No Love Letters

No Love Letters

What’s a Love Letter? It’s an emotional appeal that Buyers sometimes make in the form of a letter accompanying their offer to purchase. Here’s an example:

Dear Sellers,

Our names are Diana and Tom Swan. We’ve been married five years now and have one son, Richard, who is 3 1/2 years old. We also have another baby who will join our family in December. We realize our offer may not be as high as other offers, however our first son has some social and behavioral issue so we are hoping to buy our home so we are close to a specialized facility. We hope that you will select us as the next homeowners to raise a family in your home.

(from: Colorado Real Estate Commission)

Why do Buyers do this? Brokers encouraged it. Years ago, when the market began heating up with multiple offers for individual homes, they saw this as a way to give their Buyer a leg up on the competition.

What’s wrong with it? Buyer “Love Letters” can reveal information which identifies a person as a member of a protected class (Fair Housing) and can put seller and the seller’s broker in danger of legal and regulatory action. By potentially identifying protected class status of prospective buyers, it creates a doubt whether that offer is chosen or not chosen based on protected class status, a violation of law.

The Protected Classes (Federal): Race, Religion, Color, Disability, Sex, Familial Status, National Origin, and (State): Sexual Orientation (including Transgender Status), Marital Status, Creed, Ancestry.

Possible violations in our example: 1) Familial status (they have children) 2) Marital status, 3) Disability/Handicap, 4) Highest and best (letter urges seller to select buyers not based on highest/best offer, but based on other considerations that may violate fair housing).

Best Practices regarding Love Letters: Avoid unnecessary risks by focusing on a solid offer instead of an emotional appeal; give your Broker permission NOT to present “Love Letters.”

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Interest Rates: When to Buy

When my parents bought a home in Denver back in 1964, they borrowed money at about 7%.

When I was first licensed to sell real estate in the early 1980’s, rates were in the mid-teens and we were seeing the advent of adjustable-rate mortgages.  ARM’s allowed borrowers to qualify at a lower rate while spreading out the risk for the lender.

Historic Interest Rates

Since 1981, after reaching a high of nearly 19%, rates have steadily declined.  Like all trends, it’s not a straight line.  You may have noticed that when rates spike up a little, pundits (mostly lenders and brokers) will say “hurry up and buy/sell before rates go up further!”  Then, when rates go down you hear “buy/sell now before rates go back up!”

I’m writing this now because people in my business are starting to wring their hands again about interest rates, the Fed, etc.  Stuff nobody can do anything about.  And maybe it doesn’t matter that much.

When to Buy or Sell

In over 30 years and hundreds of transactions, here’s what I’ve learned:  almost nobody buys or sells just because interest rates are a certain way.  Buyers will buy and Sellers will sell regardless of where rates may be.  That’s because the financial benefits of home ownership still outweigh the (temporary) costs of higher rates, and the real reasons people move (changes in family, job, age, etc.) don’t usually allow a buyer to wait until interest rates are perfect.  You can always refinance.

Bottom line:  the right time is whenever you need to do it.  

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December Market Trends

Denver market shows signs of slowing, but only slightly:

Winston Downs market

Keep in mind that in an overheated market, a “slowdown” might just make it a good market (for Sellers).

You can calculate an “Absorption Rate” by dividing the Active Inventory (7,530) by the monthly sales (3,732) = 2 months.  Friends, that is still a really good absorption rate (3-6 months is “normal” . . . ).  

Average and Median prices haven’t changed that much, and it could just reflect where the activity is in the marketplace, e.g., fewer high-end properties were sold.  

That increase in Avg Days on Market (6.9%) is only 2 days . . . so no big deal.

Bottom line:  still a Seller’s market; When pricing a home for sale, scrutinize the comps and make honest adjustments for condition and location.  React quickly (30 days) if you decide it’s overpriced.

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The Benefits of Home Staging

Property staging is “intelligent merchandising.”  This is the process of analyzing the property, maximizing the “equity” and minimizing the excuses a buyer may use to discount or eliminate the property from their A-list.  It’s not decorating, but rather presenting the home in such a way that emphasizes and reveals the benefits (equities) of the property without distractions.

Over 96% of Brokers say that buyers are affected by home staging

staging, Winston Downs

Bedroom before and after staging

Staged properties are twice as likely to receive full price or more

kitchen, staging, winston downs

Kitchen before and after staging

Staged properties sell 76% faster 

living room, staging, winston downs

Living room before and after staging

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Selling your Home: step-by-step

Selling your Home: step-by-step

Some things change fast in real estate: markets go up and down, contract language is updated, mistakes and lawsuits give rise to new regulations and rulings.   But other things remain the same, year after year.  Here are the things our Colorado Department of Real Estate (DORA) wants you to know about the process of selling your home:

Determine goals or outcome: Once the decision to sell has been made, a number of other questions come to mind. What is a fair price under the current market conditions? What are the current market conditions? How can the property be marketed most effectively? How long will the process take and how should I proceed with future plans? Who will be able to help with contract and closing requirements? Some sellers have the experience and expertise to answer these questions, many others would prefer professional assistance from a real estate broker and/or an attorney.

Interview and select a broker: The process for selecting a broker is described in the section titled “How to Select a Real Estate Broker“. As a seller, pricing and marketing issues are very important. Everyone wants to make sure they get the best possible price and terms. Proper preparation will assist you in reaching that goal.

Competitive Market Analysis: The brokers that you interview will want to take a careful look at your property in order to gather information to help them estimate its value. This estimate is not an appraisal, but a competitive market analysis. This is a tool that will allow you to compare your property with similar properties recently sold and currently on the market.

Marketing Strategy: Newspapers, yard signs, open houses, internet, multiple listings service? How should your property be marketed? What kinds of advertising really pay off? What works for sellers in my price range? A broker who knows your area will be able to help you devise a marketing plan based on previous successes.

The Listing Agreement: The listing agreement is the written contract whereby a property owner hires a real estate broker to market real property and provide services. A listing contract describes the property ( address and legal description), the listing price and the terms that are acceptable to the seller. The listing also outlines the compensation that the broker is to receive. A listing may specify a percentage of the selling price, a flat fee or any other negotiated agreement mutually acceptable to the parties (the seller and the broker are the parties to the listing contract) as compensation to the real estate broker. Colorado brokers are required to use listing contracts approved by the Colorado Real Estate Commission.

Preparing for a Showing: Your broker can give you good advice about how to prepare your property for showing. Common sense applies, but a trained third party observer can help you to make the best possible first impression on prospective purchasers. A thorough clean-up, a little fresh paint or minor repairs can help show your property in a favorable light.

Counteroffers: An offer to purchase made by a prospective buyer has no limits on what price or terms it may contain. An offer that mirrors the listing’s asking price and terms may be common under certain market conditions, however, from a purchaser’s point of view, it may represent a minor issue in a search for an exceptional value. A licensed real estate broker is required to submit all offers regardless of it’s terms. The seller always has the option of accepting or rejecting an offer that does not meet his or her requirements. If the terms do not meet with the sellers approval, a counter offer may be utilized as an attempt at compromise rather than dismissing what might be a qualified prospective purchaser.

A Commission approved “Counter Proposal” form is used to modify the terms of an offer to purchase. Once a counter offer is made, the terms of the original offer have been rejected and the seller proposes new terms. The original purchaser then has the option of rejecting or accepting the new terms.

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The Appraisal: 10 things your broker should do

The Appraisal:  10 things your broker should do

Appraisals are sometimes a source of confusion for both Buyers and Sellers, but usually for different reasons.

Review:  an appraisal is an opinion of value prepared by an authorized person.  In Colorado, Appraisers are licensed and regulated by the State. There are different levels of licensure, depending on the qualifications of the Appraiser.

Buyers sometimes think that the appraisal will “protect” them from overpaying.  There is a clause in the contract, after all, that says in effect: “if the appraisal doesn’t come in at contract price, you don’t have to buy the house.”  While there may be an element of truth in that kind of protection (today, anyway), you should stop thinking that.  If you need a reason, please Google “the role of appraisals and appraisers in the Global Financial Collapse of 2006-2008” or something similar.  There was nothing protective of Buyers for a long time leading up to the disaster, and you’ll be better off being a little more skeptical.

Sellers sometimes think that the Broker’s price opinion was an appraisal, or that having multiple offers (or even one offer) is some kind of assurance that the appraisal will come back at contract price.  Actually, there is some truth in the latter – competing offers should have a positive effect on value – but it’s not a given.

Why Appraisals are done.  In residential real estate, they are done to protect the lender’s interest in the property (the mortgage).  To learn more about what can go wrong I this scenario, Google  “the role of appraisals and appraisers in the Global Financial Collapse of 2006-2008”. The appraisal is ordered by the lender and paid for by the Buyer.

What can you do to make sure the appraisal goes the best way possible?  Answer: treat the appraisal just like you would a “showing:”  home is spotless, lights on, curtains open, staging in place (if applicable), etc.

Beyond that, there are several things you should expect your agent to do. The following list is advice from an appraiser to your broker; it’s adapted from “10 Things to Guarantee a Perfect Appraisal”, by Kerry Dunn, founder/chief appraiser at Dunn Appraisals,

1)   Show up

Having you, the realtor, at the appraisal really helps everything run better for the appraiser.

2)   Call/Email

If you can’t show up, please make a phone call or send an email of introduction to the appraiser.

3)   Pricing

Show the appraiser the documentation that you were relying on in pricing the property.

4)   Contract

Email or hardcopy contracts are always appreciated as appraisers don’t always get them from the lender. This will ensure that the appraiser has the most recent copy/latest amend-extend of the contract.

5)   Hope for the best, plan for the worst

As with realtors, appraisers come with varied levels of experience. Keep in mind that even the most experienced of appraisers may not be intimate with the market nuances of your property or neighborhood. Educate them with what you know, in 60 seconds or less. If it takes longer than that, put it in writing and give it to the appraiser.

6)   Comps

Don’t assume that the appraiser will identify and consider the same sales/listings as you did. The appraiser may, or may not, consider the same properties in the appraisal, but at least you have disclosed them.

7)   Detail sheet

Give the appraiser a list of all updates and upgrades to the property.

8)   Sketch

If you have a sketch, please share it! Appraisers appreciate confirmation of field measurements.

9)   Just the facts

Share what you need to and let the appraiser do his/her thing. Most appraisers have a rigid property inspection process that needs to be done in silence. There is a LOT of information that needs to be absorbed in a relatively short time span. It’s best to have a conversation at the end of the inspection, not in the middle of it.

 10)  Professionalism

Expect it. Lenders expect their appraisers to look and act like professionals. If they are not, let the lender know about it.

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