www.DenverCondo.info, then contact your agent or Kristi Brunel at 303-525-2520 for a private showing.   Sorry, there will be no open houses.  Listed at $210,000.

Golden Pines is a complex of 3-story condo buildings, with six units in each of 28 entries. It is located in the Pleasant View community about 3 miles east of downtown Golden. The address is 16529 W. 10th Ave. #E-6. Enjoy the warmth and light of this south facing top floor unit. The private balcony looks over a grassy courtyard which is adjacent to an assigned parking space. It has 2 bedrooms and 1 bath and measures 773 sq. ft.  This property needs work. It was a long-term rental with smokers but is now vacant. Great potential and priced accordingly. Needs carpet and paint. Kitchen and bathroom cabinets are original and in poor shape. Flooring, furnace and fixtures all could use some improvement. Has newer appliances and the windows and sliding door were replaced several years ago. More info at www.GoldenPinesCondo.info, then call Jim Swanson at 303-929-2727 to arrange a showing.  Sorry, no open houses. Listed at $151,000.

This ranch-style home at  5194 Bristol Street is in the Blue Hills Estates subdivision west of Drake Middle School. Built in 1979, the seller is the original owner, and the pride of ownership is evident throughout. The original cedar siding has been replaced with fiber cement siding and freshly painted. Five large skylights bring sunlight into the family room, kitchen and the interior bathroom. The large family room has a vaulted ceiling with 3 skylights and a wood-burning fireplace with brick hearth and chimney. The covered front porch has a rich brick floor. The backyard features mature blue spruce, ponderosa pine and other evergreens. The high-efficiency furnace has both an electronic air filter and high-end Aprilaire steam humidifier. See more photographs and take a narrated video tour at www.ArvadaRanch.info. I’m holding it open on Sunday, July 15th, 11 a.m. – 2 p.m.

Listed at $448,000.