Tag: Redfin

Fannie Mae Requires Appraisers to Use a Measurement Model for Square Footage Not Used by Realtors

How we measure the gross living area of a home is important, but there is little consistency. Different websites may use different numbers for the same home, primarily because they tend to have only one field for square footage.

Below, I’ll write about Fannie Mae’s new rules for measuring homes, but it’s up to each real estate website operator which number it uses for square footage. For example, the web page that we create for each Golden Real Estate listing has only one square footage field, so I choose to display finished square footage. The MLS has fields to distinguish between finished, unfinished, basement, above-grade, and total square feet, as shown below, and all those fields are uploaded to every consumer website, but I haven’t found any consumer website which displays all those fields.

Zillow is an example of a website which features only the total square footage in each listing, even if half that area is unfinished basement space. It doesn’t show the breakdown of finished vs. unfinished space or basement vs. above-grade space unless you click on a link titled “See more facts and features.”

Trulia, which is owned by Zillow, has a link “See all” which lists “finished area” if you scroll down far enough, but that’s all. I find this ironic, because both Trulia and Zillow provide a ton of information not found on the MLS, yet they downplay or omit the most important detail of all — the breakdown of square footage.

Redfin, which, like Trulia and Zillow, gets the full feed from our MLS, also features only the total square feet and has no link that I could find which displays a breakdown. And, like both Trulia and Zillow, Redfin prominently features “price per square foot,” but that figure is based on the total square feet, which can be really misleading.

Golden Real Estate’s website, like those three, gets its active listings from the MLS, but our display is managed by the MLS, and all listings on our website use the finished square footage number, which is, I believe, the most useful single number to use. But, once again, there’s only one field for displaying square footage.

The MLS has its own consumer-facing website, www.REcolorado.com, where you can search for listings. On that site, the total square footage is featured, but scroll down and you see this very thorough breakdown of square footage:

On other websites, you’d only see 3,166 square feet and $271/sq. ft. for the listing in this example.

The numbers  displayed on the MLS are entered by the listing agent. Our sole obligation in providing them is to indicate the source. It could be from public records, or it could be from a prior appraisal. We could also measure it ourselves, but that is really unlikely. The only requirement is that we disclose the source. The safest choice is public records, but those numbers could be wrong.

Fun fact: Square footage of a home, by whatever standard, is measured from the outside of the exterior walls, not the inside.

Lenders, of course, want to know that the square footage is accurate and consistent, so recently Fannie Mae mandated that all appraisers follow the ANSI (American National Standards Institute) standard, which can result in appraisals which come up with different numbers than in the MLS listing on which the buyer relied.

The ANSI standards don’t allow for space with ceiling heights under 7’ to be included in the gross living area, and the square footage of staircases can only be counted on the level from which the staircase descends. Also, if even part of a level is below grade, the entire level has to be counted as “basement,” which directly conflicts with MLS rules which say the lower level of a bi-level or tri-level home (which is at least partially below grade) can be counted as above-grade square footage.

Complicating matters, appraisers must measure properties using the ANSI standards, but they have no choice but to rely on MLS measurements for the comps they cite in an appraisal, which were surely not done to ANSI standards. The technical term for this is “apples and oranges…”

There are three different square footage numbers for every MLS listing, and here is a quick tutorial on REcolorado’s rules for measuring square footage.

Above-Grade square footage used to be called “Main” square footage. As the new name suggests, it does not include basement square footage.  But that begs the question, “what is a basement?”  In a split-level home, the lower level, which is often below grade, is included in the “above-grade” square footage, since there is frequently a basement below that level. In a “raised ranch” home, the lower level is included in “above-grade” square footage for the same reason. (A “raised ranch” is defined as a home where you have to climb a flight of stairs to get to the “main” level. The “main” level is defined as the level containing the kitchen.) 

Finished square footage includes all the finished square feet, whether in the basement or above-grade. If the basement is unfinished (or there is no basement), this number will be the same as the “Above Grade” number.

Total square footage is what the name suggests, whether finished or unfinished.

All three of these numbers will be different when a listing has a partially finished basement.

Redfin Shuts Down Its iBuyer Unit. Will Opendoor and Offerpad Survive This Down Market?

The big news in real estate last week was the announcement by Redfin that it was shutting down its fix-and-flip unit called Redfin Now and has terminated 13% of its employees.

The end of the seller’s market has left iBuyer outfits like Redfin’s with homes they paid too much for and can only sell for a loss. A good example of that is Opendoor’s listing at 2090 Braun Drive in Applewood, which I mentioned in my column on August 11, 2022, under the headline, “Looking for Good Deal? Opendoor Is Slashing Prices to Clear Its Inventory.” As the MLS chart below shows, Opendoor purchased that home on Sept. 3, 2021, for $638,300, tried to flip it 4 months later for $652,000, and had already reduced its price to $620,000 by August. That home is still sitting on the market in November, now priced at $562,000 — $76,300 less than Opendoor paid for it over a year ago.

Opendoor currently has 165 unsold listings on REcolorado, the Denver MLS, and the median days on the MLS without selling is 115 — nearly 4 months. Once a home has been active without selling for about a month, Opendoor starts reducing the price, and pretty soon, their profit margin has disappeared.

In the last 30 days, Opendoor has closed on 68 listings, and the median days on the MLS for them was 90.  That median listing that was unsold for 3 months was purchased by Opendoor for $692,700, listed at $760,000 and sold for $650,000, representing an even bigger loss when you factor in the co-op commission paid to the buyer’s agent, renovation costs, and staff costs, not to mention the carrying cost of their investment in the property, property taxes, and more.

The company reported a $928 million loss for the third quarter ($573 million of which was from revaluing its unsold inventory), laid off 550 workers, and saw its stock price fall to just above $1. If it falls below $1 for a month, it will be delisted from NASDAQ.

How much longer can Opendoor and Offerpad, its one remaining competitor, (whose stock price is already under $1), sustain such losses? We’ll see, won’t we?

Big Brokerages’ Stocks Plummet Due to Slowing Market

The publicly traded brokerages are taking a beating, trading near their 2022 lows, as the following stock prices quoted last Wednesday by Inman News Service show:

Compass (COMP)     $3.28 +.07   (year range: $3.20-17.70) 

eXp World Holdings (EXPI)     $14.23  -.06   (year range: $11.06-55.43) 

Redfin (RDFN)    $9.40  -.08   (year range: $7.13-55.87) 

Zillow (Z)    $34.39   +.96  (year range: $28.61-104.05)

Offerpad (OPAD)  $1.61 -.02 (year range $1.60-20.97)

Opendoor (OPEN)   $4.62 -.03 (year range $4.30-25.32)

Anywhere Real Estate (HOUS)     $11.18 +.14 (year range: $9.06-21.03) 

(Anywhere Real Estate is the new name for Realogy, which owns and franchises Century 21, Coldwell Banker. Corcoran, Better Homes & Gardens Real Estate, and ERA Real Estate.)

Golden Real Estate was founded in July 2007, just before the market crash of 2008, but we prospered through that downturn, and we will prosper through this one.

Climate Change Vulnerability Is Increasingly an Issue for Homebuyers  

It’s not surprising, given the extreme weather we’re witnessing, including here in Colorado, that 63% of people who moved during the pandemic say that climate is or will be an issue where they now live, according to a Redfin survey of 1,000 Americans who moved since March 2020. Many of the respondents said they researched climate issues before making their move.

In another survey by ValuePenguin, more than half of Americans fear they would not be able to recover financially from a climate-induced catastrophe. An earlier Redfin survey showed that Americans between the ages of 35 and 44 were most likely to say that “natural disasters, extreme temperatures and rising sea levels” all influenced or will influence their decisions on where to move. 

Here in Colorado we’ve been blessed to experience fewer and less dramatic impacts from climate change. But those impacts are knocking on our door. Consider last summer’s fire smoke, or this month’s hurricane-force winds, or our current drought.

Our water supply depends on snowpack, and rising winter temperatures result in more rain and less snow. Even though we’re east of the continental divide, we, like the Western Slope and the states west of us, are dependent on the dwindling Colorado River water, which is transported from the Western Slope to the Front Range through tunnels.

Because we experience fewer effects of climate change, I foresee increased migration from other parts of the country, including “tornado alley,” to Colorado as their current homes experience climate change’s increasing impact.

In researching this topic, I came across a Fall 2021 white paper from SitusAMC entitled “The Burgeoning Insurance Costs for Real Estate.” It assesses the impact of increased losses from catastrophes, mostly caused by climate change.

Although the focus of the white paper is on the ability of insurers to cover increased claims and the effect of those increased claims on residential and commercial insurance rates, it also made some interesting observations about the migration of people to and from states with high insurance claims and expected future risks from climate change.

So guest what? With the sole exception of California, people are moving to states where they will be more at risk rather than less. Texas, which accounted for 40% of all insurance claims in the first half of 2021, has had the highest influx of people from other states. Florida, despite its risks, was a close second.

In recent years I’ve seen many of my sellers relocating to Florida, and it’s hard for me to understand.

So there you have it — a Redfin study that says Americans are considering climate change risks before making their move, while another study shows that more people are moving into states and areas of high risk. Could both be true? I’m not sure what to believe now!

Redfin Survey Suggests Colorado Will See Influx of Buyers Due to Climate Fears

A recent survey of 2,000 U.S. residents by Redfin found that three-quarters of Americans are hesitant to buy homes in areas with a high climate risk. Those risks include more severe hurricanes & tornadoes, flooding, higher temperatures, wildfires, and rising sea levels.

It’s not hard to see why Colorado would be a favored destination for “climate refugees.” I have sold several homes to Californians recently, including just this month to my stepson, who currently lives in Sherman Oaks. 

We Realtors are seeing more and more of our listings going to out-of-state buyers, subjecting local buyers to increased competition in bidding wars.

If you’ve been paying attention to national weather reports, you can understand this trend. In California, the last two fire seasons have been terrifying. Last week’s earthquake in Los Angeles could have added to the situation.

In the Midwest, we have seen tornado after tornado destroying entire neighborhoods. And rising water temperatures in the Atlantic Ocean and the Gulf of Mexico are promising increasingly severe hurricanes and flooding.

The Redfin survey broke down by age the reluctance of home buyers to purchase a home in such areas. What it found was that buyers between 35 and 44 years old have the highest reluctance, with buyers between 25 and 34 years old having the second highest reluctance to buy in such areas.

Fifty-nine percent of persons between 35 and 44 years old said that the increasing intensity and frequency of natural disasters played a role in their decision about where to move.  Fifty-eight percent said that extreme temperatures played a role, and 48% said that rising sea levels played a role in their decision.

For people 25 to 34 years old, the percentages were 52%, 50% and 35% respectively.

The lowest percentage of reluctance was among the oldest buyers surveyed, those between 55 and 64 years old. (For some unexplained reason, Redfin didn’t survey people 65 and older.) Only 28% of that age group said that natural disasters and rising temperatures were a factor in their decision to buy, and only 15% cited rising sea levels as a factor.

Among my own clients, I have been surprised at how many sellers — all of them seniors — have relocated to Texas and Florida. For some it was to be close to family. For others it was because of lower home prices. They benefited from our runaway seller’s market, buying equivalent homes for much less money in those states.

“Climate change is making certain parts of the country less desirable to live in,” says Redfin’s chief economist. “As Americans leave places that are frequently on fire or at risk of going underwater, the destinations that don’t face those risks will become increasingly competitive and expensive.”

Perhaps the Denver Post should bring back the phrase, “Climate Capital of the World,” below its front-page logo.

Beware of Brokerages That Offer to List Your Home for 1%

Perhaps you’ve seen the ads from a real estate company promoting a 1% listing fee. Some would consider this deceptive advertising, since the details are buried in fine print. In Colorado, you’ll pay an additional 2.8% fee to compensate the agent representing the buyer. That alone brings the fee up to 3.8%.  Also, the advertised rate requires that you buy your replacement home with the company. It’s all in the fine print.

Read the fine print! (You have 1 second to do so on this TV commercial.)

Would you really want to do business with a company that tricks you into granting an appointment by misrepresenting what they charge to sell your home?  We charge a little more, but you get far better marketing and, if we sell it ourselves, you could pay as little at 3.6% and get free moving to your new home.  Call Jim Smith at 303-525-1851 for details.

Note: Technically, the commission paid to the buyer’s agent is part of the listing commission even though it is paid by the seller at closing. Therefore advertising a 1% listing fee is in itself a lie. The listing contract would show 3.8%, not 1%. The fine print in the commercial also states that the 1% “listing fee” is increased if no commission is owed to the buyer’s agent. Therefore, 1% is not obtainable under any circumstance, although a listing agreement could be modified by the listing agent since commissions are always negotiable. I’m just referring to their “standard” commission arrangement as they are advertising it.