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Tuesday, December 27, 2011

Real Estate Industry's Technological Revolution Really Accelerated in 2011

[From my column published on Dec. 29th in the Jeffco editions of the Denver Post]

     Recently I was asked, “What are the changes you’ve seen recently in the practice of real estate?”  Immediately I recognized a great topic for my next column — and how fitting that it’s my end-of-year column!

     Of course, most change is technological in nature. Maybe my ability to weather these changes despite my advanced age (64) has something to do with having attended M.I.T. for all four of my undergraduate years. There’s a culture of openness to innovation that stays with you when you leave the Institute!

     This past year has seen an explosion in the adoption of mobile technology.  It’s hard to imagine any Realtor not possessing a smartphone now, able to immediately respond to emails, text messages and internet leads without being near his/her laptop computer — itself a real estate essential.

Many if not most Realtors, myself included, have a 3G iPad as well.  And when I have my laptop with me, I can be online simply by tethering it to my iPhone. This is the world of today’s real estate professional.

It used to be that when an agent went on vacation he/she would be expected to designate another agent to handle his/her business while away.  We hardly even think of doing that today.  Seven years ago, when I was in Paris for two weeks, I conducted business as usual with my Vonage phone.  Today I could do that with Skype — or my iPhone, if I wanted to pay for the minutes.

In an earlier column I talked about the sudden ubiquity of eContracts. Since then, they have been adopted by the Colorado Association of Realtors and 90% of the contracts I receive are signed electronically now instead of on paper.  A year ago, it may have been 10% electronic and 90% on paper.

This year has also seen the increased adoption of QR codes, such as this one, to allow passers-by to get information about a home on their smartphone. This one is for my listing at 1919 East Street.  (Try it!)  Another tool is SMS texting with auto-responders.  If you text 135133 to 720-523-0300, you will get information and 32 photos for that same listing on your phone — and I’ll be notified that you did so!  Look for more and more real estate signs — including my own — to display these new means of providing buyers with instant information and the ability to “see” inside a home while they’re standing in front of it! 

I suppose there are some non-technology changes.  I just can’t think of any off hand….

Thursday, December 22, 2011

FHA Approval of Condos Has Other Ramifications (Long Comment from Don Opeka)

Don Opeka of Orion Mortgage sent me this email, which is too long for a comment, so I'm posting it:

Historically, many agents and borrowers think of FHA approval as being important only for low down payment, first time buyers.  FHA approval is also important for high end properties because most Reverse Mortgages today are FHA insured.  If a property owner owes little or nothing on the property, and they are older than 62, they may want to eliminate their mortgage payment (they still have to pay for taxes, insurance and maintenance), or take cash out without a payment.  For people who have equity in an expensive home, a Reverse Mortgage for purchase may be an answer for buying a condo when there isn't enough equity to pay cash for the condo.  If the condo isn't FHA approved, a Reverse Mortgage won't be available.

I've already had this occur.  The owner of a high end condo, one that would not normally be purchased with an FHA loan, came to me and needed a Reverse Mortgage to stay in the home.  The condo was not FHA approved, so I could not offer a Reverse Mortgage.

Reverse Mortgages are also useful for moves that become necessary for health or other reasons.  A person may have a home that's free and clear, but need one level living instead of multi-level living.  The costs of the move can be covered with a Reverse Mortgage instead of withdrawal of retirement savings, or a move to a less expensive home.

I'm happy to separate the myths and facts of Reverse Mortgages.  Both young and old should understand how they really work.

Wednesday, December 21, 2011

Condo association must take action so that members can sell their units!

[from my Dec. 22nd column published in the Denver Post]

FHA loans fill an important gap in the financing of low-end homes, especially condos, because FHA requires only a 3.5% down payment.  And here in Colorado, the Colorado Housing Finance Authority (CHFA) will loan first-time home buyers all but $1,000 of that 3.5%. But first the condo project must meet FHA approval on a few key factors.

First, if fewer than half the residents are owner occupants, forget about using an FHA — or even a conventional — loan.

Secondly, FHA and Fannie Mae look at the financial strength of the condo association.  If more than 15% of units are behind on their monthly dues, forget about getting a loan on any unit in that complex. 

Third, no single investor can own more than 10% of the units.  And there are other criteria that must be met by the condo complex.

Until February of last year, it was possible to get a “spot approval” to sell a condo by satisfying these and other criteria for the loan underwriter.  However, since February 2010, the condo association itself must obtain certification from the FHA before any unit in that complex can get an FHA loan, even if those criteria would be satisfied.  It takes time and it takes money for the association to get that approval, and many — indeed, most — condo associations have been lax is obtaining that certification.  Moreover, certifications expire and the association must re-apply.  Many have not.

For example, in Lakewood’s ZIP 80228 (the Green Mountain area), there were 18 approved condo associations a couple years ago, and now there are only six.  In ZIP 80229, ten out of 12 are no longer certified — and not because they wouldn’t qualify if they applied.

Now that FHA loans are the only way that a significant percentage of home buyers can finance a home, and since condos are the most affordable way for most buyers to become homeowners, this failure by condo associations to obtain and renew their FHA certifications has potentially disastrous consequences for all current condo owners.  If units can only be sold to cash buyers or with private financing, the values of the units are bound to fall.  If you are a condo owner, pressure your association to get and remain certified with the FHA — assuming it qualifies.

Moreover, even if your condo association maintains its FHA certification, if other complexes don’t, they will affect your complex to the extent that they produce lower comps for your units.

I thank Norm Lewis of Peoples Mortgage (303-910-1629) for educating me on this topic.
Your are encouraged to add your own insights to this issue below!

Tuesday, December 13, 2011

Some Things to Keep in Mind When Buying a New Home vs. Resale Home

[As published Dec. 15, 2011 in the Jeffco editions of the Denver Post]

     New homes can be quite wonderful.  Rita and I are the original owners of the home we live in now, so I speak from experience!  As with a new car, all the components in a new home are new and will, generally, require less maintenance.

     At the same time, it is important to go into the home purchase with your eyes wide open and realize some of the risks and hidden costs associated with purchasing a new vs. a resale home.

     For example, unless you’re buying the model home (which I recommend when available), you will have a major expense in landscaping the back yard and sometimes even the front yard. That includes fencing and sprinkler system. We spent about $40,000 to landscape, irrigate and fence our half-acre lot.

    Even model homes won’t come with window coverings.  We spent about $12,000 on ours.

    If you want upgrades in your new home, you will have to pay for them in advance, and the money will not be refundable if you end up canceling the contract.  (Your deposit will also not be refundable in most cases.)

    The builder will require you to sign a contract written by the builder’s lawyers, not the state mandated contract from the Colorado Real Estate Commission, which is very buyer-friendly.  (State law mandates that its contract be used unless the contract is written by a lawyer.) As you can imagine and will discover if you read it, the builder’s contract is not at all buyer-friendly — and alterations won’t be allowed.

    In most jurisdictions, the builder is required to do soil tests and to adapt the foundation to meet the demands of the soil. In some cases this means physically removing expansive soils and bringing in good soil. (This is how many berms have been given to municipalities like Golden, as developers need some place to take the dirt.) In some cases, the authorities will require the builder to build a structural wood or concrete floor instead of slab on dirt, as in most homes.

    Despite these safeguards, keep in mind that most movement takes place in the early years of a new home, and a 10-year-old home likely gives you some peace of mind that this phase is past.

    The most important investment you can make in purchasing a new home is to have it inspected. Don’t assume that because it is new and because it had to pass inspection by government inspectors that your new home has no problems and no code violations. Any experienced home inspector can regale you with stories of construction flaws he’s uncovered!

Golden's Mayor prepared to sell out to pro-Beltway forces

Here's what I'm planning to include in my Denver Post column this Thursday, Dec. 15th.  That's the same day as an important City Council meeting in Golden.  I submitted this post to Mayor Smith's blog, but he moderates his blog and I'll be curious to see whether he allows it to appear. (I also invited him to correct any factual errors prior to my noon upload of the column):

     Golden’s mayor made a strategic mistake last winter when he proposed that Golden accept a compromise with the County Commissioners regarding the ill-conceived toll road north of town.

     The compromise was that if Golden dropped its opposition to the toll road, it would receive planning money for a grade separated intersection at 19th Street & Hwy 6. The strategic mistake was giving Goldenites a couple months to realize what a bad deal it was. 

     So now, after “negotiating” for a better deal following the City Council’s unanimous rejection of that compromise, Mayor Jacob Smith is giving the Council just one week to approve a revised deal which ignores virtually all the demands of that Council resolution in February.

I’ve said it before — to the annoyance of fellow Realtors — and I’ll say it again. Building the toll road serves no valid transportation purpose, as numerous CDOT-paid studies have proven. It is solely a means of promoting the kind of over-development that enriches developers and creates the kind of congestion which has spoiled other sectors of the metro area.

Join me at the Council meeting at 7 pm this Thursday and speak out against this corrupt proposal.

Tuesday, December 6, 2011

Is it fair to charge the same percentage commission on high end listings?

[from my column published 12/8/2011 in the Denver Post]

It doesn’t take twice the effort or money to list a million dollar home than it does to list a $500,000 or $200,000 home, but sellers in all three price ranges are typically charged the same percentage commission.

Although we can’t refer to “standard” or “customary” commission rates, we can talk about “average” commission rates. There have been studies, most recently by RealTrends, showing the average listing commission to be about 5.4%.

At one time, before antitrust laws were enforced on our industry, I’m told there was a “standard” commission of 7% in Denver, and it was determined that the proper “co-op” commission paid to buyer’s brokers should be 40% of that figure, or 2.8%. When the feds told the real estate industry that we couldn’t fix commission rates, the rate started falling under competitive pressure. The co-op commission offered to buyers’ agents never faltered, however, because brokers knew that if they offered less than 2.8%, other agents might not show their listings. The result is that nowadays, the listing agent rarely earns as much as the buyer’s agent, who still, typically, gets 2.8%. It is this dynamic that in effect will keep listing commissions from going much lower.

Realtors are, as a rule, paranoid about discussing commission rates, so we only learn what a listing agent charged when we see the commission amount on the settlement sheet at closing. Occasionally I see that the listing commission must have been 6%, but usually it’s less. Only once did I see anything higher than 6%.

What brings this topic to mind is that I met a Realtor from Calgary at the Realtor convention last month, and she told me that in western Canada it is common to charge 7% on the first $100,000 and only 3% above that price, and the commission is shared 50/50 with buyer agents — 3.5% on the first $100,000 and 1.5% above that figure. Under this formula, the effective commission charged to a seller drops to 5% on a $200,000 sale, 3.8% on a $500,000 sale, and 3.4% on a million dollar sale. Listing agents could, theoretically, compete by charging less, but this doesn’t happen often because sellers realize that fewer agents will show their home — and sellers consider the 7/3 formula reasonable. Because it’s reasonable, I suspect fewer owners try to sell their home without a Realtor.

As reasonable as the above formula sounds, Realtors in eastern Canada have not adopted it, and I can’t picture U.S. Realtors doing so.