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In a real estate transaction, the seller’s biggest single expense after brokers’ commissions is typically the title insurance policy — a little understood cost of selling real estate.  What does it cover, and why is it required?

While most insurance protects you from future risks, title insurance protects you from past risks. Title insurance guarantees that you get title to property free and clear of any liens or claims of ownership. Since we consider this the responsibility of the seller, that is who pays for the title insurance,  although I understand that in some states it is common for buyers to pay for it.

Another difference between title insurance and other types of insurance is that the premium is paid only once for lifetime coverage.

Although it’s unusual for a claim to be made on a title policy, it does happen.  For example, I once had to file a claim regarding a building I purchased in 1991.  A year after closing, I received a “lis pendens” (suit pending) notice from a Texas lawyer. I simply forwarded it to Land Title, which had issued the title insurance policy, and they settled the matter at no expense or inconvenience to me.

Unless it’s a cash transaction, there is a “piggy-back” policy issued to protect the mortgage lender. This policy is for the amount of the loan, versus the owner’s policy that protects the buyer up to the full purchase price. Such policies cost less because they require no additional work by the title company, and are typically issued at the buyer’s expense.

There are two kinds of title companies. There are direct underwriters, such as Fidelity National Title or Stewart Title, while other title companies serve as agents for those larger companies. Since the policies are underwritten by those big national companies, you’re not really at risk by using an agent company. However, you could have a problem if the agent company  holding part or all of your down payment goes out of business prior to closing. Those funds are supposed to be segregated in escrow accounts, but when commingling or misuse of funds occurs — as it has in the past — it can be a big deal.

Since Colorado has a somewhat antiquated regulatory environment in this arena; it is recommended that buyers and sellers obtain a “Closing Protection Letter” (which typically costs $25) to better protect their monies throughout a real estate closing.

All title insurance rates and closing settlement fees are regulated by the Division of Insurance. However, these filed rates and fees can still vary substantially, because of various discount programs offered by each company. The cost of title policies can vary by $100 to over $1,500, depending on the transaction; and the fee for conducting a closing can range from $100 to  $750.  Because of these variations, I recommend that sellers visit www.CompareTitleCompanies.com before selecting their title company.

 

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 they, as 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(s) we receive are for full-price (or less), then we didn’t underprice the home, did we?

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Do you have a question you’d like answered here? Send it to Jim@GoldenRealEstate.com.

 

It was a good day for Colorado’s 1.9 million HOA members on July 1, 2015, when all HOA managers were required to be fingerprinted, educated about their functions, and licensed by the Division of Real Estate.

However, like all such laws, the Community Association Manager (CAM) program had a 3-year sunset requirement, meaning that it had to be studied by the Department of Regulatory Affairs (DORA) for its effectiveness and renewed (or not) by the General Assembly (Colorado’s legislature).

So, DORA submitted its analysis of the program, recommending that it be renewed and improved, but on April 10, 2018, the Senate Committee on Finance voted 3-2 to “postpone indefinitely” (i.e., kill) HB18-1175, the bill to renew the program for another five years. It was a party-line vote, with all Republicans voting against renewal and both Democrats voting for renewal.

In DORA’s report recommending renewal, it was noted that, because the law was only two years old, “there is little data to rely on in determining how much harm related to management activities exists….”

“However, two Managers and one Management Company have already been disciplined for misconduct related to management activities. All of these cases were related to theft of association funds. Additionally, many of the complaints received by the Division and reported during the sunset review reflect the findings of the 2012 sunrise review [which suggested the law].

“Community Association Managers have access to association funds, which is often in the millions of dollars. An association relies on these funds to ensure the common areas, facilities and, in some cases, buildings are well maintained, and the loss or mismanagement of these funds can be devastating to a community. As a result, the owners may suffer large assessments in order to bring the reserves up to an amount necessary to pay for the daily operation of the community, which may include water bills, trash removal, landscaping and professional services, not to mention necessary upkeep such as repainting buildings, replacing old roofs, repairing driveways and any emergency situations that may arise.

“Ensuring Community Association Managers do not steal or mishandle association funds is an important reason to regulate the industry. The Division has the ability to audit the business records of Community Association Managers, and through these audits, the Division may uncover misconduct….

“In fiscal year 16-17, the Director issued one cease and desist order against a company and 11 cease and desist orders against individuals, and revoked one individual license.”

[End of excerpt from the DORA report.}

Colorado is known as a low-regulation state. In other words, if regulation is not deemed necessary for the public safety, the default is to not regulate an industry.

Mortgage brokers, for example, were not even registered in Colorado until the mid-2000s, and it was another couple years before they were fingerprinted and required to take classes and pass a state exam in order to be licensed. Prior to that, a felon who had studied up on identity crime while in prison could claim to be a mortgage broker as soon as he was released and begin taking financial information and Social Security numbers from unsuspecting homeowners or home buyers!

HOA members were able to breathe a sigh of relief when the state decided to license Community Association Managers in 2013, with full implementation by July 2015, and they should be concerned that a Senate committee killed renewal of it.

The actual end of the program doesn’t happen until July 1, 2019, which means the 2019 session of the General Assembly could pass a renewal of the CAM program in time to avoid a lapse in regulation.

 

First, let’s distinguish between “driverless” and “self-driving” cars. My Tesla is self-driving when I employ its autopilot features, but I must keep my hands on the steering wheel. “Driverless” means there’s no driver — also called “autonomous” cars.

I have driven over 75,000 miles using Tesla’s self-driving features, giving me plenty of time to imagine what it would be like to have the car drive itself without me ready to take control at any moment.

Tesla’s current autopilot features are two-fold. First, there is “traffic-aware cruise control,” which maintains a safe distance from vehicles ahead, including braking to a full stop when necessary. It also reads speed limit signs and alerts me when I’m going over the speed limit by an amount I specify. Then there’s “auto-steer,” which reads the highway lines and keeps the car centered in its lane.  The car will change lanes if I use the turn signal — but only if it’s safe and doesn’t involve crossing a solid line.

In my experience, these “driver assistance” features make for safer driving.  When auto-steer is used, the car reminds me to keep to my hands on the wheel.  The car will sound an alarm and display a message if it hasn’t sensed my hands on the wheel for a minute or two. If I ignore the instruction to put my hands back on the wheel within a minute,  auto-steer is disabled and I can’t use that feature again until I stop and put the car in Park.

I think it’s just fine that Tesla continues to improve the car’s driver assistance features, but I’m convinced that going full-driverless would be a big mistake. Accidents involving self-driving cars have recently made the news, although it has been reported that in each accident another, human-controlled car was at fault. In one video you can see a car careening diagonally towards you from across the highway.

We all have been taught the importance of driving defensively. What such videos demonstrate is that a self-driving car can’t drive “defensively.” A human driver could have seen those other cars coming and taken evasive action. A human could detect a ball coming into the street and look for a child chasing it.  A human could detect another driver driving erratically and know to keep a safe distance while perhaps contacting the police.

Current self-driving software depends on lane painting. More than once my Tesla’s auto-steer function has attempted to follow lines that would have taken me into oncoming vehicles if I hadn’t reacted immediately.

How would a driverless car negotiate an intersection when there’s a power failure and the traffic lights are dark?  How would it react to a cat, squirrel or debris on the roadway? How about potholes?  A lot of day-to-day driving entails making eye contact with other drivers and responding to other drivers doing unpredictable or illegal maneuvers.

What about an alternate merge where two lanes reduce to one lane?  Or an on-ramp where only one car should proceed on each green light – and merge while accelerating?

Would the driverless car slow down when a deer has finished crossing and look for others that may be lurking nearby, possibly obscured by foliage?    Would a driverless car be able to follow the hand gestures of a traffic cop or someone guiding cars into a grassy field for parking at a social event?

You may recall that the recently suspended driverless experiment was being conducted in Phoenix.  Why?  Probably because their roads are never covered by snow and are rarely obscured by rain.  How is a driverless vehicle going to negotiate a snow-packed roadway or visually detect black ice?

The number of possible hazards and surprises is so great that no geek in Silicon Valley would be able to tweak the software into predicting and handling all of them. As I drive my Tesla using auto-steer regularly, I have experienced numerous such scenarios, which is what inspired me to write a column on his subject.

Now, let’s talk about trucks. A couple of years ago, a self-driving Budweiser semi made a run from its Ft. Collins brewery to Colorado Springs — with CDOT vehicles and State Patrol cars surrounding it for safety. A trucker was in the cab for safety, but can you imagine that a driver might ever not be needed to monitor that truck’s operation?  Remember, airplanes can fly and land themselves on auto-pilot, but the FAA requires at least one pilot to be in his or her seat at all times — and pilots don’t have to watch for cars, pedestrians, animals, bicycles and potholes, or even other airplanes most of the time.

Truck drivers are known for their diligent communication and service to fellow truckers and motorists. They contribute to keeping our highways running smoothly, sometimes coming to the aid of fellow truckers or motorists. Let’s keep them on the job, and give them improved driver assistance features to make their driving safer, versus endangering the rest of us by removing them from their trucks.

Comment below to share your own thoughts on this topic.

 

      I’m not in the heating, ventilating and air conditioning (HVAC) business but I do have a pretty good understanding of the different methods of cooling a home, so I thought I’d review them this week.  I welcome input from HVAC experts, so maybe I’ll have an update/correction for you next week.

The most widely adopted method of cooling — what everyone calls “air conditioning” — involves a compressor-based system of refrigeration using the same technology as your kitchen refrigerator. A refrigerant (formerly Freon, before it was outlawed by the EPA) circulates within tubing from inside the home to outside and back again, absorbing and releasing heat in the process. Outdoors, the refrigerant cools and then re-enters the home, and the cycle repeats.

In a typical installation, the chiller (or “evaporator”) is positioned within a forced air furnace which functions as the air handler to move household air across the coils containing the refrigerant. As the refrigerant cools the air, it absorbs heat and then flows to the outdoor compressor where the refrigerant is forced back into its chilled state, releasing that heat to the outdoors. This is similar to your kitchen refrigerator, except that your refrigerator releases the heat into the kitchen (behind the refrigerator) instead of outdoors.

In homes without a forced air furnace, the A/C system requires its own air handler to take in air from the house, chill it, then distribute it, usually via its own ductwork. One such application would be a home with hot water heat and, thus, no ductwork that could be used for air conditioning. In such a home, the A/C compressor might be roof-mounted, with the air handler and ductwork located in the attic.  Some ducts distribute the chilled air to one or more rooms, while other ductwork returns air to the air handler. The cooled air will naturally settle downward, cooling lower floor(s) without ductwork.

A/C compressors, however, require a lot of electricity, making this the most expensive method of cooling. In a dry climate like Colorado, an economical option is evaporative cooling. It requires no compressor, just a fan, a membrane through which to pass water and a water pump. You may know this as “swamp cooling.”

If you’ve noticed how even a slight breeze cools you off when you’re sweating you’ve experienced evaporative cooling. Water, it turns out, is a good refrigerant, absorbing heat as it evaporates, but it can only evaporate effectively when the humidity is low. That’s why you don’t hear of evaporative cooling being used in Houston, New York, or any other locale where high humidity makes it harder for air to absorb additional water through evaporation.

A swamp cooler, which is usually roof or window mounted, draws in hot outdoor air and passes it through a water-saturated membrane.  It then directs that cooled air into the house. For a swamp cooler to be effective, one or more windows have to be opened a few inches to allow air to escape, because, unlike with a compressor-based air conditioner, the swamp cooler is pumping air into the house instead of recirculating air that is already in the house. If leaving windows open makes you feel insecure, there are ways to secure a window so that it is open the optimal four inches but can’t be opened any further.

On the negative side, an evaporative cooler requires more maintenance than standard A/C and uses lots of water. Those membranes absorb dirt and dust and need to be rinsed or replaced twice a season or more, which can be tricky when the unit is  roof-mounted. Also, you have to winterize and de-winterize the outdoor units. On the positive side, it is healthier for you (and your wood furniture) to live with the 30% or higher humidity created through evaporative cooling than the 10% or lower humidity created by air conditioning.

A whole house fan is a great complement to either method of cooling.  Before turning on the A/C or swamp cooler when returning to a very hot house, you can use a whole house fan to quickly flush that heat out of your house by leaving a lower door or window open and turning on the whole house fan located in your uppermost ceiling, such as a second floor hallway. You might also use the whole house fan (on a low setting) at night instead of air conditioning when the outside temperature is below, say, 65 degrees, leaving a window cracked to bring in that cool, fresh air.

A third method of cooling is the heat pump or  mini-split system.   We installed such a system at Golden Real Estate, which I described in detail in my January 4th column.  You can find that column online at www.JimSmithColumns.com.

Mini-split systems combine the low maintenance of a compressor-based air conditioning system with the energy savings of a swamp cooler (but without the swamp cooler’s water consumption). Like A/C compressors, mini-splits have SEER ratings but, whereas high-efficiency A/C systems have SEER ratings under 20 at most, you can find mini-splits with SEER ratings of 30 or higher. And a mini-split also functions as a ductless heating system during cold weather.

 

 

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:

• You can bring up to 5 gallons of used paint to many Ace Hardware, Guiry’s and Sherwin Williams stores. See www.paintcare.org for locations.
• Donate your unwanted bicycles to the Golden Optimists any Tuesday or Thursday from 1 to 5 pm, at 1200 Johnson Road (next to the Golden main post office).
• Take old clothes hangers to any dry cleaning store.
• Home Depot accepts unbroken CFL light bulbs for recycling.
• Any Staples or Office Depot store will accept used toner or ink cartridges and give you a credit if you are a rewards member.
• King Soopers and Safeway accept plastic shopping bags for recycling.
• O’Reilly’s accepts used motor oil.

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. 1^st 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.