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Buffett Says Buy

Warren Buffett, the “Oracle of Omaha”, is bullish on the housing market.   In several recent interviews, Buffett commented that real estate has significant upside in the future.   Buffett’s opinion is based on several factors including the historically low interest rates for purchasers.  Buffett believes that housing as well as stocks what he considers “productive assets” compared to treasuries and gold.   He also believes they have greater upside potential that gold.  He commented that if he could figure out a practical way to do it, he’d “buy up a couple hundred thousand” single family homes.

Another factor he cited was the forecasted increase in households as the economy improves.  During the recession, people moved in with parents, in-laws or others to save costs.   As the economy improves, many of these people will strike out on their own.  The estimate for household formation is 1.14 million compared to about 609,000 new housing starts.   The imbalance will create demand for existing homes and help absorb the excess inventory of resale homes.

There is not an excess of homes in all areas.   In Boulder County, our inventory is well below prior years in most areas.   This trend is also true in the greater Denver area.   In the Boulder area, some cities like Louisville have about half the “normal” inventory and homes are selling before they are in the MLS.   We have actually seem a few competing offers the last couple months!   The first quarter statistics for Boulder County show stable prices and numbers of homes sold on par or better than the last several years.   The one area that is still lagging is the mountains.  For the details on the individual areas in Boulder County, visit the statistics page on our website.

If you are thinking about making a move, its a great time to take advantage of the lower inventory and great rates for borrowers and investors — give me a call at 303-402-6000 or email me karenb@bernardirealestate.com

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Home Auctions — What to Consider

In our current real estate market, buyers and sellers are sometimes using less traditional methods to buy and sell homes.   It is possible to buy or sell a home at an auction.  Sellers can use an auctioneer to sell their homes — even eBay has a way to sell a home!   Lets examine when an auction might be a good idea for a seller….

Auctions can be a legitimate tool for certain sellers.   Auctions can result in the sale of a property faster than a “normal sale” — there is a defined marketing period, the auction and then a fixed number of days to close.   A property could be marketed for 30 days, have the auction held, and then close in 30 days.   An auctioned property could close in 60 days.   The average days on market for listed homes in many areas is much higher.  There are a couple other advantages to an auction that make it a speedier process — properties as sold “as-is” and are not conditional on financing.   Buyers cannot cancel the contract because they cannot get a loan or they find out the homes needs a new roof — the buyers generally will lose their deposit should they back out prior to closing.

Sellers are generally responsible for the cost of marketing a property to be auctioned.   An auction relies on having lots of potential buyers that want to bid in order to get the maximum price so exposure of the property is key.   The property should be advertised through as many mans as possible — print, direct mail, online, and signs.   An auction company may help with this aspect but this is generally a charge to the seller upfront.    Generally if a property is listed by a real estate broker, the broker covers the cost of advertising.   An additional advantage to marketing for an auction is that “showings” would be very limited — perhaps to a 1 or 2 day preview so there would not be a long period of keeping the home tidy and dealing with numerous showing appointments.

The cost for the auction itself is usually a buyer cost paid as a premium to the purchase price.    This is different from most real estate commissions that are normally paid by the seller.

Sellers can set a reserve price for the property.   This is the minimum acceptable bid for the property.   This amount should be sufficient to payoff all the liens on the property so a clear title can be delivered to the buyer plus cover any other required fees for transfer of the property.   If the liens on the property exceed the market value, an auction will not be possible unless the seller has additional funds to payoff the existing liens. 

Buyers are also considering auctions as a means of buying homes.   Can you get a bargain??   Probably not but you might find a reasonable deal.

Buyers considering buying at an auction need to consider two big issues — you must have the money ready to go and the properties are sold “as-is”.   So what might be an advantage to the seller is a disadvantage to a buyer.   Properties can be either a foreclosure auction or the type of auction described above.

Financing a property obtained through auction can be tricky — banks will generally not give you a mortgage for an auction purchase.    Mortgages are hard enough to get for a “normal” purchase.   It is possible to get hard money loans from investors or other sources but the interest rate is usually much higher that a purchase loan — somewhere between 12 and 18 percent!!   If you do not have a large down payment, financing the property may be almost impossible.   The financing need to be arranged before the auction — some states require payment within days on foreclosures.

The condition of the home can also be a major consideration.   Homes sold at foreclosure auctions may not be available for inspection — you might not be able to inspect the interior of the home at all.    If the seller is auctioning the home, there would probably be an opportunity to at least view the inside.   The normal inspection that most buyers do that would involve a more detailed look at plumbing, heating, roof, etc is not possible on many properties being auctioned.

One further caveat on foreclosure auctions — NEVER buy a lien that is not in first position or you might lose all your money.  The first lien could foreclose and all the subordinate liens would be wiped out!   Foreclosure sale homes come with all existing liens — tax liens, mechanics liens, etc.   It is a good idea to get a title report prior to bidding.

If you have additional questions, give me a call at 303-402-6000 or email me at karenb@bernardirealestate.com

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Short Sales, Loan Modifications and Taxes — Act Now

Many people are unaware of the potential tax consequences of a short sale (or foreclosure).   A short sale involves selling a property for less than the amount owed to the lien holder.   The tax code considers a short sale a “Debt Cancellation”.  When a lender cancels or forgives a debt, the difference between what the lender was owed and the amount they received to cancel or forgive the debt  may be taxable.   For example, assume you owe $250,000 on a mortgage and subsequently sell the property via a short sale for $200,000 and receive forgiveness for the $50,000 difference — this amount could be taxable income.

Loan modifications — renegotiating a loan — that result in a reduction in the loan balance may also be taxable.   Effectively, a reduction in the balance of the loan may be taxable as forgiven indebtedness.  Foreclosures may also result reportable income.

Luckily, the Mortgage Debt Relief Act of 2007 allows many homeowners to exclude the forgiven debt in many circumstances.  Several conditions must be met for the forgiven debt to be excluded form income.  First, the indebtedness must have applied to a qualified principal residence.  Second, the indebtedness must had been secured by the residence.   The amount excluded from income is limited to $2 million for married taxpayers or $1 million for single taxpayers.  Finally and perhaps most important, the debt must be forgiven in calendar years 2007 through 2012.

For homeowners considering short selling their home, the tax consequences may be significant.   If the amount of forgiven debt is $100,000, there may be no tax consequences if the closing occurs this year (2012).   If it closes in 2013, the $100,000 may be taxable and depending on an the marginal tax rate, could result in tens of thousands in taxes due.

Of course there are forms and additional rules to be considered.   More details can be found on the IRS website — it included links to the required forms and complete information on what debts qualify.  Of course each person’s circumstances vary and consulting with your tax professional is advised.  If you have questions about the short sale process or are considering a short sale, give me a call at 303-402-6000 or email me karenb@bernardirealestate.com

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Boulder Real Estate 2011 — Year in Review

With 2011 behind us, we can look back and assess the ups and downs.   It’s also a good time to remember that real estate is a VERY local market.   The national headlines about prices, units sold , permits pulled, etc seldom match the Boulder area facts.   In our area, we see differences in mountain and plains properties compared to Boulder, Louisville, Superior and some of the other “towns”.   Even within a city — like Boulder — we can see differences in sales in areas or price ranges.

Overall prices in the county have stabilized and the number of units sold is up very slightly in 2011 compared to 2010 and 2009.   The inventory — the number of homes on the market — is low and in some areas, like Louisville, the lowest it has been in years.

 

 

 

 

 

 

 

The average price of homes sold has been fairly stable over the year — a few up and downs — but fairly stable.

 

 

 

 

 

 

The charts for each of our local areas — City of Boulder, Longmont, Louisville, Lafayette, mountain and plains can be found on our website: http://www.bernardirealestate.com/Boulder_Home_Sales_Statistics/page_2243790.html

We are seeing an improvement in the number of showings and in homes going under contract.   The spring selling season is approaching.  If you are thinking of selling this spring, give me a call to discuss the recent activity in your area — 303-402-6000 or send an email to karenb@bernardirealestate.com

 

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Buying distressed properties — are they a bargain??

Even in the Boulder area, we are still seeing a lot of bank owned homes and sellers in distress.   While we do not have the same numbers of distressed homes as Florida, Arizona, Las Vegas and other really hard hit areas, there are short sale homes and bank owned homes in our area.

First, lets break the distressed properties into two groups — bank owned and owners in distress.

The bank owned properties are pretty straight forward — the bank now owns the house either through a foreclosure process or the owner has “given” the house back to the bank through a “cash for keys” program or a deed in lieu of foreclosure.   Bank owned homes are generally in “as-is” condition and may have had the utilities turned off.   The banks generally do not have any information on the condition of the home or the systems in the home (plumbing, electrical, heating, etc) so there will be no disclosures.   Buyers can inspect the home but may incur costs for turning on the utilities and getting them turned back off.   The inspection may disclose big issues with the property and the bank MAY reduce the price but will generally not fix anything.

The price a bank will take can really vary — the longer it sits on the market the lower the price may get but we have not seen banks selling a huge discounts below market value.  Generally, the discounts have been indicative of the condition of the home compared to comparable properties.   The good news is that banks generally act on offers pretty quickly and the process after that is usually smooth on the bank’s side.

Distressed owners fall into two categories — those that owe less than the market value but are having trouble making payments and those that owe more than the house is worth (this is a short sale).  If the owner is facing a short sale, the process can take several months and involves the owner’s lender approving the sale (there can be multiple lenders and that can extend the timeframe).  If it’s a short sale, the property will generally be “as-is”.  The lender (or lenders) will obtain an estimate of the market value of the home (sometimes called a BPO) as part of the process — they will use this estimate of market value to insure that the home is being sold for a fair price (not too much of a bargain).

If the owner can payoff their loans, the process can be fast but the owner may not be in a position to make any repairs should any major defects be found.

The basic rule in buying distressed property is buyer beware — the sellers of distressed properties will generally be “as-is” and may have a number of defects and deferred maintenance issues.   If the price reasonable reflects the condition, there may be an opportunity for some “sweat equity” but the days of “fix and flips” are over and they don’t seem to be on the horizon — yet.

If you  have questions about bank owned homes or short sales, give me a call at 303-402-6000 or visit our website at www.bernardirealestate.com.

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2012 Boulder County Economic Outlook

The Leeds School of Business recently released its assessment of the economic outlook for Boulder County.  While there are areas of the economy that are still lagging, there are many areas showing some positive signs.

The Boulder area has not suffered as much as many other areas because the local economy is stabilized by a world-class research university, several major federal laboratories, a well-educated workforce, a very favorable quality of life and a history of visionary entrepreneurs.  The Boulder area has been an incubator for emerging industries in the past — technology, biotechnology, alternative energy, etc.

Employment in the county has increased slightly faster than the population.   The number of non-farm jobs increased 1.9% from September 2010 to September 2011 while the population has increased an average of .86% per year.  The average wages in the county ($64,314) are higher than the state  ($55,945) and national ($51,222) averages.   The unemployment rate in the county is 5.9% compared to about 8.8% nationally.

We continue to see some expansion in several different industries.   The aerospace industry continues to be a bright spot in the economy several large employers, the federal labs and university all help create an atmosphere where start-ups can thrive.  Biotechnology also benefits from a strong existing base of employers and will benefit from the completion of the new Biofrontiers Institute at CU.  Other strong areas include information technology, natural and organic products, outdoor products and recreation and clean/renewable energy.  There are also signs that venture capital is now flowing back into our area with a reported $96 million flowing in during the third quarter of 2011.

Real estate is still limping along.   Commercial vacancies in some sectors are down but in some area up.   Residential activity is terms of number of units is down slightly over last year.   Prices have declined slightly overall but this may be partially due to the assortment of homes selling — more moderate priced homes are selling compared to prior years when there were more units sold at the higher prices.   The rental market is very strong and residential vacancy rates are very low.  As has always been the case in Boulder County, individuals cities and towns vary from the county as a whole.   If you are interested in the price information for your particular area, let us know — email us at info@bernardirealestate.com or give me a call at 303-402-6000.

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Real estate as a economic booster

I recently ran across an editorial in the local Boulder paper discussing real estate sales as an economic booster. The writer pointed out that during her process of buying a home, she contributed to the economy by employing a real estate broker to help her with the purchase and a contractor to do a few fix ups after she moved in. By buying a home, she helped the real estate broker and the contractor make a little money.

As I thought about the economic impact of selling just one home, I can see much more impact on many more people. The home buying process starts with a homeowner putting their home on the market — usually after doing some sprucing up of the home and perhaps some decluttering. So the local hardware store might have sold a few items, a handyman might have picked up a little work, and maybe a storage facility or local mover might have picked up a new client. A local real estate broker gets a new listing that might turn into a commission.

Once the buyer finds the home with their real estate broker (usually a different broker), they hire an inspector and start working on getting their loan. The inspector earns a fee for inspecting the home. The lender generally has at least three people working on a new loan — the loan officer, the loan processor and the underwriter. The title company that will close the transaction has researchers that check on the title and any outstanding liens and a escrow officer or closer that will prepare the paperwork.

Chances are that the inspection will find some items that need repair. Repair people will most likely be hired to fix the problems — a handyman, a plumber, an electrician, an HVAC contractor, etc.

When the transaction closes, the real estate brokers earn a commission, the title company earns its money for the title insurance and closing the transaction, the lender collects its fees so it can pay its employees. An insurance agent issues a new homeowners policy to the buyer.

Now its time for the movers or renting a truck….

As the new home owner settles in, they make a few changes and buy some new items.

Now the seller needs a new home and it starts over again…..

Ready to help move the economy along by buying or selling a property?   Call me at 303-402-6000, email me at karenb@bernardrealestate.com or visit my website:  www.bernardirealestate.com