Joe Boylan

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Q1 2018 Market Report for Colorado Springs

Q1 2018 Market Report Highlights

Q1 is off and running at a furious pace. With inventory and days on market at historic lows, Buyers in the Colorado Springs market have to be quick to see homes and make decisions almost the same day. In this video, our agents took a look at some of the highlights of the market report and reflected back on the same market indicators both 1 year ago and 5 years ago. It is amazing to see how our area has grown in only 5 years.

Colorado Springs Market Reports

Springs Homes has been producing market reports for Colorado Springs since 2010. The benefit of reading through these reports is to gain an understanding of the current market to see trends and to be able to predict what is coming up in the future. Whether you are a home seller, or a home buyer, these market reports will give you an in depth understanding of the Colorado Springs market by area and price point which will give you an edge when heading toward your next sale or purchase of a home.

Visit the archive of our past market reports to take a stroll down memory lane, or download a copy of the current market report.

Buying a Home in a Seller's Market, Your Survival Guide

Buying a Home in a Seller’s Market, Your Survival Guide

The Colorado Springs Real Estate market has quickly shifted from a strong buyer’s market to a strong seller’s market. Home buyers had just gotten familiar with the jargon and practices of a buyer’s market, like short sales and foreclosures, when suddenly, the market changed.

Now a few short years later, buyers have a whole new set of jargon and practices to deal with. If you are considering purchasing a home in Colorado Springs, read on to learn everything you need to know about our new seller-friendly landscape. Consider this your survival guide in a seller’s market.

How to Be a Competitive Buyer

Buying a Home in a Seller's Market - Be A Competitive BuyerBefore we discuss some of the seller’s market tactics you need to understand, let’s talk about how to increase your chances of getting your offer accepted.

Pre-Approval

Back in the buyer’s market days, buyers had the option of being pre-qualified and/or pre-approved for a home loan before house hunting.

This was helpful when the buyers were ready to make an offer on a home. Pre-qualification, and especially pre-approval, strengthened offers. They indicated to the sellers that the buyers would most likely be able to secure the funding needed to close the deal. This made the sellers more comfortable accepting the offer.

But in today’s seller’s market, pre-approval is a minimum requirement (pre-qualification no longer carries much weight in getting your offer accepted). Before you even begin your home search, you should contact a lender to get pre-approved for a home loan.

Buying a Home in a Seller's Market - Cash offers

All-Cash Offers

In many instances, buyers are now competing with all-cash offers.

And if the deal falls through, the seller has to put the house back on the market and start from square one. So, all other factors being equal, sellers would prefer to work with a buyer who can pay cash so no one has to worry about obtaining financing.

If you’re competing with an all-cash offer, a personal letter to the seller could be useful. You could assure the sellers of your strong financial position and ability to secure financing. You could also express your plans for the house as a loving home. Many all-cash offers are made by real estate investors, who would flip or rent out the house. So you could sway a seller who has an emotional attachment to the house and wants the future owner to love and care for the home the way they have.

Tactics Employed in a Seller’s Market

Buying a Home in a Seller's Market - Deferred showings Now let’s discuss some of the tactics you’ll see sellers and their agents use under today’s market conditions.

Deferred Showings

Deferred showing is a tactic used to create a sense of urgency and demand for a particular property.

The tactic works like this:

The listing agent puts the home into the Multiple Listings Service (MLS) early in the week, ideally on a Monday morning. This timing brings the listing to the attention of all those buyers (and buyers’ agents) who are currently in the market for a home but didn’t find one over the weekend. The showing instructions for the property state that there will be no showings until the upcoming Saturday or Sunday at a particular time, usually 10 or 11.

The idea is to create a busy “Open House” environment with lots of potential buyers waiting to get in to see the property. The listing agent and home seller are hoping to generate and sense of urgency that will produce multiple offers and maybe even start a bidding war. This tactic is especially successful for the sellers in a seller’s market when many of those buyers have most likely lost out on previous homes because they were outbid.

There are a few additional details that make deferred showings even more effective.

First, it helps if the property is in a popular price range. This means the price should be close to the median sales price for the neighborhood. This ensures that many buyers will be interested because many buyers are looking in that price range.

Secondly, the location needs to be desirable. The property needs to be in an area that will appeal to many buyers.

An overpriced listing in an unpopular area isn’t a great candidate for deferred showings.

Deferred showing is a tactic used to create a sense of urgency and demand for a particular property.Click To Tweet

The Upside of Deferred Showings

Creating a potential bidding war isn’t the only upside of deferred showings for the sellers.

First, the schedule created by deferred showings is far more convenient for the sellers. Rather than working their schedules around multiple showings on multiple days for multiple buyers, the sellers can simply work around the Saturday/Sunday showings. They may even go away for the weekend and return to multiple offers.

Deferred showings also create an environment where the sellers feel in control. If they receive multiple offers, they can compare the offers and vet the buyers side-by-side to find the best offer. This is much easier on the sellers than receiving a single offer and deciding whether to accept, counter, or wait to see if a better offer comes in.

When a property is well-priced and well-staged in a hot seller’s market, buyers’ agents will often write a good offer with a short timeline for acceptance. This gives the sellers an appealing offer, but it also creates a sense of urgency for them to accept the offer before it expires.

The Downside of Deferred Showings

Buying a Home in a Seller's Market - Deferred showingsOne of the notable downsides of deferred showings is missing out on buyers because of simple scheduling conflicts.

Consider well-qualified, but out-of-area buyers, for example. It’s quite common for out-of-area buyers to schedule trips to Colorado Springs specifically to buy their new house. These relocation buyers (called “relo” for short) are often assisted with the move by their new local employer, so they are serious buyers and are able to secure financing. But if the deferred showing date doesn’t coincide with their buying trip, the seller could miss out on these well-qualified buyers.

Another significant downside of deferred showings is buyer’s remorse.

A bidding war environment creates buzz and excitement (especially for the winner!). But once the excitement wears off, buyer’s remorse usually sets in. Bidding wars pressure buyers to make hasty decisions and take advantage of the human impulse to win. This can leave the buyer with regret and maybe even a feeling of having been taken advantage of.

Unlike most bidding situations, sales of real estate aren’t final as soon as the bid is accepted. The escrow process typically takes 30-60 days, and offers buyers many opportunities to back out of the deal based on any of the many contingencies found in a real estate contract.

And if the buyer backs out, the seller is left at a serious disadvantage. And not only because they are back at square one in terms of finding a buyer. The real disadvantage is that the market will assume the buyer backed out due to a defect with the property.

After all, that’s the most common reason homes fall out of escrow: something is found during the home inspection which causes the buyer to walk away from the deal. So even if a buyer walks away because of buyer’s remorse or cold feet, the house will still be stigmatized. Once the buyer backs out, the house is categorized as Back on Market (BOM). And many of the homes on the BOM list are ignored by buyers and buyer’s agent because of the assumption that there was a problem with the inspection.

So this BOM category is bad for the sellers but could be a good opportunity for buyers. During a hot seller’s market, savvy buyers and their agents will ignore the deferred showings circus and will watch the BOM list instead. They know many of the BOM listings are simply the result of a bidding-war buyer getting cold feet, not a problem with the property. And they know they’ll have lower buyer competition for these properties because of that BOM stigma.

Highest and Best

The term “highest and best” has become very popular in the Colorado Springs Real Estate market. It’s the listing agents’ way of saying, “offers should be the top dollar you’re willing to pay with the most favorable terms you’re willing to offer the seller.” Then the listing agent will present these “highest and best” offers to the seller and help the seller choose the winner.

This has created a fair bit of controversy in the local market for a few reasons.

First of all, good Realtors pride themselves on correctly pricing listings. This includes pricing properties in a rapidly rising market. When you say highest and best as an agent the message being conveyed is that you have no idea what this home could sell for, so let’s just let the market dictate the maximum value.

On one hand that sounds like a decent idea, the problem with this approach is that it creates a feeding frenzy, you might end up with a great offer and terms that ultimately end up closing. You are more likely to end up with a deal falling out due to a case of “buyer’s remorse”.

A Realtor’s role is to give pricing advice and guide a contract through to closing. This type of pricing model alleviates the real estate professional from their responsibility of correctly pricing a home. If the deal goes sideways and the buyer develops remorse, the agents don’t have a firm pricing foundation to stand on.

In a strong seller’s market, good agents will advise their clients to present their best offer if they are serious about owning a particular home.

Highest and best also indicates that the listing agent may be uncooperative. They may be unwilling to work with buyers’ agents to find solutions which are fair to both parties (buyers and sellers) because they know they have the upper hand in a seller’s market. And remember, the offer and acceptance is only the first round of negotiations in a real estate deal. Another round may be necessary after inspections to address any issues with the property. Agents need to be willing to work together throughout the transaction to ensure that both parties are getting a fair deal.

We should note that the term “highest and best” may actually be somewhat useful in those few areas of the country where real estate has gotten out of control (Silicon Valley or Manhattan, for example). In those extreme markets, prices may be on the rise faster than buyers can keep track of fair market values. So offers for the same property can vary widely between buyers offering rates in line with last month’s sales and buyers anticipating next month’s prices.

This is simply not the case in our Colorado Springs market. Offers the sellers receive will all be similar (it’s rare to see an extreme outlier).Additionally, we have enough new construction in the region so that buyers can choose to build if they become too frustrated with the resale Market. Commute times are not as severe in Colorado Springs as they are in other big cities.

Highest and Best Survival Tips

The most important thing to remember in a highest and best scenario is the you need to keep your emotions in check. Don’t get so attached to a property that you take the attitude that you must have it at any cost.

Base your offer and terms on numbers and conditions you are comfortable with. If you are working with a good agent, they will advise you of what the property is actually worth. It’s ok to stretch a little but don’t set yourself up for remorse and regret. Remember, markets rise and fall, you just might have to wait a little while to get what you want.

If you lose out on a property as the result of a highest and best war, don’t give up. Both you and your agent should keep an eye on this home to see if it closes or more likely comes back on the market. Back on the market might mean there was an inspection or financing issue with the house. The more likely scenario is that the winning bidder got cold feet and decided to back out. This creates a great opportunity for you the buyer, to swoop back in and put it under contract, maybe for better terms.

“Coming Soon” Signs

“Coming Soon” signs are another tactic used by listing agents and sellers to create buzz around upcoming listings. This tactic requires the seller to authorize the listing agent to pre-market the home before actually listing it on the MLS.

Buying a Home in a Seller's Market - Coming Soon Sign

Here is the stance taken in by our local Pikes Peak Association of Realtors. This comment speaks to just how controversial this practice is:

The RSC Board of Directors, with legal counsel, has concluded the following with respect to this practice:

  • Per NAR, the PPMLS cannot make a rule concerning the posting of signs. Therefore, the PPMLS cannot prohibit a broker from posting an “Available Soon” sign.
  • PPMLS Rules require that all Exclusive Right to Sell listings be submitted within 72 hours of seller signature.
  • If RSC receives a written (or emailed) violation complaint that a property is listed, but is not in the PPMLS, then the RSC can request a copy of the listing agreement which would confirm whether or not there is an office exclusive. If RSC verifies that a listing is in force, and there is no “pink slip/office exclusive” then RSC will ensure that the listing is input into the PPMLS. (Note: currently there is no fine or sanction for not having put the listing in within the required 72 hours.)
  • If the broker has an office exclusive agreement, then the listing is not required to be input into the PPMLS computer system (although a copy of the listing agreement is required to be filed with RSC).
  • The RSC will not prohibit a listing broker from inserting additional terms in the contract such as withholding the listing from the PPMLS for a specified period of time.
  • The RSC will not prohibit the listing broker from submitting the listing to PPMLS, but then, with the Seller’s authorization, temporarily withdrawing the listing from the PPMLS.
  • If there is no listing agreement, but the seller has simply agreed to allow the broker to place a sign on the property, then the RSC has no jurisdiction in the matter, and no action will be taken.

The listing agent installs a sign with an accompanying rider that advertises “Coming Soon”. Seems innocent enough, right?

Well, the goal of this tactic isn’t only to build hype. It’s also to prey on anxious buyers looking to get the jump on the competition. Buyers who see the sign think, “I should contact the agent on that sign to see when the house will be on the market.” So they contact the agent on the sign directly, and that can lead to trouble.

You see, when buyers contact the agent on the sign directly, they are actually reaching out to a real estate professional that has an agency agreement with the home sellers. This means that until you enter into some type of agency agreement with that same Realtor, anything you say can and will be passed along to the sellers and used against you.

If you do end up deciding to buy that house and work with the listing agent you contacted from the sign, that agent will represent you as a “transaction-broker”. This means the agent facilitates the transfer of the property but doesn’t advocate for the buyer. It also means they receive a much higher commission.

In cases where the buyers and sellers each have their own agent, the real estate commission is split between the two agents. But if the agent working with the sellers (either as a seller’s agent or a transaction-broker) can close this deal as a transaction-broker for the buyer, they are the only agent involved, so they get to keep the full commission themselves.

What’s Wrong with Using a Transaction-Broker?

The problem with using a transaction-broker is that you miss out on representation. You won’t have a professional advocating for your interests. A transaction-broker must follow certain legal requirements regarding disclosures and communication, but they do not work on your behalf.
Many buyers think this arrangement is acceptable as long as the agent is also acting only as a transaction-broker (not a seller’s agent) for the sellers. That way the agent isn’t advocating for anyone, so it will be a fair transaction.

In theory, this sounds fine. But in practice, humans find it very difficult to be entirely impartial. Even if the agent doesn’t intend to favor one party over the other, they may do so subconsciously. This conflict of interest is the reason dual-agency (where the agent advocates for both the buyers and the sellers) has not been allowed in Colorado since 2003.

For a fair transaction in which each parties’ interests are represented, it’s best for buyers and sellers to each retain their own agents.

Protecting Yourself as a Buyer in a Seller’s Market

The best way to protect yourself and your interests as a buyer in a seller’s market is to engage the services of a buyer’s agent. Buyer’s agents are advocates, working on your behalf to get you a fair deal.

It just takes a few pages of paperwork to confirm that you wish to be represented by your buyer’s agent, then he or she can get to work for you. Their services include:

  • Offering professional guidance throughout the buying process
  • Negotiating on your behalf
  • Assisting with the required legal documents
  • Overseeing the transaction through to closing

And here’s the best part: their services won’t cost you anything. The seller traditionally pays the real estate commission, so it costs you nothing to add this important layer of protection.

And once you’ve engaged the services of a buyer’s agent, take advantage of their knowledge and experience. Heed their advice, and you won’t fall victim to these seller’s market tactics!

Here are some additional resources that support the ideas in this post:

Rental Property Depreciation

Rental Property Depreciation

Rental Property DepreciationWhen it comes to investments, real estate can offer some solid benefits. Property appreciation, tax breaks and in the case of rental property, recurring cash flow can turn your property into a money generating investment. You can take advantage of these benefits whether you use a Property Management company or self-manage your own rentals.

In many ways, the law seems to favor real estate investors and rewards those who make this type of investment with a number of opportunities for different tax breaks.

One tax break that many landlords benefit from is depreciation; which allows you to recover some of the cost of income-producing property through yearly tax deductions. You can do this by depreciating the building, and in some cases, the personal property inside by deducting some of the cost each year on your tax return.

Generally speaking, depreciation results in more money in a landlord’s pocket. Since the single largest expense that most landlords have is the cost of the rental property, being able to depreciate it allows you to claim a significant portion of that expense by spreading it out over the course of a number of years, thereby reducing the amount of tax that you owe.

If you’re currently a landlord or are thinking about buying an investment property, having a basic understanding of the deductions that you may be eligible for can help you to save significantly on your tax bill. In the case of depreciation, it can also help you to prepare for unexpected costs down the road, allowing you to manage your portfolio and structure your deals in a way that will benefit you the most.

With this in mind, let’s take a look at depreciation for rental property, and see how you can use this deduction to reduce your tax bill.

What Is Depreciation?

Depreciation, in a nutshell, is based on the concept that some assets are depreciating in value.
While real estate in most areas is an appreciating asset increasing in value, the truth is that the building itself along with some of the property inside the building, like appliances, are things that’ll wear out over time. As the years go by, property wears out, decays, or becomes otherwise unusable.

Depreciation is an annual tax deduction that landlords can take that reflects this cost.

With depreciation, landlords can depreciate the value of the building, land improvements, such as landscaping, as well as personal property items that are inside the building, but not physically part of it; for example, refrigerators, stoves, and carpet.

One thing that makes depreciation so valuable for landlords is the fact that you get to take it year after year. In the case of most rental properties, the cost of depreciation is spread out over the course of 27.5 years, making it a long-term benefit. Additionally, unlike many deductions, landlords don’t have to pay anything in order to claim depreciation, aside from the cost of the original asset, and owners are entitled to depreciation even if their property goes up in value over time, as is often the case.

Here’s a practical example of how depreciation works:

Example: Denise purchases a rental property with a depreciable value of $100,000. Because of this, she is entitled to a yearly depreciation deduction of $3,636 for the next 27.5 years (excluding the first and last year, when it will be somewhat less). The only thing Denise has to do to get these annual deductions is to keep the property as a rental, file a tax return, and do some simple bookkeeping. She doesn’t need to spend an additional penny on this property.

Rental Property Depreciation

Depreciation Recapture

Now, there’s a downside to depreciation that most people tend to overlook, that is, depreciation recapture.
Depreciation recapture is a small “Gotcha!” from your friends at the IRS, which requires you to pay 25% tax on any gain realized through depreciation.

So if you were to sell your rental property down the road, you’ll have to pay 25% tax on the total amount of depreciation deductions that you took over the years.

Of course, there are a few alternatives to this tax.

One alternative is using what’s known as a 1031 deferred exchange, or a “like-kind exchange”, which allows you to defer this payment. With an 1031 exchange, when you sell your property you can roll the depreciation into the next property that you purchase. The downside to this option, though, is that you’re simply deferring the tax. You’ll still have to pay recapture taxes when you sell the exchanged property in the future.

Another option is not selling the property at all, but instead keeping it as a rental and then passing it on to your heirs. When they inherit the property, they won’t have to pay your depreciation recapture taxes.

A third option is to sell the property at a loss, but of course, this is a far less popular option.

In most cases, the longer you wait before you sell, the less of an impact the depreciation recapture taxes will have. This is because you’ll have had many years to make use of the additional tax savings that accrued from using depreciation. Additionally, you may not be in the same tax bracket that you would have been in had you made the sale earlier on.

Keep in mind that there are a number of different ways that you can structure your investment properties and use tax deferral strategies to avoid depreciation recapture taxes. It’s a good idea to speak with an accountant to see what your options are and to find out how you can best take advantage of depreciation.

Depreciation Is Not Optional

At this point, you may be thinking, “Ok, I’ll just skip depreciation, and not claim it”.

Unfortunately, depreciation is not optional. You must take a depreciation deduction if you qualify for it. If you don’t, the IRS will still treat you as though you had. This means that if you sell your property, you’re still going to be taxed on depreciation deductions, even if you didn’t claim them.

If you have unclaimed depreciation currently, you can deduct the entire amount in one year. To do so, you’ll want to make what is known as an I.R.C. Section 481(a) adjustment and file IRS Form 3115 to request a change in accounting method. Generally, this type of change is granted automatically by the IRS, and you won’t need to file any amended tax returns. You may need to seek out an accountant, though, as it’s a confusing form.

What Can Be Depreciated?

First, there’s depreciation on the rental building itself. This usually accounts for the largest depreciation deduction that you can take.

With this deduction, the rental building itself (the structure) can be depreciated. The land that it’s sitting on, however, cannot. This makes sense when you think about it. While the house may be slowly wearing down with time, land doesn’t wear out or “depreciate” in the same way.

Secondly, personal property that’s a part of your rental business, can also be depreciated. This includes things like appliances or furniture in the house, as well as office or construction equipment, cars, and other vehicles that you own, and use for the rental properties.

Of course, only property that you own is able to be depreciated. You can’t depreciate property that you lease for your rental activity such as office space. Additionally, you aren’t able to depreciate property that’s solely for personal use. So no depreciation for your personal residence, and should you convert a rental property to a personal residence, you must stop taking the depreciation for the property. If a property serves as both a rental and for personal use, you may depreciate only part of its value; the percentage of the property used for rental purposes.

Finally, the amount of your depreciation is based on the cost of the property itself. The amount that you borrowed to purchase –i.e. the interest rate on the loan is irrelevant. You can, however, deduct interest on the mortgage, or for HELOCs that are used for the property.

How Does Depreciation Work?

Practically speaking, how do you go about claiming it on your tax return?

First, you must determine what’s known as your property basis, that is, how much the property’s worth for tax purposes.

Usually, your basis is the cost of the property, and any expenses of the sale such as real estate transfer taxes.

Land cannot be depreciated, so it must be deducted from the cost of the property.

Next, you must determine the depreciation period, or “recovery period” of the property or aspects in question, that is –how long the IRS says you must depreciate it for.

Real property placed into service after 1986 is depreciated under what’s known as the Modified Accelerated Cost Recovery System (MACRS). Under this system, the depreciation period for residential real property placed in service after 1986 is 27.5 years. Prior to 1987, different depreciation methods with different depreciation periods were in effect.

The periods are the same whether the property being depreciated is old or new. When you buy property, you start a new depreciation period beginning with year one, even if the prior owner previously depreciated the property as well. This makes no difference to you, though, your depreciation period starts when you purchase the property.

You then deduct a certain percentage of its basis each year during its recovery period.

Next, you’ll want to calculate your deduction amount. Your depreciation deduction is a set percentage of the basis of your property each year.

This percentage varies, depending on the depreciation method you use. All real property must be depreciated using the straight-line method. Under this method, you deduct an equal amount each year over the depreciation period, generally 27.5 years.

At the end of the day, depreciation can be a useful and often-necessary deduction that landlords can take. Just make sure you work with a good accountant, who can fill you in on depreciation, as well as depreciation recapture if you’re planning to sell the property down the road. This will allow you to structure your purchases in a way that will benefit you the most and will help to keep you from being hit with any unexpected taxes in the future.

To learn more about depreciation, be sure to check out the IRS Publication 946 (2017), How To Depreciate Property.

Here are some additional resources about Real Estate Tax Deductions and 1031 Exchanges:

Please Note: While this article contains information that we’ve learned from classes and from working with our clients over the years, please keep in mind that we are not tax professionals. This information is intended to inform and to guide only, and it is not meant to serve in place of tax advice from a licensed tax professional. These principles should only be applied in conjunction with a CPA. To learn more about depreciation as it applies to your own financial situation, please consult a tax professional.

firstimpression

Putting Your Home on the Market: Making a Great First Impression

Our Springs Homes agents work with a lot of Home Buyers and subsequently, show a lot of properties. This experience makes them an invaluable resource, especially when it comes to advising Home Sellers on how Buyers think, what they see, how they react and how you can make a great first impression when they tour your home for the first time. Especially when if you’re considering putting your home on the market.

We asked a couple of our agents to share something that Home Sellers often overlook or forget to take care of prior to allowing their home to be shown. In other words, what turns off potential Home Buyers during the critical first impression of the home?

Pet Evidence

Nicole Happel:
One detail Sellers often overlook is the importance of removing pet evidence before a showing. Colorado Springs is known for being a dog-friendly city, so most folks here appreciate fellow pet owners. But when those folks are buying a home they do NOT appreciate your dog beds covered in fur, dog slobber on your sliding glass door, claw scratches on your hardwood floors, toys and food bowls in the middle of the kitchen, and especially doodies in your yard (however small).

When a Buyer walks into a home that screams DOG they are pretty grossed out. And then they wonder how much cleaning will be needed in order to make the home sanitary and livable according to their standards.

It seems this culture of “accept our pets” transcends into all price ranges too. I’ve seen some high-end homes which reek of dirty dog. And Buyers are not only turned off by your home, but they begin to question me as to why I would even consider showing them this home. It’s embarrassing to walk into a “dog overload” situation having not seen it coming. And of course, sometimes this stuff isn’t obvious in the online pictures we see prior to showing.

I know it’s a hassle as Sellers, but dog owners have to stay on top of such things while selling. If you don’t, it just might cost you that one solid Buyer. Just sayin!

 

Don’t Slam the Door on a Sale

Jennifer Boylan:
This one seems really obvious and simple, but I’m constantly amazed when a Home Seller completely ignores the front door and entry to the home.

When I walk up to a house with a nasty door or entry with Home Buyers in tow, I say “I hope this isn’t foreshadowing”. A nasty entry and doorway puts the prospective Buyers on alert. It’s like from that point forward they’re looking for problems.

  • The solutions are really simple but require a little attention and time:
  • If the front door is chipped, peeling or faded, paint it.
  • If the doorbell is broken and/or has a hole thru the button, replace it.
  • Check to make sure all glass is clean
  • Repair any broken glass or shutters
  • Replace or repair torn or worn-out screens. Ace True Value Hardware stores here in Colorado Springs make this really easy.
  • Make sure the path to the door is clear; no dirt, trash, toys, newspapers or other obstacles.
  • In the wintertime, make sure the sidewalk and entry are shoveled and clear of snow and ice
  • Add some plants, even if they’re fake. The Buyers usually don’t notice if they are real or artificial and if they do, it still shows that you care.

If you make the entry to the property appealing, you’ve done your best to start out on the right foot. This is just a smart move regardless of what condition the real estate market is in.

 

You Never Get a Second Chance

Brooke Mitchell:

One of the biggest things homeowners overlook when it’s time to sell… and I know it sounds cliché… is curb appeal. I firmly believe that “You never get a second chance to make a first impression!” I’m going to address curb appeal, and a bit more.

Dead or overgrown grass & shrubbery looks like a lot of work to first-time homeowners, so spruce up that front yard. Clean weeds out of rock & mulch beds.

  • According to a variety of experts, front doors tend to yield around 100% return on investment, one of the highest percentages for a minor home improvement. Imagine if you didn’t even need to replace it, but merely give a fresh coat of paint. Pick a neutral or trendy color.
  • Clean windows and glass doors are also in this curb appeal category. It makes your home feel fresh from the outside and helps you enjoy the sunshine while inside! I can’t believe how inexpensive a good thorough window cleaning can be. Once inside (I know this extends beyond curb appeal, but work with me here), Buyers will see the details that you have grown accustomed to while enjoying your home.
  • Worn flooring or carpet that needs to be stretched is distracting to the Home Buyer. First of all, we understand you live here, and it’s a royal pain to move your furniture out, but in the end, it will be worth it. Buyers will discount your home or overestimate the cost of this repair, so it’s better not to give them an opportunity to object. Replace the flooring or stretch the carpet.
  • Smells… pee-ew! When we sold our second home, we’d just had our first child. Sadly, we had grown immune to the grotesque diaper genie smell. Once it was pointed out in a feedback form we got it OUT of the house. Other smells can turn a Buyer off as well. You may have a litter box, but non-pet-owners can smell that ammonia scent right away. Buyers automatically assume it’s in the carpet, pad, sub-floor, floor joist, the room below… okay, I’m kidding, but seriously consider replacing flooring. Again if it’s something you live with all the time, you may not notice.
  • Pet hair and messes. It’s hard for pet owners to not become unaware of the pet hair in their lives. But again for Buyers who don’t own pets or those with allergies, this is an issue. Get a complete professional cleaning, and maybe put Fido in the kennel the first week you have the house on the market. Side note – the barking dog, even safely kenneled in garage or basement bedroom makes some people very nervous and on-edge, so they don’t have a warm feeling when viewing your home. Some people are flat-out afraid of dogs, no matter how small or far away they are.
  • It’s nice if you can “stage” your home. You don’t need a professional; just tidy up, thin out closets, slim down on excessive family photos and personal (religious, political, hunting) décor.

When you list your house, as a Seller, be Switzerland… neutral, lacking strong opinions displayed around your home. Based on our experience, we have far more detailed help that we are happy to share when you’re ready to list. Let us know how we can help!!

 

Smell Ya Later!

Maggie Turner:

Having one answer to this question is tricky. I’d say for first impressions, smells are the most important thing that Home Sellers can overlook. If a Buyer walks into a home and smells something bad, it’s an immediate turn-off. Bad smells create red flags and cause concern for lack of cleanliness, maintenance and overall care of the home. If a Buyer walks into a warm and inviting scent, it’s a pretty good sign that the home is cared for.

I was recently showing homes to an experienced and savvy Home Buyer. We went into a great property and I thought for sure this is “it”. The Home Sellers had left the trash in the kitchen trash can a little too long. There was an odor of decomposing something emanating from the can, it was pretty bad. The Buyer wouldn’t even consider the home and we left immediately. As we continued to look at other less ideal homes, I kept trying to bring her back around to what she now referred to as the “Stinky House”, but there was no interest. I kept thinking to myself, “whatever was stinking up the kitchen just cost the Home Sellers a sale”.

Oftentimes we get really used to smells in our day to day environment. If you question if your home has offending odors, an easy solution is to ask a friend to come over, walk through the home and be honest with you about what they smell in the home.

 

The Big 3-D’s

Kelly Raffelli

Decluttering, De-personalizing and Deep cleaning are the big 3-D’s when getting ready to put a house on the market. A Seller should give potential Buyers the opportunity to see a blank canvas. I recently was showing a house to a client and the downstairs family room was so entrenched with memorabilia and family photos, the entire conversation while we were down there was about that family and all of their stuff. That is NOT what you want the Buyer to be focused on. You want a Buyer to walk in and picture their own family pictures, decor, and life happening in that family room.

It can be hard to declutter and de-personalize, but the more you do you create an opportunity for the Buyer to “paint their lives” on the blank canvas and see themselves living in the home. Sellers don’t want Buyers distracted when they arrive for a showing. They want them focused on the question, “is this the right home for me?”

Deep cleaning is equally important and relatively straightforward. Buyers need to see the home in it’s very best condition. Sellers have to bring their “A Game” when presenting their house to potential Buyers. A deep clean and some light touch-up paint and other small repairs will go a long way to getting your home sold quickly and for the highest dollar.

Don’t Forget the Garage

Joe Boylan
For me, the garage almost always tells the truth. At least when it comes to getting an idea of how the home has been maintained. If The garage is a total mess, packed to the ceiling with boxes and junk, I always figure that the well-staged interior is just a facade. Now, if the garage is neat clean and well organized I always assume (right or wrong) that the house has been well maintained. If this is not the case, we find out at the inspection.

Take the time to clean out your garage, it’s worth the price of a storage space for the time your home will be on the market. Matt Casady from STOR-N-LOCK has some great suggestions about how self-storage services like his can be a huge help.

Most storage units in Colorado Springs can be rented on a month-to-month basis so you can use it for as long or short as you need without being locked into a contract which makes it a great option as a Home Seller looking for a short-term solution. Plus, many local facilities offer move-in specials like one-month free (especially in the fall and winter when they’re less busy) so using the storage space is even cheaper upfront.

Storage units come in a wide variety of sizes with a variety of features so you can store nearly anything you need to there. If you’re just looking to tidy up your garage by getting rid of boxes or junk, a 5’x10’ or 10’x10’ storage unit would be sufficient. If you’re looking to remove clutter from around your whole home by removing excess furniture from multiple rooms, then you may need a larger unit like a 10’x20’ or 10’x30’ unit.

Plan what you’re going to be storing and how long you plan to store it before selecting your storage unit. For example, if you’re selling your home during moderate weather months like in the spring and would only need the storage unit at that time, then a non-climate controlled unit would probably work just fine. However, if you’re selling in the winter and the items you’re storing are more sensitive to temperature fluctuations like electronics or family heirlooms, then a storage space that is climate controlled/heated would be worth the extra few dollars a month.

If you know you’ll be keeping your stuff in storage more long-term while you move and get situated in your new home self-storage can be a great option as well. Many local facilities offer discounts to customers who pay 6-months or 12-months upfront so if you know you’ll be storing for a while that’s a great way to cut down on the storage costs.

Because of the wide variety of storage unit sizes and optional amenities (like climate control), there’s a storage space to fit really any need you have during your selling and moving process.

Just make sure your garage looks like a maintenance ninja lives in the house.

No matter what the condition of the market, there is always competition for the best Buyers.

Don’t fall into the trap of assuming everything sells for top dollar in a Seller’s market. There is always another house and more deals fall out in a hot Seller’s market than in a normal market. It’s in a Seller’s best interest to sell to the most motivated, best-qualified Buyer. One of the best ways to motivate a Buyer is by impressing them every time they see the house.

We hope you have found this information useful. If you have any questions, please feel free to contact any of our agents.

 

Additional Resources:

If there is one thing Realtors love to talk about it’s selling houses and what that takes. Here is some more great information on this subject from some of the best real estate bloggers around the internet.

shouldisellorrentmyhouse

Should I Sell or Rent my House?: Weighing your Options

You are a homeowner and for whatever reason, it’s time to move on. Maybe you’ve outgrown your house, perhaps there’s a new job waiting in another location or you’re just ready to move to a more appealing home in a different neighborhood. No matter what the reason, you are no doubt struggling with the question, should I rent or sell my house?

This decision often comes down to where you are in life and what your long terms goals are. If you don’t have a lot of cash reserves or investments, you might need the proceeds from the sale of your existing home to go towards the down payment on a new home. If on the other hand, you’re looking for investments, managing a rental property might be a great option for you.

Deciding Whether to Sell or Rent

There are a lot of different factors to consider before jumping into the world of rental property investing. Some of them are financial, while others have to do with the demands this type of investment can make upon your time and lifestyle.

Let’s take a look at the major considerations that will affect your decision.

Start with the money

Cash flow should be the primary focus when considering the financial side of the rental business. Just like it sounds this term describes how cash flows in and out of your accounts.

Cash can flow positive or negative, but for most people, positive cash flow from your rental property will be the goal.

There are rare exceptions to this principle, these exceptions usually involve taking losses for tax purposes, certainly not something most people are looking for.

The other reason you might consider taking the negative cash flow would be if you were pretty far into a 15-year loan. You would do this in order to pay off the house and own it free and clear.

Establishing Cash Flow

In order to establish cash flow, you’re going to have to do some estimating of both income and expenses. It’s important to be realistic about these numbers. When I work with a new property owner in our property management company, I tend to lean on the pessimistic side of these numbers.

If the property leases for more money and the expenses end up being less, our clients are pleasantly surprised.Click To Tweet

If the property leases for more money and the expenses end up being less, our clients are pleasantly surprised. If there is some kind of negative trend in the market, having forecasted from the worst case scenario means they’re less likely to get hurt. I suggest you do the same when making your estimations.

Your Property’s Income

Rental property income can come from a number of different sources. Some landlords offer various services and options to tenants for a fee. Services like landscape maintenance, cleaning and various insurance policies for late rent. It’s a good idea for the new landlord to keep it simple, this means using only the rent payment when calculating income.

Establishing Rental Rate

The first thing you need to establish is how much you can realistically lease your property for. You want to be realistic because you want the property to lease quickly, no matter what the condition of the rental market. Keeping it leased goes hand in hand with keeping the cash flow positive.

You have several options when it comes to pricing.

  1. There are free valuation websites like Zillow where you can get a ballpark idea of what your home could lease for. This gives you a starting point, but ultimately you’re going to want to do detailed research to get a more accurate estimation.
  2. You could ask a Realtor to do a rental analysis. They will most likely use data from the MLS (Multiple Listing System), this is a good option because the data is generally accurate and verified.
  3. Another option would be to do your own research by combing through sites that feature rental properties in your neighborhood. You can talk to neighbors in order to see what they know about rental prices as well as calling any “For Rent” signs to see what people are asking.
  4. Finally, you might use a property management company to manage the property. One of the primary services they provide will be pricing. Since they manage multiple properties and will usually have MLS access, their price is usually the most realistic.

I can’t stress enough how important it is to get the pricing right. Tenants tend to move in waves, this means they usually start looking 30 to 45 days prior to when they want to occupy. Additionally, they probably need to give notice to their current landlord. If you take the first couple of weeks testing your price, you may find your rental sitting vacant for a couple of months. This mistake will kill your cash flow.

It is important to be methodical about your pricing and please don’t use the ”This is how much I need to get method”. This method consists of the homeowner looking at their payment and adding a little profit in order to determine the rental rate. This doesn’t work because the market doesn’t care how much your payment is or how much profit you want.

Renters will be looking at everything available on the market. If your rental is overpriced they will more than likely politely pass leaving you clueless as to why they didn’t lease it. So, before you do anything else establish a fair market rental value for your property.

Your Property’s Expenses

Once you establish the fair market rental value for your property you can start to apply debits to that number in order to see if the cash flow will be positive. here is a list of expenses you’re going to want to use in order to figure out if this is going to work.

  • Mortgage: Add up your principal, interest, property taxes and insurance (landlord policy).
  • Taxes: You will need to pay federal income taxes on the net income (rent plus other money minus expenses) you receive from your rental property each year.
    • Each year when you file your tax return, you will add your net rental income to your income for the year, such as salary income from a job, interest on savings, and investment income.
    • Property Taxes were covered above in the Mortgage section. If you, not your lender make your own tax payments, you can add them here.
    • Owning a rental property allows you to make several tax deductions for things like interest and depreciation.
  • Operating expenses: This is a broad category
    • Advertising – Websites, Print, Social Media
    • Travel – Driving back and forth to the property
    • Cleaning and maintenance
    • Legal fees – Documents (leases, disclosures, etc.)
    • Credit and background checks
  • HOA Fees: If you live in a neighborhood that has an association you’re going to want to pay those fees yourself. Since late payments of HOA fees can bring serious consequences and fines, you don’t want to leave this one to the tenants. Having said this, you may want to roll the HOA cost into the rental rate.
  • Management fees: if you choose to use a property manager you will need to calculate their monthly fee along with any other additional fees into your expenses total. Using a property manager can eliminate other expenses along with a significant amount of time and hassle. if you are the least bit squeamish about dealing with tenants you owe it to yourself to talk to a property manager.
  • Commissions: if you or your property manager are putting the property into the MLS system for Realtors to show and help you lease, you’ll need to offer a commission which varies from area to area.

Once you’ve tallied all of your expenses and compared against the potential income you’ll receive from the property, you’ll have a better sense of whether or not renting versus selling is a good idea.

Your Time and Effort

In addition to the financial aspects, you should consider the effect managing rental properties will have on your personal life.

If you’re going to self-manage your rental property, you will need to handle the following:

  1. Advertising – The internet makes this a lot simpler than it used to be. You’ll still need to prepare ads, take photos, compile house details and post all of this information.
  2. Answering calls – No matter how automated you try to make the leasing process, tenants still want to talk to a human. They have questions and frankly, want to get a feel for what kind of person you are.
  3. Scheduling showings – Plan on showing the property at all times, even on evenings and weekends. People with 9 to 5 jobs are going to request this. In our experience, if someone is really looking for a house to rent they will carve out time during the day.
  4. Showing the property – This can actually be a lot of fun and it’s good to get to know your prospective tenants. One important word of warning don’t be wooed by their personality, you need to be objective and make your decision on the application and the data you get from that exercise. In other words, put a lot of weight on the tenant’s credit score, background check and references.
  5. Processing the application
    1. Pulling credit
    2. Checking background
    3. Calling References (previous landlords, employment & personal references)
  6. Preparing a lease – You can find a boilerplate lease online, but an even better idea is to contact a local real estate attorney and pay for a copy of their lease. Remember, every market is different and a local real estate attorney will most likely have a lease that takes into account aspects of your local market.
  7. Documenting the property condition – This is important because when your tenant moves out you need to be able to prove any damage claims you make against them prior to deducting any monies from their deposit. You want to avoid any opportunities for subjective opinions about property conditions and damages.
  8. Emergency Phone Calls – You should offer your tenants a way to reach you at anytime day or night in case of emergencies. To minimize these calls, it is a good idea to explain to the tenant who to call in case of certain types of emergencies. For example, in most cases, a gas leak should elicit a call directly to the gas company instead of the property manager.
  9. Ongoing maintenance- You’re going to want to make sure the property is regularly maintained. This means winterizing and de-winterizing sprinklers, cleaning and servicing the furnace and making sure smoke detectors and CO2 detectors are in proper working order. These items are important because carbon monoxide is so dangerous and landlords own much of a liability around it.
  10. Performing regular property inspections – Even the best tenants lose sight sometimes of the fact that this is your house. Regular inspections are necessary for a number of reasons:
    • Making sure all occupants are on the lease
    • Checking for unapproved pets
    • Verifying there are no illegal activities taking place
    • Checking for things like smokers in a non-smoking property
  11. Collecting Rent – This includes dealing with late and or unpaid rents.
  12. Evictions – The possibility of having to serve and process an eviction
  13. Preparing a property to release – At the end of the lease term, the property needs to be returned to a condition where it is ready to move into by another tenant. This can include:
    • Carpet cleaning
    • General cleaning throughout
    • Patch and paint of walls
    • Other maintenance items in the property
    • Rekeying of all locks
    • General landscape maintenance

Some homeowners have no problem with performing any of these items. But oftentimes, it is very time-consuming to find the right vendors and schedule all of the work to be completed in a timely and cost-effective manner. A property manager will handle all of this for the homeowner and this is one of the big benefits of using a property manager.

Other important reasons you might lease

You might consider renting your property if you have a desire to return to the area. Here in Colorado Springs, we often see military families that plan on returning to the area at retirement or when they’re through with their military service. For this reason, they will decide to put their home into a property management program or in some cases, manage themselves from a distance. The upside is that when they return they know exactly where they’re going to live. Additionally, pricing fluctuations don’t affect them as they don’t have to buy back into the market at a higher rate.

Another good reason to rent your home is the possibility of catching a rising equity tide. During the latest recession, we used a term referring to some of our homeowners as “accidental landlords”. These were people that were unable to sell their homes without writing a check and were not willing to walk away or go through the short sale process. These people put their homes up for rent and decided to weather the storm. Fast forward to the latest real estate boom, and many of these people have sold their homes at a tidy profit.

Some people have a genuine desire to own property and be a landlord. Every now and again you meet someone who just loves owning a lot of property and getting to know their tenants. They really don’t mind the hassles involved and always seem to be on the run and energized by what they do. Yes, these people exist but are rare.

The Upsides of Selling

You’re Done

Selling your home and walking away with a profit is a great feeling, especially in a seller’s market. Doing so can give you the flexibility to take advantage of other opportunities.

This money can potentially be a substantial amount of money which you might use this as a down payment on your next property. Many people love the prospect and the excitement of starting over in a new home.

Be aware that in an extremely hot seller’s market you will need to be able to find someplace to move to. Talk to anyone trying to buy in a hot market and you will soon learn about the stress and disappointment of navigating this type of market. This is a problem you don’t want to discover after your house is under contract.

Tax-free profit

If you’ve lived in your home for at least 2 out of the last 5 years prior to the sale, you may be eligible for an exclusion on any capital gains tax up to $250,000. If you are married and file jointly this amount doubles to $500,000 (2017). You’re not going to find a lot of other Investments that give you this kind of break.

Free Time

Handling a rental property as a homeowner takes a fair amount of time and effort. Re-read the section on Time and Effort and ask yourself if you are really ready to handle all of those responsibilities. Using a property management company alleviates most of these responsibilities, but selling your property alleviates all of the responsibilities once and for all.

Escaping Maintenance and Repairs

If your home is a maintenance nightmare, or in need of repairs, renting it out is probably a bad idea. The tenant will certainly expect the condition to be up to a livable standard. Repair requests will create a constant hassle and eat into your bottom line.

With a home in need of numerous repairs or remodeling, selling is most likely the best option. This allows you to deal with any repairs and deferred maintenance in one fell swoop, after the inspection and prior to closing. Once you negotiate those items, the maintenance and repair headaches are over.

Conclusion

This list will certainly get you thinking about the core issues that surround selling versus renting. Timing, lifestyle, income and a long list of other factors go into the decision to be a home seller or a landlord. This information should go a long way to get you pointed in the right direction.

As always, if you have any questions or help to get started selling or renting out your home, feel free to give me a call.

Additional Resources

Here are some helpful resources I used while putting this article together:

Converting Your Home To A Rental Property-Luke Skar

Should I Rent or Sell my House-Bill Gassett

Should I Sell or Rent My Home? Factors to Consider-Anita Clark

Pros and Cons to Selling a Tenant Occupied Property-Michelle Gibson

 

 

shopping

What You Should Know When Shopping for a Mortgage

Housing may be a necessity, but real estate is certainly an investment. In fact, it’s the investment of choice for many. In a recent survey, “Bankrate.com” discovered that 25% of the “Financial Security Index Survey” respondents answered “Real Estate” to the question: “Which would be the best way to invest money you wouldn’t need for more than 10 years?”

Investment choices

For most people, their home is the single largest investment that they’ll make –and it’s worth spending some time to make sure that investment is financed using the best loan possible.

Sadly, though, nearly half of all mortgage buyers don’t end up shopping for a mortgage first. This is unfortunate since shopping around can lead to a far better loan; savings that could add up significantly over time. For example, finding a lender that could give you even a 1% lower interest rate can easily represent a savings of thousands of dollars –per year.

Shopping for a mortgage

Sometimes, seemingly small things can make a big difference over the long haul. Here is a great article on just how interest rate can influence your buying power by Ellen Pitts

For homebuyers and investors alike, it’s important to obtain a favorable loan in order to get ahead. Much like buying a home below market value is something that savvy investors look for; the terms of the loan will also have a big impact on your investment.

To help make the process a bit easier, we’re going to walk you through the process, showing you how to shop for a mortgage.

What You Should Know: The Consumer Financial Protection Bureau

While shopping for a mortgage may sound confusing and overwhelming, the process itself is relatively straightforward.

The Consumer Financial Protection Bureau (CPFB) has simplified the entire disclosure process in order protect consumers from predatory lenders. This means that rules are in place to help protect mortgage buyers. For example, mortgage brokers (but not lenders) must charge the same percentage on every deal, meaning they can’t just increase their margin “just because.” Other rules include the Ability-to-Repay (ATR) rule that requires lenders to make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans. These rules, and more help to provide strong protections for homeowners and are designed to help prevent risky lending practices which were common before the financial crash of 07/08.

With this in mind, there’s a lot that you can do, as a buyer, to find a loan that’s favorable. Let’s take a look at some steps that you’ll want to take when shopping for a loan.

Get Pre-Qualified

It’s an all-too-common scenario. A home buyer walks into a Realtor’s office to discuss buying a home. The buyer’s excited, and has been looking at properties online, and has a list of homes that they want to see. Unfortunately, though, the buyer hasn’t talked to a lender and hasn’t been prequalified. Sadly, it turns out that they can’t afford any of the homes that they were looking at. This is unfortunate and can be extremely disheartening.

To prevent this from happening, it’s a good idea to try to pre-qualify for a loan, before you start shopping. At Springs Homes, we do pre-qualification with home buyers as the first step in the home buying process. In order to pre-qualify, you’ll want to meet with a couple of lenders. You’ll give them some basic information about your current financial situation, including your credit score, wages, and the amount of money that you have for a down payment.

The goal at this stage is to see if you qualify for a loan, and if so, what terms you qualify for: how much can you borrow, and what type of loan you’ll be eligible for –such as a conventional loan, an FHA loan –a first-time homebuyer’s loan with a low-interest rate, or a VA loan.

Before you go, you’ll want to check your credit score. This will help lenders to see where you stand and will give you an idea about whether you should move forward with the mortgage lending process, or whether it may be better to wait a few months and work to improve your credit score. If you’re worried that asking for your credit score will hurt your credit, don’t be –you’re entitled to a free credit report every year. Generally, a score that’s lower than 760 can negatively impact the loan that you qualify for, and you may be required to pay a higher interest rate or pay a fee to keep the rate down.

Once you’ve taken a look at your credit score, you’ll know whether to move forward. If you proceed with the pre-qualification, you’ll want to ask your lender for a fee worksheet. This is a breakdown of the fees that they’ll be charging you, such as an origination fee and interest rate; as well as some costs that will be out of the lender’s control, including taxes and insurance. While the lender isn’t required to give you this, their refusal should certainly be a red flag and may indicate that you’ll want to shop elsewhere or go with a company that’s more transparent about their costs.

If your credit score is a bit lackluster, there are a few things you can do to bring your rating up.

Tips for Improving Your Credit:

  • Get a credit card –and make payments on time
  • Bring any past-due accounts current
  • Pay bills on time
  • Consider consolidating any credit card debt by moving it onto a card with a low-interest rate
  • Correct credit report errors
  • Become an authorized user on someone else’s card
  • Set up accounts with automatic payments
  • Try to maintain credit card balances that are lower than 30 percent of your credit limit

Start Home Shopping

Once you’re prequalified, you’ll have a much better idea about the type of properties that are within your price range. When shopping for a home, it’s generally a good idea to start out looking at properties that are on the low to mid-range of what you can afford, and then slowly raise the bar until you find a place that you’re happy with. You’ll also want to keep location in mind when searching. It’s one of the most important criteria for most people. Since it’s important to be near work, schools, and other places –it’ll be a key factor when making your decision. Plus, it’s one thing that can’t be changed unless you move again. You could always upgrade the kitchen at a later date, but location is something that’s a bit more difficult to change.

Full Loan Application

You’ve found a house, written an offer, and the offer has been accepted. Congratulations! This is an exciting stage of the home buying process.

Once you’ve reached this stage, you’ll want to send a copy of the contract to any lenders that you’re still considering after the pre-qualification process. You’ll also need to make a full loan application with any lender that you want to obtain a true estimate from.

What Is a Loan Estimate? Obtaining a Loan Estimate

The Loan Estimate form is a three-page document that lenders are required by law to give you after you apply for a loan. This form helps borrowers to understand the full cost of the mortgage, including fees and interest. It’s an easy way to compare mortgage options and can help you to discover which lender is offering the best loan.

Since October 3, 2015, the Loan Estimate has replaced the good faith estimate and the Truth in Lending Disclosure –except in the case of “Reverse Mortgages.”

The new form is set up to be simpler, and to eliminate any kind of closing table or last-minute bait and switch, thereby protecting uninitiated consumers. For an excellent detailed line by line description of the Loan Estimate Form, have a look at The Consumer Financial Protection Bureau’s website.

The Loan Estimate must be given to the borrower within three business days of loan application.

To submit an application all that is required is:

  • Your name
  • Your income
  • The property address
  • An estimate of the value of the property
  • The desired loan amount

Note: Your loan officer cannot require you to provide documents verifying this information before providing you with a Loan Estimate.

You’re not required to provide written documentation to obtain a Loan Estimate, and the only fee that can be charged is a small upfront fee for pulling your credit report, usually no more than $20.

Comparing Loan Estimates

It makes financial sense to shop around for the lowest interest rate that you qualify for –and the loan with the most favorable conditions. Fortunately, Loan Estimate forms make it easy to compare lenders.

Once you’ve obtained your Loan Estimates, you’ll want to take the time to look at what different lenders are offering. Comparing Loan Estimates is an important part of the home-buying process, and the best way to shop around for a mortgage.

The two areas that you’ll want to pay special attention to are origination fees and the interest rate. You can also look at things like prepayment penalties, what a late payment will cost you, and whether the lender intends to process your loan or sell it –if this matters to you. You’ll also want to check to see if there’s a balloon payment –a large one-time payment at the end of the loan term. Make sure you take the time to look at these different terms and conditions. The last thing you’d want is any surprises after closing.

You’ll also want to ensure that the monthly payments match your expectations and that you’ll have enough funds to pay your estimated cash to close.

If you find anything that you’re not sure about or if you have any questions, be sure to talk to the lender. They’ll be able to answer any questions you have.

Note: Make sure you compare the total dollar amounts if you’re looking at different-length terms. For example, a 15-year mortgage will have a higher interest rate, but will cost less in the long run because you’ll pay off the debt 15 years earlier.

Finally, keep in mind that while a loan is a commodity, the lender is not. An inexperienced or unprofessional lender can cost you hundreds if not thousands of dollars. For instance, missed closing dates, or neglecting to lock in an interest rate could all cost you significantly. Before you go with a lender, take the time to ensure that they’re experienced and reputable. Talk with people that you know to see if they have anyone they recommend, and research potential lenders online to see what people are saying.

Remember: the right loan can have a significant impact on your investment –so it’s worth taking some time to get this right. By shopping around, you can increase your chances of securing a lower interest rate, so do your research and find a lender that’s right for you.

Additional Resources for Shopping for a Mortgage:

committed

Understanding Loan Commitment

The loan commitment is the beginning of the final stage in the home mortgage financing process. It is the lender’s conditional promise to offer a mortgage loan to a specific buyer for a specific property.

Two conditions must be met before a loan commitment can become a full approval:

Condition #1: The property must meet the standards of the lender in terms of value and condition. Lenders need to be sure the property is a reasonably sound investment because they could acquire the property if the buyer were to default on the loan.
Condition #2: The buyer’s finances must meet the standards of the lender. The lender needs to evaluate the buyer’s ability to repay the loan.This typically means confirming that the buyer’s financial situation has not changed since the pre-approval was granted. For example:

  • Major purchases, especially those that increase the buyer’s total debt, negatively impact the buyer’s ability to repay the loan.
  • Missing a payment negatively impacts the buyer’s creditworthiness.
  • A change in income, perhaps because of a change in employment, alters the buyer’s original debt to income ratios.

Both Realtors and lenders will advise home buyers to avoid making any major purchases, job changes or late payments in between the time they make loan application and close on a house. Unfortunately, buyers often underestimate the seriousness of this warning. They see loan commitment as a green light to move on with their lives and go out and make purchases to prepare for that new life. This can leave them with a bunch of new stuff and no place to keep it.

The loan commitment is not some legally binding guarantee of a mortgage. It’s simply a signal from the lender to all parties in the transaction that the deal is on track and can proceed to the final stage of the mortgage process as planned. This is a reassurance to the seller who has taken their home off the market (and off the radar of other potential buyers) in anticipation of closing this sale. It is also helpful to the Realtors® who are investing time and energy into closing the transaction smoothly.

The loan commitment comes in the form of a letter. This letter outlines:

  • The type of mortgage being obtained
  • The amount of money being borrowed
  • The terms or length of the repayment period
  • The agreed-upon interest rate

Here is a Sample Loan Commitment Letter:

Attention:

[Real Estate Agent]
[Real Estate Company]RE:
[Client Name]
[Subject Property]

This letter is to inform you that I have reviewed:

  • Borrower’s income, credit & asset documentation
  • Loan amount
  • Interest rate
  • Loan type

Based on my assessment of these items, [Client Name] has been approved for a [Type of Home Loan] to purchase the subject property at the offer price of [$$$,000] and terms listed in the purchase contract.
Please note this approval is subject to the following conditions:

  • Fully executed sales contract
  • Acceptable appraisal meeting or exceeding sales price
  • Acceptable title insurance
  • Acceptable home owner’s insurance coverage
  • Verification of all information supplied at the time of application.

I am looking forward to working with you towards the successful close of this transaction. You can trust that my team will keep you informed every step of the way.

If you have any questions or need additional information, please feel free to contact me.

Sincerely,
The Buyer’s Lender

[Today’s Date]

The Difference Between Pre-Qualification, Pre-Approval, and Loan Commitment

Many buyers are confused by the loan qualification process. The terms “pre-qualification”, “pre-approval”, and “loan commitment” all sound like they might mean the same thing. But they are, in fact, all different stages of the mortgage approval process. Buyers should progress through each stage in order.

Stage 1: Pre-Qualification

Pre-qualification simply provides a guideline for how much money buyers can afford to spend on a home, given their financial situation. Buyers can get pre-qualified online in minutes. Because pre-qualification is helpful in determining a housing budget, buyers should get pre-qualified before they even begin looking at homes. This will ensure that they are looking in the correct price range.

For more information on pre-qualification, visit our Mortgage Pre-Qualification Guide.

Stage 2: Pre-Approval

Pre-approval goes a step further; it looks at the buyers’ creditworthiness and the likelihood that they will repay the loan.

Pre-approval requires a credit check by a lender.

This stage should be completed before making an offer on a house. Offers from pre-approved buyers are stronger than offers from buyers who are only pre-qualified. Pre-approval demonstrates to the seller that the buyer is serious and most likely will be able to obtain financing to close the deal. Again, sellers do not want to take their house off the market unless they are fairly certain the transaction will be completed.

If you’d like more information on pre-approval, read our article, What is the Difference Between Pre-Qualification and Pre-Approval?

Stage 3: Loan Commitment

Once the buyer’s offer on a home is accepted by the seller, the buyer can request loan estimates from multiple lenders to find the lender offering the best terms.

And once a lender has been selected, the lender will review the file and provide a loan commitment letter confirming their intention to provide funding for the purchase, as long as both the property and the buyer’s financials meet the lender’s criteria.

You’ll notice that, unlike the pre-qualification and pre-approval, which each evaluate only the buyer, the loan commitment conditions require an evaluation of both the buyer and their chosen property.

To satisfy the condition relating to the buyer’s financials, the buyer must provide up-to-date documentation of their financial position, source(s) of income, and creditworthiness.

To satisfy the condition relating to the property, the property must appraise for the purchase price (or greater) and may need to pass a physical inspection.

 

Path to Loan Commitment

The Buying Process Leading Up to the Loan Commitment

To clarify how the pre-qualification, pre-approval, and loan commitment all fit into the big picture, here is a look at the steps in the buying process leading up to the loan commitment:

  1. Buyers obtain pre-qualification so they know what price ranges to consider.
  2. Buyers start house-hunting.
  3. Buyers obtain pre-approval from a lender so they will able to make a strong offer on a house when the time comes.
  4. Buyers make an offer on a house (accompanied by the pre-approval letter).
  5. The offer is accepted, creating a purchase contract. The contract will outline dates and deadlines for contingencies, including a finance contingency for the buyer to obtain a home loan.
  6. The buyer sends the contract to all lenders they are considering for the home loan.
    Within three days, each of the lenders to which the buyers applied will provide a loan estimate.
  7. The buyers evaluate the loan estimates and choose the lender offering the best loan option for their situation.

From this point, the chosen lender can provide the Loan Commitment Letter and move the transaction into the final stage of the financing process.

The Final Stage of the Financing Process

To reiterate, the loan commitment is conditional, so the loan commitment letter does not constitute official approval of the loan. Official approval can only be granted after the two conditions are met.

This final stage of the financing process includes evaluations to satisfy those two conditions:

    • The buyer’s financials and creditworthiness will be thoroughly reviewed and documented.
    • The chosen property will be appraised and its condition will be assessed.

Evaluating the Buyer

You’ll recall that buyers have already been pre-qualified and pre-approved by this point. But now is the time the lender will really scrutinize the buyer’s financials, credit, and source of income.

Buyers will need to provide complete documentation to confirm that they are financially stable and likely able to accept this new debt in addition to their existing debt payments and other living expenses. Buyers will need to provide their most recent financial documents to show that their financial position has not changed since their pre-approval.

This typically includes:

  • account statements for all checking, saving, and investment accounts
  • loan statements for any other current real estate owned by the buyer
  • paycheck stubs showing year-to-date earnings
  • most recent W-2 or I-9 tax forms
  • statements for any new debts not yet listed on the credit report

The lender will also contact the buyer’s employer multiple time throughout the course of the loan application process to confirm that the buyer is still employed in good standing.

Condition of Loan Commitment

Failing to Meet the Buyer Condition of the Loan Commitment

It is possible for the buyer to fail to meet the condition of the loan commitment, whereby losing their loan commitment and even their pre-approval.

Lenders are looking for financially stable borrowers. And any disruption in a buyer’s finances during the loan application process can return the process to square one. Examples of behavior that could result in a revocation of the loan commitment and pre-approval include:

  • Employment changes (a reduction in hours, a lay-off, or even accepting a new job)
  • Late or missed payments on any debt, bill, or even rent
  • Applying for another loan (perhaps an auto or a business loan)
  • Legal issues, including marriage and divorce
  • Closing a credit card account or settling an old debt (both of which alter your credit score)
  • Making a large deposit or taking a large withdrawal (which will make the lender question where your money comes from and where it goes)

As a general rule, buyers should avoid doing anything that might change their financial position from the time pre-approval is granted until the close of escrow.

Massachusetts Realtor Bill Gassett has a great article that explains 14 things a home buyer can do to inadvertently get a mortgage pre-approval revoked.

Evaluating the Property

Evaluation of the property always includes an appraisal and often includes an inspection of the physical condition of the property.

The Appraisal

The lender will order an appraisal, to be paid for by the buyer, and a licensed appraiser will assess the chosen property. The appraiser’s assessment compares the chosen property to similar properties in the area that have recently sold, which allows the appraiser to determine the value of the chosen property under current market conditions. For more information on the appraisal process, check out What You Need to Know About Appraisals.

The property’s appraised value must be greater than, or equal to, the contracted purchase price to meet the condition of the loan commitment. This is mainly to protect the lender from loaning money on a property that doesn’t provide enough collateral for its loan.

Appraisers have also started to require inspections, or even repairs, of items that materially affect the value of the home (like the roof, heating and cooling systems, or electrical work).

The Physical Condition

The physical condition of the property itself may also be considered during the property evaluation.

The standards for the physical condition of the property depend heavily on the type of loan for which the buyer has applied. This is because many home loans are packaged by type and sold on the secondary market to investors. Government-backed loans, such as FHA and VA loans, will have more stringent requirements than standard conventional loans. Learn more by reading Everything You Need to Know About Mortgages.

Regardless of loan type, the lender needs to factor in any health and safety issues including lead paint, water intrusion, and potential electrical hazards. Lenders are also concerned about any issues that could potentially damage the structure. Cracks in the foundation, termite infestations and defects in construction could all disqualify a property.

If material defects are identified, they may need to be repaired to satisfy the condition of the loan commitment. Afterward, the Appraiser may need to review any repairs or replacements and update the appraisal accordingly.

It should also be noted that not all home loans will cover all residential property types. For example, it can be difficult for manufactured homes (often called mobile homes) to qualify for a VA loan.

Failing to Meet the Property Condition of the Loan Commitment

It is possible for the property to fail to meet the condition of the loan commitment and to cause the buyer to lose their loan commitment.

The most common reasons properties fail to meet the conditions of the loan commitment include:

  • Appraising for a value under the agreed-upon purchase price
  • Existing health or safety issues
  • Structural concerns
  • A mismatch of the loan type with the property type

Final Approval of the Home Loan

Final approval for a home loan can be given only after the two conditions of the loan commitment are satisfied. This is the very last step of the home mortgage financing process and typically occurs immediately before the close of escrow.

Until then, buyers should remain exceedingly careful with their finances to ensure a smooth transition from pre-qualification, through pre-approval, through the loan commitment, and finally, to full approval of their loan.

Additional Resources:

evictions_in_colorado

What Landlords Should Know About the Eviction Process

You vetted the tenant –as carefully as possible.

You pulled credit reports, did a background check, verified their job, and called their previous landlords to make sure everything checked out.

At first, they may have been an ideal tenant; paying the rent on time, and rarely causing problems.

But somewhere along the way, something changed and a tenant that was once considered qualified –is no longer abiding by the terms of the lease.

In most cases, this violation comes in the form of late rent. Maybe they’re having trouble paying due to a job loss that results in a sudden loss of income, or income being cut in half due to a divorce. Other times, lease violations involve a tenant moving a new roommate in, without seeking permission first; or even adopting an undisclosed pet or two, and bringing them into your ‘no pets’ rental. Sometimes, there may be more serious issues involved; such as drug-related activity or criminal activity.

The fact is that even the most carefully vetted tenant, can sometimes slip through the cracks. And things come up that can transform even the most ideal renter into one who’s in violation of the lease.

No matter what the issue is, for landlords, it’s extremely important to ensure that you take action as soon as possible, to help prevent the problem from compounding or getting worse. Once a tenant falls too far behind on the rent, it can be all but impossible for them to get caught up. It may seem like an insignificant detail, but for many landlords who depend on rental income, a tenant who falls one month –or longer behind on the rent, can represent a serious loss.

For tenants who may be violating the lease in other ways, such as moving pets in without permission, taking action to address the issue sends the message that you care about your rental, and expect all of the residents to abide by the rules. Letting things “just slide” for too long can lead to complacency and the start of a downward spiral.

If you’ve reached the point of no return, where a tenant who is in violation of the lease isn’t complying with your warnings, the next step is usually to begin the eviction proceedings.

Notice of Termination With Cause

For a landlord to evict a tenant in Colorado before the tenant’s rental term has expired, they must have a legal cause. Colorado law defines legal cause as:

  • Failing to pay rent
  • Violating the lease
  • Committing a serious act, such as a crime

The first step in this process involves giving the tenant a 3-day notice. This notice states your intention to evict the tenant and informs them that they have three days to fix the lease violation or vacate the property.

The procedure for the 3-day notice is something we discussed in detail in our previous article.

Once they’ve received the 3-day notice, the tenant usually has two options:

  1. To pay rent, or remedy or, ‘cure’ the violation, or
  2. Move out.

The tenant has three days to correct the problem or move, and if they fail to do so, then you may begin the eviction procedures through the court. This process can be initiated on the 4th day after the tenant receives the notice.

The Formal Eviction Procedure

If the 3-day notice doesn’t result in the tenant paying the rent, or ‘curing’ the violation –or moving out, you can then proceed with the formal eviction procedure.

This involves filling out a few forms including JDF 99, or, Complaint in Forcible Entry and Detainer, plus a CRCCP Form 1A –Summons in Forcible Entry and Unlawful Detainer, and a CRCCP Form 3 –Answer Under Simplified Civil Procedure.

Once you’ve filed the complaint with the court, you have one day to mail a copy of all of the forms to the tenants. Do this via first class mail with prepaid postage.

Next, the court clerk will schedule a hearing. This is usually between 7 and 14 days from the date that the summons is issued. However, the tenants must be given at least 7 days between the date they are formally served and the court date itself.

The summons can be issued by the sheriff’s department or a private process server –or by another adult who isn’t involved in the eviction. If the tenants cannot be served in person, the papers can be posted on the door of the rental.

After the tenants have been served, they must show up in court, or file a counterclaim to the allegations in your complaint. If you’ve filed everything correctly and the tenants do not make a counterclaim, you may receive a summary judgment in your favor.

If the Tenant Contests the Eviction

If they feel they have legal grounds, a tenant may try to contest the eviction. They could do this by filing an answer on or before the time set by the court.

Some common legal defenses that a tenant may use include claims that you failed to maintain the rental unit, or that you are retaliating against them. Fighting an eviction could increase the amount of time that the tenant is able to stay at the rental property.

If the tenant files an answer with the Justice Court, then a hearing will be scheduled. A notice of the hearing date will be mailed to all parties.

However, if the tenant fails to answer or appear on the date indicated in the eviction papers, you can obtain an eviction “Order” by default.

If the Tenant Does Not Contest the Eviction

If the judge makes a decision in your favor, you can then file for possession of the property. To do this, you’ll want to complete the Motion for Entry of Judgment (JDF 104). After reviewing it, the court will give you a signed copy of the Order for Entry of Judgment (JDF 107).

Next, the countdown begins. The tenant will have 48 hours from the date of the judgment to vacate the unit. If they don’t, then you can then complete the Writ of Restitution (JDF 103) and present it to the court.

Once the judge approves it, they’ll contact the sheriff’s department to execute it; that is, to remove the tenant.

Removal of the Tenant: What Happens if a Tenant Refuses to Leave?

If the tenant hasn’t vacated the premises, then the actual eviction will take place.

You’ll receive a time and date from the court or sheriff’s department, stating when they will arrive to execute the writ.

You can then arrange to have the tenant’s personal property removed from the rental at the date and time that you received from the court. This is generally done with the help of a local moving company. You will have one hour to remove the tenant’s belongings, so make sure you will have enough manpower available to remove everything during this time.

On the day of the eviction, the sheriff will serve the Order to the tenant and then will remain on site.

In some jurisdictions, such as El Paso County, the Sheriff will generally “Pre-Serve” the tenant by posting a notice letting the tenant know they will be back to take possession. This is done to encourage the tenant to leave instead of waiting for the eviction itself to take place.

Keep in mind that the only person who is authorized to remove a tenant from the rental unit is a law enforcement officer. A landlord must never try to force the tenant out of the unit. If you attempt to, the tenant could take legal action against you.

Neither the sheriff nor the landlord has any responsibility to safeguard the tenant’s property once it is removed. If you find that a tenant has left behind personal belongings, you aren’t required to contact the tenant before disposing of them. However, if you do decide to store them for the tenant, you can charge storage.

After the Eviction

Once the tenant has been evicted; the landlord or property manager can take steps to get the property ready to rent again.

In most cases, the first step is getting the property re-keyed.

At this point, the cleaning and repairs can commence as well. This involves a walk-through inspection of the unit, taking note of any damage that the tenant caused.

You also process the security deposit that you obtained from the tenant when they first moved in. If there is any back rent owed or damage to the rental, you can apply the security deposit to this, and send the remainder to the tenant. Keep in mind that general wear and tear is not the tenant’s responsibility, and cannot be taken out of their security deposit.

If additional back rent or money is still owed, even after the security deposit has been applied, you can start the process of seeking this as well.

While evictions can be a stressful and often-confusing time, it’s important for landlords to ensure that they follow the law to the letter. Complying with the law will help the eviction proceedings to go much more smoothly. If you were to attempt to take the law into your own hands at any point, or neglect to send out the right form, a tenant could have a reason to contest the eviction, and the judge could end up throwing your case out. In this case, you may have to start the proceedings again.

Evictions are never pleasant but they do get easier over time. Once you have a clear understanding of the law and know the steps that are required, it’ll be a lot easier to navigate the process and ensure that you do so in a way that’s in compliance with the law.

If you’re not sure where to start, you could always consult with an experienced attorney, to make sure you’re clear on what’s required of you, and what steps you should take.

Note: The information in this article is intended to inform and educate, it should not be taken as a substitute for legal counsel. If you have any questions about the eviction process or your rights as a landlord please contact an attorney.

closing

Preparing for Your Closing – Checklist

You are getting ready to close on your house, but you realize that you may not be ready. Use this handy checklist to get all of your items ready for closing.

✓ Loan Payoff Information

If you have not already provided this information to your agent, our office will contact you regarding loan information. We will need the loan company, account number and the last 4 digits of your social security number(s).

✓ Prepare for the Home Inspection

The inspection is important for a number of reasons. The buyer will actually spend more time in the home during the inspection than they did during the actual showings. Please have your home in great condition for the inspection. Poorly staged or messy homes can quickly create buyer’s remorse.

✓ Inspection Items

In general, repair requests generated from the inspection will need to be done by a licensed contractor. We will assist in arranging contractors to repair the items.

✓ Receipts

Provide copies of all receipts at least 48 hours prior to the walkthrough to your agent.

✓ Prepare for the Appraisal

Your agent will arrange to meet the Appraiser at your home. Please leave the house in showing condition for the appraiser.

✓ Cancel Homeowner’s Insurance Policy

Please cancel effective the day after closing.

✓ Disconnect Utilities

Contact utility companies and arrange for transfer of service. Most companies will ask for the buyer’s name.

✓ Organize manuals

instructions, warranties etc. for the purchaser.

✓ Funds Notification

Let your agent know how you would like your funds.

✓ School records

Arrange to have the school records transferred to your child’s new school district and/or daycare.

✓ Veterinarian records

Arrange to transfer records to your new vet.

✓ Change Address

File a change of address. This can be done online at www.moversguide.usps.com

✓ Double Check House

Decide if you will keep your plants or give them away. Remember that plants cannot be loaded with your household goods.

✓ Remove Hazardous Wastes

Dispose of flammable, corrosive and poisons.

✓ Walk Through

Final Walk Through with Listing Agent.

✓ Confirm Closing

Check with your agent for date, time and location of closing.

✓ Photo ID

Bring valid Photo Id-Driver’s license or Passport is preferred.

✓ Keys and Garage Door Openers

Bring all keys, the garage door openers to closing.

Please do not leave items in the house you do not want or you do not know what to do with.

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