Here’s and example of the Green Valley Subdivision in Denver, Colorado

Notice that once current home values cross the value of what was paid on the 1st position loan, there is a spike in foreclosures.

Foreclosure rates in Green Valley Ranch

just to add some more perspective…

An example of a highly localized collapse of home prices common in many cities.

It’s something to think about. It’s not just a matter of a few bad loans, lost jobs and problems paying health expenses, for many neighborhoods that may be close to a similar tipping point. Because of the substantial amount of money invested into Green Valley Ranch, I would expect that they’ll recover from the collapse within 5 years as the foreclosure sales work through the system. For other neighborhoods in Denver, I’m a lot less optimistic.

The real estate market usually is subject to certain cyclical phenomena that vary by area. In Denver, winter usually brings a slowdown in the real estate market, marked by slightly lower prices and sales volume. Typically as early as January or February the seasonal market begins to turn around. Well..not this year.

This chart is a stochastic representation of real estate sales prices over the last couple years. I love technical analysis, almost to a fault. In evaluating stocks, charts like these help traders identify trends and compare the current market price to past prices to identify opportunities. To keep it simple, when the blue line crosses up through the red line, this marks the best time to buy in the market. When the blue line crosses down through the red line that’s when you should sell. When prices go one way when the stochastic suggests another, that’s when there might be a trend reversal coming.

Imagine how many REALTOR friends you would have if you bought and sold that often. Thankfully, this model is usually only applied to stocks. A stock’s liquidity makes it possible for it to be bought and sold in shortened time spans. While it is a poor tool for evaluating the length of a trend and potential buying opportunities, it’s great at determining cycles and safer entry and exit points.

Here are a few things you might notice by examining your market in this way.
1. When is typically the best time of year to buy a home? If we look at the chart, it becomes obvious that the best time to buy a home would be between August and February. Of course, if you look at the actually sales stats, you would notice that August might just be the best month to buy a home during the year because not only is there a slight drop in pricing, there is a larger supply of homes to chose from. Deep down, I would never suggest that you rely on the time of year as the number one reason to buy or sell a home, but it always helps to know where you’re at in the cycle so you know what to expect.

2. How has the credit crunch affected home sales in Denver? From my observations, the availability of credit for lower income and even middle income buyers with lower credit scores has significantly slowed the market. Notice how the chart shows a longer, flatter curve all the way into April (2008) compared to previous years with the market bottoming between December and February. This means sellers can expect continued pressure on high home prices. It doesn’t mean things aren’t selling, it just means your going to need to work harder, show better and price lower than you used to.

3. How long will this last? Who really knows. I wouldn’t expect to see stability return next year at this time without significant improvements in the economy. (I here Microsoft wants more sun and is considering Denver…not really but that’s the instant boom I’m looking for.) Additionally, if REALTOR’s out there still think next year will be better, think again. Foreclosures are driving the market down by far out weighing the slowing local economy. Until lender owned inventory starts drying up, expect more of the incredible buying opportunities and poor selling prices. That being said, I’m keeping an eye on the price of ownership when compared to renting, the ratio of home prices to median income, the economy and inflation. There are encouraging signs and improving signs in many of these statistics.

If you saw one of my previous posts regarding the real estate bubble, you would know I don’t believe Denver is a true bubble candidate and thus has a shorter fall. I would expect that prices would continue to decline through Spring of 2009 finally bottoming during that Summer. I wouldn’t expect an immediate recovery either. Prices will likely stabilize before racing back up. Denver homes will start to look pretty affordable by spring of 2010. To arrive at that, you have to make a few leaps of faith regarding inflation, demand and foreclosures peaking this summer. But I’m sure I’m still more accurate than NAR’s method.
Sometimes though, an opportunity can come along that would likely never come again. Housing is very inconsistent and resists almost every opportunity to have an absolute value price. Most great opportunities will appear only for a couple of days before a savvy waiting investor would pounce. At this moment there are hundreds of homes in Denver that didn’t last a week on the market before being snatched up. If it’s a good deal, it’s a good deal. Who cares if you could of saved $5000 here or there when you get what you want and it has a great long term outlook either for you and your family, your pocket book or both?

Not to mention, the smart money loves these down turns. They need them to get into positions they couldn’t normally get into in strong upswings.

A long bottom can represent a real opportunity for some people in some areas. Of course, in most instances, we don’t usually refer to ourselves as the smart money, though we all wish it to be true.

A study released on October 31,2007 by S&P Case-Shiller shows Denver leading the country in price appreciation.  While the numbers are not staggering, Denver’s subtle growth marks a stark contrast from the drastic price drops of other cities across the United States.

  The study measures changes in price of a single home that is sold twice over a period of time.  The Case/Shiller method is considered to be one of the most accurate ways to measure valuation changes over time.

 Most of Denver’s price growth actually happened prior to 2000 while Denver’s economy was growing hand over fist.  Denver’s growth since 2000 has lagged behind other major cities that have garnered national attention as speculative buying and building pushed home prices to new highs.   When Denver’s economy suffered from the tech crash in 2001, many cities with diversified economies rolled on.  Cities across the country were reaching for new highs as Denver was finding it’s foothold. 

    Denver’s home values have not extended significantly past what the local populations can afford and are willing to pay.  That is why you haven’t seen the drastic price drops.  Are the prices high?  Could be.  The suburbs have shown some slowing becuase of competition from new construction.  Some parts of the cities didn’t have any justifiable reason for a growth in price since there were no improvements or changes in the areas.  Much of Denver has gone through a reniacance of sorts.  Small areas of commercial interest have been revamped to create value in the the surrounding neighborhoods.   The areas that haven’t seen this sort of investment and increased interest have faltered now that the going has gotten tough.  As a whole and without seeing a real reason related to the local economy, I don’t see any reason that Denver won’t at the very least keep pace with inflation. 

  In many other cities, home values have extended beyond what the local economies can support.  When that happens, the market slows down until the local economy can support the growth.   Without a growing economy and investments in the area, there is simply no good reason to see growth beyond that of inflation. 

  In the City of Denver there have been lots of changes.    Lots of investments in local businesses and a strengthening economy equate to a stronger demand for housing.  Just because a few home owners got in over their heads with loans they probably shouldn’t of got, should the rest of Denver residents lump themselves in with what’s being said about real estate from the rest of the country?  I don’t believe so. 

  It is far too early to tell how much Denver will continue to be affected by the continued negative media coverage but it is apparent that problems that are facing the rest of the country are not the same as the problems facing Denver.    It’s hard to believe that people in Miami, Los Angeles or Las Vegas could even think that their growth could be sustainable.

    Thus the old adage, “All real estate is local.” 

Denver Metrolist is reporting good news for buyers and sellers alike. While days on market have gone up significantly from last year, 14% over last year to 117 days, so did ’solds’. Sold listings for January were up almost 25% since this time last year. (statistics from Denver Metrolist for the month of January 2007) Good news for buyers? Well, prices were down a touch as well compared to last year at this time.

I like to think that activity in January is a harbinger of what the first half of the year will be like. It’s been a busy couple of weeks for me. I’d imagine that many agents around Denver are breathing a sigh of relief if the same thing is happening to them. It’s almost as if the market was artificially supressed by poor media coverage. I haven’t heard anything horribly bad in weeks.

I’m not saying that all is warm and fuzzy. January’s DSNews (Default Servicing magazine) reports that Colorado’s foreclosure rate is 2.7 times the national average. Look out Douglas and Weld, you have a new contender for top foreclosure county. Adams County now tops the list with 1 foreclosure for every 132 households. But the truth is, this is actually an improvement from where it’s been.

My Real Estate Market predictions:

It doesn’t take a rocket scientist to realize that the job market and commercial office markets are healthier than they’ve been in years. Real estate will always be based on what’s going on locally. In particular, the job market has more to do with how the real estate market will do next year than interest rates will ever have. More jobs will mean fewer defaults on loans. And higher incomes mean higher home values. If buyers can afford to buy a limited supply of quality homes in desirable areas, prices will go up, and vice versa. So if there are jobs in Denver, I’d imagine home prices will remain stable or even show modest growth. Look for areas like Sunnyside, Berkeley, Bonnie Brae, DU, Cherry Creek, Cherry Hills Village, Greenwood Village, Englewood and Washington Park to see continued growth (1-3% this year), while areas like Highlands Ranch, Green Valley Ranch (Denver), Park Hill (Denver), Northglenn, Thornton and Southwest Denver will show some declines as high inventory and foreclosures put pressure on sellers to drop prices (2-5%).

Technorati Tags: Denver, Real, Estate, Statistics, Foreclosures,

Steve’s seems to be trying to get his fingers on the pulse of real estate but can’t seem to get past the waiting room. I spoke with Steve on the phone after he wrote an article in the December issue of Money Magazine, “Best Ideas for 2007″. I had disagreed with him on many of the assertions he had made regarding strategies buyers could use to get a better deal. To be fair, I agreed strongly with his suggestions for sellers. In our conversation, he admitted that he ‘doesn’t have access to the same information that agents have’. Thus he has to “rely on other people” in order to write these real estate articles. He’s essentially trying to analyze data from hundreds of markets and collate that into advice that could be applicable nationwide.  He’s not an expert in the sense of personal experience but rather is forced to rely on so-called experts from across the country to give him accurate information regarding the stories he researches in order to make the valuable conclusions. I’m honored that I can fall into that category. Unfortunately, I disagree with some of the advice in the latest article. It seems the article plays more to what buyers would want to believe rather than the truth about what will help get you a better deal.  But then again,  who knows what agents across the country tell him.  This is how it works in Denver and what I disagreed with…

(If your not sure what commissions are and how they work, check the end of this post)

 Why would offering more money to a buyers agent work? Because brokers want to make a living and will be more likely to show your place in among others of the same type. This is often true in the case in newer condos or builder-owned homes where there is often a lot of competition. If you have ten other condos in your building that are essentially the same home at the same price, and then there are lots of other condos in other buildings, most agents want to narrow down what building their client wants before showing them everything that is available in one building. There are literally hundreds of condos that are similar. Do you want to go view all of them or would you like someone to help narrow it down? Most people would like some help here. Well, if I have to pick which one to show first, and they appear all the same, why wouldn’t I pick the one that pays me better, especially if they’re are all priced the same? That’s just good business. 

Unfortunately for sellers, this doesn’t seem to bring them a higher price, it just gets you more showings and helps to sell your home faster. From all the home sales I analyzed to prepare my information for Steve, I noticed that of the homes that had higher commissions sold slightly faster than homes that didn’t.  It’s not obvious when looking at homes offering co-ops slightly higher than the average because often that money is being offered to get brokers to overlook the obvious problems with the home and bring someone by.  While it might not have been as clear in the ’slightly more’ group that higher commissions bring faster sales, it definately becomes clear in the ’slightly less’ group.  When you offer less than the average commission, there is a marked difference in time on market.

I took a look at this and noticed that time on market goes up immediately when offering even slightly less than the average co-op.  Days on market increased by 12% when agents offered less than the average co-op.  This can affect the sale price since a long time on the market is viewed poorly.  

When should you offer less than the average co-op?  I did find situations where offering a below average commission didn’t hurt your time on market.  It was usually when the properties perceived value was easy to see.  Low priced homes in high interest areas, and other properties that were obviously priced low in order to bring a quick sale.  The seller and listing agent knew that the number of showings would not be necessary since the price & value of the property would sell it quickly.  

When should you offer a higher than average co-op?

1. Too much competition – The home has a lot of competition of equal value. Set your home apart somehow. Preferably with some upgrades to the home. If you can’t do that, attempt to influence the people who set up the showings.
2. Complications – The process of buying the home will be more complicated than a normal purchase. Typical when dealing with banks and corporations.
3. New construction – A bit of both of the above. Some builders have taken to offering ridiculous commissions to buyer’s agents. Personally, new homes sell themselves because they’re new. Unfortunately, new homes are often not worth the asking price. Any agent that isn’t pointing out this truth is not working in his client’s best interest. Not only does he not deserve his commission, he doesn’t deserve to have a real estate license.

Remember though, regardless of what you offer the buyer’s agent, in most cases it won’t affect the price you get for your home. If you overprice your home, you won’t sell it.  Agents don’t sell homes, the home sells itself. If a buyer walks in and doesn’t like it, then it doesn’t sell regardless of what the buyer’s agent might say.  Agents are there for pricing, marketing, negotiations and coordination.  Sales skills are in there somewhere but you should know that no amount of sales skill will manipulate a ‘well educated’ buyer into buying an overpriced property.   

For this reason, I’ve found, their is no reason to offer a higher than average commission if your home is priced appropriately. If a home isn’t worth the price you’re asking, no amount of bribery will help you out. You might get showings but it still isn’t going to sell. Here’s the only times you should consider offering a slightly higher co-op to set your home apart to the buyer’s agent.

Should buyers expect that their agents should give up some of their commission? That’s between you and your agent. In most cases, the amount your agent (the buyer’s agent) is getting paid has been pre-negotiated between the seller and the listing agent. It is independent of your offer in the sense it doesn’t affect the net to seller and thus doesn’t improve the price you get the house at.  On the other hand,  their are situations where you have done most of the agents work and can rightly feel he didn’t earn it.  Whatever the case, if you want to take the money from your buyer’s agent, remember for that to be legal, it has to happen at the closing and show up on the HUD-1. The lender needs to know.

Lenders have limits with how much the buyer can walk from the table with. Most lenders won’t let the seller pay 3% of closing costs and your prepaids in addition to your broker giving you a kick-back from his commission. There are limits for both agent’s commissions and seller concessions that vary for each lender. When it comes to what the seller can walk away with, that depends on the appraisal. All the lender really knows is you’re willing to attempt to pay back what you put on the contract. It’s not the seller’s money, it’s not the buyer’s money (yet), it’s the lender’s money. To claim otherwise is an over simplification of the truth. There can be no money if there is no house. The house has value and thus a trade has to take place. You could argue this “chicken and egg” causality scenario all day long without being any closer to an agreement.

My advice to buyers:

1. Understand how your agent is paid – Negotiating your agent down does not always improve your bottom line or the value of your offer to the seller. If your offer can be improved by decreasing how much your agent makes then this should be discussed. In most cases, this involves more than your agent, it also involves the other agent and the seller reaching a mutual agreement.
2. Agree on how your agent will be paid and get it in writing. Agree on a maximum they can make on the purchase (expect to have to agree on a minimum as well) or you could agree on a flat fee.
3. Discuss with your agent how he will handle any bonuses offered. He should disclose if there is a bonus, especially if it will affect the terms of the offer.
4. Never go directly to the listing agent. I’ve said it before and I’ll say it again. You probably are going to overpay. Most homes are overpriced by as much as 20%.  Who cares if you get the home for 10% less than the list price by negotiating down the seller and then the sellers agent’s commission only to find out you still overpaid? I’m sure you’ve seen the murder suspects try to represent themselves instead of having their own attorney. I’m sure you’ve also heard of people trying to negotiate their own divorce. I’m sure you know how successful these methods are.
5. Do more of the work – There are many tools for buyers to help them find a home for themselves. While its not efficient using sites like Realtor.com or REColorado to find a home, it is possible. Many Agents including myself offer tools to help you as well as a discount to clients that do much of the work themselves.  While these tools may help you do more work for yourself, they also cost money. The agents somewhere along the line will want to be compensated.  If you do find a home yourself, it is possible to still have representation and save money. Call a buyer’s agent and tell them the situation; most would be happy to assist you in exchange for actually working with a real buyer.  Most would give you a significant refund on the price of their services. (Keep in mind 1-3 on this list and my comments on lenders and concessions, they all play a part.)
6. Don’t be that guy – Trying to work your agent over for every last dime can be counter-productive. Stick to what you agreed upon. You’ll get what you pay for. Make sure you understand what to expect from your agent. Since different relationships exist as do different levels of service, get it in writing before moving forward.
7. Educate yourself – Umm..what’s a commission and why talk about this?  Usually, the seller has negotiated a commission with the listing agent that he earns if he sells the home.  The listing agent turns around and offers to split this commission with a buyer’s agent if they find a buyer.  This widens the net quite a bit and has given rise to the popular MLS systems around the country.  Thus the co-op has come to mean what is being offered to other agents to bring a buyer.  80% of homes listed on the MLS in Denver sell with the buyer having their own agent.  There are no set commissions but there are definately averages that have become acceptable compensation for the work and risk that goes into the business.  These accepted ’standards’ that used to be quite stable and in line with the cost of living have varied greatly in the recent past as more agents and home buyers have taken advantage of the internet to make life easier.  In addition, the housing boom has increased the value of a percentage based commission faster than the cost of living standards than most career choices.  Because of these factors, many different real estate companies are ahead of the learning curve when it comes to the rest of the National Association of Realtors and have been able to offer savings to their clients both when buying and selling a home.

Other Posts about home buying and commission:

• Money Magazine – Bad Advice for buyers
• How to sell your home quickly for top dollar
• Buying a home? Think before making your first offer
• Most Denver Homes are Over Priced

Technorati Tags: Denver, Real_Estate, Stephen_Gandel, Money, Commissions, Realtors, Buying, Selling, Home

Most homes are overpriced. Through good and bad, sellers usually overprice their homes. The average active list price for a single family home in Denver for 2006 was 20% higher than the average list price of the homes that sell. That’s why in a typical month between 5% and 10% of all listings on the market expire without selling.

Sellers need time to soften up. Most sellers don’t let their home go for much less than the asking price in Denver. A typical Denver home sells for 2% less than the list price.

In Denver, there is usually less than 1% in concessions. It takes a seller months until they’ll consider accepting a lower offer. Most times, the seller knows that, instead of accepting your offer 10% below his list price, he should turn it down and market the home at a lower price. Perhaps just 5% lower than where he’s at will get him action. After all, he already knows his house was better than the rest you looked at; that’s why you wrote an offer. All he needs to do then is figure out what homes you looked at and price his home to compete.

Buying a home? When you write an offer, you send the message to the homeowner their home was the best of what you looked at. It tells the seller that he is now close enough with his list price that he has created interest. At that point, he knows he’s close- why should he accept 10% lower than his asking price? To a buyer, days on market without a price change is usually the strongest indicator of just how much lower they’ll go. If they dropped the price yesterday they probably want to see that price change work for them more. If they haven’t changed the price in 6 months they might be more willing to deal…or they just might be stubborn.

Statistics don’t constitute a rule, just a guide of what’s typical. The “buyer’s market” that we’re in doesn’t automatically change the mentality that drives pricing for sellers. It just means there is less competition for homes, so prices may ebb down some or you might eke out a few more concessions. “Some” isn’t 10% in the course of a couple months. There are lots of reasons why you might see some price decline in a neighborhood. In the end, though, it always comes down to supply and demand. There’s a lot of reasons why sellers won’t sell their homes for less than their list price. Often they can’t; sometimes if they don’t get as much as they want, they won’t be able to get their next place. There are even more reasons why they won’t or can’t sell for less than they owe. Not everyone in this position ends up in foreclosure…they just don’t sell. Only the sellers that can afford to or have to drop their price will. Even then, there is no real motivation to accept an offer drastically lower.

Remember, homes usually sell for what they’re worth. Just because you think you’re getting a deal, doesn’t mean you really are. Do your homework before you write.

Other similar articles:

• How to sell your home quickly for top dollar – Dec 22, 2006
• Buying a home? Think before making your first offer. – Dec 19, 2006

Technorati Tags: Denver_Real_Estate, Statistics, Home_Sales, Sold,

If you’re looking for a serious answer, though, you want it based on fact. Buyers and sellers don’t care if you closed a deal this month, they just want to know the truth about when is the best time to buy and sell a home. I’ve been reviewing the year end statistics for 2006. I’m of course looking in order to give my clients a better understanding of what to expect next year but some things are jumping out at me. We see DOM reaching a new high in December for Denver as a whole. But let’s focus on the topic of market timing. First off, at what time of year do home sellers get the highest price?

These are the average home prices for Denver over the last 3 years. You’ll notice that home prices peak in June of each year. This summer strength continues for longer periods when the market is hot like it was in 2004. If you subtract the average days on market from this peak pricing you would arrive at March or April as being the best time to list your home for a top sale price.

This isn’t saying you couldn’t get an excellent price at a different time of year, but it does suggest there are more buyers during the spring and summer. It also depends a lot on interest rates. Low interest rates put more buyers in the market and put pressure on prices to rise.

What’s the worst time to sell and the best time to get the best price when buying?

First off, the common thought would be in December. The holidays tend to shift buyers’ focus. Money may be tight during the holidays, putting first time home buyers in a pinch. Many sellers looking to relocate can’t sell and thus can’t buy, decreasing the pool of buyers even further. This can be a great opportunity for a buyer to pick up a good deal. That is, if they can find something they like; typically inventory is depleted and picked through. I personally have an even better time of year for buyers. The stats suggest that you can pick up end of summer deals as sellers begin to lose their nerve going into fall and want to move on. We see price dips at the end of September and October in all of the past 3 years.

When buying you should base your decision off what time of year is going to work best for you. Averages can be deceiving. There is the likelihood that you could still get a great deal in the middle of summer; there is going to be more competition, though.

You should base your decision to sell off what is going to work best for you. If you have an above average home, you can usually expect above average results. It’s all about how you compare to your competition. There is going to a minor difference in price between selling in March and selling in October. Wait if you can, and sell now if you have to. The real thing to remember is the market improves from January to June at which point it begins to decline.

All information courtesy of Metrolist for the period Jan 1, 2004 to December 31, 2006. Prepared by Spencer Barron.com

Technorati Tags: Denver, Real_Estate, Statistics, Market, Timing