Wednesday, October 30, 2013

Mastering the Art and Science of Getting Your Way on Inspection Issues

[Published Oct. 31, 2013, in the Jeffco editions of the Denver Post's YourHub section]

Every home — even a new one purchased from a home builder — has issues, and there is definitely a skill to getting your way on inspection issues, whether you are the seller or a buyer.

For the buyer, it all starts with selecting the right inspector. Your Realtor has probably gained enough experience with enough different inspectors that you can rely on his or her recommendations. I like to recommend inspectors who not only have industry certifications but also have good software for creating readable inspection reports with digital photographs illustrating any problems found. They bring a digital camera and laptop and can get you and your agent a PDF of the full inspection report within hours after completing the inspection. There should be a summary page (or two) in the final report highlighting the truly serious issues, so you don’t have to wade through the whole PDF to find the issues worth putting into the Inspection Objection notice. Before you hire him, ask the inspector what kind of report he generates.

When there are obvious defects in a house, I recommend putting them into the purchase contract itself instead of waiting to put them in an Inspection Objection notice. An example of this would be a wood shake roof that needs replacing.  Another example would be double-pane windows with broken vapor seals and condensation.  My reasoning is that by putting it in the purchase contract, it doesn’t become a bargaining chip later on.

If you wait to put the roof or window replacements in the Inspection Objection notice, the seller may well say, “I’ll replace the roof, but I won’t do this or that” or “I’ll do this and that, but not the roof or window replacement.”  If these items were already in the contract, that can’t happen and you’ll get more of your inspection demands met.

If the home is more than 20 years old, the pipe connecting it to the sewer main will probably be a mixture on cast iron and clay pipe. You should definitely invest in a sewer scope (about $100) to see whether the clay pipe has cracked or collapsed.

If the home has a livable basement, especially if it has a bedroom, you should invest in a radon report, which will cost you $100 to $150. If the radon is elevated, most sellers will agree to absorb the cost of mitigation, which starts at about $850.

As a seller, it is important to have an agent skilled at responding to inspection demands, many of which can be unfounded, such as mitigating radon in an unlivable basement.

New homes, as I said above, are not immune to construction defects, and yet there is no “Inspection Objection Deadline” in the contracts which builders make you sign. If you’re buying a new home which has not yet been built, you need to involve an inspector early and often. You want him to see the house when it is framed but not yet drywalled, for example. If a new home is already completed, you should still hire an inspector to check it out.  You’ll be glad you did.

Just before closing, you’ll get to do a final walk-through, and you’ll want to bring your inspector then, too. This is when a “punch list” of incomplete items and repairs is created and blue tape attached to items needing cosmetic or other attention.

 

My Losing Battle Against Font Signatures in Real Estate Contracts

[Published Oct. 31, 2013, in the Jeffco editions of the Denver Post's YourHub section]

I have, reluctantly, resigned myself to the fact that million-dollar transactions can be executed based on documents without any handwritten signatures, but I still don’t like it. This is what my signature looks like when I click on “Select Signature Font” instead of taking the time to sign with my finger, stylus or mouse:
 
JIM SMITH

You can’t choose a typeface when you sign for a pack of light bulbs at Home Depot, but you can do that to buy a $700,000 house — except at Golden Real Estate, where we require actual signatures.

When I was on the board of directors of the Denver Metro Association of Realtors, I couldn’t get a majority to agree that we should require buyers and sellers to actually sign contracts. And I couldn’t convince the Colorado Real Estate Commission to do so either. So I’ve given up.

What makes this reluctance to require actual signatures so silly is that it’s so easy to actually sign a contract. You can open the contract on your smartphone or tablet, expand the signature box and then sign with your finger.  If a real signature is so easy, why accept less?

 

This Week's Featured Jeffco Listing: 2100 Iris Street

[Published Oct. 31, 2013, in the Jeffco editions of the Denver Post's YourHub section and in five Jefferson County weekly newspapers]

A High-End Home For Just $90 per Square Foot!

2100 Iris Street, Lakewood CO 80215
OPEN SAT., NOV. 2, 1-4 PM
This home is located west of Morse Park and south of Crown Hill Park. It is a huge value at  only $138 per finished square foot, and only $90 per total square foot. Moreover, since the basement is already framed, plumbed and wired, just add drywall and carpeting and you’ll have a 6,000-sq.-ft. home for under $100 per square foot! The home is on a 1/3-acre lot with two storage sheds and RV parking in the back yard. It’s rare to find a modern (2003) home in a neighborhood with no covenants, so enjoy your freedom! The interior finishes will impress, too — slab granite counters, 6-burner Thermador cooktop, slate & hickory flooring, 2 master suites (one on the main floor) and so much more! Take a YouTube video tour on the website, then come to my open house!
 

Wednesday, October 23, 2013

You’re Under Contract — Now What Should You Do & Expect?

[As published on Oct. 24, 2013, in the Jeffco editions of the Denver Post's YourHub section --and expanded on here]

Getting under contract is the beginning of a process that imposes different demands on the seller and buyer.

If you’re the seller, the property disclosures you filled out at listing time need to be delivered to the buyer's agent, but between then and closing you’ll mostly be responding to actions by the buyer.

First up, you’ll probably need to respond to an Inspection Objection Notice submitted by the buyer.  Here are some “big ticket” inspection items that you might face:
 
1) Cleaning and servicing of your forced air furnace or, worst case, replacement if the inspector detects carbon monoxide emissions from a cracked heat exchanger.  A good idea is to change your furnace filter and vacuum any loose dirt in the furnace prior to inspection.
 
2) Mitigation of radon, if a radon test produced an average reading over the EPA action level of 4.0 piC/L.  
 
3) Cleaning or repair of your sewer line if the sewer scope shows root intrusion or, worse, partial collapse of your sewer line.  If your house is over 20 years old, there's a strong likelihood that your sewer line (from house to sewer main) has clay pipe which is prone to roots and breakage, and the buyer will order a sewer scope.  If you have not done so recently, you might want to forestall any problem by having $99 Rooter (my favorite) clean your sewer line in advance of putting your home on the market and certainly before inspection.
 
4) Roof replacement, especially likely if you have a wood shake roof or had hail damage but pocketed the insurance money instead of replacing the roof.  Insurance companies now charge extra if your home has a shake roof and, worse, will only pay the depreciated value of the roof if it needs replacing after a hail storm.  Thus, if your roof is destroyed in a hail storm, you may get virtually nothing for a 20-year-old wood shake roof even though you've been paying a premium for having it!  Any seller would be smart to replace a shake roof before putting their home on the market, and any smart buyer would demand that it be replaced as an inspection item.
 
If there are big-ticket items agreed to in your Inspection Resolution document, the buyer may ask you to reduce the purchase price or pay some of his closing costs as an alternative to making the requested repairs.  However, the lender is going to get a copy of this document and may not allow this approach.  If you were the lender, would you fund a closing on a house with a bad roof, broken sewer line and furnace emitting carbon monoxide?  Probably not! Some agents get around this by signing an amendment to the contract reducing the purchase price or creating a seller paid concession for closing costs without explaining why, and this does work, but it sure feels like mortgage fraud to me, so I try to avoid that.  Expect to fix such issues before closing (or better, before putting your home on the market).

Furnace replacement can cost $3,000 and up, radon mitigation $800 and up, and sewer replacement can cost several thousand dollars — you’ll want to view the sewer scope and get your own quotes before your listing agent prepares an “Inspection Resolution” in which both parties agree to what the seller will do or pay for.  (Some listing agents compose an Inspection Resolution which lists both what the seller will do and what the seller will not do.  This is silly, because this document stands alone, so it should only list what the seller will do.  Besides, why do you want the lender to see all the things you're not fixing?)

There are other opportunities for the buyer to make demands of the seller or terminate the contract — title problems, HOA documents, etc. — but the only one you’re likely to face after inspection is the Appraisal Objection if the home fails to appraise for the contract price. This is when you want a good Realtor on your side, because you could well hold firm and get the buyer to pay full price anyway. (I’ve been quite successful at this.)  If you think your house could sell for more than comparable sales because of the hot market, but that it may not appraise for the contract price, and if you have competing buyers, you'll want to select the buyer who specifies the largest down payment.  This makes it easier for you to stand firm for your contract price if the appraisal is lower.  You won't be able to do that with a FHA buyer putting only 3.5% down or a VA borrower obtaining 100% financing.

If you’re the buyer, here are your big to-do’s:

1) Deliver the earnest money to the listing brokerage or title company, as spelled out in the contract. Your check will be deposited immediately and credited toward your cash at closing.

2) Select and schedule a good inspector. Your inspection deadline is probably a week to 10 days after going under contract, but do not wait. Schedule your inspection ASAP.  This way you'll have time to schedule additional inspections suggested by your inspector. Examples would include having an electrical or mold inspection done if the inspector sees questionable wiring or evidence of water intrusion.  Another example would be bringing in a structural engineer if your inspector sees evidence of structural problems.  Your buyer’s agent will give you several proven inspectors to choose from, but they are generalists and can only suspect problems which other licensed specialists (like an engineer) can clearly identify.  Before hiring your inspector, ask him if his tools include a carbon monoxide detector and a moisture detector.  Not all inspectors have these essential tools.  Read the seller's property disclosure looking for items you and your inspector might want to pay particular attention to. Your inspector can probably handle the radon test ($100 to $125 extra), but you’ll need to schedule a separate sewer scope.  A radon test requires 48 hours to complete, so keep your inspection objection deadline in mind when scheduling your inspection. You don't want to prepare your inspection notice until you have those results.  You can learn more about radon at http://www.epa.gov/radon/.

3) Attend the inspection to learn first-hand as much as you can about the house you expect to own. Your agent needn’t attend the full 3-hour inspection, but he’ll receive a PDF of the inspector’s report and work with you to prepare your inspection demands. Note: the inspector will detail every little thing he finds wrong with the house.  This is both a liability issue for him, and he wants you to think that the $350 you paid him was the best investment you ever made -- which it is.  However, resist the temptation to demand that all those things be fixed by the seller!  Ideally you can expect that every “health & safety” item be handled — radon, electrical, plumbing, sewer, cracked heat exchanger on furnace, etc. — but the seller has no obligation to do anything. If he has a better offer in back-up position, he may well refuse to fix anything, hoping you’ll terminate the contract. Again, having a skilled agent on your side helps.

4) Make note of all the other deadlines in the contract.  Many of them are your deadlines, not the seller's.  Notice that to the left of each date and deadline is the number of the section in the contract which explains that deadline.  Put them on your calendar and hope that your agent did so too!  If no date or deadline is inserted, that section is considered not applicable or deleted.

Lastly, do NOT do anything to change your credit score, such as buying a new car or new furniture on credit.  Your lender will be checking your credit again before releasing the funds for closing, and this could cause them to withdraw loan approval. If this happens, you not only don't get the house, you'll lose your earnest money!
 
Here's a pitfall to be aware of: if the funds have not arrived at the time of closing (either yours or the lender's), the seller can, according to the contract, declare you in default, terminate the contract, keep your earnest money deposit and sell the home to a back-up buyer he didn't tell you about!  I've never seen this happen (please tell me if you know of a time it did!), but it could happen, especially in this time of multiple offers on listings.  This is why I advise buyers and their agents to put in their contracts that the time and place of closing will be chosen by the buyer's agent, not the listing agent, and not by "mutual agreement."  This way, if the funds aren't at the closing table, the buyer's agent can say, "I'm postponing this closing until 4 pm" (or whenever), thus preventing the seller from declaring you in default until as late as midnight on the closing date. If your contract says the listing agent will determine the time and place of closing and that agent selects a closing before 11 a.m., make sure any wired funds are wired the day before, not on the day of closing to avoid this scenario befalling you!

If you have any questions about the above, feel free to call me at 303-525-1851 or email jim@goldenrealestate.com.

Preparing for Your Closing

[As published Oct. 24, 2013, in the Jeffco editions of the Denver Post -- expanded here]

     If you’re the seller, you’ll want to make sure you’ve completed any repairs agreed to in the Inspection Resolution. On the day of closing (or the day before), call your electric and gas utility to tell them you’ve sold the home and to give them final meter readings. They will apply your final meter readings as the starting readings for your buyer after he calls them to identify himself.  Since the utility will not turn off the gas and electrical service, he can do this anytime in the next week or so. The title company will order the final water meter reading and pay the final bill from the few hundred dollars they escrowed from your proceeds at closing, then send you a check for the balance. Remember to call your other providers — cable TV, satellite TV, phone and Internet. Until you’ve done that, the buyer may not be able to order new service.  Right after closing, call your homeowner’s insurance provider and tell them to cancel your policy and send you a return premium. If your mortgage company was escrowing mortgage and insurance money, you’ll receive a check for the escrow balance within 30 days after closing.

     If you’re the buyer, you'll want to do a "final walk-through" of the listing on your way to closing to make sure there's no new damage to the home.  If there were inspection items to be handled by the seller prior to closing, you'll want to do an additional walk-through as soon as you're told that the repairs are completed in case you find that the repairs have not been made. This way, any dispute over those items can be handled before the closing.  If you are bringing your downpayment to the closing, make sure it was either wired to the title company the day before or you bring a cashier’s check with you. It’s better to bring too big a check than too little. The closer will give you a check for the overpayment at closing. Remember that your lender is going to do a last-minute credit check and employment verification before wiring their funds to closing, so make sure you don't buy your car or furniture on credit prior to closing -- and try not to get fired or quit your job!

 

Wednesday, October 16, 2013

This Week's Featured New Listing: Arvada Tri-Level with Basement

[Published Oct. 17, 2013, in the Jeffco editions of the Denver Post's YourHub section and in five Jefferson County weekly newspapers]

 
5180 Beech Street, Arvada
 
This tri-level (with finished basement) in southwest Arvada has been lovingly restored and updated with gleaming hickory hardwood on the main floor and brand new carpeting on the other levels. It has 4 bedrooms, 2.5 baths and 2,500 finished square feet of living space. There's a new 5-burner gas range and microwave in the kitchen. You truly won't have to do a thing after moving in! The home is on a quiet cul-de-sac, just south of 52nd Avenue. There are no covenants -- you can park your RV or boat on the concrete slab next to the driveway, or pull it through a gate into the backyard. Highly rated Drake Middle School is within walking distance.  Priced to sell at $295,000.  I’ll be holding it open this Saturday, 1-4 pm.

‘Credit Repair’ Services Can Make Your Credit Worse, not Better

[Published Oct. 17, 2013, in the Jeffco editions of the Denver Post's YourHub section]

Recently a man walked into our South Golden Road office inquiring about rentals. After giving him the name of a company that handles rentals, I asked him why he wasn’t considering purchasing a home.

The man explained that he had paid $1,800 to a “credit repair” company which had actually made his credit worse, not better.  As a result, he was less able than before to qualify for a mortgage.  Sadly, this was not the first time I had heard such a story.

There are definitely ways to improve your credit, but paying creditors less than you owe will actually cause your credit score to drop.

When I have a client who needs to improve his or her credit score in order to qualify for a mortgage, I refer them to Bruce Gustafson of Crestline Mortgage.  Bruce’s goal is to help you qualify for a mortgage, which is how he gets paid. Helping you to improve your credit score is something he does for free in pursuit of that bigger goal.

Bruce is an expert in “what if” software which tells him precisely how your credit score will change if you do this or do that.  He does not try to negotiate settlement of debts.  He just tells you what you could do to improve your credit score.

For example, he can tell you that paying down the balance of a particular credit card by “x” dollars will raise your score by a certain number of points, which may be higher than paying off the credit card completely.

He’ll advise you against closing credit card accounts and explain why. (Your score is higher if you use a smaller percentage of your credit limit. If you close a credit card, you eliminate part of your credit line. It’s better to keep the account open with a smaller balance than to close it.)

Bruce has given our office lots of training in how he does what he does and as a result has gotten many referrals from us of buyers who need to raise their credit scores in order to buy a home.

You can reach Bruce Gustafson anytime on his cell phone at 303-596-0780.  

How Does Your Credit Score Relate to Getting a Mortgage?

[Published Oct. 17, 2013, in the Jeffco editions of the Denver Post's YourHub section]

Generally speaking, 640 is the minimum credit score to qualify for a conventional, FHA or VA loan.  Note: The credit score you see when you check it online may differ from the credit score which a mortgage lender sees — they get a score which gives more weight to certain items on your credit history that are important to them.

That said, if your personal credit score is close to or below 640, you may need to have someone like Bruce Gustafson (303-596-0780) work with you on tweaking your credit score. He does not charge for this service if you’re applying for a mortgage or refinancing.

It’s important to know also that mortgage rates are tiered based on your credit score.  Bruce tells me that for every 20 points your score exceeds 640 (up to 740), you might qualify for as much as a 1.5% lower interest rate.  On, say, a $400,000 loan, a 1.5% lower rate means a $400 per month reduction in your monthly mortgage payment, or a $140,000 savings over the life of the loan, so it’s definitely worth speaking with someone like Bruce, even if your credit score is over 640.
 

Do You Prefer a North-Facing Driveway in the Winter?

[Published Oct. 17, 2013, in the Jeffco editions of the Denver Post's YourHub section]

One of the recurring comments I get from buyers is that they don’t want a home which faces north. A big reason is that the snow does not melt as quickly in the winter-time shadow of your house.

If you’re like me, however, you don’t hang out in your front yard. If your house faces south, then the backyard and your patio are facing north. I’d much rather have snow linger on my front yard in the winter than in my back yard.  And once I clear snow from any paved surface, it’s gone until the next snowfall. I much prefer having snow disappear quickly from the back of my house than from the front.

Something to think about!

 

Wednesday, October 9, 2013

Buyer Activity Has Slowed Down, But Only Somewhat, As Fall Arrives

[Published Oct. 10, 2013, in the Jeffco editions of the Denver Post's YourHub section]

People are under the impression that real estate is seasonal — that spring and summer are the selling seasons for real estate. The fact is that while more homes sell during those times of year, people are buying homes year-round.

I remember when Rita and I got married in June 2004, we decided to take our honeymoon in November.  That was the slowest summer of my real estate career, and when we went to Paris in November, I was smart enough to take a Vonage phone with me, and to forward my cell phone to it.  We had our days free to explore Paris, and in the evening — daytime in Denver — my phone was ringing off the proverbial hook.  I listed one home and sold another during those two weeks, which more than paid for the honeymoon, much less the Vonage phone! 

The chart below shows the past year’s “seasonality,” if you can call it that. Last March and April saw the height of buyer activity throughout the metro area. It slowed down as summer progressed. But, even now, homes that are priced right are still selling quickly and often for full price.

 

Tuesday, October 1, 2013

Chevy Volt: 23,000 Miles Later

[Published in the Jeffco editions of YourHub]


On Labor Day, I bought gasoline for just the 12th time since taking delivery of my Chevy Volt 16 months ago. Each fill-up takes only 8 gallons. I have burned 99.1 gallons to go 23,000 miles. That’s because 19,700 of those miles were on battery power alone. My lifetime average is 232 mpg. The electricity I used would have cost $550 if purchased from Xcel Energy, but my electricity comes mostly from the solar panels on my home and my office building. (Our agents and visitors get free charging!)

My Volt’s lithium ion battery pack shows no sign of degradation despite daily use and re-charging.  I’m still getting over 40 miles on a full charge (slightly lower in the winter), after which the 4-cylinder gas engine runs to maintain a minimum battery charge. (The motor does not drive the wheels, it merely generates electricity.)

Dependability is built into the car’s design. It has no fan belt, catalytic converter, or many of the other components of a gas powered car. I still have 72% of my original oil life remaining — my first oil change will be at about 65,000 miles. My garage never gets hot because my car’s engine does not heat it up.

What Impact Will Government Shutdown Have on Real Estate Closings?

[Published Oct. 3, 2013, in five Jefferson County weekly newspapers]

Last Friday HUD said it would stop working on FHA applications, but over the weekend it reversed itself and said that a skeleton staff of workers would continue to process all applications for government-backed mortgages.

How much slower the process will be with a reduced staff was not indicated.

The biggest effect at this early stage of the shutdown will be that the IRS will not be able to supply transcripts of tax returns, which are required by underwriters to verify that borrowers have supplied accurate copies during the mortgage application process.  For transactions already approaching closing, transcripts were most likely obtained before Tuesday’s shutdown.

If the shutdown continues for longer than the three weeks which the last shutdown took, then we could see some serious impacts on transactions, and buyers who can pay cash will have a greater than usual advantage over competing buyers. 

Cash buyers are already more attractive, of course, but if the seller is confident in the buyer’s ability to close, he or she would in the past have been tempted to take a higher-price non-cash offer.  Not now.

With the shutdown in place, accepting an offer which included FHA financing would be most unattractive.  In the months leading up to this shutdown, about 60,000 closings per month have been financed with FHA loans.

The information I’m getting says that those loans backed by Fannie Mae and Freddie Mac will be unaffected by the shutdown because those government-sponsored entities (GSE’s) are financed not by the federal government but by fees paid by the lenders who are issuing those loans.

I’m reading that rural development loans guaranteed by the US Department of Agriculture will not be able to proceed during the shutdown, but that shouldn’t affect many metro-area readers of this column.

Unfortunately, we can’t be very hopeful that the stalemate in Washington will end. This situation is so much more ideologically poisoned than was the case 17 years ago.  When I read that Michele Bachmann had tweeted that she was “giddy” about the shutdown, it reinforced my suspicion that the Tea Party crowd would welcome a permanent shutdown of the government — Sen. Harry Reid called them “anarchists” — so there’s no reason to compromise. As long as their districts remain “safe” for them, they’ll just hold out. And they probably won’t care about extending the debt limit.

Golden Solar Tour Is This Saturday, Oct. 5th

[Published Oct. 3, 2013, in five Jefferson County weekly newspapers]

Golden’s annual tour of solar and sustainable homes is always on the first Saturday in October.

It starts with a reception and “Hybrid & Electric Vehicle Roundup” on Friday evening 4 to 7 p.m. at the American Mountaineering Center. The vehicles are outside on the street, and the reception is in the conference center at the rear of the building.

On Saturday is the tour of 14 homes, mostly in or near Golden, which demonstrate various kinds of solar and sustainable practices or installations.

Register at the American Mountaineering Museum, corner of 10th Street and Washington Avenue, receive the map, and take the self-guided tour. Visit each “green” home and talk with the homeowners and volunteers about the green features of each home.

Registration is only $5 to take the self-guided tour.

I have taken it upon myself to shoot and edit video tours of each of the 14 homes on the tour.  You can see those videos and the videos of last year’s homes (including my own) at www.YouTube.com/ GoldenSolarTour/.

The tour is co-hosted by Golden Earth Days and the Colorado Renewable Energy Society.

Enjoy… and learn!