Ready to Make Your Move?January Quick Stats
Denver Metro Single Family Housing Stats:
Active Listings: 5834
- Down 30% from Jan. ‘12
Under Contract: 3,535
- Up 24% from Jan. ‘12
Sold: 2,343
- Up 17% from Jan. ‘12
Average Price: $301,827
- Up 11% from Jan. ‘12
Average Days on Market: 80
- Down 22% from Jan. ‘12
Denver Metro Condo Housing Stats:
Active Listings: 1,260
- Down 40% from Jan. ‘12
Under Contract: 896
- Up 38% from Jan. ‘12
Sold: 610
- Up 28 % from Jan. ‘12
Average Price: $170,769
- Up 17% from Jan. ‘12
Average Days on Market: 70
- Down 35% from Jan. ‘12
Real Estate News
What a difference a year makes! Just 12 months ago our real estate market had started its recovery but was moving forward at a snail’s pace. Inventory was down from its peak but no one was certain whether the recovery would fully take hold or the market would remain flat for a long period of time.
Fast forward to today and everything has changed. We are entering our 11th straight month of record-low inventory (homes for sale) and the market is surging upward in a fashion we haven’t seen in metro Denver for many years.
I’m frequently asked where the market is headed and when we will get back to some kind of equilibrium. The truth is it’s extremely difficult to predict the future but here’s what I do know. Right now we are experiencing the strongest seller’s market since at least the high points of the 1990’s, and perhaps of all time. The reason is simple: we have much more demand for homes (buyers) than we have supply of homes (sellers). What’s fascinating to watch is the dynamic build on itself. It looks something like this:
1. Buyers make offers on homes and continue to lose out to higher offers.
2. Buyers get increasingly frustrated and begin to get more aggressive with their offers.
3. The momentum builds on itself until we see what is occurring today, with multiple offers on a property the norm rather than the exception.
4. The multiple offer dynamic almost always bids prices higher than the original asking price.
5. The buyers that lost the bid learn from the experience and become more aggressive on their next offer.
6. Then back to Step 1, until the buyer bids high enough on a property to finally get an offer accepted.
The result of course is the tremendously strong seller’s market we are experiencing today. And this seller’s market is going to last for a while, at least until we get back to some kind of balance in the market. I don’t see that happening for at least a year, perhaps several years.
In the meantime, if you’ve thought about selling your home, now might be a great time to find out what the market is like in your neighborhood and see what your home is worth. It’s almost certainly worth more than it was just a few years ago. Drop me a line and I’ll put together a professional Comparative Market Analysis (CMA) report for your home so you have the data to make the right decision.
Buyers
The theme of this Newsletter is the remarkable seller’s market we’re currently experiencing. So where does that leave you, the buyer? Actually, it leaves you in a pretty good position if you understand what you need to do as a buyer. If you react to the market appropriately and follow a few simple rules you’ll be able to buy the house of your dreams at the low interest rates that still exist today. And the great news is that since the seller’s market is driving prices higher, once you buy your home you stand a great chance of building equity with home appreciation.
Here’s how to be a great buyer in today’s environment:
1. Understand the real estate market. I can help you understand where the market is and how you should respond to it. It is critical that you understand the data in order to make appropriate offers.
2. Write clean offers. There are infinite nuances in the Colorado Contract to Buy. The better you understand what to put into a contract and what to leave out the more likely you are to get your offer accepted.
3. Get a great prequalification letter from your lender. When a seller gets a number of offers, one of the differentiators will be who looks most qualified to purchase the property. Working with a reputable lender and having a rock solid prequal letter will help your chances a lot.
These are just a few of the ways I work with my buyers to help them get their offers accepted. Give me a call and I’ll be happy to teach you more about how to be a great buyer.
Sellers
Homeowners today understand what a strong seller’s market it is and are taking advantage of the market. But when they sell their home they need to move somewhere else and their logical question is ‘won’t I then experience the market in reverse as a buyer?’. The answer is usually yes, but there’s one big caveat most sellers don’t take into consideration – today’s extremely low interest rates. As a rule, a .25% decrease in the interest rate increases buying power by about $10,000. This means a 1% decrease in the interest rate increases buying power by $40,000 and a 2% decrease increases buying power by $80,000! Many of my sellers bought their homes years ago when rates were much higher. If they have an existing 5.5% interest rate on the home they’re selling, that means they could sell their home and buy another home that costs $60,000 more and have about the same monthly payment! As incredible as this sounds it’s true and we have clients doing exactly this. Feel free to give me a call so I can walk through this with you and see how you can take advantage of the low interest rates.
Investors
A lot of investors think that investing in rental properties only works in low-end neighborhoods with beat-up houses and scary tenants. Nothing could be further from the truth! Your Castle has done a great deal of research lately and found that buying and holding properties in quality locations like The Spire can yield tremendous returns down the road. Using very realistic numbers, a two bedroom condo in The Spire has a CAP Rate of 6.1%. An investor in a combined marginal tax bracket of 40% can yield an average annual return of 16%. Try making that in your savings account! As long as interest rates stay absurdly low (which cannot last forever), high quality buildings will generate enough rent to cover most/all of their direct costs. You can get twice the return at a quality location like The Spire or other similar high-end residence than you can with the stock market. Your Castle is going to begin a series of classes to describe the opportunities and walk through the numbers so let me know if you’d like to learn more.
Mortgage
If you have been watching the news lately I’m sure you have seen that the stock market is hitting record highs. The problem is this tends to push mortgage interest rates higher. The rate for a 30-year fixed-rate loan has increased each week for seven of the last eight weeks. Gone are the days of the 3.5% fixed-rate, but 3.875% is still available and that is still VERY low! However if the stock market and the economy continue to improve we may see rates go back above 4%.
As we discussed earlier, for the average homeowner an increase of .25% in interest rate can equate to a loss of as much as $10,000 in buying power. For example if you qualified for a $200K loan at a rate of 3.75% and then your rate increases to 4.0% you may now only qualify for a $190K loan.
What does this mean for you? It is still a great time to buy but we may see increased rates in the future. And increased rates mean decreased buying power so you may not be able to buy as much house in the future as you can get today.
Let me know if it’s time for us to review your housing plan and I’ll be happy to answer any questions.
Title
This article addresses one of the most common, and least understood, closing snags – the absent party. With preplanning an absent party is no big deal. Without preplanning and proper documentation, the absence will delay the closing and could cost you the deal.
THE POWER OF ATTORNEY.
Most people have heard about Powers of Attorney (POA). This document allows an individual, referred to as the principal, to give someone else, their attorney-in-fact or agent, the power to act on the principal’s behalf. It’s pretty simple really. The principal signs the POA in advance and then the agent signs all the closing documents on behalf of the principal. It’s the details that can get you.
CAN THE PRINCIPAL GRANT POWER BY POA?
POAs work for individuals that would sign in their individual capacity. POAs should not be used by a company officer or trustee of a trust to nominate someone to act on behalf of the company or trust in that person’s fiduciary capacity. So, if your LLC is buying the property and you, as the Manger, can’t attend the closing, you cannot give someone else your corporate powers to sign on your behalf with a power of attorney. The same holds true if you’re a trustee of a trust, general partner to a partnership, or personal representative of an estate. Since you would be acting in a fiduciary capacity to the entity, you cannot delegate those fiduciary responsibilities by POA. Instead, you need to use a corporate resolution or similar document whereby the entity nominates someone to act on its behalf in an official capacity.
The principal must also be competent. I’ve had occasions where someone wants to use a POA for the seller because the seller can’t attend the closing because the seller is in a nursing home – being treated for dementia. The problem is that the seller did not sign the POA BEFORE the illness. If the principal is not competent to sign the closing documents s/he is not competent to sign a POA. I’ve actually encountered three separate occasions where an agent wanted to use the POA after the principal died. They argue that the person signed before they died so it must be ok. Before responding to this argument I first imagine the alternative – that the person signed AFTER they were dead — and respond (to myself only of course) that if they could sign after death we wouldn’t even be dealing with the question since the deceased could just attend the closing. Then I respond, “if you’re dead, you don’t have any power left, therefore, your agent doesn’t. “ If the person is dead, the personal representative of the estate will have to sell the property.
DOES THE POA AUTHORIZE THE NECESSARY ACTION?
One must also know what powers are being conveyed by a POA because POAs come in a variety of forms and give different powers to the agent. Some allow the agent to make medical decisions, some financial decisions, some both. POAs are often property specific as well, allowing the agent to sign documents only for the closing on a specific property. The agent’s authority under some POAs (durable) continue even though the principal becomes mentally incompetent, while others automatically terminate upon disability. If your POA form does not state that the agent can buy or sell real property, it’s not going to work at a closing.
HAS THE POA BEEN REVOKED OR TERMINATED?
Some POAs automatically terminate when the specific purpose is concluded, or upon the happening of some event or date. If your POA is over 30 days old most title companies will require that the agent sign an affidavit that the POA is still in force. The agent will affirm that s/he has no knowledge of the revocation or termination of the POA by death, disability, or incompetence of the principal
YOU NEED AN ORIGINAL. When a POA is used by an agent to convey or encumber property the title company will need the original signed and notarized document so that it can be recorded with the conveyance deed or deed of trust. Make sure you don’t show up at closing with just a photocopy.
YOU NEED LENDER APPROVAL. If the transaction involves a POA for the borrower the lender will want to approve the form. In fact, sometimes the lender won’t even agree to have the borrower sign via POA. Likewise, your lender may dictate a particular manner in which the agent must sign. Make sure to get the POA to the lender well in advance.
BE CAREFUL! POAs can pose serious pitfalls if not used correctly. If you’re a buyer, and you have POA from the seller you obviously have conflicting interests that may give your seller reason to challenge your authority at a later date. Don’t use a POA unless absolutely necessary, and always have a third party, or party aligned with the principal, act as the agent. Expect the title company to want to contact the principal to confirm that the principal is aware of the transaction. There are certain transactions, like short sales, where the title company may refuse to accept a POA on behalf of the seller. Find this out when you order title, not when you’re at the closing table.