Jim Smith's Blog

Although the often dreaded Homeowners Association (or “HOA”) has been around for a long time, its widespread use goes back only a few decades. Prior to, say, 1980, it was common for new subdivisions to have covenants, but no reasonable way to enforce them.  This begs the question; “why have covenants if they can’t be enforced?”  Enter the HOA, an entity designed and created to answer that question.

Many early covenants had provisions that after 30 years or so the majority of homeowners would have to petition to renew them. Some covenants had the opposite provision — i.e., they automatically renewed unless a majority of homeowners agreed to abandon them.  All covenants, whether still valid or not, are recorded and thus provided with other title docs.

Let’s say you live in a subdivision with still  enforceable covenants but no HOA.  The only way to enforce the covenants against a homeowner who is in violation of them would be for one or more homeowners to file a civil suit against the offender.  Obviously, that is not practical, which is probably why developers of new subdivisions started including an HOA in their CC&Rs — Covenants, Conditions and Restrictions.

Some older subdivisions such as 6th Avenue West have created “neighborhood associations” with voluntary dues (usually under $100 per year) which are used to create community through various activities, such as picnics and newsletters.  That sense of community can in turn contribute to social pressure for members of the community to abide by the provisions set forth in the covenants.

Lakewood Estates, a 1980s subdivision across Jewell Avenue from White Fence Farm, has taken this approach a step further. This voluntary HOA exerts pressure and has even shown a willingness to take legal action against residents who violate provisions of their older, but still existing covenants.

What neighborhood associations can’t do is to levy fines against homeowners. HOA fines can become liens against the property, too, so they always get paid, along with unpaid dues, even if only at closing upon sale.

Do you have experience in dealing with old and possibly unenforceable covenants in the Denver Metro Area? I’d love to hear about it. Contact me at 303-525-1851 or email me at Jim@GoldenRealEstate.com. I may do a follow-up article on this topic.

(Because such laws and regulations vary from state to state and even county to county, I can’t assist people outside my service area.)  

By now it should be clear to you — as it is clear to the automotive industry — that electric vehicles are neither a passing fad nor something that only the wealthy can afford.

Some manufacturers, including BMW and the Volkswagen Group (12 brands from seven European countries) have stated that they will convert their entire fleets to electric propulsion within the next 10 or so years, which makes sense since several countries have indicated they will ban the sale of cars with internal combustion engines by 2030 or 2040.

If you haven’t seriously considered owning an electric car, now is a good time to investigate what is already being offered by different manufacturers.

Drive Electric Week, presented by Plug-In America, the Sierra Club, and the Electric Auto Association, is your opportunity to meet and talk with current owners (not dealers) of electric cars, get your questions answered, and even take a ride in one or more models.

For the 5th year, the parking lot of Golden Real Estate, at 17695 S. Golden Road, is one of many venues for this event. Already 30 owners are registered to bring their EVs, and another 30 or so people have registered at www.DriveElectricWeek.info to attend on Saturday, Sept. 8th, 10 am to 3 pm.  Denver and Boulder have their events on Wednesday,  Sept. 12th. (Details are on that same website.)

 

When I was a new agent at Coldwell Banker, my trainer shared the expression “listors last.” In other words, our goal should be to succeed as a listing agent, even if we get our first paychecks by representing buyers. But how does one get listings? You can solicit your “sphere of influence” (i.e., friends and family), but that can take you only so far. You can hold open the listings of busier, established agents who either can’t or don’t want to hold their own listings open, hoping that an unrepresented buyer comes along who also needs to sell their home but hasn’t yet hired a listing agent.

Some agents specialize in cold-calling expired listings or For-Sale-By-Owner listings. If you have your home on the MLS and the listing expires, be prepared to be deluged with letters, phone calls, emails and door knocks from agents claiming they can succeed where your previous agent failed.

I got my start by “farming” a subdivision in Golden. The practice is called “farming” because you are “planting seeds” and looking to “harvest” listings as the homeowners come to know and appreciate your newsletters, calendars, garage sales and other special events or services for that subdivision.

Nowadays, I get most of my listings from people who have been reading this column for a decade or more and feel confident calling me when real estate needs arise, sensing that I understand the real estate market better than their friend or relative who got their real estate license, and better than the agent who sold them their home (if they even remember who he was).

Then there’s the approach taken by an agent I’ll call John (not his real name).  His approach is to hire Door Hangers Direct to print flyers that look hand-written saying, “Call me. I may have a buyer for your house.”

Notes from John with that message were taped to the front doors of two Golden Real Estate listings — one a year ago and another one last week. Since the notes looked hand written, my initial thought was that another Realtor had violated our Code of Ethics as well as Colorado law by soliciting one of our sellers. However, because distribution by a third party is considered “mass advertising” (even though it looks individually written), that rule does not apply, so long as the message contains a disclaimer (usually in small print) saying that it is not a solicitation if your home is currently subject to a valid listing agreement.

To see how successful this approach might be, I tracked down 10 sellers who had listed their homes with John earlier this year.  Most of them told me they had listed with him because of the note found on their front door. Seven of the 10 recommended him.  Two were annoyed that John did not in fact have a buyer for their home. Indeed, of the 24 listings sold by John in the past 6 months, neither John nor anyone else in his brokerage brought the buyer.  Industry wide, about 5% of listings are sold by the listing agent.  I had to go back to March 2017 to find one of John’s listings that he sold himself.

From my interviews I learned that John offers to cut his listing commission in half if he sells the home himself, but that’s an empty offer, given that, as one disappointed seller told me, “John only lists homes, he doesn’t sell them.” John confirmed this himself, telling me an interview that he refers buyers to agents from another brokerage, instead of handling them in-house. And he doesn’t hold open houses where he might encounter unrepresented buyers. (He was surprised that I do.)

Claiming to have a buyer has long been a technique for obtaining listings, and smart agents like John cover themselves in their notes by saying they “may” have a buyer, not that they actually have one.

How Top Producing Agents Work

Getting to know “John,” I’m reminded of the business model of famed real estate coach Tom Ferry.  John is one of Tom’s students and practices what Tom preached.

My first year in real estate, 2002, I attended one of Tom Ferry’s “Super Star Summits” in Palm Springs. Tom espoused several practices, including the following:

Delegate everything you can.  Hire vendors to print and distribute flyers and newsletters, to install and remove yard signs, to take photos and create virtual tour, to enter listings on the MLS, and to manage transactions through to closing. Don’t waste your time with open houses, and refer out (for a 25% referral fee) all buyer leads, including your sign calls.  Instead of answering your phone, change your voicemail greeting every day saying you’re with clients most of the day and will return calls between certain hours.  In other words, it’s okay to lie. 

Tom Ferry’s system works, but it’s not for me.

 

 

A recent report by ShowingTime, one of the nation’s biggest showing services, indicated that real estate showing activity in the western states has slowed by 6.9%, while increasing 0.2% nationwide.  But that’s only one study by one company.  And while ShowingTime might be a major player on the national stage, the Denver market is dominated by Centralized Showing Service (CSS). I searched their website for statistics on this subject.

According to CSS, showings of listings in Jefferson County — based on an analysis of eight diverse ZIP codes — are up by 30% this summer (June 1 through August 21) over the same period in 2017. Denver was even more active, with showings up 40% over that same period last summer.

Despite that surge in showings, REcolorado, our metro area MLS, shows that sales are not increasing, but are showing barely any let-up from the previous four years, as shown in these two charts:

The agents at Golden Real Estate have observed a slowdown in sales activity in recent weeks, and that slowdown is reflected in the fact that as of this Tuesday there were only half the number of sold listings in Jefferson County and Denver as there were in all of August 2017, suggesting the figure will be down somewhat when this month closes out next week.

I’m often asked whether we’re about to see an end to this seller’s market, and my reply is in the negative. This is due primarily to the shortage of new homes and condos being built, while the net in-migration of people moving to Colorado (primarily to our metro area) from other states remains quite high.  The housing market has no immunity against the law of supply and demand, and as long as there are more people relocating to our area than there are homes being built, we’re going to remain in a seller’s market. This more-people-than-homes scenario means many would-be buyers have been forced to rent.   Rental apartments, which have been built in great numbers throughout the metro area, are absorbing most of these would-be buyers..

Prior to, say, 2012, those apartment buildings would have been built as condominium projects, but condo construction dropped nearly to zero in recent years because of the state’s construction defects law.  In 2017, new legislation reduced the legal and insurance risks associated with building condos, so that trend toward building apartments instead of condos is gradually abating, and after the mandatory six years of “repose,” many of those apartment buildings may be converted to condos.

The MLS is limited in its ability to show how many condos have been built and sold since the change in the construction defects law, because condo sales by builders are not typically reported on the MLS, meaning they can be found only by searching public records.

Even with the coming resurgence of condo construction, the fact remains that many would-be buyers are stuck in rental apartments because of the continuing overall shortage of homes for sale.  Any increase in the number of homes on the market has been wiped out by an increase in the number of sales.  For this reason, inventory levels have remained at either one or two months since January 2014.

Conventional wisdom says that May through July is the “selling season” for homes, primarily because of families not wanting to move during the school year. However, I would suggest that real estate sales are no longer seasonal and that May through July should be thought of as the listing season instead of the selling season, if only because so many sellers believe that it’s the best time of year to list their home. Nowadays winter is the best time to list a home for sale, because there are just as many buyers but fewer listings, because other sellers are waiting for the “selling season.”

 

Dear friends,

As you may already know, Golden Real Estate is a founding member of Good Business Colorado, and we’re holding an event called the GBC Summer Happy Hour next Friday.

Come and enjoy happy hour with me and other founding members of Good Business Colorado on Friday, August 24th, 4:00 to 6:30 p.m., hosted by Illegal Pete’s at 270 S. South Broadway (northeast corner of Alameda & Broadway). Meet current members, along with other responsible business owners from around the metro area, and hear more about this exciting new business group. Chips and salsa will be provided for snacks!

You can also learn more about GBC (and why I love its mission) at www.GoodBusinessColorado.org.

Can you join me? Click here for details and to RSVP: https://actionnetwork.org/events/gbc-summer-happy-hour-2?source=email&

 

Denver appraiser Fred Rossiter had this as the topic of his most recent blog post, and he makes a compelling argument that providing a rating condition on MLS listings is not only a good idea but easy to implement in a fair and reasonably consistent manner.

As Fred states in his first paragraph, which you can read at www.FredRossiter.com, condition “is neither asked nor is there a field provided for an answer.  Condition is a glaring omission on our MLS input forms.  It’s time for a change!”  I agree.

You may think that a listing’s condition is too subjective to quantify, but he points out that Fannie Mae has created a “Property Condition Rating” system that all appraisers must follow and which could easily be adopted by REcolorado, Denver’s MLS.

Here are the 6 ratings which appraisers can assign to homes, along with guidance for selecting each rating:

C1—The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new and the dwelling features no physical depreciation.

C2—The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completely renovated and are similar in condition to new construction.

C3—The improvements are well-maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well-maintained.

C4—The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.

C5—The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability are somewhat diminished due to condition, but the dwelling remains useable and functional as a residence.

C6—The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.

For each of the above ratings, Fannie Mae provides “notes” giving additional guidance about selecting each rating level, which makes it easy even for a non-appraiser such as a listing agent to assign the right condition rating to a listing.

The only field currently in our MLS that relates to condition is the term “fix-up,” but that’s an undefined term, not required, and some sellers tell their listing agent they don’t want that term used.

I like this rating idea a lot.

 

When you put your home on the market and open it for showings, you probably look for useful feedback from those who have seen it. As a showing agent myself, I consider it a matter of professional courtesy to provide that feedback when asked.

Like most Denver broker-ages, Golden Real Estate employs Centralized Showing Service (CSS) to set showings for our listings and to automatically request feedback from showing agents immediately following each showing appointment.

CSS offers listing agents a choice of two styles of feedback requests. One asks a series of questions, survey-style. The other — which I’m happy to see most agents utilize — is to have an open text field for showing agents to provide feedback in their own words.

When I show a listing, my buyers and I typically come away with specific pros and cons which I’m happy to share with the listing agent, who can then pass them on to the seller.  Imagine the frustration when I get a feedback request that denies me that opportunity, asking instead a series of questions with multiple choice answers, none of which fit what I wanted to convey.  Sometimes, but not always, the last question will provide a text box to answer another unrelated question, such as “If you’re buyer is not interested in this home, please explain why,” and I’ll utilize that text box to give my positive and negative feedback that I wanted to give in the first place, about which the listing agent didn’t ask.

The most puzzling survey question – contained in almost all survey-style feedback requests — concerns the price. Is the home underpriced, overpriced or priced right?  I always ignore that question, especially if my buyer is contemplating an offer. The job of a good buyer’s agent is to get the best deal for his or her client which, of course, includes negotiating a price they’re comfortable with. Therefore, it would be irresponsible of me to answer that question, except perhaps to lay the groundwork for a low-ball offer. And what if an agent is previewing the home prior to listing a similar home in that subdivision? In that case, the agent could state that the home is underpriced, hoping the seller will  raise their price, making the new listing more attractive to buyers than their own.

Nine times out of 10, the home I show is not a contender for my buyer, so I wouldn’t mind giving an opinion about the price, but what’s my opinion really worth?  Unless it’s a subdivision I “farm,” I would have to do a comparative market analysis to give an informed opinion about each listing I show. Why would any showing agent do the research on listing price before their buyer tells him they’d like to submit an offer? In short, there’s almost no circumstance in which it would be useful to ask a showing agent his opinion of a listing’s price.

The follow-on question is often, “What do you think the final selling price of this home will be?”  Again, not a smart or useful question to ask or to answer.

CSS gives the listing agent the option of releasing feedback immediately to his seller. That means that the feedback response is sent simultaneously to both the listing agent and the seller.  I keep this in mind when composing my feedback response, because totally honest feedback could prove stressful to some sellers. Despite this risk, I always choose that option for my listings, believing that my sellers can handle honest feedback. As I read the feedback myself, however, I keep in mind that my seller is reading it, too, and that they might have a reaction to what was written.  Since the feedback emails sent to listing agents include the email address of the showing agent, I will often respond to feedback as appropriate.

If your home is listed, you will be able to see whether your listing agent is using the survey approach or allowing for open-ended feedback responses. If you’d like to change the questions being asked or switch to the open text field, you now know that you have that option.

As broker/owner of Golden Real Estate, I encourage our nine broker associates to use the non-survey approach. They tend to agree that the more useful type of feedback request is an open text area so the showing agent has an opportunity to say what’s on their mind as they leave a listing, unconstrained by survey questions.

If the goal is to receive detailed and honest feedback regarding your home, then make sure your listing agent lets the showing agents tell you!

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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