The Term "Realtor" is Misused as Much as "Kleenex" -- Including by Realtors

[Published Mar 29, 2012 in the Denver Post]

The National Association of Realtors (NAR) has spent millions of our dues dollars on educational ads urging consumers to “make sure your agent is a Realtor,” but it’s clear to me that it hasn’t sunk in with the general public, which continues to use “Realtor” as a synonym for “real estate agent" — as do many Realtors!

“Realtor,” like “Kleenex,” is a brand name — a trademark — and, just as not all facial tissues are Kleenex tissues, not all real estate agents are Realtors.

It costs about $500 per year for a licensed real estate agent to join his or her local Realtor association, which also makes the agent a member of the state and national associations. As dues increase, more and more agents are wondering whether it’s worth paying those dues when they could save that money and still be allowed to join the MLS.  Our MLS, Metrolist, unlike some MLS’s around the country, does not require an agent to be a Realtor in order to be a member of the MLS.

Although I don’t consider it a smart move, each year more and more Realtors are dropping their Realtor association membership and joining non-Realtor companies  such as Home Real Estate Colorado LLC and Brokers Guild Classic.  (If I were a Realtor with Home Real Estate or Brokers Guild Cherry Creek, I think I would be upset that my Realtor status was being compromised in the minds of the public by having these like-named firms.)

As far as I know, no one at the Realtor associations or NAR is tracking how many ex-Realtors  quit the business or merely quit being Realtors. When I was on the board of the local Realtor association, I suggested that the organization do exit interviews to answer this question. I volunteered to do it myself, but simply never had the time to devote to that task.

As NAR and the local Realtor associations attempt to educate the general public that “Realtor” is a trademark and should be capitalized (like Kleenex), I’m sure it must be frustrating for NAR to see Realtors themselves not capitalizing the term as well as using it as a synonym for “real estate agent.”

Ann Turner, the executive director of the Denver Metro Association of Realtors, taught me several years ago that one should only use the term “Realtor” when it can be replaced with “member of the National Association of Realtors” without changing the sentence’s meaning.  That explanation has served me well, and if you look at my previous columns, you’ll notice that I rarely even use the word Realtor -- except in my byline.

How to Respond to Agents Who Send You Letters or Ring Your Doorbell

[Published Mar. 22, 2012, in the Denver Post]

There is a such a shortage of listings on the MLS right now that many agents (not mine) are flooding neighborhoods with letters claiming to have a buyer looking for a home there. Should you believe such letters, and how should you respond?

I know this is happening because recently I listed several homes (two of which sold in a few days for full price or higher), and the sellers told me about the letters they had received.  I was given one of those letters, and it turned out to be valid.  (The agent sold a nearby listing of mine to her reported buyer.)

I realize, however, (and so should you) that sometimes this approach is used by agents as a technique to get in your door and list your home.  The agent can always explain that the buyer they spoke of bought another house.

So what is a good way to respond when you get such a letter (or visit) from an agent?

If you are thinking of selling, I recommend that you call the agent and invite him or her over. The more agents the better, because they will then have seen your house if you end up putting it on the market.

The agents will probably come to “preview” the listing for their buyer, which is fine.  If they bring the buyer, all the better. Regardless, you should not list your home in order to sell it to their buyer. Rather, tell the agent that you won’t list with anyone until they have a chance to submit a for-sale-by-owner contract at a 2.8% commission.  If they can’t produce a contract under that arrangement, then I wouldn’t recommend listing with that agent, because they may have been bluffing about the buyer, and you want to demand complete integrity from any agent you end up hiring.

Since your visit from each agent will, in effect, prove to be a listing presentation, you need to be prepared to interview them and not just listen to their presentation.    To assist you with that process, I wrote a column in 2010 listing 18 questions to ask a potential listing agent.  That column was so popular that I gave it a URL of its own, www.The18Questions.com.  Use that column in your interview, and feel free to call me to verify any statistics agents provide about their own success as a listing agent, since doing so requires MLS access.

Believe it or not, we are in a sellers’ market right now, with listings — if they are priced right — going under contract very quickly. I urge you to subscribe to my blog (www.JimSmithBlog. com) where you will not only get this column before it is printed, but also get my monthly market activity reports.

Sellers Answer the Call, With a Surge of New Listing Activity

[Published Mar. 15, 2012 in the Denver Post]

Last week’s headline proclaimed that the percentage of MLS listings under contract had surged past the 40% mark.  Indeed, this Monday, I checked again and the percentage is over 42%.

Fortunately, sellers are responding to the call for them to list their homes now. In Jeffco alone (not counting the foothills areas) 408 new listings were entered on the MLS in the first 10 days of March.  The figure for the total MLS is 2,666 — and 537 of those are already under contract!

For comparison, more homes (3,425) were entered on the MLS during the same 10 days a year ago, but of those only 208 were under contract by the 13th of that month.   We still need to see more homes added to the active inventory.  As of press time, the active inventory was 11,139, up from the beginning of the month, but, as I pointed out above, the percentage of the total inventory that has gone under contract is still rising.

I can’t think of a better time, if you’re thinking of selling this year, to put your home on the market.

Here at Golden Real Estate, that surge in new listings is especially evident.  I have three new listings I’m featuring this week.  I already have two new listings to feature next week and at least one more to feature the following week — so far. I have been invited to meet with would-be sellers — often more than one — almost every day and have been kept busy creating video tours, slideshows, websites, etc.  I know my broker associates are equally busy, and I’m forced to look outside Golden Real Estate to find agents to help me hold open all these new listings on Saturdays.

Percentage of Listings Under Contract Surges Past the 40% Mark!

[Published March 8, 2012, in the Denver Post]

I’ve been tracking this statistic since October, and the trend is almost shocking. As of Tuesday, Mar. 6th, 42.3% of all MLS listings in the non-foothills areas of Jeffco are under contract.

Here’s how the percentage under contract for the entire MLS has risen in just 5 months:

      Oct. 31—23.9%

      Nov. 30—27.3%

      Dec. 31—26.8%

      Jan. 31—29.8%

      Feb. 29—39.7%

When I checked again just now(Tuesday, Mar. 6), that percentage had risen further to 41.2%.  Think about it — four out of 10 “for sale” signs you see are in front of homes that are under contract!  Back in November, I thought 27.3% was high!

How high can this figure go?  In Denver Southwest, Denver Northeast, the City of Aurora and Adams County it has already surpassed 50%. For condos under $100,000, 59.5% are under contract. In Jeffco, that figure is 64%.

Buyers are snapping up listings faster than sellers can put them on the market.  For example, the total inventory on Feb. 29 was 500 higher than on Jan. 31st, but the number of homes not under contract fell by 400 during the same time-frame.

Anyone who is thinking about selling their home should seriously consider putting their home on the market now, because, if it is priced right, it should sell quickly.

This is not to say that homes in all price ranges are selling quickly.  Here’s the percentage of inventory under contract by price range as of Feb. 29th:

     Under $200,000—56.3%

     $200,001-300,000—40.6%

     $300,001-400,000—33.7%

     $400,001-500,000—28.7%

     $500,001-600,000—22.8%

     $601,001-700,000—20.6%

     $700,001-$1,000,000—16.3%

     Over $1,000,000—11.1%

I attribute this prolonged winter-time spurt of buying primarily to the record low interest rates. (I just refinanced my home for 2.875% on a 5/1 ARM.)  The fact that interest rates recently started creeping upward has only pushed more buyers off the fence.

Think about it. The same dynamic that makes you buy gas this week if you know it will be more expensive next week is making buyers buy now before interest rates (and prices) go higher.

Like many agents, I have buyers who can’t find what they want, so I have created a "Buyer Needs" page on our company website, www.Golden RealEstate.com. That way sellers might actually be able to sell their home without putting it on the market.  Does it get any better than that?

My full statistical analysis by area and price range is posted just below this posting.

Buyers are Buying Faster Than Sellers Are Listing

As of February 29th, the percentage of unsold MLS inventory that is under contract jumped by a third overall, as shown by the following chart.  What's interesting to me is that the number of unsold homes on the MLS was up by 500 listings over January, but the number of active listings was down by about 400!  This means that while sellers are jumping into the market, buyers are buying even faster.  This is a hot market!

It should be noted, however, that the buying spree is much stronger in the lower price ranges, as shown by this chart:

New Website Helps Buyers/Sellers Verify Agent Performance

[Published March 1, 2012, in the Denver Post]

     Sellers struggle when it comes to selecting the best real estate agent. One reason is that there is literally nowhere — except the member-only MLS — to find statistics about an agent’s performance.

     Attempts to provide rankings or reviews of real estate agents have been attempted unsuccessfully by numerous parties, including Zillow and Redfin, and the Realtor associations have toyed with the idea over the years, but without success. Basically, the vast majority of agents, including Realtors, are not doing a lot of business — NAR reports that the average member’s gross income last year was only $36,000 — and that has scuttled any attempt at introducing such a service.

The public, however, still needs to get the raw facts on agent performance: number of listings sold, average days on market, and even whether the agent is a Realtor and the status of their license.

So I have created a website, where, for a nominal fee, anyone can request the stats on one or more agents with whom they are considering doing business. It’s in beta testing now, but go ahead and give it a spin!

The web address is http://www.RealEstateAgentCheck.com/  

Home Buyers Can Save by Purchasing Before FHA Fees Go Up on April 1st

[Published March 1, 2012, in the Denver Post]

      A quick check of Metrolist, the Denver MLS, shows that about 30% of homes purchased for $400,000 or less are financed with an FHA-insured loan. These loans are popular because they require only a 3.5% down payment.

      FHA interest rates are comparable to those for conventional loans, but extra fees are charged, both upfront and monthly, for mortgage insurance premium (MIP). These fees replenish FHA’s reserves, which have been depleted by the high number of foreclosures on FHA-insured loans in recent years.

      There is a 75% increase in the upfront fee for those FHA loans initiated after April 1, 2012. This upfront payment, which is currently 1% of the loan amount (and can simply be added to the principal), increases to 1.75%. Thus, on a $300,000 loan, this added principal amount is currently $3,000, but will increase to $5,250 on an FHA loan initiated in April, adding about $11 to the monthly mortgage payment in the above example (based on a 4% interest rate).

    Currently, the monthly mortgage insurance premium is 1.15% annually (1.1% when the down payment is 5% or more), and this fee increases by 0.1% to 1.25% and 1.2% respectively.  Thus, on the same $300,000 loan, the monthly MIP payment is currently $287.50 (assuming 3.5% down payment), but goes up to $312.50, an increase of $25 per month.

That $25 increase, unlike the $287.50, does not go to the FHA. Instead it goes to the Social Security Trust Fund. As noted in my Jan. 12th column, this increase is mandated by the Temporary Payroll Tax Cut Continuation Act of 2011, which was passed in December. That act reduced the Social Security tax for just two months, but is charged to new borrowers for the next 10 years. Doesn’t seem fair, does it? 

On their website, HUD calculates that the average FHA borrower will pay only $5 more each month for that additional mortgage insurance premium, but I don’t see how they could come up with such a low estimate.

The monthly MIP must be paid for 5 years, regardless of the percentage down payment, but can be removed once the homeowner can document 20% or more equity.

Current FHA loans, and loans initiated before April 1, 2012, are not subject to these higher fees.

Conventional loans are also affected by an increase comparable to that $25 per month, but it will be reflected in the loan’s interest rate instead of appearing as an additional fee. 

Not All Regulation Is Bad -- In Some Critical Areas, We Could Use More of It

[As published in the Denver Post on Feb. 23, 2012]

When I first got into real estate in 2002, I remember that any felon could, upon leaving prison, print up business cards declaring himself a “mortgage broker,” and Colorado had one of the highest levels of mortgage fraud in the nation. 

In the years since, the legislature passed a law requiring registration, and a couple years later required licensing.  Nowadays, it’s even harder to become a mortgage broker than it is to become a real estate agent. There are tests to get licensed, continuing education requirements and mandatory bonding to protect clients.  Now Colorado has some of the strictest regulation of mortgage brokers in the nation and the lowest level of mortgage fraud.

This isn’t to say that regulation doesn’t go too far in some areas. When it is implemented administratively vs. legislatively, it can fail to consider unforeseen impacts and, yes, common sense.  When regulation is imposed by a legislative body,  there are hearings at which interested parties can testify and educate the lawmakers. Lobbyists, such as those representing the state and national Realtor and mortgage broker associations can educate committee members about such impacts.

An example of an administratively imposed regulation is the Home Valuation Code of Conduct (HVCC), which was introduced to reduce appraisal fraud, but was done behind closed doors to settle a lawsuit by then-Attorney General of New York Andrew Cuomo. I have written in the past about this ill-conceived regulation voluntarily adopted by Fannie Mae and others which took the selection of appraisers out of the hands of mortgage lenders and introduced appraisal management companies (AMC’s) which are, yes, unregulated. To maximize profits, AMC’s do not have to require geographic or other competence by the appraisers who agree to work for the lower wages they pay. Five years later, we are still struggling to regulate AMC’s and still suffering from bad appraisals. Many good, experienced appraisers are leaving the business.

An effort is underway finally to regulate homeowner associations (HOA’s) and the management companies which they hire. I have complained in previous columns about the fees which management companies charge to HOA members at the time of a sale for providing simple information or for changing the name of the homeowner on their records. Knowing that the sale can’t close without these services, the companies extort huge fees, and none of that money benefits the HOA.

Emails Perpetuate Mistruth About a 3.8% Medicare Tax on Real Estate Sales

[As published Feb. 16, 2012, in the Denver Post]

I guess it was to be expected, now that the presidential election year has arrived.  Over 18 months ago I wrote about an email being circulated by the anti-Obama crowd misrepresenting a Medicare tax contained in the Affordable Healthcare Act.

The new tax contained in “Obamacare” extends the 3.8% payroll tax for Medicare to investment income for taxpayers whose Adjusted Gross Income (AGI) is over $200,000 (for a single filer) or over $250,000 (for married filers).

Currently, the Medicare tax, like the Social Security tax, is applied only to “earned” income, but Obama-care extended it to “unearned” income for the super-rich.

The emails which are circulating again claim that if you sell your home for $100,000, you’ll pay $3,800 in “sales tax,” but they neglect to mention that (1) the tax is on profit, not on sales price, (2) that the $250,000 (single)/$500,000 (married) exemption of gains on primary residence still applies, and (3) that the tax only applies if your AGI exceeds $200,000 (single) or $250,000 (married). 

So while the emails — which are still being circulated by Obama-haters — state that this tax applies to the entire purchase price on every home sale, it is, in fact, unlikely to apply to more than 1% of the population.

Even if a married millionaire were to sell his home for $600,000 more than he paid for it, he would probably have no taxable gain at all, since $500,000 of the gain is exempt, and his costs of selling could be over $100,000.  And how many millionaires are selling their homes for a big profit nowadays?

Here’s an offer for those who believe they’ll be taxed — List with me and I’ll pay the tax for you out of the commission I earn!

So, right off the bat, let’s recognize that almost no homeowner is going to be paying the Medicare tax on the sale of his/her home.  And if they are, it’s not 3.8% of the sale price but 3.8% of the profit in excess of $250,000 or $500,000.

So that leaves only investors — you know, the guys with really good accountants who probably have an AGI well below those of us with earned income. If any of them pays this tax on their AGI over $200,000 or $250,000, they can afford it. Period.

Yet, when this truth is explained to the Obama-haters, their response is typified by this response from a Realtor on a LinkedIn group which I monitor: “Even though this only applies to the top 5%, it is only the beginning…”  Or, more typically, they don’t hear you and keep on spreading the mistruth.

Why Owners Who’d Like to Sell Their Homes Aren’t Putting Them on Market

[Published Feb. 9, 2012, in the Denver Post]

In recent columns, I’ve pointed out the rapidly declining inventory and the need for more listings.  There is no better time than right now to put a home on the market. Buyers, lured by record low interest rates, are snapping up the few homes on the market—when the price is right.

This is especially true in the lower price ranges.  When I did my monthly analysis on Feb. 1st, I found that 40% of all front range listings under $200,000 are under contract. That figure drops to 37.4% for homes between $200K and $300K, and to 29.5% for homes from $300K to $400K.

Between $400K and $500K, 22.4% of the listings are under contract, and between $500K and $600K the percentage is 20.9%. Above that price range, the percentage keeps dropping, so only 9.1% of homes priced over $1 million are under contract.  But that’s still a pretty hot market.

That raises the question, “Why aren’t more people who want to sell putting their homes on the market? Let me speculate on some of the reasons, and perhaps some readers will want to suggest their own reasons.

Reason #1: Sellers are “under water,” owing more than they can sell their home for.  This is especially true in the higher price ranges, as well in areas impacted by foreclosures and short sales.

Reason #2: Sellers are not under water, but they don’t have enough equity to produce the cash they’d need for a down payment on their next home. (Those who are wanting to buy under $420,000 may not know that with an FHA loan they can put down at little as 3.5%, or with a CHFA loan as little as $1,000.)  Observation: If you’ve been wanting to refinance your current home and have good credit but not enough equity for the refi, you probably do have enough equity to buy a different home at low rates with an FHA loan!

Reason #3: Would-be sellers want to wait until the value of their home increases. However, if these sellers expect to buy another home after selling, they need to realize that if they wait until their home’s value increases, then they’ll probably end up paying more for the home they purchase, so they might as well “take a loss” on their current home. It evens out in the end.

Reason #4: Sellers are worried about their job security and loss of income to support a new loan.

I’m sure there are many other reasons, and I’d love to read them on this blog. Or call me at 303-525-1851.

EXTRA! Percentage of Listings Under Contract Shoots Even Higher in January

This dramatic increase in the percentage of listings under contract is despite the fact that the listing inventory increased by 14.5% in January over December. 

(Inventory is defined as Active + Pending + Under Contract.)

Scupltor John DeAndrea Created "Linda" in This Home's Studio

My listing at 1235 Pierce Street was previously owned by the well-known sculptor John DeAndrea, whose famous work, Linda, was created in the studio located behind the 3,322-sq.-ft. home and its 4-car garage. The person who bought this home from DeAndrea and is now selling it keeps a framed Denver Art Museum poster of the work above the studio door. DeAndrea’s overspray can still be seen on one of the posts in the converted pole barn. The house itself is special, combining the retention of its 1928 style with modern conveniences such as a Sub Zero fridge, soapstone countertops, steam shower, hardwood floors and original light fixtures. It’s a short walk to the Lakewood Country Club and the coming light rail line. You can take a narrated video tour of the home on its website, www.LakewoodEstate.info. Open this Saturday, Feb. 4, 2012, 1-4 p.m.