The Sharing of Listing Commissions With Buyers’ Agents Is Being Challenged  

The way real estate agents are compensated differs from that of any other industry, thanks to the creation of the Multi-List System or MLS, the essence of which is “cooperation and compensation.” Imagine going back to the days before the MLS when a real estate broker could only sell his own listings. The only way to have brokers show you listings of other brokerages is if each brokerage agrees to cooperate with sales agents from other brokerages by sharing their listing commission if they produce a buyer.

Litigation against the National Association of Realtors by the Department of Justice and other plaintiffs threatens to outlaw that system, which would have huge negative consequences not only for the industry but for buyers and sellers.

I like to contrast how we are compensated with how car salesmen are compensated. Imagine if you were in the market for a car and went to a Ford dealership and spoke with a sales person who listened to your desired features and told you that a Chevrolet or Toyota would suit you best. On his computer, he finds a dealer who has that model or models. He takes you to the other dealer’s lot, find the vehicle, get the key out of a window lockbox and take you for a test-drive. He or she could then write a purchase contract for that vehicle and earn the same commission from that dealership as from his own.

But it doesn’t work that way. The sales person at each dealership can only sell that dealership’s cars.

As an aside, there are auto brokers who are hired by car buyers. These brokers can find a dealer with the car you’re looking for and get compensated by the car dealer and not by the buyer. I used an auto broker myself in 2012 to buy a Chevy Volt, which was a brand new model and hard to find at any Chevy dealer. He found one that was en route to an Aurora dealership, which paid him a commission after I took delivery. But auto brokers are an exception. The car sales persons working at the typical car dealership cannot broker your purchase from another dealer the way I can broker your purchase of a real estate listing from any real estate brokerage.

This system of enabling any real estate broker to sell any other broker’s listing and earn a “co-op” commission is at the heart of our industry’s success, but some parties are trying to convince the Department of Justice and the federal judiciary that buyers, not sellers, should compensate their brokers.

But here’s a point that is being missed in this debate — the seller is NOT paying the buyer’s agent.  Yes, it’s the seller’s money that goes to the buyer’s agent, but the listing agent is the one who is paying the buyer’s agent out of the commission which the seller has agreed to pay him or her.  It says right in the listing agreement (Sec. 7.1.1) that the listing brokerage “agrees to contribute from the Sale Commission to outside brokerage firm’s commission as follows: __% of the gross sales price….”

Of course, at the closing table the seller’s settlement statement shows both commissions (to listing broker and selling broker) debited to the seller, but the total equals that specified in the listing agreement.

If the courts agree with the plaintiffs and with the Department of Justice in this matter, it would be a sad and unnecessary disruption of a process which has benefited both buyers and sellers and contributed to our healthy real estate market.

The outlawing of co-op commissions would be so disruptive that, yes, the industry could adapt but it’s hard to imagine that it would be as easy to buy and sell real estate.

Don’t Fall for This FSBO Scam Regarding Vacant Land 

     There have been reports of scammers pretending to own vacant land that has no mortgage on it. They advertise it “for sale by owner,” seeking a quick close at an attractive cash price.  They claim to be out-of-state and do a mail-out closing providing forged IDs to an out-of-state notary.  They communicate only by text or email.

     A licensed broker could be fooled into listing such a property with the fraudster, giving it an additional air of legitimacy.

     Both brokers and prospective buyers can protect themselves by checking public records for the name and address of the property’s legal owner and reaching out to them. Some of us (including me) have an app to find the real seller’s phone number.

When Can Buyers and Sellers Talk Directly With Each Other?  

    There’s a well-established protocol that buyers and sellers are to communicate with each other solely through their agents and not directly during the course of a transaction to buy and sell a home. Here are two things you may not know.

    Sellers can talk with buyers and/or their agents at open houses as long as they only discuss features of the house and not price or terms. They can also give their cell number to inspectors to answer questions that may arise during the home inspection.

    At closing, buyers and sellers are advised to exchange contact info so they can be in direct communication later on for any reason. During a pre-closing final walk-through, I like to make the seller available to provide an orientation to the buyer to explain how things work. 

Report From State Division of Insurance Details Extent of Underinsurance in Marshall Fire  

Since the devastating Marshall Fire last December in Boulder County, many homeowners may have contacted their insurers to see whether they might be under-insured, meaning that their homeowner’s policy does not cover the full cost of repair or replacement of their home should a similar disaster strike.

You may be interested to read the following April 26 release from the Colorado Division of Insurance containing initial estimates of the extent to which the homes destroyed in that fire were underinsured.

Here are the relevant paragraphs from that DOI release, omitting the charts referenced, which you can see on the division’s website:

Of the 951 total loss claims analyzed, 76 homes had guaranteed replacement coverage, meaning that the insurance policy on these homes provides coverage for replacement of the home with similar quality, square footage, finishes, etc. without a cap — meaning under-insurance is not a problem for these homes. These 76 homes represent 8% of the homes in the analysis. 

Determining the extent of the underinsurance issue is largely dependent on the anticipated rebuilding costs. The Division analyzed under-insurance using various rebuilding costs — $250, $300 and $350 per square foot. Of the 951 policies, here is the breakdown for how many are underinsured. [Chart omitted—see it on DOI’s website.] Note that these policies that are underinsured include both policies that have extended benefits coverage, meaning coverage that provides some additional coverage if rebuilding costs exceed policy limits (83% of policies), and policies without such extended coverage (9% of policies).

At a rebuild cost of $250 per square foot, a total of 344 (36%) policies are underinsured. 

 At $300 per square foot, 523 (55%) policies are underinsured.

At $350 per square foot, 639 (67%) are underinsured. 

The DOI also calculated the average amount of underinsurance per policy, using the same rebuilding costs of $250, $300 and $350 per square foot. 

At $250 per square foot, for the 344 policies, the average amount of underinsurance per policy is estimated at $98,967. 

At $300 per square foot, for the 523 policies, the average amount of underinsurance per policy is estimated at $164,855. 

At $350 per square foot, for the 639 policies, the average amount of underinsurance per policy is estimated at $242,670.

    The DOI will hold a town hall the week of May 16th to discuss this data and any other next steps that have been identified for assistance. As soon as a date and time are decided, information about the town hall will be posted on the Division’s Marshall Fire Response website, and information will be sent to the Division’s Marshall Fire email list.

I checked the Division of Insurance’s website, and it did not yet have information on when that town hall will take place. You can check it yourself in coming days at http://doi.colorado.gov.

I was disappointed that the report didn’t clarify why it was providing estimates based on those three different price-per-square-foot rebuilding costs, without mentioning why an insurer would use one or the other and why different insurers might use different cost figures for homes that were, for the most part, tract homes built to the same quality by the same builder or builders.

Consult your own insurance agent to see whether your policy contains “guaranteed replacement coverage” or if it could be added.

DMAR Creates a Smartphone App for Realtors & Homeowners  

    The Denver Metro Association of Realtors (DMAR) just released a new app called the DMAR Home Kit. Download it free from the App Store or on Google Play..

    We downloaded it, and you’ll find it useful, especially for finding vendors in multiple trades, plus discounts from some of them. Since Golden Real Estate’s own service provider app vendor went out of business, I find this a good substitute.

    You can search for vendors by key word. For example, I entered “fireplace,” “sewer” and “mortgage” and found vendors that I would recommend myself. What each vendor has in common is that they are dues-paying affiliate members of the Realtor association, which is a good measure of business ethics and responsibility. They won’t disappoint you because they want to maintain a good reputation among Realtor members. There were no vendors under “heat pump” or “electrician,” but maybe the existence of this app will encourage one or more of them to become affiliate members of DMAR.  I recommend it!

     The app also provides access to the association’s statistical reports. You can search statistics by individual city or county. Download and play with it!

Just Listed: 1939 Tudor in Denver’s Mayfair Neighborhood

This 1939 brick Tudor at 1301 Glencoe Street was built by a neighborhood builder for his own family and it has many unique features.  You have a rare opportunity to own this very special home since this is only the third time in 65 years that it has been offered for sale.  (I know it well, since I lived two blocks from this house in the 1990s.)  You’ll love the vaulted ceiling in the living room and the beautiful main level hardwood floors.  What sets this home apart from other Tudors in this area is its deceptive size: 4,030 total square feet (3,526 finished).  An extra large master suite with built-ins and private bath, 2 additional bedrooms and a 2nd full bath are on the first floor. Two non-conforming bedrooms, full bath, large family room and a huge workshop are on the lower level.  Flexible room layouts are ideal for a home office (or two) or a hobby room.  A detached garage is accessed from 13th Avenue.  On a price-per-square-foot basis this home comps out well above $1.1 million, but the seller chose to price it to sell quickly.  A broker-only open house will be held on Friday so ask your broker to attend or call Jim Smith to set a private showing.  Also, the narrated video tour (click on thumbnail below) at www.MayfairHome.site is like a showing by Jim Smith.  Click on the thumbnail below to view the video tour. Watch it before calling for an in-person showing.

Morrison 2-Story Just Listed by Ty Scrable  

This home at 4839 S. Coors Ct. has it all! This corner lot gem welcomes you into the home with hardwood floors, custom window coverings and 10-foot ceilings. You will find the living room and custom kitchen of your dreams, featuring high-end Kitchen Aid appliances with floor to ceiling cabinets. A covered deck is off the kitchen and a backyard that has been professionally landscaped. The yard was carefully planned to include an aspen grove, apple trees and custom masonry. Upstairs you will find four bedrooms and another living area. Three of the bedrooms, including the primary suite, have west-facing mountain views. The basement is unfinished and ready for your personal touch. Built in 2014, this home is in the perfect location for easy access to Red Rocks and Golden. Hwy. 285, C-470 and I-70 provide easy access to the mountains. Photos are at www.MorrisonHome.info. Then call your agent or Ty Scrable at 720-281-6783 for a showing. Open house will be Saturday, May 14th, 11 am to 2 pm.

Are Investors Snapping Up Homes, Squeezing Out Other Buyers?  Yes and No.  

Media reports have created the impression that “Wall Street” interests are dominating the purchase of homes for sale, squeezing out individual buyers and causing the low inventory of homes for sale. That’s not exactly true.

What’s happening is that those purchases are happening through an off-MLS process, with very few on-MLS listings, based on my own observation and experience, being purchased by those large investors.

In fact, I can’t think of even one transaction that involved a large entity purchasing one of Golden Real Estate’s listings. And they certainly did not hire us to buy another brokerage’s listing. All our listings have been purchased either by owner-occupants or by small investors — homeowners themselves, who may have a portfolio of rentable homes or condos.

If you’re a homeowner, you’ve likely received, as Rita and I have, many solicitations to sell your home without putting it on the MLS — a bad idea if you want to get the highest price for your home. Also, brokers like me regularly receive emails and texts asking whether I have a “pre-MLS” listing that they or their client could buy “as is” before it’s put on the MLS. My standard reply to such solicitations is that I would never encourage a seller to sell their home without putting it on the MLS, because that’s a sure way to get less than their home is worth. I consider it my responsibility as their agent to get the highest possible price by exposing their home to the maximum number of buyers. That is not achieved by selling one’s home to an investor without putting it on the MLS.

Media experts and others continue to treat the low active inventory on the MLS as the result of reduced number of homes being entered on the MLS, including by off-MLS sales. In fact, the number of new listings this April was higher than both prior Aprils, but the number of active listings keeps declining because those new listings sell so quickly.

Yes, some of those off-MLS sales might have ended up on the MLS if they had not been solicited, but I think mostly they are homes which the owners had not intended to sell before they got “an offer they couldn’t refuse.”

In researching this topic I found a March 31, 2022, article from The Washington Post which highlighted this very problem of big investors buying up homes and converting them to rentals. Using data from Redfin, it reported on major spikes in such purchases from 2020 to 2021. The Denver market had less such activity than most other major markets, but still the percentage rose from 8.4% in 2020 to 12.4% for 2021.

Above is a chart from The Post’s article, based on the Redfin data. Each of those thin lines represents a different metro area. I inserted a carrot symbol at each end of the line for transactions in the Denver metro area. What’s remarkable is that all but two of the metro areas show a spike in investor purchases in 2021. Those metro areas that didn’t show a spike are New York City and adjoining Nassau & Suffolk Counties.

It’s hard to ignore that the pandemic must have played a role in that abrupt rise in purchases by big investors, defined in that article as entities with 100 or more purchases.

The article confirmed that these transactions typically originated from letters or postcards sent to homeowners offering an off-MLS purchase of their homes “as is.” It also showed that majority non-White suburbs experienced most of this activity, giving the process a racial tinge I didn’t expect to see.

Here’s an excerpt from that March article: “In Charlotte and elsewhere, according to The Post’s analysis, investors have purchased a disproportionate number of homes in neighborhoods where a majority of residents are Black. Last year, 30 percent of home sales in majority Black neighborhoods across the nation were to investors, compared with 12 percent in other ZIP codes.” The article didn’t claim that the letters and postcards targeted such communities, only that most sales occurred there.

Just Listed by Chuck Brown: One-of-a-Kind ‘Prairie Style’ Home in Denver’s Wash Park Neighborhood

The architect designed this home at 801 S. Gilpin Street in the “Prairie Style” made famous by Frank Lloyd Wright, with large roof overhangs, ribbon windows and glass brick. Chuck Brown just listed it for $1,897,000. Built in 1994 with 2×6 exterior walls, it’s located in the heart of the Washington Park neighborhood and has at least two features Wright couldn’t incorporate — Cat5 ethernet wiring and a 5-kW solar PV system which combines with the home’s passive solar design to make it highly energy efficient. The primary bedroom is on the main level with two guest bedrooms, one with wood flooring, and full bath on the second floor. The 1,000-sq.-ft. basement is 2/3 finished, with a large entertainment room and 4th bedroom plus full bath and lots of storage. On the main floor is an office with built-in desk, shelving and wall cabinets plus a private entrance, making this an ideal home for a professional or other work-at-home situation. It could be adapted for a mother-in-law, au pair, or other use, too. There will be no open house, so call your agent or listing agent Chuck Brown at 303-885-7855 to arrange a private showing. Find more pictures and floor plans for all three levels at www.WashParkHome.info.

801 S. Gilpin Street is bottom center in this picture, with Washington Park 1/2 block west.

Lakewood Duplex Near Belmar Park Just Listed by Jim Swanson  

This duplex with detached 2-car garage is located on a corner lot at 365-375 Carr Street in Lakewood’s Foster subdivision. It is listed as “Coming Soon” by Jim Swanson for $575,000. It has a single legal description, so it can only be sold as one. Pictures will be uploaded soon to www.LakewoodDuplex.info. It’s in a quiet location near Belmar Park, shopping, etc. There are 2 one-bedroom units. The larger ranch unit is 1,127 square feet with one bedroom and a full bath. It also has a full basement that is great for extra storage. The cozy smaller one-bedroom unit is 600 square feet and is built above where the original one-car attached garage was. Each unit has its own electric meter and laundry room. The lot measures approximately 1/3 acre. This property has been a solid long-term rental and has good bones, but could use some updating. The tenant in the smaller unit would like to stay. Call Jim Swanson at 303-929-2727 with questions or to arrange a private showing.