Jim Smith's Blog

When you buy a home, your lender will factor in several obvious costs of your purchase when approving your loan, but there are other less obvious costs which the lender doesn’t consider, but which you should definitely investigate.

The costs your lender considers are your projected mortgage payments (consisting of Principal, Interest, property Taxes and Insurance, or “PITI”) plus Mortgage Insurance Premium (“MIP”) and HOA fees.

Let’s look at those obvious costs first.

Regarding property taxes, don’t make the mistake of assuming that unincorporated areas have lower property taxes than incorporated cities. The City of Golden, for example, has the lowest mill levy I’ve found anywhere in Jefferson County, and many newer subdivisions, such as Candelas, have mill levies that can be twice that of Golden. (See my Dec. 17, 2015, and July 21, 2016, columns about Metropolitan Tax Districts at www.JimSmithColumns.com.)

Regarding insurance costs, shop around! I have observed substantial variation among insurers. Use an independent insurance broker to get competitive quotes from different carriers, or, if you get quotes from “captive” insurance agents, get quotes from three or more different carriers. If the home is in a flood zone, flood insurance can be another major expense.

Regarding mortgage insurance premiums, don’t assume that you must pay MIP if you have less than 20% down payment. We can refer you to lenders who offer work-arounds regarding MIP with much less than a 20% down payment.

Regarding HOA fees, some HOA’s require “working capital contributions,” “document fees” and “move in fees” that may take you by surprise.  Ask about these.

Now let’s look at some other, less obvious costs of home ownership.

What about energy costs? These can vary substantially from one house to another. Find out what the current owner is paying for gas and electricity each month, and factor in whether the number of members in your household will vary from the seller’s when projecting what your energy costs will be.

Once you’re under contract, you’ll be hiring a home inspector to evaluate that home. Make sure it’s an inspector who is qualified to assess the home’s energy efficiency as part of his inspection (at no extra cost). We can recommend such an inspector.

Your inspector can also assess how much deferred maintenance there is on the house you buy. Get his advice on how much you might need to budget in coming years for maintenance and repairs, which can vary greatly from one home to another.

Water consumption is big cost to consider, especially if the home has a lot of Kentucky bluegrass, which requires lots of water.

Here’s a hidden expense you may not have thought of — health expenses due to bad indoor air quality. You recognize the smell of new carpeting, right? It’s not as innocuous as you might think. You might well be smelling VOC’s — volatile organic compounds. Some paint also contains VOC’s, and they’re less expensive than paint labeled “low in VOCs.” Ask your inspector to assess how many VOC’s might be in the air that could literally make you sick. Mold is another sickness-causing consideration. Your inspector will tell you whether a separate mold inspection is called for. He (or we) can recommend mold inspectors. Radon tests, costing $100-150, are also a good idea, since naturally occurring radon gas is a known carcinogen.

Older homes have clay sewer lines that are prone to root intrusion and collapse, which is the homeowner’s responsibility. A $100 sewer scope could identify the need for a 4-figure repair that you might be able to get the seller to absorb, saving you that expense later.

Published June 15, 2017, in the Denver Post’s YourHub section and in four Jefferson County weekly newspapers.

 

 

The technique of offering or requiring continued occupancy for the seller after closing can be a useful and highly effective negotiating tool for both the buyer and the seller. It’s not used that much by most real estate professionals, but Golden Real Estate’s agents, including myself, have learned how to make highly effective use of it.

From the Seller’s perspective, retaining occupancy of their home after closing is a great way to ease concern over having to move twice or not being able to coordinate the purchase of their replacement home with the sale of their current  home.

Many owners want to sell  but realize that while a “seller’s market” is great for selling a home, it makes it harder to find and buy a home.  The big fear is that the owner will sell their home and not have a place to live. This fear can be quite real and quite frightening, but a well negotiated sale that includes a post-closing occupancy agreement can effectively address this concern. I have personally used that device effectively in multiple transactions.

Sometimes this requirement for continued occupancy after closing is expressed in a listing as follows: “Sale must be contingent on seller closing on their replacement home.”

Even when a seller has the means to buy their replacement home before putting their current home on the market, a post-closing occupancy agreement can play a useful role for the seller.  Last year, for example, I listed an Arvada home for a couple that was already under contract for their replacement home.  They had been approved for a bridge loan to finance their replacement home, intending to pay off that loan as soon as they sold their current home. We priced their home just right, so we got multiple offers and were able to sell their home for well above its listing price and have the closing date occur the day before the closing on their replacement home.  They did not have to utilize their bridge loan and, in addition, we negotiated a free two-week post-closing occupancy so they could move from the current home to their new home in a leisurely manner.

Having that post-closing occupancy agreement can reduce the risk of needing to move twice — once into a rental or a relative’s basement, then into the replacement home — but there’s no guarantee, of course. Only one of my clients during the current 3-year seller’s market has had to do so, and that was only because they decided to build a new house after they were already under contract to sell their current home.  So it can be accomplished. Call me or one of our agents for a strategy conversation based on your own particular situation.

When a seller is willing and able to move twice if necessary, I recommend not disclosing the preference for a post-closing occupancy agreement until after the multiple offers come in. That way, we don’t discourage offers from buyers who require immediate occupancy, but we can then work with competing buyers to see whether the best offer financially might also be also be the best offer in terms of move-in flexibility.

From the Buyer’s perspective, offering occupancy after closing can be a useful tool in winning against competing buyers.  Buyers who are currently renting on a month-to-month basis are the best candidates for this strategy, because they can offer an open-ended occupancy agreement or lease-back, confident that they’ll know well enough in advance of when they can move in, so that they can give the necessary notice to their current landlord. With this kind of buyer, I’m always happier as a buyer’s agent when the listing is not vacant, because then there’s the chance that occupancy after closing could be a bargaining point that favors my buyer.

The “Post-Closing Occupancy Agreement” is a state-approved form available to all agents and buyers, but it can only be used for up to 60 days.  If the parties to a transaction agree to flexibility beyond 60 days, they need to agree to sign a lease, which can, of course, contain terms for early termination upon reasonable notice.  [NOTE: If you are obtaining a mortgage as an owner-occupant, your lender is going to require you to occupy the home within 60 days of closing.]

Of course, most other buyers are unable to offer such flexibility, but I always ask my buyers that question, explaining that if that is a possibility, it will enable them, with certain sellers, to make their offer more attractive than many competing offers.

In conclusion, a post-closing occupancy agreement can be an effective tool for helping buyers win contracts for the house they want to buy.  Combined with Golden Real Estate’s ability to offer free use of our moving trucks (and sometimes free labor), it has made us far more successful in winning bidding wars for our buyers than can be claimed by other brokerage firms. To win a contract for our buyer, we once even offered to move the seller twice at no cost. It worked!

Published May 11, 2017, in the Denver Post’s YourHub section and in four Jefferson County weekly newspapers.

This column was published in the Denver edition of YourHub from the perspective of Denver property owners.  A version of the same article from the perspective of Jefferson County property owners can be found at www.JimSmithColumns.com.

By the time this column appears in print, all Denver homeowners will have received in the mail a letter from the Denver Assessor declaring the “Actual Value” of their real estate holdings in the City & County of Denver. The same is happening in all Colorado counties. The letters give taxpayers until June 1st to file an appeal of that valuation which, if successful, could lower the “Assessed Value” (explained below) against which taxes will be levied for 2017 and 2018.

Property taxes in Colorado are paid in arrears, which means that the property tax for 2017 isn’t payable until April 2018, and the property taxes for 2018 will be payable in 2019. The valuation you just received in the mail, however, is not a statement of your home’s current value.  Rather, it is a statement of your home’s market (or “Actual”) value as of June 30, 2016, based on its condition on January 1, 2017.

In other words, if your house was significantly improved between June 30, 2016 and January 1, 2017, the assigned value should be what your home in its new condition would have been able to sell for on June 30, 2016, based on what comparable homes did sell for prior to that date. (You may need to read these two paragraphs a few times!)

The good news is that even though your home’s value has continued to increase since last June and will continue to rise for the next year or two, you will only pay property taxes for the next two years based on what it might have sold for in June of last year.

Nevertheless, many of us (me included) are going to be shocked at how much the assessor claims our homes have increased in value.

Additional good news for homeowners is that, because of both TABOR and the Gallagher Amendment — too complicated for me to explain here — the percentage of “Actual Value” against which your local mill levy will be applied, has reduced by almost 10% — from 7.96% of actual value to 7.2%.  That creates the “Assessed Value.”

To keep it simple, here’s an example using round numbers. If the assessor says the market value of your home for the last two years has been $500,000, your “Assessed Value” was 7.96% of that, which equaled $39,800.  If your mill levy is 100, then your tax bill was $3,980 (100 x 39.8).  Let’s say your home’s “Actual Value” as of last June 30 rose to $600,000, a 20% increase. Your “Assessed Value” will be 7.2% of that, or only $43,200. Thus, your tax bill, at 100 mills, will be $4,320, an 8.5% increase in taxes despite a 20% increase in market value.  By the way, this is the first reduction in the assessment percentage since 2003.  Great timing!

And it gets even better. Unless the voters in a particular tax district voted to “de-Bruce” the mill levy, that tax district must lower its mill levy as much as necessary to keep its revenue from increasing beyond TABOR limits based on population growth plus any increase in the cost of living.

Nevertheless, since your property taxes are the sum of multiple mill levies from various districts, that hypothetical rate of 100 mills that I used above might actually be lower this year, further reducing your property tax bill.

Here are two key points you must keep in mind when appealing the valuation assigned to your home by the Denver (or other county) assessor:

1) You can only appeal the assessor’s valuation by citing comparable sales during the 24 months prior to June 30, 2016. Unless your home was mischaracterized (wrong neighborhood, style, etc.), all eligible comps are listed under “Neighborhood Sales” on the assessor’s web page for your home, so don’t bother looking elsewhere.

2) You must “age” every comp you cite in your appeal by about 1% per month, since the median increase in Denver residential property values was 25.9% over that 24-month period.  Thus, if a comp sold in early Jauary 2016 for $500,000, you can’t cite it as a comp at the price, but must increase that price by 6% to its theoretical value as of June 30, 2016.

To find your home on the assessor’s website, visit www.denvergov.org/property and enter your address. When your property is displayed, then click on the address and you’ll be able to click on a “Comparables” tab where you’ll be able to see exactly how the value of your home (the “Subject” property) was determined against 3 or more comparable sales identified by address.

If you feel that those comps are not truly comparable to your home, you can click on the “Neighborhood Sales” tab and choose three or more other comparable sales and cite those in your appeal. You have to file your appeal (most effective, I’ve found, is in person) by June 1st.

       It’s no surprise that the number of listings “for sale by owner” is at a record low in our current real estate market. To some readers, that may sound counterintuitive — why pay a listing commission when it’s so easy to sell a home? But this is precisely when you need professional representation the most.

When it’s “this easy” to sell a home, you still need to price a home just right and then be prepared to handle tons of showings and plenty of offers. Sorry to tell you, but you’re not so well equipped to handle these tasks!

Let’s consider them one at a time. Pricing your home “just right” is not so easy.  Maybe you give credence to Zillow’s “Zestimate” of your home’s value, but no Realtor does. Zestimates deserve even less credence than the valuations of county assessors. Like you, Zillow doesn’t have access to the more accurate valuation tools we use.

If your agent is a member of a Realtor association, he or she has access to RPR, which stands for Realtor Property Resource. This valuation tool is only available to listing agents who are Realtors.  Except for really unique properties with hardly any comparable sales to cite, I’ve found RPR to be very accurate. Send me an email request and I’ll send you a free RPR report on your home. (Don’t be shy about requesting it — it’s quick and free for me to create and send it to you.)

The second valuation tool, which any member of our MLS can access — not just Realtors — is called Realist. When I’m preparing for a listing appointment, I pull a valuation on both RPR and Realist, and often they are close to each other — and far from the Zestimate!  I’d be happy to email you both reports, so you can compare them to Zillow’s valuation of your own house.

The third document I create in preparation for a listing appointment is a spreadsheet of comparable sales near the subject property, using an MLS program called Virtual Office. 

Above is an example of that spreadsheet which I created for an actual listing. I’ve obscured the addresses of the comps, but you can see they’re all townhouses. They’re in the same complex as the 2-bedroom, 2-bath townhouse with 1,172 square feet, plus an unfinished basement, that I listed. Except for having a finished basement, the comp I highlighted is identical to my listing. As you can see, it was listed for $230,000 and sold in 5 days for $241,700. The RPR report for my listing came in at $237,000 and the Realist report came in at $233,000.

What would you have listed it for? I listed it for $235,000.  Despite a lot of wear & tear from being a rental (especially the worn carpets), and despite a furnace and A/C that really needed replacing, we closed on it this week for more than the listing price — something we wouldn’t have accomplished by listing it for more.

Now let me address the “tons of showings” and “plenty of offers.”  When listing without an agent, the seller is really challenged on both counts.  One of the most important services you receive from a listing agent is the handling of showings, hopefully by a showing service like Showing Time or Centralized Showing Service.  (I prefer CSS.)

You can’t hire these services yourself, so how are you going to handle all those showing requests — al-hough you won’t get as many by not listing your home on the MLS?  Worse than the showing requests is the flood of solicitations you will get from agents whose primary source of business is prospecting “by owner” listings. There’s only one known cure for this annoyance, since the no-call list doesn’t apply when you advertise your home for sale, and that is to list your home with one of them (or us). Only then will the calls stop!

Back to the value of a showing service. They screen each caller to make sure they are licensed. After calling you to approve the showing (unless you’ve said that’s not necessary), they give the lockbox code and showing instructions to the showing agent, along with your own detailed instructions such as “remove shoes or use booties” or “dog in garage—don’t enter.” Later, the showing service sends multiple email requests for feedback to each agent and forwards responses to your agent and/or you immediately. You need that feedback!

Okay, you’ve listed your home “by owner,” and you have several agents submitting offers. You’re the only party to your transaction without professional representation! How do you negotiate those multiple offers to your advantage? Trust me, having an agent experienced in that process is worth money in your pocket and gray hairs off your head!

Few agents know what the 10 agents at Golden Real Estate know, which is how to “work” multiple offers to your advantage. If an agent sells listings in 1 or 2 days, he or she does not use our approach and probably won’t get you the best deal. When you see 0 days on market, it means there was little or no possibility of working with competing offers. That does not serve you.

Published April 27, 2017, in the Denver Post’s YourHub section and in four Jefferson County weekly newspapers.

This article originally appeared on NerdWallet.

When house-hunting fever strikes, it can hit hard. You’ll probably download a home search app or two and jump into the car, ready to explore a new neighborhood. Before you do, here are answers to some questions that might pop up along the way.

What’s the difference between a real estate agent and a Realtor?

All real estate agents are licensed by the state in which they operate. The title “Realtor” is a trademark held by the National Association of Realtors; it refers to agents who are members of a local real estate association that is NAR-affiliated. These agents agree to comply with the association’s ethical standards. Of course, the sales practices of all licensed agents are guided by the laws of their state.

What is the MLS?

A multiple listing service, or MLS, compiles properties for sale by individual firms and sellers into one comprehensive database. It’s a generic term and not really one centralized service, but rather a cooperative effort among real estate professionals.

Before the Internet brought the same information to the masses, access to MLS information was one good reason to hire a real estate agent. Now, you can tap the latest listings from multiple sources on the web.

What about open houses?

Open houses don’t sell homes like they used to. The NAR reports that only 9% of buyers in 2014 discovered the home they eventually purchased via an open house.

Most people start their home buying process online these days, looking at slide shows and taking virtual tours. But wandering through an open house or two can still inspire new ideas or help you explore neighborhoods you hadn’t previously considered.

What are some home search tips?

Here are some pointers for looking at properties, whether at open houses or private showings with an agent.

• First, don’t look at homes over your budget. That’s just frustrating. Set your search parameters within your budget, and remember to leave some wiggle room if you’re in a hot market and might have to bump up your offer.
• Take an extra set of eyes, someone with excellent attention to detail. But don’t bring a group of experts; one spare opinion is plenty.
• Find out why the seller is leaving. The circumstances may provide useful insight, especially regarding how motivated the seller may be — such as when a job relocation or divorce is involved.
• Walk through the home twice. You’ll be surprised by what you notice on the second go-round.
• Open every door, even if you think it’s just a closet. Hey, it might be a closet! You know how important those are.
• Take notes, keep a list of the things you like and don’t like, and compare them to your list of what you need and want in a home.
• Snap a few photos (but ask permission first).
• Bring a tape measure. That way you’ll know if your dining table, bed or sofa will fit in a room.
• Pay attention to outside noise. If quiet enjoyment of your home is a priority, stick around long enough to get a sense of what you’ll hear in the neighborhood — whether it’s noisy neighbors or landing airplanes.
• Use Google Maps to check the neighborhood view from above. (Yikes! There’s a landfill/railroad tracks/drainage ditch right there?) Google Earth has a “light meter” feature that shows sun exposure, too.
• In older homes, pay close attention to the location and number of electrical outlets, storage and other modern conveniences that are sometimes in short supply.
• Remember that do-it-yourself projects can be more hassle than you think. Don’t assume you can fix everything that’s wrong with a house.
• If you use a real estate agent and he isn’t listening to you — by showing you houses, neighborhoods or price ranges you specifically said you aren’t interested in — change agents. It’s a waste of your time and the agent’s.

The home stretch

When you finally narrow down your list of homes to the top contenders, break the tie by driving your morning commute from each location, visiting the neighborhoods at night and on a weekend, and walking the streets. You’ll know when it’s right.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email:hal@nerdwallet.com. Twitter: @halmbundrick
This article originally appeared on NerdWallet.