Welcome to Thursday, 28 September 2017.
It being Thursday, it's time to update you on what market rates were for mortgage loans over the past week in the US of A.
Every week on Thursdays, Freddie Mac compiles the stats for what mortgage activity happened over the past week, and reports what the average interest rate was and what costs the borrowers paid for that money, as follow:
30-year mortgages over the past week averaged 3.83%, and for that money, borrowers paid 0.6% in fees. That means that, for every $100,000 borrowed, people paid in points and fees a total of $600, and the monthly payment over the next 30 years will be $467.67.
15-year mortgages for the lender are less risky, so the interest rate is lower, this past week averaging 3.13%. Cost for that money was 0.5%. For every $100,000 borrowed, people paid in points and fees a total of $500, and the monthly payment over the coming 15 years will be $731.20.
5/1 ARMs are different. Adjustable Rate Mortgages are fixed for the first five years, then adjust to the marketplace each year over the final 25 years. This past week, borrowers of 5/1 ARMs signed at 3.20%, at a cost of 0.50% in costs. In real money terms, that's $500 for each $100,000 borrowed, resulting in a monthly payment of $432.47. Again, that payment is fixed for the first five years before an adjustment.
Not bad, considering that when the Bank of the United States was created in 1791, interest rates were about 7.00%. I'm happy .
Call me as you need. I"m always here for you if you're thinking about buying or selling your home or real estate investments.
Enjoy the day,
WK Real Estate
Thursday, September 28, 2017
Wednesday, May 3, 2017
As an owner of real estate in Colorado, you’re about to receive in the mail your assessment from the County Assessor, which is of course used to determine your property taxes for the year. Please sit down before you open that one. The increase in value might surprise you – and cost you. Then call me.
First, some history to make homeowners feel a whole lot better.
I had a wonderful thing happen this past year with a client. He found out that a home in Colorado was going to cost him much less than he expected.
We were talking about property taxes. Moving from New Jersey, where property taxes are very high, he wanted to know what the cost was going to be when he bought a home here. It’s always nice to know what you’ll pay for a property before you sign the documents.
The price point he was looking at was around $500,000 and he was ready to pay all cash. The monthly costs of owning a home outside of paying a mortgage was concerning him. After all, he would still pay for homeowner’s insurance, HOA fees, upkeep and property taxes.
I looked up a number of homes in the areas he was looking and showed him on my computer that the taxes would be about $4000, maybe $4500, depending on exactly which community he was considering.
“So about $50K a year,” he said. “That’s higher than I thought, but I guess it is what it is.”
I had the pleasure of telling him that he misunderstood. The $4500 tax amount I gave him was for the year, not one month. You should have seen his face. I could sell that picture on eBay.
His taxes on his $350,000 home in Jew Jersey were $28,000 a year.
Property taxes in Colorado are lower than many places in the country for a reason. It all goes back to 1982 with the passing of the Gallagher Amendment to the State Constitution.
Combined with the Tabor Amendment, here’s how it all works today.
Governments have to budget. They need a certain amount of money to do what governments do. If there isn’t enough money, they have to cut costs, because the public has to approve new expenditures. It’s why we vote during the election cycles to increase the number of mils for education, capital expenditures like building new buildings, etc., fire department expenses, transportation issues and road maintenance costs. Cities get some money, counties get some money, and the list goes on.
Property taxes in great part pay for those costs. If you didn’t pay property taxes, firemen and teachers wouldn’t get paid. New schools would never get built. It’s important, and we all want them to have money. Just not unlimited amounts of money. We as citizens can support the bonds that raise that money -- which we have to pay back over time -- or vote them down.
The County Assessor is tasked with deciding the market value of the real property in the county according to the rules set down by Gallagher. The market value may be determined in a limited number of ways, again only according to the rules in Gallagher. Each property of the same zoning designation is assessed by the same rules, with the goal of determining the fair market value. Those values are then handed off to the County Treasurer.
At this point, the county is divided into three separate worlds – residential, agricultural and commercial. Residential is where people live. Commercial covers retail stores, industrial and office properties. Every property is zoned in one of the three. Agriculture is mostly the rural areas of actively producing farm properties. Most important are the former two. I’ll ignore ag for now.
The intent of Gallagher was to maintain and eventually reduce the tax burden of residential property owners. Following is the tax collection structure that was created.
Commercial property is taxed on 28% of the actual property value. If a building is assessed at $1,000,000, the owner is taxed on $280,000 of that value. Multiply the number of mils that the voters have approved, and you have the yearly taxes that will be billed the property owner by the Treasurer.
Residential simply pays for the remainder of what’s needed to meet the budgets. If 1/3 of the tax monies are covered by commercial, residential needs only cover the remaining 2/3. Whatever commercial covers, residential must cover the remainder.
What’s happened in Colorado since 1982? Cities have grown in numbers not seen in our history. There are so many, many more homes out there now that all together help share the burden of that remainder, that the obligation of each homeowner has been reduced significantly.
The result today is that a $1,000,000 home is taxed on only about $75,000 of its market value.
Not possible, but true. That $1,000,000 office building pays taxes on $280,000 of its value. A $1,000,000 apartment building next door pays taxes only on $75,000 of its value. It’s the law.
As you drive around town through the commercial areas, you might think to quietly thank the owners of those buildings. They’re tax bills are almost four times what you pay on your home, dollar for dollar in value. Thanks to Gallagher, that’s tax money you as a homeowner don’t have to pay.
Finally, know that you have the opportunity to challenge that valuation. It has to be done a specific way, using comparable sales from a specific period of time and within defined parameters. Feel free to call me if you choose to challenge. I’ll send you the comparable sales that may help lower that tax bill.
Again, call me as you need. I’m always here for you.
Enjoy the day,
Wednesday, April 26, 2017
I love Madonna. Kind of. A bit racy for my tastes, but I think she’s very talented. And she taught me a valuable lesson about selling homes very early in my career.
Jim Bryan was one of my first bosses in the real estate sales business. I was only a couple weeks on the job when he told me to get in the car. He wanted to show me something important.
He drove to a neighborhood about five years old with a couple of homes for sale, and told me he wanted my opinion on the values. No problem. I knew the area well.
We walked into the first home and he told me to walk around and let me know what I thought. The entry was nice. You could see past the moss rock fireplace through the living and dining areas to the wall of glass in the back. From the deck, you looked over a quiet ravine with a creek below. The kitchen was modern, with stone counters and raised panel beech cabinets and all white appliances.
When I walked upstairs, Jim was in the first bedroom, staring at a poster on the wall.
“Who’s this?” he asked.
I had no idea. A huge stage with a rock band had a tiny little lady you could barely see in the middle of it all. She was obviously belting out a song and wasn’t wearing much. In the bottom right corner, I read “Madonna”.
“Oh, this is Madonna,” I said. “She’s the phenomenal new talent in the rock world. Very big deal.”
Jim just looked and said, ”I think people should wear more clothes in public.”
When I finished walking through the home, he asked me what I thought of the asking price. It was on the market for $84,900.
I knew this was a test, so considered my answer carefully. “I think that’s fair. This neighborhood will support that price,” I said.
Next house was three doors down on the same side of the street. “Let’s take a look at this one,” Jim said.
When we walked in, I knew it was the same floor plan, same size, same builder built in the same year. Nice rock fireplace, glass wall leading to the deck overlooking the ravine. Cabinets were raised panel. Nice appliances.
I found Jim upstairs in the first bedroom. Amazingly, he was staring at the exact same poster of Madonna on the same wall of the same room. These neighbors must have been good friends.
But it was different. This poster was matted, under glass and framed. The walls were painted a cream color. I started looking differently at the whole house. The furniture was leather. The rugs on the hardwood floors were beautiful Persian-style rugs with colorful patterns. All of the walls were painted in warm colors, and the rest of the art was actually art. Real oil or watercolor framed in beautiful wooden frames. Bookcases were stacked neatly, cut flowers in every room. Even the dining table was set for a dinner party of eight, with cloth napkins and wine glasses.
“So this one’s asking $89,900,” Jim said. “What do you think of that asking price?”
Again, I knew this was a test. After some thought, I avoided the inevitable trap and told him, “You don’t get the furnishings with the house. It’s the same house as the one down the street for $5000 less. I don’t see it at $89,900.”
“Which one will sell first?” he asked.
“You don’t get the furniture. The one for $84,900 will sell first.”
“But which one will sell first?” he asked.
“The one down the block.”
“But which one will sell first?” he asked. I got it.
“This one, obviously,” I said. “It’s a much nicer home.”
“Exactly,” he said. “Let’s watch over the coming weeks and see.”
Jim was right. The home that was staged beautifully sold three days later for almost full asking price. The other was on the market for two months longer, and sold for less than the $84,900 they were asking.
It didn’t make sense. The houses were identical, but one sold for significantly more money in much less time.
Statistics show that a buyer will make up his or her mind on whether or not to buy a home within 18-20 seconds after walking through the front door. A home either feels wonderful or not. It’s either home or not. The rest of the tour is commonly just verifying that there really are bedrooms and bathrooms.
Staging a home is critical in any marketplace. Sometimes remodeling or refurbishing a whole home, although perhaps expensive, is worth it on the bottom line. Sometimes it’s not. But always, cleaning and staging a home is critical. It is always worth every dime and every hour spent on it.
If you’re thinking about selling your home or investment property in the coming year, it’s time to call me. I’m happy to walk through with you and talk about what we might do to make those first seconds count. Fact is, even Madonna, presented well, can help.
Call me as you need. I’m always here for you.
WK Real Estate
Monday, April 17, 2017
Americans en mass are just this week finishing up their tax paperwork or picking up their returns from their accountants and tax preparers. Many are happily waiting for their refund, while others are cutting the dreaded check and mailing it off to the IRS. It’s a yearly ritual we all know well.
We should know it better. Taxes to me are like healthcare. We go to the hospital or visit our doctors commonly without having any idea what the actual cost is. Why bother? The insurance company pays the bill, so we never even look. For our taxes, why bother? We’ve been paying in increments through the year, so when we pick up the returns and send them off, it’s not as impactful as it would be if we had to cut that one big check to send off. Some people don’t even believe they pay taxes because they get a refund every year.
Huge mistake. Huge. If there is one place and time for an American citizen to sit down, learn something well and do it right, it’s all about the taxes. Most people won’t even believe what I’m about to write in this next paragraph.
Simple question. Take a guess. What percentage of all the money you make during the course of your entire lifetime will you pay in taxes and fees to the government? I’ve read many studies. The numbers are all over the place, but if you include all taxes and fees, I’ve read as high as 54%. More than half of all the money you make in your life is paid out in taxes and fees to the government. Wow.
Fact is, when it comes to financial security and your future retirement, it’s not how much money you make – It’s how much you keep.
Don’t think that’s a real number? Think it through.
Income taxes of course are on everyone’s mind right now, given the time of year. But that’s not all. In addition to the federal income taxes, which for most people are in the 28% bracket, you have state taxes (Colorado is one of the lowest taxing states in the country at around 6%.). While you’re at it, pay the FICA taxes for your future Social Security checks and Medicare benefits. If you own a company or are an independent contractor, (real estate brokers, accountants, attorneys, babysitters and daycare workers, Uber and Lyft drivers, landscapers or anyone who makes money without being an employee of a company or person), you pay self-employment taxes.
If you own a home, you’re part of the population that pays for our police and fire departments, schools, street maintenance, parks and pools and the mayor’s salary – anything that you vote on during election years to pass a new or extended mil levy. You pay those with your property taxes. It might be hidden in your monthly mortgage payments, but it goes to the local government.
People who invest their money wisely (stocks, bonds, mutual funds, real estate, puts and calls, options, hedge funds, derivatives, etc.) knows that you want to buy at a low price and sell when the price is higher. When you do, you pay capital gains taxes.
I sold my home in Washington state when I moved to Colorado many years ago. In that sale was a state excise tax of 3.2% of the selling price of the home. Thousands of dollars in a tax simply for the right to sell my property. Washington isn’t the only state that does it.
Those who don’t invest and live simply, just living from paycheck to paycheck without the hassle of investments, investment advisors and attorneys, keeping their emergency funds in a safe on the floor of the closet – end up paying a higher percentage than the more affluent. Sales taxes on just about everything take up a real chunk of your income. Wealthier people spend a lower percentage of their incomes on things they buy in stores. Sales taxes are close to 10% in some communities. When you buy a car, look at the contract calculations in the contract you sign. The sales taxes on that car would have paid for a lot of gas, but off it goes to your government.
Let’s not forget estate taxes. There are cases in the courts where people worth millions of dollars die, and their estates end up owing the government more than the total value of the asset base. The highest tax bracket for estate taxes hovers around 55%. If you try to leave your estates to your grandchildren, thinking to avoid paying taxes for at least this one transfer, the estate may end up paying an additional 55% in generation skipping taxes. Last I read, 55% plus 55% is more than the whole bucket.
We won’t even mention the little things that add up, like driver’s licenses, hunting and fishing tags, fees for driving into a park or using the local swimming pool. If you own a car, you buy the license tabs every year. It all adds up.
So pause as your money moves out of your wallet and into the marketplace. Listen carefully for that quiet sucking sound. A lot of that is taxes and fees that go to your government. Learning to structure your money and assets, along with your ability to keep accurate records for your accountant or tax preparer, could make a significant difference in your retirement plans.
I’ll be sure to include some of those strategies and structures in future communications. Meanwhile, if you’re looking to move soon, or thinking about real estate as an investment, call me. We should talk.
Enjoy the day,
Monday, April 10, 2017
There is a day for each of us when we suddenly wonder about how one retires. Most people assume that everybody works for a long time, until we notice that we have all this money available to us that we’ve slowly saved up over the years and we decide to give the bosses our notices. Perhaps we get tired of owning our businesses and begin to ask around about who might want to buy them? But until our financial planners ask us the fateful question (What does your retirement plan look like?), we don’t usually have a choreographed plan.
Having a choreographed plan is wonderful and helpful, but wow, it seems like a lot of work. In setting it up with a professional on the other side of a desk in an office setting, we have no idea what the correct answers are. How much money will you need on a monthly or yearly basis? Will any of your children continue to need money for support? When do you plan to leave the work force? Has your estate planning attorney made any recommendations?
Might as well ask what the weather will be like on your birthday next year.
Know, though, that this is not a little thing. It’s a huge thing. The more we do to actively move toward that time, the better. So let’s start with just one thing. The first step.
We assume that we will need some money. Forget calculating out how much, based on what we think we would need if we retired today, and then guess at what the inflation rate might be over the coming few decades. Let’s just assume for now that you will need a certain amount of money.
Our initial plan then is to accumulate that money. How do you do that in an organized plan-like kind of way?
Each person or couple is different in his or her needs and expectations. Some people are starting from scratch, some have a few hundred thousand dollars, and some don’t know. But we have something, along with an income. It’s that income that we can use for now to begin.
Choose what percentage of that income you will save and invest. That’s it. Look at all of the money that comes in over the coming years, in whatever forms (wages or salaries on a monthly basis, profits from selling whatever you’re selling, commissions, bonuses, inheritances, the duffle bag full of cash that you found behind the shed, or anything else that presents itself). Every time a sum of money, large or small, lands on your plate, multiply by that percentage and throw it into your retirement account. Period.
Your next question, I’m guessing, has to do with how you decide on what that percentage number will be. That’s up to you, but there is some common sense thinking you might use.
If you are a newly graduated student with an MS Degree, 25 years old and happy with a job offer, perhaps 10% is fine. You have plenty of time to work and accumulate, and with time on your side, you’ll be making a considerable amount of interest or capital gain on those investments over the coming decades. If you make a big mistake and lose a formidable sum of that money, you have time to recover.
If on the other hand, you are 60 years old and recovering from a huge financial hit, you may be realizing that you need to start over without the luxury of time. Maybe 50-60% of your future money needs land in that account.
It’s also possible that you will be more successful and accumulate more money than you expected. Know that you are allowed to retire at the age of 40. There is literally no one monitoring this thing.
Rule of Thumb: Have some fun in life, but when it comes to savings from your income, make it hurt at least a little. Again, this is important. More faster is better than I-wish-I-had-realized-sooner.
All you need right now is that number. What percentage of my income, in whatever form that comes, will I shave off the top and put towards my retirement. That’s a great start.
And maybe you should put that duffel bag full of cash back behind the shed. That might not be yours.
If you’re thinking about buying a home soon, or moving for any reason out of the home you own, call me. I’m always here for you.
Enjoy the day,
Wednesday, April 5, 2017
People buying homes and real estate investments today are just plain lucky, and there’s a very easy reason for it. The law has moved dramatically to the buyer’s side.
I don’t consider myself elderly (older, maybe, not elderly), but I will write that I’ve been in this business of selling real estate for well over 30 years. During that time, the way the professional community around me is expected and required to conduct itself, by law, has changed dramatically. The most significant part of that evolution has everything to do with the word “fiduciary”.
So what is that? And what does it matter to you as a home buyer or seller?
Back in 1984 when I began, sellers would call us when they wanted to sell their homes. We would of course help to value the property, sign the listing contracts and put the information in the MLS for other brokers to find.
The MLS (Multiple Listing Service, where all the listings from all the brokers are available for all the brokers to see) consisted of a big, fat book that looked like the old phone books we all used. It was printed and distributed every two weeks, and when it arrived, brokers all over town took the time to pour over it, noting what was new and what was no longer available. We didn’t have the updated-by-the-minute computer tools we have today. The book was everything – the entire market, current to the moment that book came off the press.
In that book was one black and white photo of the front of the house for every listing, situated at the top of a 3-inch square of information about the home. At the bottom of that square was the seller’s name and phone number, which we called to make appointments to show homes.
Wow. I just wrote that real estate brokers working with buyers were expected to call the sellers directly and talk with them to make appointments to show the sellers’ homes. If I called a seller directly today, I’d be in front of a state Real Estate Commission hearing panel defending my license to work in Colorado. I’d lose, because pleading mental incompetence is not an option.
Here’s the reasoning behind it all. At that time, the law read that all real estate brokers were agents of the sellers. There was no buyer agency at all. No buyer had a real estate agent representing or negotiating for him or her. Every agent was on the side of the seller. When I picked up that phone and called the seller to make an appointment to show the home, I was talking with the person I represented, for whom I negotiated. In short, I had a “fiduciary duty” to the seller, not the buyer.
Almost all of my time was spent with the buyer, finding out what kind of home she might like or love, whether or not financing was available and under what conditions, whether or not he qualified for that mortgage, driving around showing homes, getting to know each other sometimes over weeks or months. It might be a friend of mine, or someone who had bought a number of properties through me over the years, perhaps even a relative.
But I did not represent the interests of that buyer. If my mother worked with me to buy a home, I negotiated against her interests, and for the seller. That was the law.
If that buyer fell in love with a home and told me to write an offer, and said something like, “Wow, I love this home. But let’s see if I can get it for less. Let’s offer five thousand dollars less. If the seller insists, I’ll pay full price because I love this house, but let’s try this first”, I had to tell the seller that the buyer would pay full price. Just counter the offer and I’ll have him sign it. It was the law.
That was a long time ago. Since then, we’ve gone through many iterations of agency. As an agent of the seller today, I work for and negotiate for that seller, adversarious to the interests of the buyer. I am his “agent”. If I work for the buyer, I am an “agent” of the buyer, adversarious to the interests of the seller. I have a “fiduciary duty” to one party, either the buyer or seller. It’s the same as an attorney or accountant. My duty is to the benefit of one party.
What it comes down to is this. As a seller or as a buyer, you have a choice. Do you want a professional to advocate for you, to negotiate for you, to represent your interests in the transaction? If so, you must legally hire that broker to represent you, at which time he or she becomes your agent. You do that by signing an Agency Contract (Listing Contract or Buyer Agency Contract). If you don’t, that broker must act as a transaction broker, meaning he or she cannot more zealously represent either side. She cannot negotiate more energetically for one party over the other. He must not advocate for one side, to the detriment of the other. Perfectly legal and acceptable, as long as the broker has disclosed it to the parties.
I very much prefer being a seller’s or buyer’s agent. I want to work for you. I want you to win. I want you to think that working with me was a very good decision on your part.
In 1984, I legally couldn’t do that for a buyer. Not even for my own mom.
If you’re thinking about a move, or that real estate might be a good investment for you, call me. We should talk.
Enjoy the day,
Monday, March 27, 2017
People buy homes and real estate investments through me all the time, and a bit more than 80% of my clients need or choose to secure mortgages. When they’re looking to spend hundreds of thousands of dollars (and at times even more), it’s hard for most people to find that kind of whoop-out money to pay cash.
That means that most buyers are in the position to have to ask someone to give them a lot of money. We don’t think of it that way, but that’s what it is. You walk up to a stranger and you ask for a great deal of money so that you can buy something you don’t right now have the money to buy. In that situation, choosing that person carefully is very important.
So who lends that kind of money? You have at least two sources, maybe three.
Firstly, the family or very good friend option. You may have a rich Uncle Jim. If you do, that’s wonderful, I hope. Understand, of course, that I’m going to need to talk with him to set this whole thing up, because the real estate broker representing the seller of your next home will want to know that this guy is real. If he is, we can make this happen. No rules. The money is either there or not. He’s either willing to give it to you or not. You either agree to repay him or not, and on what terms is for you guys to discuss. I’m happy to talk everyone through it.
If you don’t have that option, you have two others -- mortgage brokers and mortgage bankers. There’s a difference. In one way. Then again maybe the difference isn’t so important.
Mortgage bankers work for the lender – not for you. The lender may be a huge bank, but as easily a smaller local credit union. The point is, that person behind the desk is not working for you, but for the company that hired him. He’s an employee. He gets paid by the company for improving its bottom line by selling you a mortgage.
That sounds bad, but keep in mind that that person’s paycheck doesn’t land on that desk until you buy that loan. That person has a real interest in doing right by you, by finding the right loan in the right amount, and on terms that make sense for your financial situation. If he’s a good person who’s good at his job, you’ll get a good mortgage.
Some of those banks are able to offer wonderful opportunities for specific groups of people. Some have very beneficial features in loans to military people, or union members, or first-time buyers, and especially to people who have a lot of money invested in that particular bank. The rates are competitive, and they get the job done. It’s well worth the look.
A mortgage broker on the other hand does not work for the lender. She works for you, and has a fiduciary duty to represent you in the greater marketplace. She’s like me in that I don’t own all the properties I show you. I’m brokering the sale for you in a transaction with a person who does own that home. The mortgage broker and her company don’t have a vault full of all that money to lend you, but negotiate with the financial institution that does have it. She has the ability to negotiate with any number of lenders in the marketplace, and is tasked with finding and negotiating for you the best mortgage out there.
That sounds wonderful. Why would you not want someone working specifically for you?
Answer: If your neighbor’s kid just graduated from somewhere and became a mortgage broker, would you run in to see him about negotiating your next multi-hundreds of thousands of dollars of debt?
The point is that these two options (I’m passing on Uncle Jim for now) are significantly structurally different, but not that much different in a very practical way. Most important is that you always hire the best person. Always work with the person who honestly and ethically wants you to come out strong and secure. Always the person who has the experience to make it happen for you, who knows what challenges need be addressed and how to deal with them. Always the person who can meet the goal.
The good news is that I know many of them. I’ve worked with them on transactions with other buyers and sellers. I know who has performed, and who hasn’t. I’ve seen the mortgages they’ve negotiated or provided. I can pass those names and all of that information on to you.
In the alternative, you can always ask your relatives if there’s a rich Uncle Jim in the family.
Call me as you need. I’m always here for you.
WK Real Estate