A Reader Asks: With Home Prices So Much Higher, Shouldn’t Commissions Be Lower?

That is a reasonable question, which I’m happy to answer. The fact is that listing commissions have been dropping ever since the Department of Justice told Realtor associations and their MLSs that they can’t dictate listing commissions. Prior to that, the Denver Board of Realtors, I’m told, dictated a 7% listing commission — 4.2% for the listing agent himself and 2.8% for the agent representing the buyer.

Since then, thanks to free market competition, listing commissions, on average, have dropped well below 6%,  according to the National Association of Realtors, but the 2.8% “co-op” commission offered to buyer agents has hardly budged.

(Note: Brokerages advertising a 1% listing commission do so as a ploy to get a listing appointment, at which time they’ll explain the need to add 2.8% for the buyer agent’s commission.)

This week I got an anonymous letter from a “long-time reader” who asked why commission rates haven’t fallen as the selling prices of homes have risen. Since I can’t reply by mail, he (or she) will get to read my response here.

First of all, commission rates have fallen as alluded to above, but typically they are not progressive, meaning they don’t fall further as listing prices rise into the millions.

That does not mean, however, that you can’t make agents compete against each other based on commission. Indeed, you should do that. But don’t make the mistake of thinking you don’t need an agent, especially when it’s an “easy” time to sell homes. And remember that, because of the 2.8% given to buyer agents, even a 4% listing commission would only net the listing agent 1.2%, which is not a reasonable compensation if the agent is to do a proper marketing job and to provide you with the professional reputation you need and deserve.

A good agent doesn’t just get a listing, take snapshots of the house, put it on the MLS and wait for another agent to sell it. If you hire an agent like that, you are getting ripped off, and shame on you for hiring him or her!

I can’t speak for my associates, because that would constitute illegal price-fixing, but I myself charge well under 6% for the full service which I (and all Golden Real Estate agents) provide. “Full service” for us includes promoting your listing in my “Real Estate Today” column with its 200,000 circulation in five newspapers, magazine quality photos, narrated video tours including drone footage, free staging consultations, free use of our moving trucks and boxes for both seller and buyer, Centralized Showing Service, lockboxes, solar-powered yard signs, custom listing websites with their own URLs, well-supported pricing consultation, and effective negotiation with competing buyers, often resulting in a sold price that more than covers what we charge in commission.

The anonymous reader boasted of owning 18 homes which he/she has sold “successfully and safely.”  I don’t doubt that at all, but he or she likely left money on the table by doing it without a Realtor who possesses the tools and expertise which my fellow Golden Real Estate agents and I bring to the process.

The key to getting the most money for your home is to price it right and then maximize exposure so it attracts the most buyers who will compete with each other on price. That process starts, but does not end, with being on the MLS.

Let me put some numbers to this discussion. When homes sold for $75,000, let’s say the listing agent netted 3% commission after deducting the “co-op” commission paid to the buyer’s agent. That equals a $2,250 commission. Let’s say there were 50,000 transactions per year and 25,000 MLS members, as there are now. With two sides to each transaction, that equates to 4 paychecks per year per agent, or just under $10,000 income per year for the average agent. And that’s without subtracting the 15 to 50% split taken by the agent’s brokerage. Nowadays, agents’ expenses alone can exceed that amount with our higher car, cell phone, computer and software expenses, plus MLS fees, showing service fees, Realtor dues, and errors and omissions insurance. Then add the per-listing cost of professional photos and videos, staging consultation, etc.

Our living costs have gone up, too. The homes we ourselves buy cost more than $75,000, and insurance and taxes have gone up just like yours.

Now consider today’s typical home sale price of $400,000. I charge 5.6% on such a listing, so I get the same 2.8% as the buyer’s agent. (I reduce it to 4.6% if I sell the home myself.)  That nets me about $10,000 after deducting the per-listing expenses mentioned above. For the average 4-transaction agent, that’s an annual income of $40,000 before deducting the fixed costs and fees and the brokerage split mentioned above.

On a million or multi-million dollar listing,  you should certainly feel free to ask any listing agent you interview to justify or reduce the commission rate he or she quotes you. Negotiate as you would with any service provider. The bottom line, however, is that a great agent earns what he or she is paid.

EV’s: Yes, They Have Lower Range in Winter, But Consider the Offsetting Benefits

Maybe you saw the coverage last week of the American Automobile Association’s warning that electric cars lose up to 30% of their range in very cold weather. This happens because the battery in an electric car is also used to warm both the cabin and the battery itself. This loss of range matters more, of course, when EVs have only 100 miles of range than in the newer electric models with over 200 miles of range.

Having driven EVs for seven years now, I can report that an EV is, in fact, the best car for winter driving. Here are just a few reasons:

You’ll never have trouble starting your car. It’s a battery and motor! Turn it on, put it in drive and go — no warming up. Also, you can warm up the cabin before you unplug. Even if you don’t, the cabin will be warm in less than a mile.

You’ll never stall or get stranded. And you’ll never break down. There are only 50 moving parts in an AWD Tesla. The only time you’ll find an EV on the side of the road is when it has a flat tire or has been in an accident.

You won’t have to gas up in the cold. Think of your EV like your smartphone. Plug it in at night and you always leave with a full charge in the morning.

It handles better in snow. An AWD EV has a 50/50 front/back weight ratio and a lower center of gravity, which translates to great traction.

If stranded in a blizzard, you’ll have heat. Even if your EV is upside down in a snow drift, the heater will keep you warm, burning only 5 miles of range per hour. And no worry about carbon monoxide poisoning!

Talk to any EV owner to learn more. If you don’t know one, call me!

You Can Defer Capital Gains Tax on the Sale of Investment Properties — Or Reduce It

Colorado owners of investment real estate have built up a lot of equity over the last several years through appreciation. Selling those properties outright would subject the seller to significant capital gains tax, but there are several strategies for deferring — and in one strategy reducing — that capital gains tax liability.

Many property owners have inquired about selling their investment property in a way that locks in their gains — including owners who are looking to exit the landlord business altogether. 

Whether your rental property is a single-family home, a duplex, other multi-family dwelling, or a commercial property, you may well be looking to cash out while values are high, but how do you do so while minimizing your tax exposure?  There are several strategies for doing so, but one that was created by the Tax Cuts and Jobs Act of December 2017 is particularly attractive, both for its flexibility and the fact that it allows for reduction of the deferred capital gains tax and elimination of future tax.

There are four exit strategies that simply defer capital gains tax obligations. They include the traditional Installment Sale, the Monetized Installment Sale, the Deferred Sales Trust and the Delaware Statutory Trust. By using one of these exit strategies, you can defer the amount of tax you pay on the sale of a rental property, putting your pre-tax capital to work elsewhere. A fifth tool, the Opportunity Trust Fund, created by the Trump tax bill, is likely to become every investor’s favorite. Let me explain why.

The Trump tax bill allowed states to identify “Opportunity Zones,” and Colorado identified 126 such zones, 40% of which are in the Front Range, including Denver and Jefferson County. Altogether there are now 8,700 Opportunity Zones in all 50 states, the District of Columbia, and in five U.S. territories.

If a new investment in an Opportunity Zone property — or in an Opportunity Zone Fund which invests in such properties for you — is held for 10 years, you pay no capital gains tax when you sell.

There’s a further advantage when you roll the capital gain on your current investment property into an Opportunity Zone investment, because you can sell your current property, take out your basis on that property tax-free, while rolling only your gain into an Opportunity Zone Fund. Your basis on the rolled-over gain is increased (and tax liability reduced) by 15% after 7 years, and your gain on the new investment is tax-free if you hold it for 10 years. I’m told that these tax benefits decline on investments made after 2019.

In this article, I’m only telling you what I understand from reading up on the subject, including at https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questionso. You’ll want to speak to your tax advisor before making any changes in your real estate investment portfolio.

I thank broker associate Andrew Lesko, who specializes in duplex and multi-family properties, for bringing this and the other tax-saving strategies to my attention. If you’re thinking about selling your duplex, triplex, townhome or condo, contact Andrew for a current market analysis at 720-710-1000 or visit www.DuplexAlerts.com, where you’ll find more details about all five tax deferral/reduction/elimination strategies.

If you have a commercial property to sell, call me at 303-525-1851 so I can refer you to a trusted commercial broker.

Coming Next Week: 2-Story Home in Mesa Meadows

1230 Wyoming Street, Golden

This Genesee-built home at 1230 Wyoming Street, listed at $850,000, Shas been the home of one of Golden’s  pre-eminent families since just after it was built in 1997. The summertime picture of the front yard only hints at the loving care this home has received over the past 20-plus years. See a gallery of 33 pictures of this home at www.MesaMeadowsHome.com, including pictures of the mountain view from the formal living room. This is a large house, with 4 bedrooms and 3½ baths spanning 3,596 finished square feet. There’s another 609 square feet of unfinished storage space in the walkout basement. It has a main-floor study, formal living and dining rooms, two family rooms (one in the basement) and an eat-in kitchen with access to a west-facing deck. It has a 3-car tandem garage, too. Access to the North Table Mountain open space park is just 2 blocks north, and the bicycle-pedestrian trail to downtown Golden (1½ miles away) is in Cressman Gulch park, just one block west.

Because the sellers are downsizing, there’s an estate sale happening this weekend, and the totally vacant home goes on the market next Wednesday, Feb. 27. Open Sat., Mar. 2, 1-4 pm.

Security Devices Could Allow Sellers to Eavesdrop on Buyers During Showings

The increasing prevalence of smart speakers like the Amazon Echo and security cameras inside and outside of homes, has introduced the possibility that sellers could be watching buyers and their agents and listening to what they say during showings.

The Colorado Real Estate Commission considers the privacy implications serious enough that this year’s annual update class for real estate brokers includes a section on legal jeopardy and practical advice.

Imagine, for example, that a buyer is overheard by a seller telling his/her broker, “I must have this home. I’ll pay whatever I have to!” The seller would immediately have an unfair negotiating advantage over the buyer.

The next time you are being shown a home, consider the very real possibility that the seller is parked nearby, watching and listening on his smartphone as you walk through the home, monitoring everything you and your agent say.

Although Colorado is a “one-party consent state,” meaning that only one party to a conversation needs to know it is being recorded, the implications of such technology are serious.

Given that people have rapidly embraced the use of internet-connected video and audio devices, enabling homeowners to monitor the goings-on in their homes, buyers and their agents would be well advised to minimize talk about the property and their level of interest during showings. Don’t count on being able to spot the devices. 

Also, to avoid possible breach-of-privacy litigation, sellers should consider disabling such devices when putting their homes on the market or, at a minimum, placing a notice on the front door advising visitors of the presence of monitoring devices that might be active.

Rita and I have a Ring video doorbell on our house, and we love it. It rings on Rita’s cell phone, enabling her to see and speak with the visitor. Chances are, the person at the front door would think we are home, even if we are not, which is advantageous from a security standpoint. This feature accounts for the rapid adoption of Ring and other brands of internet-connected video doorbells and security cameras.  Not everyone is a fan of these devices, as some believe that if your doorbell faces the street you could be violating the privacy of someone walking or driving beyond your front property line. (That was a point made during the annual update class which our agents took last month.)

In the update class our agents were advised both to warn buyers that sellers could be watching and listening, and to ask sellers during listing appointments whether they have video and audio recording devices in their home and, if so, to advise them of the implications of their use.

What are the legal arguments? A buyer’s lawyer would argue that a buyer, alone in an unoccupied house with his broker, has a “reasonable expectation of privacy.”  A seller, on the other hand, can claim a legitimate interest in monitoring – and even recording — the activities and conversations of strangers in his home, as the possibility exists that someone could be casing the home for a subsequent burglary.

It’s likely that these arguments will play out in front of judges in the not-too-distant future, at which point we’ll have case law to guide us. Until then, both buyers and sellers should understand that the issue of privacy is real and that the use of eavesdropping equipment could put sellers in legal jeopardy.

Just Listed: 3-BR, 2½-Bath Home on Quiet Jeffco Cul-de-Sac

Welcome to the “Cottages on Fairmount Lane” in unincorporated Jefferson County. The satellite picture at left shows the entire 22-home subdivision north of 50th Avenue, east of Indiana Street, with the red dot showing the location of 5055 Gladiola Way, (below) just listed for $575,000.  You won’t find a quieter location or a better home. The seller is the original owner of this quality home built by Remington in 2013. Hardwood floors, slab granite countertops, stainless appliances (all included), open floor plan with vaulted ceiling, huge stamped concrete patio with pergola, included hot tub, main-floor study are just some of the features you’ll love about this home. See the magazine-quality photos and narrated video tour at www.FairmountHome.info, then call your agent or Jim Smith at 303-525-1851 to set a private showing.  Open this Saturday, Feb. 16th, 1-4.

Feb. 21st Sustainability Session Focuses on Home Heating Methods

The second  session of Golden Real Estate’s sustainability series is next Thursday, Feb. 21st, 5-6 pm, in our South Golden Road office. Some seats are still available. Reserve yours by emailing  Jim@GoldenRealEstate.com.

At this session you’ll learn about the alternative energy-saving systems for heating and cooling homes and offices including our favorite method, heat pump mini-splits.

Our lead presenter will be Bill Lucas-Brown of GB3 Energy, who installed our mini-split system.