Off-Market Transactions Hurt Sellers By Shutting Out Buyers Who Might Pay More

Real_Estate_Today_bylineAs I have written in previous columns, our limited inventory of active listings is due in part to sales that occur without the home being listed as “active” on the MLS.  This can be frustrating to buyers waiting for a house they like to come on the market, only to learn that it was sold off-market. Given the chance, some of those frustrated buyers might have paid more than the selling price, in which case both those buyers and the seller have been harmed.

For the past three years, up to 4% of the sold listings on the MLS were entered after they had sold. This January and February, 4.4% of the sold listings were entered after they closed, so it seems that the trend continues. REcolorado, our local MLS, has reason to believe that many additional homes are being sold off-market – often by MLS members – without being entered on the MLS at all.

Statistical analysis provides a clue as to how much money sellers might be leaving on the table by allowing agents to sell their homes without going “active” on the MLS.

Homes listed as sold on our MLS in January and February with zero days on market, sold on average for 99.7% of their median listing price, which was $375,000.  But homes with 1 to 4 days on market sold for 101.8% of their listing price. That’s a 2.1% differential, suggesting that if those off-MLS listings had been on the MLS at least one day, their selling price could have been $7,875 higher on average.

It’s reasonable to ask how listing agents may have profited from keeping listings off the MLS, because it certainly doesn’t appear as though their sellers did. An analysis of the listings that were entered as sold with zero days on market in January and February reveals that 37.5% of them were double-ended, meaning that the listing agent kept the entire commission instead of having to share it with a buyer’s agent. Homes which went under contract after 1 to 4 days on the MLS were double-ended at a much lower rate — under 5%..

This is not to say that zero days on the market is never in the best interests of the seller. For example, the seller and buyer might know one another, or otherwise found each other, and simply asked an agent to handle the transaction without seeking other buyers. Or perhaps it was a for-sale-by-owner (FSBO) property where an agent brought the buyer and entered the sale on the MLS after closing as a courtesy to other agents and to appraisers. Or a seller might not like the idea of opening their home to lots of strangers.

One would hope, however (and sellers should expect), that when a broker double-ends a transaction, he or she would at least give the seller a break on the commission, rather than keeping the portion (typically 2.8%) that would have been paid to a buyer’s agent. This practice is referred to as a “variable commission” and is office policy at Golden Real Estate. Unfortunately though, only 15% of listings on the MLS (my calculation) indicate that they have offered their sellers this discount. I’m pleased to report that 25% of the listings that sold in January and February with zero days on market — all of which were double-ended — specified a variable commission, saving money for the seller. However, that also means it’s possible, if not likely, that 75% of those sellers did not benefit from their agent’s double-ending the transaction.

The Colorado Real Estate Commission has expressed its concern about “coming soon” listings which could be used to increase the chances of a listing agent selling the property himself.  In a June 2014 position statement, the Commission stated that “if the property is being marketed as ‘coming soon’ in an effort for the listing broker to acquire a buyer and ‘double end’ the transaction, this would be a violation of the license law because the broker is not exercising reasonable skill and care.” Further, “a broker who places the importance of his commission above his duties, responsibilities or obligations to the consumer who has engaged him is practicing business in a manner that endangers the interest of the public.”

REcolorado rules require that a listing be put on the MLS within 3 business days of the listing agreement being signed. However, that rule does not apply when the seller instructs the agent (in the listing contract) not to put their home on the MLS.  As a member of REcolorado’s Rules & Regulations Committee, I have suggested that this rule be modified to state that the seller may instruct the agent to not make the listing active on the MLS, but they would still be required to enter the listing under a different status, including “under contract,” versus not entering it at all or waiting until after it closes. Currently, if those off-market sales are entered on the MLS at all, it is done only after closing. By showing a home as under contract, there’s at least the possibility that interested buyers could submit back-up contracts, which could serve the seller’s interest if the original contract falls.

‘Last Call’ for a Net Zero Energy Home

Murals     I have been surprised at the limited activity for my listing at 1960 S. Gilpin Street, near Denver University. Thanks to its passive house design and solar array, this home has a monthly energy bill of $5.89 — the cost of being connected to Xcel’s grid. The seller has decided to take it off the market if it doesn’t go under contract by March 31st. This might well be the most energy efficient home in Colorado, yet it’s priced competitively with other homes it size. It’s like getting that net zero efficiency for free!  See www.DenverPassiveHouse.com, then call your agent or me if you’d like to see it.

 

 

Debbi Hysmith Joins Golden Real Estate

We are pleased to announce the addition of a new Realtor to our team. Debbi Hysmith has 16 years of remodel/renovation experience, and began her real estate career following 15 years as a stay-at-home mom and community leader. She enjoys connecting buyers and sellers. “I want the very best for my clients all the time, and I am available to them at any hour of the day or night,” she says. In addition to her love of real estate, she enjoys the Colorado lifestyle in her electric car with her kids and dogs, including hiking, biking, hunting, fishing, skiing, and dog parks.

You can contact Debbi at 720-936-2443 or by email at Debbi@GoldenRealEstate.com. 

 

Golden Real Estate Has Joined Good Business Colorado

Good Business Colorado strives for the sort of values we at Golden Real Estate hold dear. This non-profit group “advances the values of its business members by: 1) Advocating for local, state and federal policies that elevate our values; 2) Providing an alternative point of view to traditional business chambers in the media; and 3) Sparking the involvement of like-minded responsible businesses.”  Call me if this speaks to you as it does to me, and get involved!  Learn more at www.GoodBusinessColorado.org.

 

Buyers & Sellers Ask: Why Did the Appraisal Come in at Exactly the Contract Price?

Real_Estate_Today_byline     When purchasing a home with a mortgage, one of the major hurdles for buyers in getting to the closing table concerns the home appraisal. The lender hires the appraiser – at the buyer’s expense – to make sure that the home is worth what the buyer has agreed to pay for it.

More often than not, the appraisal comes in at exactly the contract price, which understandably seems a little fishy.  Typically, when the buyer asks me why, I explain that the appraiser always gets a copy of the purchase contract and therefore knows his or her target valuation. Once an appraiser can justify that target, there’s no need to identify additional value. That’s been my hypothesis anyway, but since it’s only a hypothesis, I posed the question last week to several experienced lenders with whom I have long-standing relationships.

Bernie Bernfeld of Wells Fargo (303-273-6373) responded as follows: “My short answer is that with so much scrutiny on appraisers and their valuations due to past abuses in some areas of the country, the appraiser will generally not assign more value than is necessary to support the sales value even if he knows the property may be worth more. This conservative approach satisfies the loan underwriters and those reviewing the appraisal while still supporting the buyer’s accepted offer.”

Jim Spray, a mortgage broker specializing in reverse mortgages (303-403-8168) said the following: “One should keep in mind that an appraisal is simply a valuation tool for lending purposes; it is nothing else. It may or may not reflect the actual market value,  which is what an independent party (the buyer, in this case) is willing to pay.  This may not reflect the value of an appraisal that is not associated with a purchase. In large part, an appraisal is just a tool for lenders to use to help prevent fraud and prove they are making sound lending decisions.”

Scott Lagge of Eagle Home Loans (303-944-8552) gave the longest response, making several interesting points.  He wrote: “Appraisals come in at value because appraisers don’t want to deal with appraisal objections from the real estate agents, their buyers and sellers, or the buyers’ lenders.

“When an appraisal comes in below the contract price, the first ones to cry foul are the real estate agents. They immediately question the appraiser’s ability, and put pressure on us lenders to fix it.  The agent send comps to the appraiser or lender, arguing their position, and wanting the lender to challenge the appraisal.

“So the extra work for the appraiser begins. They have to fix or defend their appraisal.

“Conversely, if the appraisal comes in high, especially if it comes in way higher than the contract price, there’s a concern on the part of the seller that they are leaving money on the table. This was more common in years past when sellers had access to the appraisal.  You can imagine being a listing agent in this situation. You’re selling a home for $400,000 and the appraisal comes in at $450,000. Bad deal for that seller — and for their listing agent!

“In either of these situations, the pressure is being put back on the appraiser to fix it.

“Let’s be clear, all lenders have a legitimate process for challenging an appraisal, and we have to prove that there is a material defect in the appraisal in order to rebut it.  We all have an internal or external appraisal management company that assures everyone is coloring inside the lines.  In other words, only valid challenges are accepted these days, but that doesn’t eliminate the pressure on us as professionals to explain why the value came in low or high to the consumer.

“So, coming in at value is the appraiser’s only sure-fire way to avoid scrutiny from clients, lenders and agents, thereby avoiding the extra work of defending and/or redoing the appraisal.

“The easier answer is that a home is worth what someone is willing to pay for it in an arm’s length transaction.  If you have a contract price of $300,000 and a buyer and seller have agreed on that price, once that transaction closes and records, it is officially worth exactly $300,000 and becomes a valid comp for future transactions.

“So why would an appraiser state anything different than the contract price, assuming he can justify it?”

[End of lenders’ responses]

I found it necessary once to challenge a low appraisal, and I was successful.  It was for a Golden area purchase, and the appraiser was from Castle Rock and clearly didn’t have geographical competence, because he checked the box indicating that the housing market was “stable” instead of “rising,” which was obvious to anyone.  I was able to point out other factual errors, and the appraisal was recast at the contract price.

Any of the above mortgage lenders would be happy to answer your questions on this topic. Call them!

 

Win a ‘Date’cation’ in Golden

TheCloud_AlbumArt-1     Golden Real Estate is co-sponsoring a prize on 96.9 the Cloud, an easy-listening radio station broadcasting from Lookout Mountain and streaming online at www.TheCloud.fm.

The prize is a “Date Night at Golden’s Table Mountain Inn.” The package includes a romantic dinner for two, a special guest suite, and breakfast the next morning.  Feel the spirit of the West, the splendour of the Rocky Mountains, and warm western hospitality at Table Mountain Inn’s adobe-style boutique hotel. Traditional southwestern décor, spacious accommodations and modern amenities provide an ideal home away from home in historic Golden.

To enter the drawing, simply like 96.9 the Cloud on Facebook. The drawing is on April 1st.

Co-sponsoring this prize is the Body in Balance Wellness Center of Golden.

 

 

 

Time May Be Running Out on Getting a Low-Interest Mortgage

Buyers appear to be getting “off the fence” as they see mortgage rates beginning to rise. How costly can waiting be?

interest-rate-up     Even a fraction of a percentage point rise quickly adds up. According to realtor.com, on a $300,000 purchase with a 30-year fixed-rate mortgage and a 20% down payment, the difference between 4% and 5% is $142 a month. That’s more than $51,000 over the life of the mortgage.

According to the realtor.com article, it’s important to note that mortgage rates are still low. After falling from a high of 18.63% on Oct. 9, 1981 they averaged about 7% from the 1990s through the 2008 financial crisis.  They dropped below 5% for the first time in March 2009, before bottoming out at 3.1% on Nov. 21, 2012.

After those recent historic lows, average mortgage rates have now reached their highest levels in more than four years. They hit an average 4.43% for 30-year, fixed-rate loans as of March 1, according to data from Freddie Mac. This is the highest they’ve been since Jan. 9, 2014, when they averaged 4.51%.