This Year’s Real Estate Commission Update Class Contains Several Surprises

Real_Estate_Today_bylineAll Colorado real estate licensees are required to take a 4-hour annual update class, and, although the deadline for doing so is the end of the year, Golden Real Estate’s brokers always take it as early in the year as possible. All 10 of us took the class on January 29th, and came away surprised at some of its content.

What surprised us first of all was what the class said about disclosing “affiliated business arrangements” and recommending service providers.

Many larger brokerages, such as Coldwell Banker and RE/MAX, have an ownership stake in mortgage companies and other related businesses, including title companies, inspection companies, and insurance companies. If the ownership stake is 1% or greater, that constitutes an “affiliated business arrangement,” and every client of those brokerages must be presented with a disclosure outlining those affiliations and the fact that the brokerages may profit when buyers or sellers engage any of those affiliated businesses.

Before I created Golden Real Estate in 2007, I was a broker associate at two firms with affiliated businesses, and I dutifully provided the disclosure of affiliated businesses to my clients, but I found it ethically questionable that agents were encouraged to “capture” clients for these affiliated businesses. I became more concerned as it became clear to agents that those with the highest “capture rates” were rewarded with relocation and other referrals from our managing broker.

For years I’ve known that the seller, not their listing agent, should select the title company and that we should offer a list of no fewer than three title companies from which the seller may choose.  I don’t have a problem with that.  In this year’s update class, I learned that the list must be in alphabetical order. Okay, I can handle that, too.

What surprised me was learning that if a brokerage has an affiliated title company, an agent needs only to disclose the affiliation using the state-approved disclosure form, but he/she does not have to provide the names of alternative title companies. Wow!  That pretty much guarantees that each agent’s buyers and sellers will use the affiliated title company and inspection company (since buyers and sellers are generally unfamiliar with such companies).  And buyers who are renters, not homeowners, are likely to accept their agent’s recommendation of his brokerage’s mortgage company and insurance company because they don’t have an existing relationship with providers of those products/services.

This shocked me because it’s so counter-intuitive: a small brokerage with no affiliated businesses (and therefore no opportunity to benefit from such an arrangement) is required to provide clients with the names of three vendors of each and every product or service that might be needed during the course of a transaction.  A brokerage with affiliated businesses, on the other hand (and which stands to benefit from the recommendation) is not required to provide the names of alternative vendors.

A year ago, the Denver Post published the results of an investigation of 2,200 transactions showing that three-quarters of those big brokerages captured 90% or more of the title work for their affiliated title company.

Another surprise for me was the expanded definition of “settlement service providers.” I had been under the impression that the term “settlement service providers” referred only to title companies, mortgage companies and other providers of services related to settlement, i.e. closing.  In the update class, we were told that this term also applies to the following:

►Attorneys  ►Inspectors       ►Surveyors

►Contractors      ►Home Warranty companies

Brokers must now provide an alphabetical list of three providers in all of these categories. I am not allowed to share my own experience, gained from 15 years of  observing the competence and professionalism of service providers in any of these categories. But if Golden Real Estate had a 1% ownership interest in any of these categories, I could recommend just that one vendor, providing only that I disclosed that ownership interest.  It doesn’t seem right to me.

According to the Real Estate Commission, this rule is designed “to provide transparency, accountability, and consumer protection through disclosure” and “to ensure consumers do not pay disproportionately high settlement costs.”  These new rules, as defined by the Real Estate Commission, appear to stifle competition which tends to increase costs to the consumer.  Maybe they should revisit these rules.

Perhaps the most shocking item in this year’s update class concerned the Foreign Investment in Real Property Tax Act (FIRPTA). If you purchase real estate from a foreign national without a Green Card, you, the buyer, are required to withhold 15% of the purchase price at closing and to forward that money to the IRS within 20 days of closing. (Good luck with that!) You read that correctly. If you’re the buyer, it is your responsibility, and if you fail to do so, the IRS can come after you for the tax not withheld, plus interest and penalties!  The buyer’s agent may also be held responsible but only up to the amount of any commission earned on the transaction. You’re only off the hook by getting a signed affidavit from the seller affirming that he/she is not a foreign national living abroad.

And, as if putting the burden on the home buyer isn’t enough, this federal law states that the withholding is 15% of the entire purchase price, even though the seller will be responsible in the end for paying tax only on his/her capital gain. (It’s helpful to know that this requirement of the buyer to withhold the tax does not apply if the purchase price is $300,000 or less.)

In conclusion, I urge other real estate licensees to take the update class early in the year instead of waiting, as so many do, until November or December.  Meanwhile, I hope this column is helpful to them, not just to consumers.

By the way, Golden Real Estate has a smartphone app listing 100 service providers in 50 categories. You can download it at www.clientlinkt.com/install/243.

2 Golden Real Estate Agents Are Qualified Staging Experts

David's head shots 003David Dlugasch recently obtained certification and designation as a Home Staging Expert® from Center Stage Home, Inc. The course included all aspects of staging a home to sell, from utilizing the homeowners furnishings to furnishing a vacant listing and alternatives that fall in between. This is a huge added value that David brings to Golden Real Estate. He has already provided staging advice to several of our clients.

Susan DixonSusan Dixon is an American Lighting Association-certified designer and has staged homes professionally for 10 years. She studied art and architecture in Europe and received her Bachelor of Arts in Design at Brigham Young University where her emphasis was in Interior Design. As a Realtor and as a designer, Susan is an expert in home décor and has a passion to serve her clients in both capacities..

 

Here Are Some Obstacles (Real or Imagined) Faced by First-Time Home Buyers

Real_Estate_Today_bylineMany home buyers, especially first-time home buyers, would like to buy a home but harbor misconceptions about the obstacles they might face along the way. Here are some perceived obstacles.

Down Payment

Many buyers are misinformed about minimum down payment requirements.  They may think that a 20% down payment is required to purchase a home, or that they’ll be charged mortgage insurance if they put less than 20% down. In fact, some conventional loans require only 5% down, and while they do require mortgage insurance initially, that expense can go away once you can demonstrate 20% equity.

Indeed, even 5% is not the minimum down payment.  FHA loans require only a 3.5% down payment, and VA loans require no down payment at all to qualified veterans. The Colorado Housing Finance Authority (CHFA) can get a first-time home buyer into a house with only $1,000 out-of-pocket. CHFA also has a program which includes a down payment that is an outright gift to the buyer, and their Mortgage Credit Certificate program allows first-time and veteran homebuyers to get a tax credit for 20% of their interest expense for the life of the loan.

Credit Issues

The credit reporting agencies have done a good job of informing us about what is a good credit score, but we still encounter people who believe that derogatory credit entries are insurmountable barriers to home ownership. I had a client who had a bankruptcy and two foreclosures in her credit history, along with a sprinkling of minor late payments. Using one of our preferred lenders (Jaxzann Riggs), she still obtained a 3.5% down loan. While medical collections still factor into credit scoring, those under $2,000 are typically ignored by Fannie Mae and Freddie Mac underwriting software. Most credit obstacles can be overcome within a 6- to 12-month period if the client has some discretionary income.

Student Loan Debt

Fifteen years ago student loan debt averaged $15,000, but today it is $35,000 and growing. Most underwriters will now accept income-based repayment plans of student loans (if reported to the credit bureau) as opposed to fully amortizing payments. Fannie Mae now allows student loan debt to be included in refinances without categorizing the loan as “cash out” (which would impact the interest rate). Families with children living at home could use this option to reduce the burden associated with student loans.

Unwarranted Risk Aversion

Another emerging segment of our marketplace is millennials who experienced the loss of their family home. One day Dad was employed, and the next he was not, and 6 months later they were out of their home. They do not trust that the employment market will always be so robust and therefore opt for the perceived security afforded by renting. A good Realtor and loan officer can help a buyer understand and recognize the advantages of home ownership vs. renting, making the decision to buy feel safer.

Limited Inventory

While it is true that there are fewer active listings on the market and that there is more competitive bidding, especially in the lower price ranges, it is definitely possible to succeed at buying a home when you have the right real estate agent and the right loan officer.

It is possible to be notified within 15 minutes of any new listing that meets your search criteria, so there’s no reason to be late to the process — so long as you check your email regularly. Here at Golden Real Estate, we are particularly successful in winning bidding wars for our buyers. Just last week, for example, our buyer was the successful bidder for a Belmar townhome, which was accomplished by matching, not beating, the next best offer. How? By offering totally free moving to the seller using our moving truck, laborers, moving boxes and packing material.  All of these costs will be covered by Golden Real Estate, not by our buyer.  Of course, covering moving expenses is only one of the many advantages Golden Real Estate’s agents bring to the table, so give us a call!

Lenders and Loan Officers

A good loan officer, such as Jaxzann Riggs of The Mortgage Network, who assisted with this week’s column, can make a huge difference in helping buyers get into their first (or next) home.  A good local mortgage broker like Jaxzann makes a better impression with home sellers and their agents than any online lender and even some banks. You can reach Jaxzann at 303-990-2992.

 

Is Deporting Immigrants, Including Dreamers, Bad for the Economy?

Elliot EisenbergEvery January, economist Elliot Eisenberg comes to Denver from Washington, D.C. to update Realtors and lenders about the economy and the real estate market. I attended two of his presentations in January and was struck by his remarks about the recent tax reform legislation, which he called “a mistake.”

Reducing taxes when the economy is this healthy makes no sense, he said. Yes, it will have a positive effect on some business, but for only 12 to 18 months, and no more.

Part of what makes our economy healthy is our low unemployment rate, which can’t go much lower. In short, Eisenberg says we need more workers. In light of that statement, I asked him about the possible deportation of DACA children (many of whom are now working adults) and non-DACA illegal immigrants who are also working and paying taxes. He responded absolutelywhen asked if he believes that deporting these workers would only make matters worse for our economy.

I’m reminded of something former President George W. Bush said after Hurricane Harvey: “Good luck rebuilding Houston without immigrants!”

 

Golden Split-Level Home Just Listed by Jim Swanson

1060 Yank StreetThis awesome move in ready home at 1090 Yank Street, listed at $439,000, is just minutes from the Colorado Mills Mall, with easy access to both 6th Ave and I-70. Welchester Elementary School is only one block away, and Daniels Park is also nearby. The roof, gutters and siding were replaced last summer, and the entire home was painted inside and out. The interior has 3 bedrooms upstairs with a large master bedroom/bath and good sized 2nd and 3rd bedrooms served by a 3/4 hallway bath. The updated kitchen features a new refrigerator. Walls were removed to create an open floor plan, with hardwood flooring throughout, including on the stairs. The lower family room has a wood-burning fireplace and a full bath. The large private backyard has a covered patio, garden area, shed and 8.5’ x 14’ motorcycle garage. A newer (2011) boiler provides the hot water baseboard heat. Cooling is provided by a roof-mounted swamp cooler. Take a narrated video tour at www.WideAcresHome.info, then call your agent or Jim Swanson at 303-929-2727 for a showing.  He’ll be holding it open Saturday, Feb. 3, from 10am to 2pm.

 

Life’s Transitions Are at the Heart of Most Real Estate Needs

Real_Estate_Today_bylineIn my 16 years as a Realtor, I have learned that most people’s real estate needs arise from life’s many and varied transitions.  These can include relationship changes such as marriage and divorce, a birth or death in the family, health changes, and other reasons for upsizing or downsizing, as well as job relocation, job loss, and changes in income. People also relocate to be closer to grandchildren or other family members.

Clients have come to us because of most or all of these “transitions,” but perhaps the most common is, sadly, divorce. When couples divorce, one option is for one spouse to buy out the other, and although the court (in a non-amicable divorce) might require a valuation by a licensed appraiser, often we’ll be called upon to give a “Broker Price Opinion” of the home’s value. I don’t charge for this service, nor do I think most agents would. If a sale of the home is necessary, of course we’re available to assist in that, and the proceeds can be disbursed as the couple or the court dictate.

Medical changes or uncertainty, which can affect people of all ages, often necessitate a home sale. We can help the seller of a multi-level home find a wheelchair accessible home or simply one with fewer stairs, and discount the commission on the sale of their current home when we earn a commission on their purchase. If the seller is moving to a rental such as in a senior community, we can refer them to a specialist in that field, such as Jenn Gomer of Care Patrol.

Marriage or simply the combining of two households is a happier transition, and, again, look for your agent to discount the fee for selling your current homes in return for earning a commission on your new home.

Empty nesters (and others) come to us on occasion wanting to downsize. They may want to use their new-found freedom to travel, and ask us to find them a “lock-and-go” home such as a condo or patio home, where you have no maintenance responsibilities and it’s not obvious when you’re away.

When children head off the college, they may want to live in dorms or fraternities/sorrorities, but some parents want to invest in a home near campus that they can sell for a profit (or keep as a rental) after graduation.  They prefer to buy homes with three or more bedrooms so that classmates of their son or daughter can provide rental income for the parents.

Relocation is a big area of need, too. This is a good time to “sell high and buy low,” by moving from Denver to, say, Goodland, Kansas, where a recent client of mine was able to buy a bigger house using only the equity from the sale of their Arvada home.  Now they have no mortgage!

With so many jobs allowing telecommuting, some workers want to leave the hustle and bustle of the city and live in a quieter, perhaps rural setting with good internet service. A client of ours who works for the federal government is allowed to work from home, so he moved to a sleepy town in Mesa County, even though his “office” is 200 miles away in Lakewood!

What life transition are you facing?  Whatever it may be, it’s important that your real estate professional is ready to listen to your wants and needs and can be a compassionate consultant, supplying information and advice that helps you make the best decision for you and your family.  Call us!  We are eager to be of service.

 

Did You Know That the Best Car for Wintertime Travel Is Electric?

Consider these reasons why you might prefer an electric car (EV) during the winter.

No warm up needed. Just get in and go. And the cabin will be warm within half a mile.  No puffing!  If your car is parked outside and has ice or snow on it, you can turn on the heat remotely without unlocking it 10 or 15 minutes before you want to leave.

You’ll never break down. Winter is a terrible time for a breakdown, isn’t it?  There’s nothing to break down in an EV, and it will never “stall.”  The only time you’ll see an electric car in the breakdown lane is if it was in an accident or has a flat tire.

No filling your tank during in the freezing rain or snow. Think of your EV like your smartphone. You plug it in at night and it’s fully charged in the morning. When you have an electric car, gas stations are just for cleaning your windshield and buying lottery tickets.

Traction is better in an EV. My all-wheel-drive Tesla is hands-down better in snow than my old Lexus RX 400h or, I wager, any car. Test drive one on a snow-packed road and you’ll be amazed, as I was.

You can leave the heat on while parked. It’s really nice to come back to a warm car with no ice to scrape. I left my locked Tesla’s heat on for several hours during a recent snowstorm and it only consumed a couple kilowatt-hours (22 cents’ worth of electricity, if you don’t have solar panels). When I was ready to leave, the windows were all clear and the cabin was 70 degrees!  The same feature works during summertime.  I don’t have to return to a car that’s over 100 degrees in the sun.