Jim Smith's Blog

Imagine the heartbreak. You’ve been waiting for a home in a particular neighborhood that backs to open space. There are very few of them. Your agent has set up an MLS alert so you’ll be notified the minute such a home goes on the market.

One day you get an MLS alert — your dream house was just listed! Two minutes later, before you can even call your agent to schedule a showing, you get a second alert that it’s under contract. Then, two minutes later, a third alert that it’s sold. What happened?

It’s simple. Listings can only be entered on the MLS as “Active” and then changed to “Under Contract” and “Sold.”  Apparently a buyer’s agent had convinced the homeowner to sell their home for $925,000. The seller agreed. After all, the county assessor’s most recent valuation was $924,138, and the seller purchased the home in 1997 for $343,400.  A tidy capital gain indeed!

But it’s not that simple.  That assessor’s valuation was as of June 2016 — two years ago!  Valuation software shows the home is worth up to $150,000 more today. Heck, even Zillow shows it as being worth $10,000 more.

Given the opportunity to see the home and submit competing offers, other buyers could well have driven the price over $1 million.

So it was a lose-lose — or should we say win-lose-lose? That buyer won, getting the home for less than it’s worth, but the seller and the would-be buyer both lost. And, oh yes, the buyer’s agent was rewarded with a big commission for convincing the seller to part with their home for what the county assessor said it was worth two years ago!  (This was an actual recent sale.)

Don’t let this happen to you.   A savvy seller would treat an unsolicited offer to buy their home as the “opening bid.” Professional agents, like the ones at Golden Real Estate, would analyze the market and help you determine your initial asking price.  Our approach is to list homes at a price that attracts the greatest number of qualified prospective buyers. Using this ad space and other media, we expose our listings to the widest possible market.  In short, we do exactly what buyer’s agents hope you won’t do – work diligently to give sellers the best opportunity to benefit from the current sellers’ market.

The scenario described above has contributed to the limited inventory of active listings.   As I wrote in my March 22 column (download-able at www.JimSmithColumns.com), homes that are on the MLS between one and four days sell for much more than those at zero days.  Experience has shown us that 4 days on market is the “sweet spot,” where, with a solid pricing strategy and effective marketing (like that offered by Golden Real Estate), potential buyers are given the best opportunity to find, view and make an offer on your home.

The following chart (source: REcolorado) shows the ratio of sold price to list price for listings sold since Jan. 1, 2018:

1 Day on Market  =  102.0%

2 Days on Market  =  102.2%

3 Days on Market  =  102.2%

4 Days on Market  =  102.3%

5 Days on Market  =  102.2%

6 Days on Market  =  101.5%

7 Days on Market  =  100.5%

8 Days on Market  =  100.0%

9 Days or longer  =  Under 100%.

Of course, there can be legitimate reasons for a property to be sold without being put on the market, such as selling to a relative or friend, but any arm’s length transaction really should be put on the market. Otherwise, you could be leaving money on the table.

 

Today’s “sellers market” can prove challenging for almost any home buyer – including those who have a home to sell.  Here are some examples of buyers and sellers and the challenges they face:

►Homeowners who would like to sell but are worried they won’t be able to find a replacement home.

►Homeowners who don’t feel they can compete as a buyer because they must make any purchase contingent on selling their current one.

►Home buyers relocating to Colorado who would prefer to rent for a while before buying.

►Tenants whose landlord is selling the home they’re renting, and would like to buy it but need time to qualify for a loan.

►Tenants who see a home for sale on the MLS and wish they could rent it instead.

Golden Real Estate can now meet the needs of such would-be home buyers. Under our innovative program, you need only be pre-approved as a tenant, not as a home buyer. Once approved as a tenant, you let us show you homes (except condos) that are for sale up to $550,000, knowing that we have a cash buyer ready to purchase the home and rent it to you.

Our cash buyer is Home Partners of America. Every agent at Golden Real Estate is an approved agent for them. The process is quick and painless. Here’s how it works. We submit your name and contact information to the buyer. They interview you to determine whether they would accept you as a tenant. Once approved, you visit their website, where all qualifying homes from the Denver MLS are listed, with one important difference – each home displays a rental price in addition to its sale price. Once we’ve helped you find a home you’d like to rent, you are presented with a rent-with-right-to-purchase contract. That contract will contain a grid of rental and purchase prices spanning the next five years. You never have to purchase and you don’t have to rent beyond year one.

Below is an example of that grid for a current MLS listing we found with a purchase price of $475,000.

These figures are only estimates because they assume the home is purchased for its listing price. It could be purchased for more or for less, and there could be other costs, such as repairs, associated with making the home ready for you to move in.

As long as you remain within the terms of your agreement, you will never be asked to leave during those five years.  Move, rent or buy – it’s entirely up to you.

The rent is deemed to be at market rate, so none of your rent is applied to the purchase price. You don’t have to wait until the end of your lease to purchase. You can purchase for the designated price at any time during your lease term, as shown in the grid.

Revisiting those examples of challenged buyers above, this program has the potential to meet all of their different challenges.

The homeowner who wants to sell can now do so without worrying about finding a replacement home or submitting an offer contingent on the sale of their current home. They can sign a rental agreement with Home Partners on a house that they might ultimately want to buy, but don’t have to buy. This allows the homeowner to put their home on the market using Golden Real Estate without worrying about making themselves homeless. The program gets them into an interim home, whether or not it’s one they ultimately choose to buy. They sell their home, get their cash and become a stronger non-contingent buyer with a big down payment, who can then take as long as they need to find their new home.

What about the person relocating to Colorado? This program is perfect for them, because it allows them to “test drive” a home and neighborhood they think they might like without having to fully commit to it until they have familiarized themselves with the metro area.  They have the luxury of time that they might not otherwise enjoy.

What about the tenant whose house is being sold and they have to move? Home Partners might be able to purchase that house and keep them as a tenant – a tenant who now has the security of a guaranteed right to stay for 5 years, plus the right to purchase the home if they later qualify.

People often walk into our office and ask if we handle rentals – we don’t.  This program provides an opportunity to many of these walk-ins, who would really prefer to buy but aren’t yet ready for one reason or another. Also, the inventory of homes for rent is even smaller than that of homes for sale. Wouldn’t it be great if nearly every home (except condos) priced up to $550,000 on the MLS was also available to rent?  With this program, that opportunity is yours.

You can’t contact Home Partners directly. If you think the program might be for you, you apply for it through me or one of my broker associates at Golden Real Estate. You are under no obligation to follow through, even after you are approved as a tenant. But if you like what you see, we’ll start showing you homes for sale which Home Partners is willing to purchase for you to rent.

There are other brokerages who participate with Home Partners in this program, but you’ll benefit from using Golden Real Estate, because we offer free moving into your rental — and into your ultimate purchase, if different. Conditions apply, but at the very least you have free use of our moving trucks, boxes and packing materials. Call or email me for details. (See below.)

You’re also welcome to call our office at 303-302-3636 and speak to the agent on duty.  We’re happy to answer all your questions.

 

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

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

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

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

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

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

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

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

 

Q. I want to get above my listing price. If I get a full-price offer, do I have to accept it?

A. My sellers occasionally ask this question because my listing strategy involves pricing a home at or near current, real-world market value, as opposed to some hoped-for higher price. Sometimes a seller says they don’t want to sell for any amount that’s not above the listing price and asks if they’re required to accept a full-price (or any) offer.

The answer is “no.” Sellers cannot be compelled to accept an offer, irrespective of the offered price.  I always explain this up front to prospective buyers (through their agent, if represented) who submit a full-price offer.  The Colorado real estate contract states that if the listing agent produces an offer that matches the terms specified, the seller owes the commission to the agent. To better serve my clients’ interests I insert an “additional provision” stating that they, as the seller, will not owe me a commission on any rejected offer.

At the same time, however, I point out that if the only offer(s) we receive are for full-price (or less), then we didn’t underprice the home, did we?

——————-

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

 

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

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

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

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

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

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

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

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

[End of excerpt from the DORA report.}

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Comment below to share your own thoughts on this topic.

 

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

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

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

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

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

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

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

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

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

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

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