Denver Real Estate ~ the sky is not falling
A note to consumers from the pages USA Today and NAR’s Chief Economist:
Lawrence Yun: Consumers need to find out what is going on at the local level and not necessarily take national headline numbers as a point of reference. Sellers tend to be more stubborn in facing the reality of the market, so people who really need to sell need to come down on prices, given the high inventory and seller competition.
Denver real estate consumers need to ignore the National News and look to the statistics in the individual areas they are living or buying in. The real estate market is local.
Our prices never experienced the insane appreciation that happened in other markets. While others were shooting for the moon, we traipsed along at a slow and even pace. Now when other locals are experiencing a sharp decline (read price adjustment) we are not seeing the same in the market.
What we are seeing is a lack of consumer confidence (thank you media) and the inability of people relocating from other areas to be able to purchase a home here, until their home’s sell.
This doesn’t mean All of our Denver real estate is priced well. Much of it is NOT priced to sell, nor is it in show home condition.
What I continue to see are homes that are priced to sell and in great shape, selling. In fact 20% of our sales sell in the first 30 days.
The sky is not falling.
At least not today.
Why is my house not selling?
As I go about my daily routine selling Denver real estate, I get asked by home sellers, "why doesn’t my house sell?" That is the $64,000 question.
I wish there was one simple and complete answer, but alas there isn’t. In today’s real estate market we are dealing with factors beyond what I’ve seen in my 24 years in the business. We are seeing sales occur in the first 30 days and others that take 6 months or more.
Typically the reason the home is not selling is either price, condition or location.
What most seller’s don’t take into consideration, they are competing with the market as a whole, not just their neighborhood. True when pricing a home we look to the area for valuation. That is normal and accepted.
What isn’t realized is buyers have many choices. They might like a particular neighborhood or any of the other hundreds of neighborhoods in the Denver metro area. Seldom do buyers (or at least the ones I’ve worked with) hang around waiting for a home to go up in one specific neighborhood.
Most buyers are going to buy based on 1) their budget 2) personal tastes 3) proximity to work and/or schools. These requirements often times have multiple solutions, so your house may work or maybe not.
Condition of the home is a huge factor.
Today most savvy agents and homeowners take the time to prepare the home by hiring a professional stager. We learned a long time ago "the way you live in a home and the way you sell a home are two different things." Hiring a professional to come into the home and either work with your belongs or augment some of their own, works miracles. Simply said.
It has been my personal experience the expense of hiring a stager often comes back in multiples by shortening the listing period and increasing the homes potential. (a great resource for staging is found at Staging rants & ravings)
Another factor that makes a home more difficult to sell is the "dated aspect". A homeowner must consider who the potential buyer will be. In the year 2000 home styles changed. We went from gold fixtures to chrome. Some age demographics will not purchase a home with anything gold in it! Changing out the fixtures is usually a fairly easy fix. However if your home has 1970’s vibrating through it, the makeover my be more than one will want to do. The only way out maybe to price it accordingly and let the buyer bring it up to date.
Homeowners who want to "update" a home, be sure you are up to doing the job, not just right, but complete. There is nothing sadder than having a seller update part of their home. Buyers will come look and the only thing they will see is the undone updating. Yes, buyers are cut from the same "the glass is half empty" mold.
Location is so important.
Buyers shop for the best of everything. If your home has a location with a glitch, say an apartment building next door, or a messy neighbor, barking dog, busy street, backs to a freeway, a blinking sign glaring through the bedroom window or railroad tracks in the back yard, you may have a problem.
Location issues can be overcome. Sometimes the best thing to do with a bad location is tackle it head on. Some buyers actually LIKE homes on a busy street, because they crave the "pulse of the city" nearby. Others might be looking for a home next door to the soup kitchen, because they are into volunteering. Creativity is part of sales. Get creative with a solution.
Pricing is the most important factor.
When all else falls reduce the price. Statistics have shown a property that has 10 showings and not offers is over-priced. Homeowners who insist on a price that home buyers aren’t grabbing need a reality check, or to remove their home from the market.
Overpriced homes that get shown and are getting good feedback maybe being used as an example. Buyers are comparing values and if one home isn’t selling and the other one is, perhaps being the bridesmaid again and again means it’s time to adjust for the market.
When it comes to real estate there is a mathematical equation that works time and time again.
Price=Sale.
Find the right price and find the sale.
Home Improvements
Home improvements are often very costly, both in money and the time it takes to undergo a renovation. I’ve had
clients who actually moved out of their homes while the home was being redone, thus absorbing a double cost of living, in addition to the cost of renovation.
When you are spending money like that you want to be sure you 1) really love what you are doing to the home 2) understand what the ROI will be when you go to resell 3) the renovations will appear to others, not just you and your family! Many times the cost of renovations far exceed the return on investment upon sale. When that occurs the homeowner must understand the renovations are for his pleasure only.
Recently I was showing a daring home an investor had purchased as a "fix and flip". As I toured the home with my clients, we were excited about it possibly being The Home! Then we got to the main bathroom. This is where our excitement ended.
The bathroom was very narrow. It was an old house where the main floor bath was the bathroom that serviced the house, including 3 bedrooms and the visiting guests. In the bathroom there was a toilet, sink and a bathtub, all very normal appointed, but the issue was the space.
The toilet was squished very close to the tub. A person of normal height could not easily use the toilet without their legs being pressed up against the tub.
Why on earth would any builder in their right mind complete a renovation with this very obvious negative arrangement? Perhaps the builder himself was 4′9"! A person of this height might be able to use this toilet in comfort.
Functional Obsolescence occurs in real estate frequently because styles change, tastes change and in the case of the squished toilet, people get bigger!
When renovating a home, take into account today’s taste in style and what is appealing to the broadest audience. They are your future buyers, ignoring them may cost you.
There are other faux pas home renovation homeowners make when trying to improve their homes. Most recently I’ve been seeing many beautifully finished basements with game rooms, extra bedrooms serviced by a 1/2 bath. Yikes! The rule to follow here, if you have a bedroom the bathroom needed to make a completely sweet finish must be at the very least a3/4 bath. The best scenario would be to have a full bath, that means a toilet, sink and tub/shower.
My clients have passed up at least 4 lovely homes that didn’t follow this rule!
Yes, full bathrooms cost more, but if you are going to renovate, do it right or don’t do it at all!
Another important rule to remember in real estate is one we Realtors learn early on.
Cost does not equal value.
Just because a renovation cost "$X" doesn’t mean your home will increase by "$X!" In the cases above, I would venture to guess the renovations SPOILED the home, not improved it!
Before you renovation, do your research. Talk to your Realtor about the lastest trends and styles. Pretend the renovations are finished and you have to sell your home. Will the neighborhood uphold the current value you have in the house? If not, are you OK with that?
Over-improving for the neighborhood is a fatal sin that cannot be forgiven. Well it will be forgiven if you throw enough CASH at it! Only the homeowner can determine if that is OK, it’s his cash after all!
Remodeling Magazine publishes the latest Cost vs. Value Reports each year. The values vary in different parts of the country, so they compile the trend reports accordingly. Research into the appropriate renovation will provide valuable insight as to whether the whole idea is a good one or not.
If after you examine the facts and the renovations are for pure personal enjoyment because you plan to live in the home for a long time, then go ahead renovate. A home is a castle, if we can’t enjoy living there what’s the point. Just remember when you go to sell, your enjoyment may have come with a bigger price tag than expected.
Sellers, you have to sell three times not once!
Putting your home on the market these days seems to be so complicated. Resale homes have to complete with builder models and the rest of the resale competition. The competition is rough!
Savvy Colorado brokers make sure their homeowners know the value of staging the home, so they hire a stager to provide professional advice to the seller. Stagers arrive at the property with a bundle of suggestions to help make the home more marketable.
Yes, that means yet another "to do list" for the homeowner. Once the staging is compete, the photographer comes in to perform their magic for the MLS.
The home goes on the market and hopefully the phone begins to ring with requests for showings.
BUYER SALE #1
If the seller is lucky the showings provide a ready, willing and able buyer, who wants to buy the home.
The offer is written and accepted, then the inspections begin.
INSPECTOR SALE #2
Now if the seller has maintained the home the SECOND SALE to the home inspector will be a piece of cake. If not, the seller may end up having to do some repairs. Either way the if the seller can get through this process with the buyer still willing, the next step might be the toughest.
APPRAISER = SALE #3
Yes, the last and final step is to make sure the seller’s home value is in line with the market. The current real estate market has been effected by foreclosures and the liquidity crisis in the financial industry. Appraisers are being required to be very conservative in their values plus the fact many areas of Colorado have been designated as "declining" by the private mortgage companies.
In my office we are seeing appraisals come back lower than the sale price. When this happens the seller has a couple choices.
- The seller (or seller’s agent) has the right to provide comparables that might better fit the property. It is up to the appraiser to determine if the new comparables are better suited to the property, if so the appraised value can be adjusted.
- The seller doesn’t have to sell the property if the value is not equal or greater than the appraisal. The seller can keep the property and lose the buyer.
- The seller can reduce the price of the home and sell it to the buyer at a reduced price.
- If the buyer feels the appraisal is out of line and doesn’t mind paying more for the home than it appraised for, they can do so. But the additional amount must be over and above the minimum down-payment required by the lender.
FOR YOUR INFORMATION
- Appraisers are generally looking at no more than 90 days back for sold comparables. Sold comps older than 90 days are likely to be irrelevant.
- The lending rules are changing every day for every loan. Our company is advising buyers to have 2 loan options, maybe with 2 different lenders. Plan A and Plan B.
- Lenders and their support system are at the mercy of the market.
- This too shall pass.
WHAT SHOULD A SELLER DO?
First it is important to know that homes ARE selling. In fact we sold more units this year than last. The issues we are facing can be resolved, but it means some sellers may not get the price they want for their home. The best way for a seller to know where they stand is to do a very realistic analyst of the homes sold in the neighborhood.
- Track homes sold and update every 30 days.
- Watch the current and seasonal trends. Realize the market has busier times of year, so this month’s numbers should be compared to the same season last year.
- Consider the absorption rate. If it is increasing that means longer days on market with more homes competing. Most likely that means values will decrease.
- If values are declining, make a decision to stay with the market or GET OUT.
GOOD NEWS
Even though the Denver real estate market seems to be taking a big hit in values, much of the metro area is not that bad off. In fact 20% of the homes that sell, do so in the first 30 days.
As a seller the goal should be to be one of those that sell in the first 30 days. The homes that are selling typically are in mint condition. The sellers have taken extra care to price and package the home so it is very attractive to a buyer, inspector and the appraiser.
When selling a home, be sure to speak to all three buyers, and the home will get sold.
Sold! What does that really mean?
Yesterday my cell phone rings. On the other end was an inquisitive voice stating she was
sitting in front of my listing at 9654 XYZ Road. She said her agent told her the house was “sold” and she wanted to know why my sign was still up.
“Well,” I explained, “The house is actually under-contract waiting to close.”
“But your sign is still in the yard.” she protested.
“Correct. It will stay in the yard until the house is closed. Then I will have it removed.” I replied.
“Oh. Thank-you.” click.
This conversation got me to thinking how often we use words that aren’t technically correct. The caller’s agent told her the house was “sold.” When in fact it was “pending” or “under-contract.”
Pending is not sold
Pending and under-contract mean the same thing. When a buyer writes an offer on a house there is a period of time between the offer being accepted (under-contract) and the actual sale or closing of the house. That time can be a matter of a couple weeks to months.
During this time the buyer completes inspections and finalizes financing details. If there are items on the inspection the buyer and seller cannot come to terms on, the contract could “fall.” Actually the contract doesn’t fall, but rather buyer can opt not to purchase the house.
It is for this reason we don’t remove the “for sale” sign. The sign will stay up until the home does officially close.
One thing consumers may notice, a rider saying “under-contract” or “pending” might get attached to the sign. This typically lets the consumer know there is an interested party who is working toward purchasing the property.
It is important to note, a buyer can still place an contract on a property in what we call a “back-up position.” This would mean if the first contract did not work out, the offer in second position would than have a chance to purchase the property.
Is writing a Back-Up Contract wise?
Most listing agents and sellers LOVE having a back-up contract. It helps their negotiating position with the 1st contract and gives a feeling of security if the 1st contract doesn’t work out at least there is a “plan b.”
So as a consumer should you consider putting in a back up contract? Maybe.
Let’s work through this scenario. The seller has two contracts. The first contract just completed their inspections and they are now requiring the seller to do repairs. The seller can say, “no!”
This could force the buyers into accepting the house “as is” knowing that if they didn’t they would lose it.
Sometimes the buyers love a home enough and realize the only way they will get to buy it, is on the seller’s terms. This wouldn’t happen if the seller didn’t have a second contract.
So as a back up contract, you just helped the seller force the buyer to buy and you walk away empty handed.
Of course every situation is different. It could just as easily happen in reverse with a buyer who refused to go forward and walks away, leaving you with the house!
Are you upside down?
Homeowners who need to sell their property right now are finding they owe more than the home is worth. This is a tough problem to face. How can it happen?
There are several reasons why the mortgage on a home exceeds its value:
- Real estate values in the neighborhood have declined, due to an over abundance of homes on the market or a glut of foreclosures.
- The home owner has refinanced taking out a larger mortgage than the value of the home can support and/or incorporated closing fees into the mortgage, thus increasing the mortgage amount.
- Late fees and back payments have been added onto the mortgage and are also accumulating interest charges.
- A negative amortization mortgage was taken out on the home.
- Lack of maintenance
Homeowners who find themselves in a situation where values in the neighborhood are dropping, but they don’t have to sell their home really have nothing to worry about. Since most people plan to live in a home for many years, the market will rebound and values will increase. Sit tight and tune out all the negative press. Make your payments, enjoy life and when it comes time to sell you will be fine and probably save yourself a few gray hairs in the long run.
If you are a homeowner that MUST sell your home and are up-side-down with your mortgage vs. home value, you do have some choices.
- In a declining market you can price your home to sell and make up the difference with cash from your pocket at closing. Many homeowners do not like doing this, but will just to be able to move on to their next home. If the homeowner is lacking the cash, it might be possible to get a cash advance on a credit card or from relatives to complete the transaction.
- Rent the home out until the market improves. Sometimes this means only a couple years of renting until things look better.
- In the case of a home that has not been cared for, fixing the home might bring it up to acceptable standards to sell.
- Request the mortgage company holding the mortgage restructure your mortgage so you can sell. The balance of what is owned can be transferred into another note which you can make payments on until paid off. The mortgage company may or may not be able to do this depending on what type of lending institution they are. Of course the better the borrowers credit score the better the chances are of negotiating this type of deal.
- Short sale ~ ask the mortgage company to accept less than what is owed and write off the balance. This is a lengthy, not guaranteed process that could take up to 6 months. If the bank is willing to cooperate in a short sale, the amount of mortgage that was relieved could be subject to income tax. (please check CPA for details) Short sales have a negative impact on credit ratings.
- Some employers (as in the case of a transferee) might agree to absorb the amount short in order to get the employee settled in the new location.
- Deed in Lieu of Foreclosure ~ if there is absolutely no way to get the home sold and there are no funds, renters or family to help, giving the home back to the bank is an option. The best way to do that is to start a conversation with the mortgage holder to see how they would like to go about it.
There is really no "one size fits all" solution. Usually there is a way to salvage a situation if one tries. Homeowners in trouble have become the focus of many agencies, with the government looking for ways to help.
If you are a homeowner who is up-side-down and you need to get out of your home, don’t hesitate to call and ask for help. Start with your mortgage holder. If I can assist you in the Denver metro area, please feel free to call.
Home owners in trouble have the FED on their side
There isn’t a day that goes by where we don’t hear or read a story about a home owner having trouble making house payments. The Foreclosure Crisis continues with more and more communities trying to figure out what to do to help. The Federal Government is taking a strong look at various solutions.
Federal Reserve Chairman Ben Bernanke said this week.
“In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure. ”
“Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole. Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done.”
Interesting how the Big Guy has a different twist to solve the problem. I’ve only heard of lenders reducing their interest rates for home owners in trouble. That just means the mortgage payment is made more affordable, especially with the adjustable rate loans that topped out at unmanagable highs.
By reducing the loan amount to give the mortgage holder instant equity means home owners who must sell might be able to use this adjustment to get out of their home without having to lose it to the bank.
Bernanke’s reasoning for giving the home owner equity was to take stress off the homeowner and give him financial incentive to stay in the home.
I’m not sure I agree with Mr. Bernanke on this. Given a choice between taking a lower interest rate or a reduction of loan amount, I would have to make my decision based on my future plans.
If my intention was to stay in the house, the lower interest rate would be more attractive in the long run.
If my life situation was such I had to move, my preference would obviously be the principal reduction.
So the solution aka Bernanke is not “one size fits all.” Of course nothing in life is…
Bottom line, the market may stink, but the strategy is still the same. If you live in an area of declining values and don’t have to move.
DON’T MOVE. DON’T SELL. STAY PUT.
On the other hand if you are thinking about downsizing, moving up or investing, now is the time to do it. What you lose on your current home you will gain equally if not more by acting now.
Really.
There is Life After Foreclosure
Please feel free to call on me if you have questions. I welcome your click or call.
Buzz on Basements
Last weekend Berkshire Post writer, Christian Toto published an article “Basement remodel a warm and wise idea“. The gist of the article was how a finished basement gives added appeal when reselling a home, plus a comfortable living space to the homeowner while living in the home.
I made a comment in the Denver Post article that causes several people to look me up and call. Here’s my quote:
Kristal Kraft, a broker associate with the Denver Group Realtors, says do-it-yourself types should proceed cautiously when renovating a basement.
Homeowners must get a permit before they start such a project, Kraft says.
Counties often have differing building requirements, so even if a Denver transplant knew the rules in his or her old state, they may be different here, especially when it comes to local soil issues.
Kraft says she has had deals fall through because of permit issues.
“Whatever time, trouble and money they save on the front end, they lose on the back end when selling,” she says.
I was surprised by the confusion from my statement. One gentleman wanted to know “If I finish my basement without getting a permit, who would know?”
Good question!
From my perspective as a real estate broker, there are three ways I might know:
- Home inspector identifies issues
- Seller’s Disclosure
- Basement is obviously NOT professionally finished.
- No record of a permit at the County Building Dept.
Home inspectors are generally very good about locating “clues” to determine if a basement was completed without a permit. Such clues would relate to items not being finished to code.
When a seller hires a broker to sell the home, the homeowner fills out a Colorado approved Seller’s Disclosure form. On this form there is a question relating to the status of the “improvements.” If known the seller must disclose to the prospect whether the improvements were made without a permit.
AH! My last statement is no longer true. Upon investigation I’ve learned the Colorado approved Seller’s Disclosure form has changed. No longer is the question asked about the improvements!
This discussion now turns in yet another direction!
My question is “why did the Colorado Approved Seller’s Disclosure” form change? Was is a error? Are they merely asking a question without leading to the next question?
“Any alterations or additions made?” Huh? If the answer is yes, as a buyer’s agent, my next question would now be “Were the alterations or additions made in accordance with the local permitting process?”
Why is this important to know? I believe it is important to disclose all the facts to the consumer. As a real estate broker I DON’T MAKE THE DECISION to purchase, the buyer does. I want them to be able to make the decision based on facts. Correct facts.
If the buyer should decide to go forward with the purchase of a home that had a basement finished without a permit, they are taking on all the responsibilities and obligations of that decision.
Let me clarify something. the lack of a building permit could mean the work is shoddy, but not necessarily so. It just means that at some point in the future to sell the house the current owner may have to go back and have the work permitted.
My Denver Post remark is a reflection of the hassle it would be to opt not to get a building permit at time of construction, then have to do so later when one wants to sell the house! It had little if anything to do with the quality of construction.
Of course quality of construction can also make or break the improvement when it comes to resale. Do It Yourselfers (DIY) often fail to build properly. A couple years ago I had a transaction hit the rocks because the basement, (done nicely on the surface) was not built according to code. The walls were built directly on the concrete in an area where they should have been floating. This mistake was major. It meant if the foundation moved the walls would push and heave the home, causing havoc upstairs.
The remedy was to remove the offending walls and do the job right. It was worse than having to finish a basement. All the existing basement walls had to be removed and rebuilt.
Now had the homeowner followed the proper channels he would have avoided this issue. I don’t know what a building permit costs, but I would bet it is a lot cheaper than redoing the basement!
So I stand by my original statement, when finishing off a basement or any other home addition, do it right. Get a building permit.
Next time I might blog about the design mistakes people make when finishing off a basement!
Ten Ways to Sell Your Home…not
Home Selling Advice For Sellers:
- Overprice your home. Everyone knows the price is not really the price. Don’t worry when nobody comes by your house to look. Someday some little green men from Mars will land in your neighborhood and think your house is the best deal in the universe. You will get your price, well maybe not in U.S. Currency, but by then we may all be using the Euro anyway.
- Don’t pick up your laundry. Why bother? Any buyer who wants your home will be looking for a “homey” place. What’s a home without boxers or briefs laying around?
- Follow the buyers around so you can explain to them how little time you have to do the basic ordinary repairs. Oh and don’t forget to tell them about all the things you were “going to do” one day.
- When the showing service calls, be sure to negotiate a time different than what the consumers would like. Heck, why make it easy for them to see your home, being easy is a sign of weakness.
- Don’t bother to paint the failed color walls. Yes, they looked like crap from the very first day you opened the Sherwin Williams can, but geeze whiz! Your Realtor can describe the outlandish, headache producing colors as “DESIGNER INTERIOR” and perhaps find a niche buyer who is color blind.
- Never put Fido and Rex outside. Everyone knows a barking, jumping dog is adorable. Pets ad a special dimension to a home that can only be appreciated when the pet is begging for attention. Having multiple pets on the premises makes the experience even more pleasurable. Loudly barking dogs have been known to help the buyer imagine what the home would sound like with their own loudly barking dogs. The buyers will appreciate your unbelievable consideration.
- When showing the buyers around the home, preface every statement with, “well with a full price offer, I will….” Laying out firm negotiation terms is always very helpful particularly prior to the buyer ever expressing any desire to purchase your home.
- Never prepare for inspection items. So what that 100% of home inspectors will state your furnace should be “cleaned and serviced by a licensed HVAC professional.” Since they are going to ask, there is no sense in showing an eagerness to be prepared, so wait. There is an off-chance that the Martians haven’t started using home inspectors therefore you may be able to slink away without spending a fiver on the filter. Clean furnace filters are so over-rated.
- Don’t waste time fixing the front door lock. Most people never use the front door, everyone knows the most common entrance is through the garage door! The only people who will be using the front door are the buyers. The key WILL work if you pull the door forward while pushing the bottom of the door with your right foot and holding the knob slightly left while pressing somewhat to the right at the same time pushing the bottom part of the key to the upper edge of the left side and pushing very hard. IF the door doesn’t open try a little extra force with your right shoulder, but not too much as it is a hollow core door and if you push too hard the door will fly off the hinges, again. Just prepare these instructions and email them to the showing secretary so she can carefully read them to the agents calling for a showing. Besides fixing a door lock now is really a waste of energy since the new home owner will probably want new locks anyway.
- Don’t bother to shovel the snow off the walk. Buyers love to know they are the very first to view a home. The best way to demonstrate this is to let the sidewalks collect ice and snow as deep as you can get it. Buyers will be able to see footprints. If there are no footprints in the snow, then they know they are the first to view your home. Be sure to make them take off their shoes after walking in the deep snow, otherwise you will have water puddles in your home. Don’t provide a rug for the buyers to place their shoes on. It’s best the buyers leave their shoes outside, to keep the snow clung frozen to the shoes rather than in your house. The buyers don’t mind walking around barefoot on a chilly floor. If you can’t make the time to be at the house, be sure to make a big sign and place it outside on your door. It will save you lots of time and trouble.
(Disclaimer: The above hints are purely fictional. If any represent a current, past or future seller it is totally accidental. None of these hints have ever been used in entirety by one seller. In part well…I’ll never tell!)
Scams of Foreclosure
As Colorado continues to be one of the States hit hard with home foreclosures the public needs to be aware of the scammers and their tricks. Freddie Mac the governmental organization that purchases mortgages from the banks has produced an informational video to get the word out.
If you or someone you know is facing foreclosure, pass this on.
This site brought to you by Kristal Kraft, a licensed Colorado Real Estate Broker