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.

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.

‘Community Solar’ Makes Solar Available to Condo Owners and Apartment Dwellers  

Driving around the metro area and elsewhere, you have probably noticed huge installations of solar panels on open land and wondered who built and who benefits from them.

Bigger installations, such as in the Mojave Desert, are utility-scale installations owned by electric utilities to replace fossil-fueled facilities. Smaller installations, such as the one north of 64th Avenue on Highway 93, are owned by community solar companies or non-profits.

The concept of community solar is to rent or sell portions of such installations to individual utility customers. The kilowatt-hours generated by those solar panels are then credited to the usage on subscribers’ electric meters.

It’s a perfect solution for customers like Rita and me, who sold their home and are now living in an apartment or condo building where they can’t install their own solar panels. The really neat thing about community solar is that when you move, your solar generation is merely reassigned to your new electric meter — no need to buy new panels.

Small businesses can also take advantage of community solar. Golden Real Estate, for example, moved last November from its solar-powered office on South Golden Road into a storefront on Washington Avenue in downtown Golden. Community solar is the only way that we can continue to be solar-powered since we can’t install solar panels.

Denver-based SunShare describes itself as the nation’s oldest community solar company with over 10 years’ experience building and maintaining “solar gardens” across the state. Their website says that they have built 116MW of solar panels and have 14,000 subscribers and three utility partners. Learn more at their website, www.MySunShare.com.

Community solar was legalized in Colorado in 2010 with the passage of the Community Solar Gardens Act  (HB 1342). The following year, SunShare opened for business, and in 2015 the Colorado Energy Office partnered with GRID Alternatives to construct a community solar demonstration project to serve low-income Coloradans.

Colorado Springs Utilities was the first utility to create its own solar garden for 278 subscribers in 2011. That 0.5-MW installation has since grown to a 2-MW installation serving 435 customers.

Community solar can be a good deal for rural landowners, providing a predictable revenue stream for otherwise non-producing acreage.

Renting or buying photovoltaic panels in a solar garden costs money, so you’re still paying for electricity, but the rule of thumb is that what you spend on community solar is about 10% cheaper than buying the same amount of electricity from the utility.

Some of us don’t worry about the size of the savings but simply “go solar” because it’s the right thing to do.

To learn more, in addition to visiting SunShare’s website, I suggest Googling “community solar Colorado.” You will find other companies offering community solar, learn the history of it in Colorado, and decide whether it is right for you.

You may find that existing solar gardens are sold out and you’ll be put on a waiting list for a future solar garden.

Whether you are putting solar panels on your own property or subscribing to a solar garden, consider upsizing your investment instead of basing it on your current usage, since the chances are that you’ll be buying an electric vehicle and you’ll want electricity from the sun to power it, too.

If a Slowdown in the Real Estate Market Is Coming, April Statistics Don’t Show It  

Last week I predicted a slowdown in the real estate market because of the abrupt and severe increase in mortgage rates, and I stand by that prediction, but it will not be apparent, I believe, until we see the market statistics for May 2022.

April statistics won’t be available until mid-May, but below is a table showing March statistics over the past 6 years. As you can see, especially in the last two columns, the seller’s market was only accelerating. Despite a surge in new listings and a high number of pending and closing listings resulting in a record low number of active listing, the median days in the MLS was at its lowest — 4 days — and the ratio of closed price to listing price was at its highest.

Although the numbers for April aren’t yet available, I checked the pending and closing listings from April 1 through April 24th on REcolorado, the Denver MLS, and found that DOM was still only four, and the ratio of sold price to listing price had swollen to 105.5%.

Keep in mind, however, that those listings which are pending now or have closed in April probably had interest rates that were locked in back in March before the abrupt increase in mortgage interest rates which I still believe will soften the market in May and beyond.

Here are a couple other statistics as of April 24th that suggest an increased seller’s market: There are only 4,995 active listings in the entire MLS, but there are 10,649 pending listings. Compare that to the above chart.

Home Builders Are Not ‘Getting It’ When It Comes to Building Sustainable Homes  

Last week I worked with a buyer looking at new homes. One community we visited was in central Arvada; the other was just north of Golden at the corner of Hwy. 93 and 58th Ave.

Neither builder was even offering upgrades such as solar panels, heat pump HVAC systems, or induction cooktops.

Yes, they were enhancing the insulation of their homes, but little else.

And, speaking of solar panels, neither builder was building into the design of their homes an orientation that would favor solar panels on the roof. One had unnecessary peaks or dormers on their roofs that would seriously inhibit the usefulness of the roof for installing a solar photovoltaic system.

The heating systems in both communities were gas forced air furnaces, which I consider obsolete. Such furnaces require the separate installation of an A/C compressor to provide cooling. I asked if an upgrade to a heat pump system was available, and it wasn’t.

These are silly and unnecessary design flaws in any new construction. A heat pump HVAC system provides both heating and cooling within one unit. It is the preferred choice in Europe and Asia, but our builders seem to know only gas forced air furnaces with a conventional A/C add-on.

New-build homes are typically equipped with conventional gas water heaters, while it would be just as easy and cost little more to install a highly efficient heat pump water heater, as I have done.

Geothermal heat pump systems are the “gold standard” when it comes to energy efficiency and sustainability in new home construction. Retrofitting an existing home with geothermal can be prohibitively expensive, but on a dirt-start build, it would be easy to drill geothermal wells in the middle of the basement or crawl space before installing the foundation and building the house. There’s even more efficiency in a dirt-start subdivision, because the drilling rig could go from one unit to the next, drilling 10, 20 or 100 geothermal wells in one area.

I have written in the past about the Geos Community west of Indiana Street and 68th Avenue in Arvada, where all the detached single-family homes have geothermal heat pump systems, and all the townhomes have air source heat pump systems. They also have heat pump water heaters and induction electric ranges, and all have south-facing roofs with solar panels providing all the electricity to run each of those systems. There is no need for natural gas service to the homes.

Geos was intended to showcase the cost effectiveness of all-electric homes using geothermal and air source heat pump systems and orienting the homes for maximum passive solar as well as active solar efficiency. But it seems that builders are slow learners. The developer who purchased the lots next to the previously built Geos Community felt it necessary to install natural gas service to all its new homes currently under construction “because buyers want gas,” much to the understandable dismay and anger of the Geos Community residents.

There is similar inertia in the HVAC industry itself. It’s hard to find an HVAC company that even understands the advantages of heat pumps for heating and cooling homes. It is so much easier for them to do what they have learned to do, even though it represents an obsolete technology. I have heard countless stories of homeowners whose forced air furnace needed replacing and who were unable to get their HVAC vendor to sell them a heat pump system. Most HVAC vendors just want to keep doing what they already know how to do.

(I can recommend a couple vendors who specialize in heat pump systems and even geothermal drilling. Ask me.)

This is not unlike the problem with car dealerships and electric vehicles. If you go to a Chevy dealer and ask about the Chevy Bolt EV, the salesman will often bad-mouth the Bolt and try to sell you a non-electric model that he loves to sell and requires no learning on his part of new technology.

This guest speaker at the April meeting of the Denver Electric Vehicle Council was a man who, having bought a Chevy Volt in 2012, convinced a Texas Chevy dealership to let him be a salesman of EVs exclusively. Other salesmen started sending him buyers who expressed an interest in EVs, and he quickly became the number one seller of EVs in the state of Texas. It helped that hardly any other Texas car dealership had a salesman who was comfortable selling EVs. Their loss.

Getting back to home construction, we need and the planet needs home builders to be more educated about the wisdom and relative ease of building energy efficient, solar-powered, all-electric homes with a passive solar orientation and design. It’s not that hard to learn, but we need to overcome the inertia built into that industry just as with the automotive and other industries.