Amid Today’s Rising Interest Rates, Let’s Revisit the Concept of Buying Down Those Rates  

With mortgage rates rising and many homebuyers believing that now is the time to buy, anything that can reduce the cost of a mortgage is worth looking into. Many savvy homebuyers are asking about discount points, wanting to know what they are and whether it makes sense to buy them.

Mortgage points, often referred to as discount points, let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you are essentially buying down the interest rate. You pay more upfront, but you receive a lower interest rate, decreasing your monthly payments.

The cost of one discount point is equivalent to 1% of the total mortgage. In other words, if you had a $400,000 loan, the cost of purchasing one discount point would be $4,000. Lenders typically allow a borrower to purchase up to three discount points, and they can also be purchased in increments of one-half point.

The specific amount that an interest rate will be reduced with the purchase of points varies from loan to loan but can be thought of as a 0.25% rate reduction for each point purchased. Thus, if you had an initial interest rate of 5% and purchased 3 discount points, your new interest rate would be 4.25%.

How do you know if it makes financial sense to pay for points? The first step is to calculate how long it will take for the decreased monthly payments to pay for the added upfront fee. This is called the “breakeven point.” You can determine when you will break even by dividing the total cost of the discount points by the monthly savings. The answer will be the number of months it will take. Divide this number by 12 to find the number of years it will take.

Here’s an example to show how it would work for you. The cost of buying down the rate from 5% to 4.25% on a $400,000 loan would be $12,000. The difference in the monthly principal and interest (“P&I”) payment between 5% and 4.25% would be $178 per month ($2,138 P&I at 5% versus $1,960 P&I at 4.25%). If you are spending $12,000 to save $178 per month, you will need to own the property for 67 months to break even.

If you were to sell the home or pay off the loan (including by refinancing) in the first 5½ years, you would not be reaping the full benefit of your rate buy-down from buying points.

On the other hand, if you bought down the rate to 4.25% and stayed in your home for thirty years, the difference in monthly payments over the life of your 30-year loan would be $64,080. Subtracting the initial investment of $12,000, you would be left with savings of roughly $52,000. As you can see, whether paying points makes sense for you depends primarily on one major factor — how long you think you will keep your home and/or the mortgage on it. If you don’t plan to keep your home for very long, or plan on refinancing soon, it may not benefit you to purchase points.

Purchasing a home is a major financial step. If you aren’t sure how long you will be in the property, you may decide that the money spent on points would be better spent on furnishing or fixing up the property, or by simply investing it in another financial instrument that will gain value over time.

Jaxzann Riggs of The Mortgage Network helped me with this column. You can reach her at 303-990-2992 for more information about points and to discuss whether they may be right for your personal financial journey.

‘Buy Before You Sell’ Is Being Offered by Some Companies, But at What Cost?  

Unless you’re wealthy, you probably aren’t in a position to purchase your next home without the proceeds from selling your current home. And in this hot seller’s market, it’s hard to win a bidding war when your offer needs to be contingent on the sale of your current home.

There are several companies that offer to solve this problem in one way or another. You’ve probably seen the TV commercials by Orchard saying they allow you to buy a home before selling your own, and perhaps you’re wondering whether you should work with them. Since I’m often asked what I think of such companies, I decided to make it the topic of this week’s column.

It’s not obvious from Orchard’s website exactly how they work, so I clicked on their website’s link for 260 reviews curated by Trustpilot. I like Trustpilot, because it allows you to view only the one-star reviews, which can be more informative than their five-star reviews.

From what I read, it appears that they make an “offer” of a “guaranteed price” for your home, giving you the impression that they will buy the home, but the reviews I read gave me the impression that they actually put your home on the market after you move into your new home. Under one of their three programs, they charge you rent on your new home, because Orchard Investments buys the home and flips it to you when your current home sells.

Some of the negative reviews complained of poor customer service, unreturned calls, and reassignment of the agent serving the client.  (You may speak to your listing agent, but you don’t meet him/her.)

I posed as a seller/buyer on Orchard’s website to get some of my questions answered. Two unlicensed employees screened me for my intentions and to learn about my home before I got to speak with a licensed agent about their buy-before-you-sell program. All three conversations were on Zoom, including the evaluation of my home for valuation purposes. That session was on my phone so I could walk that employee through my home showing him its features.

My third Zoom meeting, which was with licensee Toni Thompson (who recognized me as a fellow broker), included a PowerPoint presentation describing Orchard’s 6% “Move First” program. In that program, you buy and move into your replacement home with Orchard, bringing up to 85% of the equity in your current home to the closing on your replacement home, and you borrow the rest from a mortgage lender of your choice (which could be Orchard’s own mortgage company).

Then they put your vacant home on the market after doing what you agree would help it sell better, such as painting, flooring improvements, etc. These costs will be deducted from your proceeds. If you choose not to use all your 85% equity on the purchase of your new home, you can get the balance at your closing.  When your current home sells, you get the remaining proceeds minus their 6% commission and expenses.

Orchard’s third program is a conventional sell-then-buy program for which you’re required to use them on your purchase.

Now I’d like to describe some of the ways one can get around the problem which Orchard’s first two programs are designed to solve.

For starters, if you own your current home free and clear or with a low-balance mortgage, you can apply for a Home Equity Line of Credit (HELOC) for up to 80% of its current value at a credit union, bank or using a mortgage broker such a Wendy Renee of Fairway Independent Mortgage who has her office inside Golden Real Estate’s storefront. I also recommend Jaxzann Riggs of The Mortgage Network, who is the source for my column on home financing that is published on page 2 of YourHub on the third Thursday of each month.

A HELOC is like a mortgage (or second mortgage), but it’s only a line of credit, so you pay no interest on the funds until you draw them. You can’t get a HELOC when your home is on the market, but this strategy is assuming that you won’t put your home on the market until you’re under contract for your new home, and you don’t draw the funds from your HELOC until the closing of the home you’re buying. Thus, at most you’ll only pay one or two months’ interest on the HELOC funds while you go about listing and selling your current home.  The HELOC, like your primary mortgage, is paid off at the closing of your current home.

Bridge loans are another option, but they carry a higher interest rate.

If you’re okay with selling your home before you start house hunting, I have a strategy for that. In this seller’s market you have the ability (if you price your home to get competing offers) to dictate the closing terms on the sale of your home.

For example, you could demand and get a 60-day closing and a 60-day post-closing occupancy agreement (PCOA). That’s a total of 120 days from when you go under contract for the sale of your current home until you close on your replacement home. Most contracts that fall do so based on inspection, which typically is scheduled 7 to 10 days after going under contract.  Once you are under contract and “past inspection,” your contingent offer is almost as welcome as a non-contingent offer.

The 60-day limit on the PCOA is due to lenders’ requirement that you take possession of your new home within 60 days to qualify for the owner-occupant interest rate instead of the higher investor interest rate. There is a totally legal way to go beyond that 60-day limit while still having the PCOA specify a 60-day term. The PCOA has a paragraph in which a per diem penalty is specified for failing to give possession to the buyer. If that penalty is, say, $100 per day, that’s $3,000 “rent” for another 30 days’ occupancy. If, as is typical, the 60 days was rent-free, then paying $3,000 for a 3rd month feels even more reasonable.

Under the terms of the PCOA, the buyer can evict you and sue for damages, but if you have discussed this possibility ahead of time, it may grant you that needed 5th month to close on your replacement home.

Do you have experience with Orchard or another such company? Call me at 303-525-1851 or email me at Jim@GoldenRealEstate.com to share your experience and maybe I’ll have a follow-up on this concept in a future column.

Pressure is Building for Potential Home Buyers: Why Now May Be the Best Time to Buy  

Roughly 6.5 million homebuyers have taken advantage of ridiculously low interest rates since the beginning of 2021. Low interest rates have allowed them to become first-time homebuyers, to move up to their dream home or to downsize.

Many would-be home purchasers have watched this ‘boom’ from the sidelines and decided that now may not be the best time to buy. Bidding wars and the need to make split second buying decisions over the last few months have reduced their appetite for home buying. It might be time to reconsider that decision.

I asked Jaxzann Riggs about the wisdom of “waiting” to make a move, and the following is based on our conversation.

Rental rates fell in 2020, but nothing could be further from the truth in 2021. While accounts vary, some leasing agents (according to ApartmentList.com) report that rental rates could increase as much as 32.4% in the next 12 months and stats indicate that they are up a shocking 16.5% in the first eight months of 2021.

As rental prices spike, potential homeowners should do a little mortgage math.

A potential homeowner who is paying $2,600 per month for rent, would be able to own a home valued at around $475,000. With a 3% down payment of around $14,279, this renter could turn into a homeowner, allowing them to enjoy the associated tax benefits and the opportunity for appreciation on their new property

Housing inventory is increasing and with the threat posed by rising rental rates, and rising interest rates, there is no better time than today to explore home buying options.

During the Covid-19 pandemic, the Federal Reserve supported lending to households, consumers, and small businesses to stimulate the economy. The Federal Reserve recently signaled that it plans to begin reducing the support it has been providing to the U.S. economy. Long term fixed mortgage rates are driven by the overall economy and inflation, but they are directly influenced by Fed policy.

Once the Federal Reserve starts to slow the pace of bond purchases, mortgage rates will move up. Fed officials indicated that they would begin “tapering” the asset-buying activities that it began last year as early as November. After the announcement, mortgage rates did in fact, show a rising trend. For someone with a $500,000 home loan, a 4-basis point jump will cost them $115 more per month and $41,400.44 more over the life of the loan on a 30-year, fixed-rate mortgage.

Mortgage rates are hovering near 3% and demand remains strong but higher rates are clearly on the horizon. Remember our potential renter? As rates rise, a monthly rent of $2,600 would instead result in a $410,000 house (vs. $475,000), if interest rates move from 3% to 4.5%

Even more incentive to potential homeowners is housing inventory. The inventory of active listings on the market rose by a record monthly amount (according to Denver Metro Association of Realtors). Some potential homebuyers that I am working with report they are waiting for prices to cool off to make offers, but even if that does occur, they are unlikely to see lower monthly house payments because any potential savings in purchase price will be lost to rising interest rates.

Future home buyers are not the only ones affected by higher interest rates. For homeowners who have been procrastinating with their refinance application, now is the time to call a lender. Jaxzann Riggs and I are standing by to make the process as simple as possible.”

If you have lending questions, you can reach Jaxzann, who is the owner of The Mortgage Network, at (303) 990-2992.

Email Alerts of New Listings Provide a Good Reason for Listing Your Home on the MLS

Yes, it’s a seller’s market, and maybe you think you don’t need to hire an agent to put your home on the MLS, but the opposite is true. Take, for example, the listing which was featured in this space last week. For 7 days it was listed as “Coming Soon” on our MLS, REcolorado, during which time it was not visible to non-mem-bers of the MLS (i.e., buyers). But that listing was emailed to over 250 buyers who had email alerts set up by their agents. One of those buyers tagged the listing as a “favorite” and another six tagged it as a “possibility.”

Those numbers, however, only reflect buyers who had included “coming soon” among the criteria that would trigger an alert. After the listing changed from “coming soon” to “active” on the MLS, the number of buyers who were alerted jumped to 720 and two more buyers tagged it as a “favorite.”  When a buyer tags a listing as either a “favorite” or a “possibility,” the buyer’s agent gets an email letting him or her know which client liked the listing and may want to see it when it’s “active” and showings are allowed.

These numbers don’t include the buyers who set up their own alerts on Zillow or other consumer-facing sites, including Redfin. Also, those websites don’t display “coming soon” listings until they have been changed to “active.” Thus, buyers who had agents include “coming soon” as a criterion benefited from a 1-week earlier notice of that listing than did any of those buyers who were setting up alerts on their own.

For buyers wanting the earliest alerts of new listings matching their search criteria, please make this a reason to have an agent set up alerts for you instead of setting up alerts on your own.

Knowing the power of MLS alerts should cause any seller to have second thoughts about selling without an agent. It used to be that sellers could hire a “limited service” agent who would put their home on the MLS for a flat fee (say, $300) without performing any other service, but that is now illegal. The Colorado Real Estate Commission has ruled that there are certain minimum services which must be performed by all listing agents. Those services include exercising “reasonable skill and care,” receiving and presenting all offers, disclosing any known material facts about the buyer (such as their ability to close), referring their client to legal and other specialists on topics about which the agent is not qualified, accounting for the receipt of earnest money, and keeping the seller fully informed throughout the transaction. 

Failure to perform those minimum services could subject the agent to discipline up to and including loss of license, which has caused “limited service” listings to disappear. If an agent offers such service to you, you should report them to the Division of Real Estate.

By the way, the Colorado Real Estate Commission has also ruled that it is the duty of all licensees to report known wrong-doing by other licensees, which their competitors are happy to do. We can be disciplined for not performing that duty.

Studies have shown that homes which are listed “for sale by owner” (FSBO) sell for less than ones which are listed by an agent on the MLS, and you can see why, because the more exposure your home has to prospective buyers, the more showings and offers you are likely to receive. And that difference in bottom line proceeds can far exceed the commission you are likely to pay.

Consider this: whether or not you hire a listing agent, you’re still likely to pay the “co-op” commission to the buyer’s agent, which is typically 2.8%. The  average listing commission (which includes that co-op commission) is now around 5.5%, not the 6% everyone tells you. As a result, the savings you might experience from not hiring a listing agent could be about 2.7%, and that is likely less than the increased selling price you might get from listing your home on the MLS with a true “full-service” agent such as my broker associates and myself.

Note: Some brokerages mislead you by promoting a 1% listing commission, but when they get into your home to sign you up, they disclose that the 1% is in addition to the 2.8% that they recommend as the  co-op commission and is increased further if they don’t earn a co-op commission on the purchase of your replacement home. It is also increased if they double-end the sale of your home, meaning that they don’t have to pay that 2.8% co-op commission to the buyer’s agent.

Such deceptive advertising, to me, is reason enough not to hire such a brokerage, but it may be hard for some people to say “no” to an agent they invited into their home with contract in hand.

Unlike such a brokerage, Golden Real Estate tells you upfront that we reduce our listing commission when we double-end the transaction, and we discount it further when you allow us to earn a commission on the purchase of your replacement home.

That said, our final commission might be only 1% or so higher than what you might pay to a discount brokerage, and our version of “full service” is much more complete than theirs.  For starters, we produce narrated videos tours on every listing. Our video tours are not just slideshows with music or un-narrated interactive tours which can be dizzying and annoying. Our narrated tours resemble an actual showing, where the listing agent is walking you through the house, talking all the time, pointing out this or that feature which may not be obvious otherwise. Are those quartz countertops? Are there slide-outs in those base cabinets?  Is that a wood-burning or gas fireplace? We have sold listings to out-of-towners who only “toured” the home on video, not seeing it in person until they flew into town for the inspection. That’s the power of narrated video tours.

Here Are Some Strategies for Assembling Your Down Payment Funds

Last week I wrote about how  first-time home buyers can buy a home with as little as $1,000 out of pocket, but the rest of us may be challenged to come up with down payment money when we buy a home.

Many buyers assume that lenders require a 20% down payment, but that’s not necessarily true. There are loans available from many lenders with as little as 3% down payment. FHA requires 3.5%down, and qualified veterans can get a 0% down VA loan. On conventional loans the interest rate charged will probably be higher, but with rates for conventional loans so low, what’s an additional quarter percentage point or so anyway?

And don’t assume that every loan with less than 20% down payment requires mortgage insurance, which can be expensive. Often mortgage insurance is waived in exchange for a slightly higher interest rate.

So, first determine how much money you will need for your down payment, and shop around with different lenders, since this requirement can vary greatly. Generally, I recommend mortgage brokers instead of banks, because banks only sell their own loan products, but mortgage brokers can sell multiple products from multiple lenders, including special products for first responders, teachers, medical personnel, and others.

Once you know the amount you need to raise, how can you raise it when you don’t have that much cash in the bank?

Start your quest by asking advice from your loan officer. A good loan officer, like Jaxzann Riggs of The Mortgage Network, will be able to make suggestions once she (or he) has a full picture of your financial situation and assets.

Strategies I’ve seen employed include the following.

1) If you own a home currently and have substantial equity in it, you can borrow against that equity with a Home Equity Line of Credit or HELOC. Credit unions are good at issuing these loans to its members, but if you’re planning on selling, you need to apply for a HELOC before you put your home on the market. Since these loans have little or no closing costs and you don’t pay interest until you actually draw on that line of credit, there’s no reason not to have a HELOC in place right now and certainly ahead of needing the money. It’s like having money in the bank — literally.

2) If you have a high-balance IRA or other retirement fund, you may be able to withdraw money from it without penalty if you return that money within a couple months, so this is a good strategy if you need the money from selling your current home but don’t want to make an offer on your replacement home that is contingent on selling your current home. A loan against your 401K carries no penalty, I’m told.

3) If you own stocks and bonds but don’t want to sell them, consider using them as collateral for a loan.

4) Relatives or friends can gift you with money, but speak to your loan officer about documentation requirements. As you may know, anyone can give up to $15,000 per year to anyone else without paying gift tax.

5) Another option is a bridge loan. This option carries a higher interest rate, but it could be your answer.  Ask your loan officer.

6) Get creative! If you’re engaged, how about a bridal registry for down payment funds? A GoFundMe campaign might work for you, too. If you have no loan on your car and it’s worth a lot, credit unions will lend you money against it. (I did that once.) You may own jewelry or other valuables to which you are not so terribly attached that you might be willing to sell them. (Rita and I have done that, too.)

Home Buyers Have Widely Differing Needs and Motivations

During my two decades as a licensed real estate agent and Realtor, I’ve met and worked with a wide variety of buyers and gotten to know their varying needs and motivations. Allow me to share some of that with you. I’ve identified at least five categories of buyers.

First-time home buyers: This group has always enjoyed a wide variety of programs to meet their special needs. By the way, you are deemed a “first-time” homebuyer if you have not owned a home for at least 3 years.

The primary need for this group is obtainable financing. We can connect first-time buyers with lenders who require as little as $1,000 out-of-pocket to get into a home, and who offer classes for first-time homebuyers to help them succeed as homeowners.

The motivation to change from renter to owner is well understood. Homeownership is the number one method of wealth creation. Not only are the taxes and interest on your home tax deductible (with some limitations now), but your home may well appreciate in value as much as or more than what you pay for it each month. Then, when you sell, your capital gain on it will be mostly or entirely tax free. With such incentives, first-time home buyers are highly motivated and rewarded for buying a home.

Move-up buyers: Homeowners frequently need to buy a bigger home or simply want to buy a more luxurious one. Typically, this is when children are born or adopted, but with Covid-19 we’ve seen homeowners who need more space to work at home, not just temporarily but long-term. Employers have learned that workers can be highly productive working at home, and employees like the lack of commuting time and expense — but they need space for a home office.

Downsizing buyers: Empty nesters rattling around in 5-bedroom homes with lawns to mow and bushes to trim are wanting, if not needing, to have a simpler life in a smaller home — perhaps a “lock-and-leave” home where they can travel and not worry about their home while they’re gone. Many of these homeowners have long ago paid off their mortgages, or their mortgage is small enough that they can buy a newer, smaller home and live mortgage-free. Taking out a home equity line of credit on their paid-off home could provide the cash to buy the replacement home without a contingency on the sale of their current home, which also allows them time to transition from one home to the next. That’s just one strategy that I can share if you are in this group.

Investors: I don’t work much with investors, preferring to work with people who buy a primary residence, but I have broker associates with extensive experience serving this group of buyers. With the bidding wars going on currently, investors, especially fix-and-flippers, are having trouble buying homes with enough margin to make a profit on reselling them, but it can be done.

Relocation buyers: In this column last week I wrote about “climate refugees” relocating to Colorado from areas with high climate risks. Others move here for jobs or family. Such buyers need to find the right city, community and home to buy despite being new to Colorado. That’s where they need us the most. Yes, we can give them tours and answer their questions after carefully listening to their needs and wants. Before they even come to town, I like to send them listings and FaceTime them as I preview homes of particular interest. In just the past month I sold an Arvada listing to a couple from Minnesota and a Denver listing to a couple from Los Angeles. Both went under contract based solely on my video tours and only saw the home in person when they came for the inspection a week or so later. They could have terminated at that time, but they both loved the homes.  I love my job!

New Brokerage Offers to Help You Buy Before You Sell

Perhaps you’ve wondered about those TV commercials by a new brokerage called Orchard offering to help you buy your replacement home without selling your current home first. Golden Real Estate has been successful at that, too, although not using the same business model. (See my previous columns on April 25, 2019 and May 11, 2017 and Sept. 17, 2015 and Mar. 12, 2015.)

The company, which came to Denver in January and has closed 14 purchases and 17 sales so far, was formerly called Perch. If you scroll to the bottom at Orchard.com, there’s a link to their reviews, which I suggest clicking on. The 7 negative reviews give an insight that the positive reviews don’t provide.

Basically, the company, based in New York, is “vertically integrated,” meaning that they have their own mortgage company, title company, etc. They are backed by a venture capital firm which provides the working capital to purchase your home if they don’t sell it first.

They operate like the iBuyers I wrote about in two previous columns (Jan. 2, 2020 and August 22, 2019 ). They make a market-based offer to purchase your home, then reduce that offer based on inspection, and they charge a 6% fee (in lieu of a commission).

Also, you pay rent for your new home, which you don’t actually buy until after your home closes. If it doesn’t close in 90 days, Orchard will buy it at their low-ball price. Note: Their agents work on salary, not commission, which is unattractive to the really successful agents.

If You’re Surviving Covid-19 Financially, This May Be a Good Time to Buy or Sell

Despite the best efforts of state, local and federal governments, there will surely be people who are suffering financial hardship and have had to put their dreams of homeownership on hold.  I wish them well as they dig themselves out of this terrible situation.

For those who are surviving Covid-19, however, and don’t get sick from it in the coming months, the continued record-low interest rates are making home purchase more attractive and more affordable.

As you’ve no doubt heard, the Federal Reserve has plunged hard into softening the impact of the virus and its attendant effects on the economy by reducing the Fed Funds interest rate used by banks to near zero. While this rate is unrelated to mortgage rates, we are also seeing those rates staying below 4% and approaching 3%, which is propping up the real estate market in a big way.

People who can afford to buy a home and have the income to qualify for a mortgage are getting off the fence. This is evident from how many homes are going under contract quickly, often with competitive bidding.

In the first 10 days of May, there were 2,306 homes within 25 miles of the State Capitol entered on Denver’s MLS. 615 of them were under contract by May 10th. Another 171 homes were entered as “Coming Soon” as of this Tuesday.

May 5-12 Stats within 25 miles of State Capitol

While that’s less than the first 10 days of May 2019, when 3,348 homes were entered on the MLS and 795 of them went under contract by May 10, it’s still an impressive amount of activity, and is probably due in part to the excellent mortgage situation.

Another factor that will stimulate purchasing among the wealthy is that the stock market has recovered more than half of its early losses due to the virus. That makes it more likely that investors would be willing to liquidate stocks to finance a cash purchase of real estate.

In April 2019, about 48% of homes sold at or above their asking price, and 46% of them sold in a week or less. This year’s performance is better. Of the homes that closed during April 2020, about 58% sold at or above their asking price, and about 62% sold in a week or less. Those statistics tell me that we have a pretty active sellers market, which stands in contrast to the gloomy economic situation caused by Covid-19.

It’s hard to believe that the real estate market will tank later this year if it is not tanking already.

I’m seeing that dynamic myself. As of this writing, all my own listings are either under contract or closed, including the Wheat Ridge home featured as “coming soon” a couple weeks ago.  That $550,000 brick ranch was only listed as “active” on the MLS last Tuesday, and showings didn’t begin until Saturday, but our first offer came in on Sunday, and it was under contract at better than full price by Tuesday morning.

The Rule Against Showings and Open Houses Shouldn’t Hamper Home-Buying…

…that is, if the listing agent does what Golden Real Estate has done for over 13 years — create a narrated walk-through video of each listing.

Our narrated video tours are just like a showing. They are live action videos which start in front of the house (just like a real showing) and then go through the house and into the back yard, pointing out features as we go. 

Check out the video tours for any of our current listings at www.GRElistings.com to see what I mean. They really are like an in-person showing with the listing agent. For example, the video camera points down to the floor and up to the ceiling as I describe the hardwood floor or the sun tunnels which bring natural light into the home’s interior.

But, you say, you’re not going to buy a home that you can’t see in person.  Right? You don’t have to, because the rules allow for inspection once the buyer has signed a purchase contract. Your visit (presumably with an agent)  the very next day constitutes an inspection. That can be before you even have to deliver your earnest money check, since you may not even be under contract yet. The guidance from the Division of Real Estate says, “home inspections and final walkthroughs after a buyer has signed a purchase contract (emphasis added)… is also considered to be an essential part of the real estate transaction.” The buyer is not under contract simply by signing a contract that has not also been signed or countered by the seller.

That “guidance” from the Division of Real Estate was issued on April 9th and has not been updated as of April 18th, which is when I am updating this blog post.

Scott Peterson’s April 15, 2020 “Legal Bite”

However, Scott Peterson, general counsel for the Colorado Association of Realtors, maintains in a video recorded from quarantine on April 15th that the governor’s executive order prohibits any “marketing” that involves entry into a property – no photos, no video, nothing at all – without a contract in place. If that’s true, however, why isn’t it reflected in the April 9th guidance and why hasn’t that guidance been updated?

I tried Googling the governor’s executive orders and looked at his web page on www.colorado.gov/governor and saw only two executive orders on other matters and no link for all his executive orders. So, for now, I lack evidence of Scott Peterson’s claim and am relying on the April 9th guidance, which I keep checking for updates.

Therefore, a visit to the home by a buyer immediately after signing an offer to purchase the home does, in my opinion as a broker, comply with guidance currently in effect from the Division of Real Estate. Then, if the buyer is able to get under contract with the seller, he or she can schedule a second inspection by a professional inspector.

So, here’s a possible scenario: You look at the video tour of the patio home or the ranch-style luxury which you found at www.GRElistings.com. I guarantee you’ll have a pretty good sense of the home from viewing that video. You’ll experience the flow from kitchen to dining room, to family room, to back yard, etc., because you are being walked through the home. It is not a slideshow of different rooms, giving no indication of flow from one room to the next.

Let’s say you call me or your agent to submit a contract and let’s say that it is accepted by the seller. You’re under contract!  The typical contract has a 7- to 10-day inspection period. You schedule your personal inspection with your agent (or me, if you don’t have one) the next day, before delivering your earnest money check, which is typically due in 3 days.  You can terminate immediately if you have buyer’s remorse, and go back to looking at other houses.

If you don’t terminate, you still have a week to hire a professional inspector and submit a detailed inspection objection.

What if you’re a buyer, and there’s no such video for a house that interests you, but you don’t want to sign a purchase contract? I believe you’ve got three choices here.  One, your agent (me, for example) could ask the listing agent to create and provide a narrated walk-through video. Second, I could preview the home for you since the guidance make no mention of banning previews, and shoot my own rough-cut video tour of the home, post it as an “unlisted” video on YouTube and send you the link. Or, third and perhaps best, we could use Facetime, Zoom, or another app to have you see what I’m seeing as I walk you through the house. (NOTE: Scott Peterson believes that previews and videos shot by anyone other than the seller are not allowed. I just don’t have any documentation supporting that position.)

Therefore, while it may be inconvenient not to have an in-person showing of a listed home, there are work-arounds that can make it possible to get under contract and confirm your interest in the property before you are fully committed to it or put down any earnest money.

Finally, I’d like to note that many listings are empty and vacant.  I see no reason why in-person showings of those listings should not be allowed. I know that builders are letting buyers view their empty homes. Again, Scott Peterson maintains that empty homes cannot be visited either. Show us the actual orders from the Governor or guidance from the Division of Real Estate, Scott!

What Does ‘Open and Transparent’ Look Like in Real Estate?

For some reason I’ve never understood, most listing agents believe that they should not be open and transparent with buyers’ agents regarding the disclosure of offers in hand when there’s a bidding war for their listing.

At Golden Real Estate, we believe in being open and transparent. Here’s what that looks like.

Rule number one is to always tell the truth. We never mislead a colleague about offers in hand. If we don’t have competing offers, we’ll never represent that we do. This is a matter of ethics. The Realtor Code of Ethics, to which every Realtor swears allegiance, requires no misrepresentation about anything, whether it’s how successful we are or whether we have competing offers.

Agents from other brokerages, however, typically won’t disclose the price or nature of the offers they have for their listings. At Golden Real Estate, we not only disclose the price and terms of offers received, but we will let each agent know if their offer is surpassed by a better offer. We don’t want any buyer or their agent to have the experience of being blindsided.

This is good for both buyer and seller, and buyers’ agents invariably thank me when I explain this policy. After all, how would you as a buyer like to learn later that if you had only offered $2,000 more (which you were willing to do), you would have won that bidding war?

Similarly, how would you as a seller, like to learn that you could have gotten $2,000 more for your house?

Although this process essentially operates like an auction, where everyone in the room knows what they’re bidding against and chooses on their own when to drop out of the bidding, it doesn’t mean that we let the bidding go on forever.

After the buyers have raised their bids twice, it’s time to ask for a final bid, without offering to return if it’s not the winning bid. While this is our policy, the seller, of course, is the final authority on how long to continue the back and forth. By that time, however, they tend to be quite happy with the highest bid and agree to cut it off. To do otherwise risks antagonizing the buyers and their agents.

It’s important to us as professionals that we leave each party in a bidding war happy that we were transparent enough that they felt they had a fair chance to win a coveted listing.

This approach takes more work on our part than doing what other agents typically do when multiple offer situations arise, which is to inform agents that they have multiple offers and ask buyers’ agents to submit their “highest and best.” Then the seller accepts the best offer and other buyers are upset and angry that they weren’t allowed to raise their offer.

We feel, however, that our approach is not only fairer to buyers’ agents but also produces the best price for our sellers.  We wish that other listing agents would adopt this practice.

Transparency, however, does not extend to disclosing the price at which a home is under contract prior to closing. The reason for that is that if the contract falls, we don’t want the next buyer to know what the seller was willing to accept. That’s because we have an ethical and legal obligation to work in our seller’s best interest.

The only time I would disclose the price at which one of my listings is under contract is when an appraiser needing comps calls me. If we are cleared to close — past inspection, appraisal and other contingencies — I’m willing to help that appraiser know the price so he can do his or her job in appraising a comparable listing for a different seller.

Thanks to this practice, Golden Real Estate has a better-than-average track record when it comes to closing price vs. listing price. In some cases this has resulted in our sellers netting their full listing price even after subtracting commissions and the other costs of selling.

Call me or one of our broker associates at 303-302-3636 if you like how we operate and would like a no-obligation market analysis of your home.