Zillow Enters the Buyer and Seller Market in Denver with Cash Offers

While some claim Zillow is a disruptor on the real estate scene with their Zestimate (of note I composed a blog about this: The Internet Says My House is Worth) now the firm is launching Zillow Offers where Zillow will begin buying and selling homes with their own money.

While I personally tried the option with a few addresses and told the system does not yet participate with those addresses, the following is how the system is supposed to work:

A prospective seller would enter their address onto the Zillow website;  Zillow comes back with an initial offer approximating the home’s worth (similar to how one can obtain a Zestimate as present). If the seller likes the valuation, the company sends an estimator out to the home to calculate a more precise value and make a formal offer.

The seller can pick a closing date between two weeks and 90 days out. Zillow said its research has found that timing the sale of a home with the purchase of a new one is a top concern for sellers, and said the program will let sellers avoid “the extra work and time associated with a traditional sale.”

After buying a home, Zillow will list it for sale. Of note Zillow hired Denver’s Atlas Real Estate Group to provide agents that will represent the company in its purchases and sales.

As an experienced real estate broker while I am intrigued by the spin placed on the concept by some very astute public relations and marketing employees (and of note I am an alum of Edelman Worldwide), guess what the concept is far from innovative or disruptive.

• If you have ever received a mailer advising you can sell your home for cash, no inspections, as-is and so forth, not too dissimilar.
• Nationally a franchise titled “We Buy Ugly Houses” has been in the market niche for years.
• Fix and flippers, investors and so forth have been doing this type of prospecting since real estate became a tangible investment and money-making opportunity.

Granted Zillow may make the process easier i.e. input and address and receive an approximate value and if interested an estimator will come out and review, confirm and so forth. I would assume the estimator will like most real estate brokers review comps, look at the condition of the home and so forth to ascertain a valuation.

Yet my concern for prospective sellers; are they taking less capital in return for convenience? True one does not have to list, stage, have showings and so forth. However as brokers we do this for our sellers and our fiduciary duty is to our client to achieve the highest and best offer(s) for their home.

If a seller advises they are in dire straights, desires a delayed closing, wishes to cash out and so forth as licensed real estate brokers we usually have options for our clients to make their sales transaction as seamless and profitable as possible. The reality is Zillow Offer participants are NOT offering their home to the overall market and thus may not realize the true market demand and value and thus accept less than the house is worth on the open market.

There are circumstances when Zillow Offers and similar opportunities makes sense including but but not limited to estate sales, sellers who may be in financial distress, those needing to move or relocate quickly and so forth. However again most licensed real estate brokers will meet with their clients, ascertain their motivations and formulate options and opportunities to secure the highest and best payout.

Granted by selling via Zillow Offers or similar outfits there is no commission. Yet again is the seller getting the highest and best for their transaction (and of note, commissions paid go against one’s basis in the property and thus a tax advantage).

I do believe Zillow Offers is correct on timing and markets i.e. mid-size. With Denver moving towards more equilibrium between a sellers market and a buyers markets and eventually may move into a Buyer’s market Zillow Offers may offer the correct alternative for those wishing to sell quickly, avoid a commission and desiring flexibility concerning closing dates. Yet for every convenience and potential savings i.e. commissions and time is the seller being short-sighted concerning values and potential capital gains?

 

 

 

 

 

The Time of Year to Winterize Personally

While NOAA suggests winter 2018/2019 if forecast to be mild in Colorado we can never truly be prepared for what winter can bring us from a Thanksgiving Blizzard to wet snow measured in Feet in March. Thus it is never to early to personally “winterize”. I am not going to go into details concerning cleaning of gutters, heat tapes and so forth, instead the following is to make the season of cold and dark more palatable for your personally.

If you do not read the full blog be sure to consider the following hand-cranked radio and USB power: FRX3 Rechargeable Hand Crank AM/FM/NOAA Weather Alert Radio.

Shovels: In The City and County of Denver if you own or rent a home you are responsible for clearing the sidewalk of snow and ice within 24 hours of the snow stopping (4 hours for commercial properties).  Personally having had a driveway bisected by a sidewalk AND an additional sidewalk on the rear of my house I had literally double-duty concerning clearing snow AND as a dog person I try to avoid using salt or related chemicals. A suggestion for a snow shovel: The True Temper 18” Ergonomic Mountain Mover. On a few occasions I did consider purchasing a snow blower but with lack of storage space and with the few major snow dumps receive in Denver I could not justify.

Insulation:The reality is one is not going to install full house insulation post construction however any opening to the exterior i.e. windows, doors, vents and so forth allows cold air in and warm are to escape. Even in my circa 1984 house with R-33 Walls and Ceilings I still went through every fall checking window seals, door frames and vents to see where I could seal against the elements with weather stripping, door sweeper/draft buster caulk, plastic sheeting and so forth. While you may not notice the savings on your gas bill you will be more comfortable. The following video from Lowe’s concerning window weather stripping is helpful and most items can be found in any hardware store from local to national chains.

Power Loss:  Even though most of Metro Denver uses gas for heat and can have demand, electrical is more vulnerable due to overhead lines being weighed down post heavy snowfalls i.e. limbs of trees taking down the lines.  While in my future home I plan to install a back-up generator at present in my condo situation not a viable plan.  In the two years I have resided here I have been through three (3) power disruptions including one that lasted in excess of 6 hours.

An accessible flashlight is a must. I have a few that are rechargeable and plug into a wall outlet thus in the dark easy to find. While used for outdoor pursuits for prolonged blackouts an LED lantern is a great option and safer than candles, just make sure batteries are fresh. Consider a head lamp if planning to be outside i.e. walking the dog. When there is a power outage the darkness sans streetlamps and porch lights can be uncomfortable. Also the headlamp will make you more visible to others including those in cars.

A portable USB and larger USB Battery Pack is invaluable. The portable is perfect for cell phones as many towers have battery back up. Granted your Wi-Fi will probably be down but you can use your cell signal for news and information. The Of note and I know old fashioned a cheap battery powered radio can be an invaluable resource when all the new technology is rendered useless due to a power outage. The larger USB Battery Pack is a better option for Tablets and Computers.

Finally a Cooler, you know the one in your garage that needs to be rinsed our and disinfected. Personally I keep gel ice packs in my freezer at all times. In addition to use makes the freezer run more efficiently. However during a power outage the combination of the ice packs and a cooler may save your perishable foods and extend their freshness and avoid spoilage. Remember open and closing the refrigerator will only exacerbate the loss of cooling AND the light inside will not work.

Finally mentioning fashion in the Headline, if converting your closets to the season and have extra coats not planning on wearing please consider donating to Coats for Colorado or a similar entity to provide to those in need. As my wardrobe skews towards business attire I also donate to Step 13 in Downtown Denver

Next week back to real estate activity…..

Taking a Loss on Real Estate it Happens

With the run-up in real estate prices in Metro Denver since The Great Recession we are finally witnessing the cooling of the market memorialized in the New York Times a few weeks ago in an article titled: Housing Market Slows, as Rising Prices outpace Wages.

While those sellers who have owned their residences for over 3 years are probably fine with selling and gaining  a small profit; over the past few months I have written about a few residential sales which has actually taken a loss via actual recorded sales price and additional losses when factoring in commission and of course inflation which seems to rarely be factored into the transaction.

In the present environment of housing prices adjusting downward, interest rates continuing to increase and signs of instability in the equities markets those taking losses on their residences may become more commonplace depending when they purchased and how motivated they are to sell.

Of note in general a loss on the sale of a home is NOT deductible on one’s income tax. In general a loss concerning real estate is only deductible when the property has been used for business or investment purposes. One tip if a loss may be forthcoming consider turning the residence into a rental and then sell; the property is now considered related to investment. Of course one would need to consult with their professional tax advisor or financial planner to ascertain the legality and proper filing but this is an option.

I predict we will start seeing some losses on homes in the Denver Metro area that had been purchased within the last 12-36 months when the market seems unstoppable concerning price appreciation coupled with historically low interest rates. While it may seem counterintuitive when the employment market is at its zenith that housing should be lagging yet that is generally how the market behaves. This is partially due to interest rate impacts, inflation eroding the value of money and other factors. This is not a new phenomenon; happens with every business cycle. This is why longer-term holds on housing usually generates a hedge against inflation but the key is long-term i.e. 7,10, 20 years out. A few examples if I may including my personal residence.

Two years ago (April 2016) I sold my personal residence for $535,000. The net after commission and closing costs was $520,000 (and no I did not pay myself a commission).

I purchased the house in October 1989 for $140,000 or $266,692 in inflation dollars. Thus my actual net gain was $253,308….no I am not complaining. On a monthly basis I made about $800 +/- and when factoring in taxes, maintenance, upkeep…..lets just say I had a house over my head.

Now when I bought the house in 1989 the Denver housing market was in a deep regional recession two years post Wall Street Crash of 1987. The seller of the house actually bought the residence in 1984 for $200,000 from the developer, another high-point of real estate in Denver that decade, here are the inflation adjusted #’s:

• 1984: $200,000 (or $238,566 in 1989 Dollars)
• 1989: $140,000

Thus not including commissions in real dollars the seller not only took a $60,000 loss from his purchase to the sale in 5 years, when factoring in inflation i.e. $38,566 and commission (6% at $140,000 = $8,400) the seller lost $45,000+ or almost a quarter of the value of his home in that 5 year period and the loss was not deductible.

As mentioned I sold the house in April 2016 for $535,000.

The buyers actually resold the house in June 2017 for $560,000 due to a relocation thus even after commissions and closing costs they did OK. From what I understand the new owners plan to reside long-term and thus are somewhat insulated from the pending adjustments in housing prices I believe will be headwinds in the near future.

Denver is not unique in this situation. In New York where I also hold a license there was a major loss on a truly trophy condominium apartment as follows:

The single biggest sale last month (September 2018), at $42 million, was a penthouse covering the entire 77th floor of One57, the vitreous skyscraper in the heart of Manhattan’s Billionaires’ Row, at 157 West 57th Street. Monthly carrying charges are $15,214. The unnamed European seller took a loss, however, having paid nearly $47.8 million for the unit in May 2015. The 6,240-square-foot apartment has four bedrooms and five and a half baths, not to mention breathtaking views.

While a $6M loss is painful when you consider the apartments were delivered with interiors unfinished, at that price-point you bring in your own designers and architects which can easily add $500,000 to $1M+ in finishes AND the monthly carrying charges i.e. HOA fees ranging increasing from $12,500/month to $15,214 at the time of sale that is over $150,000 annually just in common charges or another $500,000 paid during ownership. Thus all losses are relative; as we say on Wall Street you will never sell at the high and buy on the bottom.

A house is a home and should not necessarily be considered an investment or a hedge against inflation, it is shelter first and foremost.

Denver weather chills as does the real estate market and my visit to Hong Kong

While some brokers continue to suggest the recent slowdown in sales and significant and immediate price reductions is seasonal (and they may be correct) a few outlets are advising the slowdown in the market may be more serious. An article from The New York Times titled  Housing Market Slows as Rising Prices Outpace Wages provided their national and international readership with an interesting overview of Denver which is not flattering. Even during my recent trip to Hong Kong more than one person when realizing I reside in Denver mentioned the article.

Related according to the monthly report from the Denver Metro Association of Realtors: In September (2018), housing inventory continued to move higher, even though it typically decreases this time of year, and home prices dropped nearly 5 percent since its record-peak highs this past May and June. Good for prospective buyers not necessarily welcome news for sellers.

Some of my readers have advised privately that I am a pessimist as I have been advising a downturn or the moving towards a more stable market. I do not consider myself a pessimist; more a realist. With 20+ years as a broker literally been there and gone through that. While I too have been impressed with the most recent expansion post The Great Recession I have been concerned about headwinds in the market from out-migration to increasing interest rates to incomes lagging housing price appreciation.

On the lighter side Hong Kong was as usual a frenetic, dynamic city which continues to be considered the most expensive housing market in the world. If you are feeling cramped in your residence or being priced out of the local market, the following quote excerpted from an article concerning a participant in the government sponsored Hong Kong housing lottery may change your prospective.  As published in The South China Morning Post ”

(Above a housing block in the Quarry Bay neighborhood on Hong Kong Island)

“Feng Xinmei, a 46-year-old part-time construction worker, said she, her husband, two children and mother-in-law rented a 200 sq. ft. subdivided flat for HK $8,000 a month.”

To place this in prospective, a undivided flat means the 200 sq. ft. Ms. Feng rents is part of another apartment. Their rent in US Dollars is $1,021/month. The average hotel room in the United States is 325 sq. ft. or 125 sq. ft. larger than the living space for this family of 5!

While I have in general been against the concept of slot homes due to its impact on the existing urban fabric of traditionally single-family and duplex neighborhoods; all of a sudden Hong Kong makes such density look palatable even preferable.