Is It Too Easy to Become a Licensed Real Estate Agent?  

   I hear this question asked by fellow brokers and clients who complain about incompetence or ethical lapses among our colleagues.

   Yes, it is easy to get licensed — take 168 class hours, pass the 3-hour state exam, pass a background check (including fingerprinting), and you’re licensed to handle the most significant financial transactions in the average person’s life.

    Loan officers and appraisers have a dauntingly higher barrier to entry than do real estate brokers. It’s fair to ask if that should change.

Amid Today’s Rising Interest Rates, Let’s Revisit the Concept of Buying Down Those Rates  

With mortgage rates rising and many homebuyers believing that now is the time to buy, anything that can reduce the cost of a mortgage is worth looking into. Many savvy homebuyers are asking about discount points, wanting to know what they are and whether it makes sense to buy them.

Mortgage points, often referred to as discount points, let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you are essentially buying down the interest rate. You pay more upfront, but you receive a lower interest rate, decreasing your monthly payments.

The cost of one discount point is equivalent to 1% of the total mortgage. In other words, if you had a $400,000 loan, the cost of purchasing one discount point would be $4,000. Lenders typically allow a borrower to purchase up to three discount points, and they can also be purchased in increments of one-half point.

The specific amount that an interest rate will be reduced with the purchase of points varies from loan to loan but can be thought of as a 0.25% rate reduction for each point purchased. Thus, if you had an initial interest rate of 5% and purchased 3 discount points, your new interest rate would be 4.25%.

How do you know if it makes financial sense to pay for points? The first step is to calculate how long it will take for the decreased monthly payments to pay for the added upfront fee. This is called the “breakeven point.” You can determine when you will break even by dividing the total cost of the discount points by the monthly savings. The answer will be the number of months it will take. Divide this number by 12 to find the number of years it will take.

Here’s an example to show how it would work for you. The cost of buying down the rate from 5% to 4.25% on a $400,000 loan would be $12,000. The difference in the monthly principal and interest (“P&I”) payment between 5% and 4.25% would be $178 per month ($2,138 P&I at 5% versus $1,960 P&I at 4.25%). If you are spending $12,000 to save $178 per month, you will need to own the property for 67 months to break even.

If you were to sell the home or pay off the loan (including by refinancing) in the first 5½ years, you would not be reaping the full benefit of your rate buy-down from buying points.

On the other hand, if you bought down the rate to 4.25% and stayed in your home for thirty years, the difference in monthly payments over the life of your 30-year loan would be $64,080. Subtracting the initial investment of $12,000, you would be left with savings of roughly $52,000. As you can see, whether paying points makes sense for you depends primarily on one major factor — how long you think you will keep your home and/or the mortgage on it. If you don’t plan to keep your home for very long, or plan on refinancing soon, it may not benefit you to purchase points.

Purchasing a home is a major financial step. If you aren’t sure how long you will be in the property, you may decide that the money spent on points would be better spent on furnishing or fixing up the property, or by simply investing it in another financial instrument that will gain value over time.

Jaxzann Riggs of The Mortgage Network helped me with this column. You can reach her at 303-990-2992 for more information about points and to discuss whether they may be right for your personal financial journey.

The Surge in Mortgage Interest Rates Could Trigger a Market Slowdown  

Earlier this year, the conventional wisdom was that mortgage interest rates would rise to the 4% range by the end of the year, so when the rates rose to 5% abruptly in early April, it took us all by surprise.

The agents at Golden Real Estate are noticing a reduction in bidding wars, which might be due to the increased cost of financing a home purchase. It may be too early to draw any conclusions, but the interest rate increase is not looking temporary at this point, so we’ll have to see how the statistics for April and May come out.

Principal and interest (P&I) on a 30-year $500,000 loan at 4% has a monthly payment of $2,387. At 5%, that rises to $2,684.  Earlier this year, you could get that loan for 3%, which would cost $2,108 per month for P&I.

How does this affect affordability?

With a 3% interest rate, a person could get a $637,000 loan for the same P&I as a $500,000 loan at 5%. That is enough of a shock to disrupt many buyers’ purchasing plans.

I’ll be watching and let you know.

AirCrete Is a Lighter, More Climate-Friendly Version of Concrete for Home Building  

Back in January, in response to the destruction of the Marshall Fire, I wrote about various building techniques and materials, including concrete, that could make homes more fire resistant than today’s common wood-frame tract homes.

Last week a reader shared a recent article on Treehugger.com about AirCrete, “a foamy mixture of air bubbles and cement that is cheap to make, water-resistant, fireproof, and [Do-It-Yourself]-friendly.” Here’s a link to that full article. There’s a 7-minute YouTube video within the article that describes the process.

The process is the brainchild of Hajjar Gibran, the great-nephew of the poet Kahlil Gibran. His enterprise sells the tools for creating AirCrete using locally obtained cement. The only other ingredients are water and your choice of a degreasing dish detergent to create the foam using a 120V foam injection mixer which they sell for $199 on their website, www.domegaia.com. For $95, Mr. Gibran himself will provide a professional AirCrete consultation, or, for $700 tuition, you can attend a 10-day workshop.

Although the organization is focused on building domes, it’s clear that the process can be used to build other types of structures. With total structural building costs in the $2,000 to $9,000 range, the process is marketed specifically for building “tiny homes,” and would, it seems, provide an affordable way of addressing the problem of homelessness. I’d love to see it used here in Colorado!

Regular concrete has a low R-value, the common measurement of insulation — 0.1 to 0.2 per inch of thickness. Because of the air bubbles within it, the R-value of AirCrete is 6 per inch of thickness. This is roughly twice the insulating value of a typical 2×4 wood-frame wall filled with blown-in cellulose.

As I noted in my earlier columns, the manufacture of Portland cement is a major contributor to global warming, responsible for an estimated 7% of all greenhouse gas emissions worldwide. Because AirCrete is mostly air, its use of cement is far less than an equivalent volume of traditional concrete.

According to the Treehugger.com article, “The blend creates a lightweight and low-cost building block that is fireproof, water-resistant, insect-proof, and serves to insulate the building. According to its creator, AirCrete offers many desirable attributes for use as a building material for single-story residences, especially for the owner-builder, among them the ability to cut construction costs by a factor of 10 when compared with conventional construction.”

The article continues: “Beyond its affordability, DomeGaia says their AirCrete is easy to work with, drying in just one night and flexible enough to be shaped into almost any form. You can use your standard wood-working tools to carve or drill into the material, inserting screws and nails where necessary. Since the material hardens as time passes, you can be more confident about the shape you settle on instead of being increasingly worried about future vulnerabilities.”

DomeGaia’s workshops sound like a variation on eco-tourism, because they involve building an actual dome home (probably in a third world country) using AirCrete. Here is an excerpt from DomeGaia’s web page about the workshops:

“This is a hands on workshop, meaning most of the time spent will be outside and actively building. Though there will be some down time when instructors explain the building process and answer questions, you will still be on the building site as these explanations take place, so please come prepared against the elements…. DomeGaia workshops usually include time for yoga, guided meditations, dance, music, and exploring local attractions! Make new friends from around the world, learning, laughing and building together.”

Their website invites you to sign up for a monthly newsletter so you will be notified of upcoming workshops and their locations.

My thanks to the reader who shared AirCrete with me. I welcome your input, too, and let me know if you attend a DomeGaia workshop!

Zillow Says Late April Is the Best Time to Sell a Home  

Here are the key takeaways from a report released this week by Zillow:

> Homes listed for sale in the second half of April can expect to sell for 2.8% more, or about $9,300 on the typical U.S. home. 

> The first two weeks of November are the worst time to list a home, associated with a 3.5% discount. 

> The potential price difference between the best and worst times to list is 68% higher than it was pre-pandemic. 

Here’s a link to the full Zillow report.

Property Tax Increases for 2023 / 2024 Will Be Limited by TABOR in Some Jurisdictions  

A couple weeks ago in this column, I warned homeowners that the current rise in home values means a proportionate increase in property valuations as of June 30, 2022, and therefore a likely rise in property taxes for 2023 and 2024.

I wrote that because of a typical 30% increase in what your home could have sold for on June 30, 2022, versus June 30, 2020, your property taxes could increase by 30%, but that didn’t take into account the effect of the Taxpayer Bill of Rights, or TABOR, which restricts how much revenue each tax jurisdiction can keep to population growth plus the increase in the cost of living.

Under TABOR, if a taxing jurisdiction collects more than that formula allows, it must refund the excess to the taxpayers.

However, many (but not all) jurisdictions obtained voter approval to keep any excess revenue. The term for this common ballot measure is “de-Brucing,” after Douglas Bruce, the author of TABOR.

All but two counties passed such ballot measures and won’t have to refund their excess revenues to taxpayers — or, more commonly, reduce their mill levies so they only collect the allowed amount of revenue. Jefferson County is one of those counties that has not de-Bruced, so Jeffco will likely reduce its mill levy for 2023 and 2024 to limit their property tax revenue despite the increase in valuations.

In any county, however, the biggest mill levy is that of the school district, and, again, most school districts, including Jeffco’s, have   de-Bruced and can enjoy the coming windfall in revenue by not reducing their mill levies.

Any given property’s mill levy is the sum of individual mill levies from multiple taxing jurisdictions. You can see all those mill levies by looking for your property on the country assessor’s website. For example, in Jeffco, you’d go to http://propertysearch.jeffco.us. In other counties, just Google the county’s name + “assessor.”

For any given address, you’re likely to find between 5 and 15 different jurisdictions with individual mill levies. In unincorporated areas of Jefferson County, for example, you’ll find separate mill levies for the county, for Jeffco schools, for the country sheriff (“law enforcement”), for your local water district, local park district, local fire district, RTD, storm water and flood control district, etc. 

As an aside, a lot of people think that “unincorporated” translates to lower property taxes, but the opposite is true. Consider the following: the West Metro Fire District, serving much of Lakewood, collects about 13.2 mills from property owners in its taxing district — and that’s just for fire protection. Meanwhile, the City of Golden’s current mill levy is less than that (12.34 mills) and includes all municipal services — fire, police, parks and recreation, and more. Golden may have higher real estate prices, but our real estate is taxed at a lower rate than in most other areas.

Here’s How the National Association of Realtors Advises Its Members on How to Handle Multiple Offer Situations  

Many buyers and sellers and their agents have to deal with competing offers for new listings. The Colorado Real Estate Commission has offered no guidance on how to deal  (or not deal) with multiple offer situations. Below, however, is NAR’s guidance based on the articles and Standards of Practice from the Realtor Code of Ethics. Note: The Code only applies to Realtors, and roughly half of licensed real estate brokers are not members of their local Realtor association.

“When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their clients. This obligation to the client’s interests is primary, but it does not relieve Realtors of their obligation to treat all parties honestly.” (from Article 1 of the 2014 Realtors Code of Ethics)

“Realtors shall submit offers and counter-offers objectively and as quickly as possible.” (Standard of Practice 1-6)

Perhaps no situation routinely faced by Realtors can be more frustrating, fraught with potential for misunderstanding and missed opportunity, and elusive of a formulaic solution than presenting and negotiating multiple purchase or lease offers and/or counter-offers on the same property. Consider the competing dynamics. Listing brokers are charged with helping sellers get the highest price and the most favorable terms for their property. Buyers’ brokers help their clients purchase property at the lowest price and on favorable terms. Balanced against the Code’s mandate of honesty is the imperative to refrain from making disclosures that may not, in the final analysis, be in a client’s interests. (Revised 11/01)

Will disclosing the existence of one offer make a second potential purchaser more likely to sign a full price purchase offer—or to pursue a different opportunity? Will telling several potential purchasers that each will be given a final opportunity to make their best offer result in spirited competition for the seller’s property—or in a table devoid of offers? What is fair? What is honest? What is to be done? Who decides? And why is there not a simple way to deal with these situations? As Realtors know, there are almost never simple answers to complex situations. And multiple offer presentations and negotiations are nothing if not complex. But, al-though there is not a single, standard approach to dealing with multiple offers, there are fundamental principles to guide Realtors. While these guidelines focus on negotiation of purchase offers, the following general principles are equally applicable to negotiation of lease agreements. (Revised 11/01)

Be aware of your duties to your client — seller or buyer — both as established in the Code of Ethics and in state law and regulations. (Revised 5/01)

The Code requires you to protect and promote your client’s interests. State law or regulations will likely also spell out duties you owe to your client. The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. Realtors need to be familiar with applicable laws and regulations. Be aware of your duties to other parties — both as established in the Code of Ethics and in state law and regulation. Remember that the decisions about how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted, are made by the seller — not by the listing broker. (Revised 5/01)

Remember that decisions about how counter-offers will be presented, how counter-offers will be negotiated, and whether a counter-offer will be accepted, are made by the buyer — not by the buyer’s broker. (Adopted 5/01)

When taking listings, explain to sellers that receiving multiple competing offers is a possibility. Explain the various ways they may be dealt with (e.g., acceptance of the “best” offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.). Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their “best” offer may produce a better offer[s] than what is currently on the table—or may discourage offerors and result in their pursuing other properties). Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do. Remember — and remind the seller — that the decisions are theirs to make — not yours, and that you are bound by their lawful and ethical instructions. When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyer-client, that more than one of your clients or your firm’s clients may be interested in purchasing the same property, and how offers and counter-offers will be negotiated if that happens. (Adopted 5/01)

Explain the pluses and minuses of various negotiating strategies (that a “low” initial offer may result in the buyer purchasing the desired property at less than the listed price — or in another, higher offer from another buyer being accepted; that a full price offer may result in the buyer purchasing the desired property while paying more than the seller might have taken for the property, etc.). (Adopted 5/01)

Explain to the buyer that sellers are not bound by the Code of Ethics. Sellers, in multiple offer situations, are not prohibited from “shopping” offers. Real estate brokers may, unless prohibited by law or regulation, “shop” offers. Therefore, Realtors assisting purchasers in formulating purchase offers should advise those purchasers it is possible that the existence, terms, and conditions of any offer they make may be disclosed to other purchasers by sellers or by sellers’ representatives except where such disclosure is prohibited by law or regulation. (Adopted 5/05)

Remember — and remind the buyer — that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. (Adopted 5/01)

If the possibility of multiple offers — and the various ways they might be dealt with — were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers — and get direction from them. When representing sellers or buyers, be mindful of Standard of Practice 1-6’s charge to “. . . submit offers and counter-offers objectively and as quickly as possible.” (Revised 5/01)

With the seller’s approval “…divulge the existence of offers on the property” consistent with Standard of Practice 1-15. (Adopted 11/02)

While the Code of Ethics does not expressly mandate “fairness” (given its inherent subjectivity), remember that the Preamble has long noted that “. . . Realtor has come to connote competency, fairness, and high integrity. . . .” If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed. Article 3 calls on Realtors to “. . . cooperate with other brokers except when cooperation is not in the client’s best interest.” Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 5/01)

Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, “. . . Realtors can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, ‘Whatsoever ye would that others should do to you, do ye even so to them.’ ” (from the Preamble to the Code of Ethics). (Revised 5/05)

The Current Surge in Sold Prices of Homes Will Cause a Jump in 2023-2024 Property Taxes  

In Colorado, property taxes are based on a calculation of what each property might have sold for on June 30th of the prior even-numbered year.

That means the property taxes for 2023 and 2024 will be based on what your home could have sold for on June 30, 2022. Given the crazy surge in home prices, you could see a 30% or higher jump in your property’s assessed valuation and therefore a 30% or higher jump in your property taxes for the next two years. 

The chart below shows the likely impact of the current run-up in median prices compared to the median prices in prior Junes of even-numbered years, based on data from REcolorado. Although your home’s valuation will be based on the sales of comparable homes near yours leading up to June 30, 2022, the fact that the median sold price of residential properties metro-wide will have increased by over 30% from June 30, 2020, suggests that your home’s valuation and therefore your taxes could rise by 30 percent or more.

I’ve estimated (conservatively) that the median sold price in June will be $570,000 because the median sold price was already $540,000 in February. That is already a 27.7% increase over June 2020.

That, however, is an average for the entire Denver metro area, defined for these purposes as within 25 miles of the state capitol.  There are locales within the metro area where the increase in values over the last two years have approached 35% or more. Here is how that metro-wide 27.7% average increase of Feb. 2022 over June 2020 breaks down by county:

Denver County—19.5%

Jefferson County—30.1%

Douglas County—31.9%

Adams County—28.6%

Arapahoe County—27.1%

Boulder County—40.7%

Gilpin County—42.4%

The appreciation also varies greatly by city addresses:

Golden addresses—15.9%

Littleton addresses—26.0%

Arvada addresses—33.0%

Broomfield—27.2%

Centennial—36.9%

Aurora—30.5%

Highlands Ranch—31.8%

Castle Rock—36.5%

So, keep an eye on what homes like yours are selling for this April, May and June of this year to get a sense of what the county assessor’s valuation of your home will look like when you get that notification in May 2023.

About 50 readers are receiving “neighborhood alerts” from me.  These are email alerts regarding all MLS listings within your particular neighborhood. Usually, the alerts cover a certain subdivision or ZIP code, but they could be structured to include only listings which are comparable to your own home. For example, if you have a 1970s ranch home, I could set up an alert that only includes ranch-style homes built between 1960 and 1990 within a half mile or mile of your home. This will give you the best indication of how the value of your own home may be calculated by your county assessor. Feel free to email me at my address below to request such an alert or to modify the alert I am already sending you.

Changes Announced to 2nd Home & Jumbo Loans, Self-Employed Borrowers and Appraisal Fees  

I received a call this week from Jaxzann Riggs, owner of The Mortgage Network informing me of several changes occurring at FNMA and FHLMC that may “level” the playing field for some purchasers.

Roughly 17% of the homes sold in the last 12 months in the Denver metro area have been sold to investors, according to an article in the Denver Post. Demand for second homes has also skyrocketed, as newly remote workers seek more space and better surroundings. Until now, those purchasers were able to obtain loans with interest rates that were comparable to those being offered to purchasers who would be occupying their new home as their primary residence.

On Jan. 5th Fannie Mae and Freddie Mac (FNMA and FHLMC) jointly announced new “loan-level price adjustments” (or LLPAs) for high-balance, investment and second home loans. An LLPA is a risk–based fee assessed to mortgage borrowers using a conventional mortgage. Loan pricing adjustments vary by borrower, based on loan traits such as loan-to-value (LTV), credit score, occupancy type, and the number of units in a home. Borrowers often pay LLPAs in the form of higher mortgage rates. Increasing the LLPAs on high-balance, investment and second homes makes interest rates less attractive for the buyers and allows FNMA and FHLMC to offer new programs to help first-time or lower-income homebuyers.

Other recent changes by FNMA and FHLMC help self-employed borrowers.  They have rescinded rules imposed in June 2020 requiring self-employed borrowers to supply a year-to-date P&L as well as their most recent 2 or 3 months of bank statements. This reduction in paperwork should make it much easier for self-employed borrowers to obtain financing.

Another benefit may be found in the potential for lower appraisal fees. With the current red hot housing market, demand for appraisers is outstripping the supply, pushing up fees and extending appraisal completion times. Enter technology. Fannie Mae will allow desktop appraisals for certain loans submitted after March 19. This technology may help alleviate the appraiser shortage in the long term and lower appraisal costs in the current market. Jaxzann reminded me that she pays for her clients’ appraisals so they can be ordered immediately upon acceptance of a purchaser’s offer. With the ability to obtain desktop appraisals, Jaxzann expects that loan approvals can consistently be obtained in two weeks.

Though median home prices have shot up in the last two years (by 25%, according to HUD), what hasn’t changed is that people still need their homes to serve as an anchor for their life.

If you are in the market for a jumbo loan, things have gotten easier. A jumbo loan is a mortgage that exceeds the conforming loan limit set by the federal government. Jumbo loans — meant to finance expensive properties — cannot be purchased or securitized by FNMA and FHLMC. Loan amounts above $684,250 are considered “jumbo” and often have higher standards for approval. 

While people typically assume you need 10% down for a jumbo loan, there are currently products that allow as little as 3.5% down. This can free up some of your savings for being more competitive in this market, using funds for escalation causes, appraisal gaps, updates if the house isn’t in dream home condition.

Yes, today’s market can make buying a home stressful, but working with an experienced professional like Jaxzann Riggs will allow you to navigate its challenges. Call her at 303-990-2992 with your lending questions.

MLS Statistics Document the Return of Last Year’s Out-of-Control Seller’s Market  

One of the most dependable indicators of a strong “seller’s market” is the number of listings which sell above their listing price, and by how much. Another is the number of days that a listing is on the MLS (“DOM”) before going under contract.

As shown in the chart below, drawn from REcolorado’s data for the period of January 2021 through last month, the seller’s market peaked in May and June of last year but has now surged again. All indications are that the surge will continue through the spring.

Average DOM is always higher than median DOM because there are many homes that languish on the market unsold because they are overpriced, or for another reason. What’s remarkable about this sellers market was how low the average DOM went as even those hard-to-sell homes attracted buyers.     

As with the previous surge, the average DOM has sunk below 20 while the median DOM has revisited its all-time low of 4 days on the MLS.

(Note: These statistics are for residential listings in the metro Denver area, which I’ve defined here as within a 25-mile radius of the State Capitol.)

The rising cost of money — that is, the increase in mortgage rates projected for this year — will lure many buyers “off the fence” hoping a buy a home before interest rates rise further.

I foresee a stronger than usual seasonal jump in the number of new listings as spring arrives.

Many people believe, erroneously, that the best time to list a home is in the spring, so those people will be putting their homes up for sale in the coming weeks. In addition, as I wrote last week, many homeowners who weren’t thinking of selling before are likely to decide it’s a good time to “cash out.” But I don’t foresee that increase in supply going far to meet the needs of today’s home buyers, and I don’t see prices leveling off, much less declining.

It surprises many of us that homes are appraising at the high prices they are selling for, but when a winning bidder waives appraisal objection to win a bidding war — which is almost common nowadays — that sale becomes a comp that supports future appraisals at the same price or higher. (On the appraisal form, there’s a place to indicate a rising, falling or stable market, and when an appraiser checks the box that it’s a rising market, that gives him or her more leeway to appraise a home higher than recent comparable sales might otherwise justify, further fueling the frenzy.)

The real estate market is becoming less and less predictable, along with other elements of our economy and society. War could be imminent or a new Covid variant might come. God only knows!