Senior Property Tax Exemption

Senior Property Tax Exemption

With property values increasing as steadily and as rapidly as they are in Boulder County, it should come at no surprise that property taxes are following suit. This became very clear this past May when assessment notices made their way around town informing Boulder County residents that the assessed value of their property had significantly increased by on average 26%. Although it is exciting to watch the value of your assets increase it does mean that property taxes will most likely increase for you as well.

When discussing property taxes I believe it is helpful for anyone to have a basic understanding or concept of how property taxes are actually determined. When boiled down to the basics it is actually quite easy to understand.

Three major components go into your property taxes:

  • Rate of Assessment
  • Assessed Value
  • Mill Levy (Tax Rate)

The Rate of Assessment for residential properties in Colorado serves as the base for property taxes as it determines what percentage of your homes actual value can or will be taxed.  This can be adjusted on the state level and just recently got lowered for the first time in 14 years from 7.96% to 7.2%.  The rate of assessment is multiplied by the assessed value to your taxable value. The Assessed Value is the value assigned to your home by the county assessor.  This assessment is adjusted every two years based upon comparable sales in your neighborhood.  The assessed value is what arrived in your mailbox in May.  Finally, the Mill Levy (also known as the Tax Rate) is the percentage of the Assessed Value that is actually taxed and collected by the county on a yearly basis.  The Mill Levy is set every fall and sets the amount and allocation so that the budgets for schools, emergency services, roads, etc. are met.

As taxes rise, one tax exemption that may be important for you or your family members to know of is the Senior Property Tax Exemption. With the deadline of July 15th rapidly approaching it can be helpful to understand what this exemption is, how much it could save you, and of course if you are eligible. Those that are eligible for the Senior Property Tax Exemption will receive a 50% property tax deduction on the first $200,000 of the properties value equating to between $550 and $760 of property tax savings per year.

Am I eligible for this exemption?
You are eligible if you meet all three of the following requirements:

  • You Were born on or before January 1, 1952
  • You have continuously lived in the home starting before January 1st, 2007
  • You have continuously owned the home starting before January 1st, 2007

If you happen to meet all three of the requirements and file your application before July 15th, 2017 you will first see the discount on your tax bill in January of 2018. There is no need to reapply each year as the exemption will continuously stay active as long as no disqualifying event occurs.

To see more information on the exemption or to fill out the application go to: https://www.bouldercounty.org/property-and-land/assessor/senior-exemption/

Home Search Zillow Sued For Inaccurate Zestimate’s

Home Search Zillow Sued For Inaccurate Zestimate’s

ZillowThis past May, Zillow, the online real estate search company was sued by a Chicago based home building company who claimed that Zillow’s online Automated Value Model (AVM) is deceiving home buyers with prices below the true value of properties leading to frustrated sellers. Furthermore the suit claims that Zillow’s “Zestimates” are in violation of the legal description of an appraisal, which under Illinois law must be administered by a licensed appraiser. Zillow defends themselves by stating that their Zestimates claim only to be approximations not true appraisals; to which the suit responds stating that whether or not they are technically appraisals homeowners are viewing them as such leading to confusion and irritation. It will be interesting to see over the coming months how this lawsuit plays out. It’s clear that Zillow’s Zestimate and other AVM’s which are becoming common across the internet are being used by consumers to determine the approximate value of their home.  But in my experience, many times this approximation isn’t close to the true market value.

So just how accurate are Zestimates. In a Nationwide study conducted by Zillow it was found that their Zestimates fall within 5% of the sales price of homes 53.9% of the time, within 10% of the sales price 75.6% of the time and finally within 20% of the sales price 89.7% of the time. Back in 2007 when Zillow was just getting its footing I conducted my own research local to Boulder on the subject and found that on a whole Zillow’s algorithm was 99% accurate.  However, when I took a closer look I found that there was an 18.4% standard deviation.  Additionally, the outliers were up to 50% off.  Although Zestimates generally do a good job when looking over a large pool of properties, their approximation for any specific property within that pool can many times be significantly off of the true value.

To read my 2007 article click here.

With home values rising as fast as they are in Boulder and with Automated Value Models such as “Zestimates”  readily available, inexpensive and simple to use, it’s easy to understand why so many consumers gravitate towards them. It’s important to remember though that the very nature of AVM’s being automated hinder their ability to provide an accurate evaluation of properties all of the time. AVM’s fail to take into account many critical and influential aspects of a property that can greatly affect the value such as the current condition, recent upgrades (or the lack thereof), actual square footage, views and other details. After understanding these substantial flaws it becomes clear why AVM’s, including Zestimates often over or undervalue homes leading to users feeling mislead.

AVM’s have their place as a non-binding general view of the market when you are not considering a transaction.  It’s fun to look.  However, when you are considering a real estate transaction you need to bring in an experienced professional to give you a more accurate comparative market evaluation.  Experienced Reatlor’s like myself can give you the broad information and experience necessary to make decisions around. If you are considering a move I would be happy to come by and give you an individual market analysis.  

To read more about the case go to: http://www.marketwatch.com/story/do-zillow-zestimates-mislead-home-buyers-illinois-lawsuit-claims-yes-2017-05-22

The Steps Of A Home Search

The Steps Of A Home Search

Open RoadIf you have determined that you are ready to buy a house (click here for more information about determining if you are ready) the next question to ask is how do I do it? What is the smartest way to go about buying a home? What are the first steps in a home search? This article will show how to begin the process of buying a home as well as point out some common pitfalls that can be avoided.

Step 1 – Finding a Really Good Realtor

It’s easy enough to start browsing houses on the internet or going to the random open house, but at some point you will want to get more serious about looking at homes.  The first step towards getting more serious about looking for a home is finding a good Realtor who has been through the process time and time again.  Most people end up working with a Realtor, so why not engage one early on in the process?  Realtor’s have tools that will save you time and put you on track to finding the right home more quickly.  A good Realtor is much more than a person who shows you the houses that you have found online, they serve as an information source, an advocate and a guide through the process.  Make sure you are working with a Realtor who is more interested in helping you find a great house for the long term rather than a quick sale for them.  It takes patience and persistence to make sure you end up in the right home.

Note: A Realtor is a member of the National Association of Realtors and is bound to abide by a code of ethics. Not all real estate agents are Realtors.  Make sure your’s is one.

Step 2 – Get Pre-Approved

One of the most important steps in a home search is to find a good lender and get pre-approved.  Your Realtor should be able to recommend a few local lenders who have proven themselves to be responsive and know how to get the job done. Using a local lender is important, not only are they accountable but they are there to solve problems at the closing table if anything comes up at the last minute.  Your earnest money is at stake!  If your lender is delayed at the last minute or their money doesn’t make it to the closing table on time and the seller chooses not to give you an extension, you lose your earnest money.  You cannot go back to your lender and recover those lost funds.  Choosing a lender is more than finding the lowest interest rate, it is finding an advisor who will help you make a sound financial decision given your unique circumstances.  The credit rules change often and it is important to use an experienced lender to help you get the job done in a timely manner.

Step 3 – Looking at Homes Online – The First Showing

Boulder House with FenceThe internet is a great tool when searching for homes.  When you view internet sites such as Zillow.com, Realtor.com, Redfin.com and Coloproperty.com you are able to easily find and view homes for sale by putting in any search criteria. The results are quick and beautiful.  It’s easy to get caught up in the great houses that are available.

But here are the pitfalls of the national home search sites:

  • Many of the popular home search sites don’t have all of the properties listed for sale.  Listing brokers determine who gets to display those listings and some don’t send to all of the available sites.  Many company sites just get feeds from one MLS system so if a listing is listed in another (which is often the case in the Boulder area) those other listings are not displayed.
  • The goal of the big national sites is to get as many views and clicks as possible. So properties show up as “active” until they are sold. Don’t fall in love with an active house on Zillow until you check with your agent to make sure that it isn’t already under contract.
  • The agent who is listed in conjunction with a given property many not be the listing agent.  So if you click on a “more information” button you will most likely be contacted by an agent who has paid for that opportunity and knows nothing about the house.

Now a word about search criteria. When clients tell me their “wish list” I write down every bit of it, but I then explain that it might be better to keep our search wide so that we don’t miss a house that meets 95% of what they want. In a market characterized by low inventory this is especially important.

Note – www.Coloproperty.com is the public site for the local MLS system IRES. This site changes the status of a property (active, under contract, sold) on their display right when it happens. So to get the true scoop go to this site.  Disclaimer – I have served on their Board of Managers for 9 years now.

Step 4 – Viewing Homes In Person

Boulder Tudor HouseHow soon is too soon to start actually looking at houses looking? For example, if your lease is up in July and you don’t want to have rent and mortgage payments for more than 1 month, January is usually too soon.  However, when to start depends upon how particular you are, how many homes are likely to come on the market during a particular time etc.  This is a good conversation to have with your Realtor.

Once you and your agent have identified some properties to view the next step in your home search is that your agent will set the showings with each listing agent (through them, their company or a showing service). Sometimes homes can be viewed immediately but often times the owners require a few hours to 24 hours notice.  Sometimes the listing agent needs to be at the showing and that complicates the timing.

Once you are inside a home you will have already begun to judge the house on these criteria; “could I live here?”, “how does it compare with other homes?”, “is this the one?”.  If you quickly realize that this isn’t “the one” it’s still good to see the rest of the house but in my experience it’s not necessary to see every little thing.  Who cares what the second basement closet looks like! You only have so much memory available and if you fill it up with the tiniest details of a house that you have already determined you won’t buy you end up confusing houses.  Was it the yellow house that had the gold faucets or was it the one next to the park?

Once you find the one that you think you want to pursue you will want to go back for a closer look.  This is the time to “kick the tires” and make sure you know what you’re in for.  Hopefully the second time through will only make the heart grow fonder.

In the next installment in this series I will go through the process of what happens once you find a house that you love.

 

Am I Ready To Buy A House?

Am I Ready To Buy A House?

Boulder Colorado houseAm I ready to buy a house? It starts as a subtle suggestion in the back of your mind. You might hear yourself thinking; “this is ridiculous, rents are so high and I’m throwing my money away” or “now that I’ve landed that job I’m ready to settle down” or “we’ve been saving for years and now is the time to buy before prices go up any more”, or “all of my friends are buying places and they seem to be doing great”.  Whatever dialog is whispering in your ear, there comes a time when it may make sense for you to buy a home of your own.  But are you truly ready?  This article will help first time home buyers to analyze that question and help get you ready to make the purchase.

Is it smart to buy a house? (when I say house I mean any residential real estate) If done correctly, owning a home is for many people best financial decision they ever make.  According to the 2014 Survey of Consumer Financing by the Federal Reserve the median net worth of a homeowner was $194,500 compared to $5,400 for renters. During the time frame of 2008 – 2012 many homeowners were adversely affected by the housing crisis and economic downturn that resulted in a record number of foreclosures and short sales nationally. For those who bought just before the crisis or those who needed to sell when prices dropped in many areas (click here to see why Boulder County was named the most stable market in the country) owning a home may not seem like a wealth enhancing endeavor.  But over time and for most people real estate is a great investment.  Here’s why:

When you buy a home you tap into these three powerful methods of increasing wealth.

  1. Home appreciation – the prices of homes rise with inflation and local supply/demand factors.  Prices rise over time.
  2. Principle reduction – as opposed to a rent payment, a portion of each payment goes towards paying down the principle balance. With each payment your wealth is increasing a little bit.
  3. Tax benefits of ownership – the mortgage interest deduction allows those who itemize their deductions on their income taxes to write off the interest paid on their mortgage payment. In effect you get a discount off of your payments made at the end of the year.

You may ask, “if it’s such a great deal why is the homeownership rate in America at just 63% and falling?”  The truth is that homeownership isn’t for everyone. Here are some the reasons why it may not be a good idea to buy a house.

  • Location instability – Homeownership is a longterm proposition. Buying a house now and then moving six months from now is a sure fire way to lose money.  There are costs associated with both buying and selling and it takes time to recoup those costs. I usually recommend that you plan to be in the house a minimum of two years.  Any less than that and you are speculating, hoping instead of playing it smart.
  • Financial instability – In order to stay in a house you must have the financial wherewithal to withstand some unexpected expenses.  If you are one paycheck away from being broke it’s best to save up a nest egg before buying. If you already have a list of debts it might be a good idea to pay those off before taking on another large debt. The more ready you are financially the better chance you have for making homeownership work for you.
  • Ready for the responsibility? – When you own a house you must be willing to take care of the maintenance and any problems that come up.  There are many items that need attention on an ongoing basis that take time and money and there will no longer be a landlord to call.  Once you make the purchase you are in charge of anything that comes up.

Getting Your Financial House In Order

When you determine that in principle you are ready to take take the plunge into homeownership, you must then determine if your financial house is in order enough to make the purchase.  Here is what I mean by having your financial house in order: down payment money in the bank (anything less than a 20% downpayment requires mortgage insurance which results in a larger monthly payment with no added benefit to you), in addition to the down payment you need to have a savings account that has 3 to 6 months of your household expenses as a cushion for the unexpected, minimize other debt – for most people they think it’s normal to carry car payment(s), student loan(s), and credit card debt, even if you qualify for all of these payments it may be a smart idea for you to delay a home purchase until these other debts are paid off. The more debt you have the more susceptible you are to losing your house in the case of a layoff or other unexpected financial hardship.

Another facet of having your financial house in order is your credit score. Credit scores have a huge impact on your ability to buy a house. If you have a credit score of less than 760 your qualification or the interest rate you are offered will be negatively affected.  To check your credit score for free (with no strings attached) go to www.AnnualCreditReport.com.  If you find out that your credit score will negatively impact you, figure out why your have a low score and start fixing your FICO score. This may take time so pay your bills on time and plan ahead.

How much should I spend on a house? There are a few rules of thumb regarding how much you should spend. Some say the total price shouldn’t exceed 2.5 times your household annual gross income.  Another commonly heard standard is that your mortgage payment plus other debt payments shouldn’t exceed 40% of your income.  However, in my experience I find that many people qualify for more than they should do.  The term for allocating too much of your income to your house payment is “house poor”.  Being “house poor” means that you are a slave to your monthly payment and don’t have the money to do the other things you enjoy.

My advice is to buy a house that allows you to be very comfortable in your payment. This will allow you to enjoy life and meet your other financial goals. Have a firm grasp of your budget and be sure to add into it the expenses that will come with buying a home, like new window coverings, increased utility expenses, needed upgrades, etc.  Many times the actual answer to “how much should I spend on a house” is different than what your lender will qualify you for. Know your budget and think for yourself. Don’t keep up with the Jones’.

It all comes down to what you can comfortably afford and interest rates have a huge impact on what you can afford. My article The Impact of Interest Rates on Home Affordability delves deeply into the subject, but basically as interest rates rise the amount of the mortgage you can qualify for decreases.  For example, if you qualify for a $355,000 mortgage and then interest rates rise by .5% you will need to drop your budget by at least $20,000 to keep the same payment.  My advice is to pay attention and know that it makes a difference.

This article helps you think about if you are ready to buy a house. In the next article I will start to outline the how to go about buying a home in a smart way, the process.

Seven Key Strategies for Winning Multiple Offers

Seven Key Strategies for Winning Multiple Offers

During 2015 43% of all homes sold in the City of Boulder sold for more than asking price (see more context in my year end report) . Presumably most of these homes had multiple buyers making competing offers.  So what does it take to be the winner of a multiple bid situation?  Here are seven strategies for winning multiple offers.  I liken these ideas to a set of arrows in a quiver.

  1. Price – The most effective way to win the hearts and minds of a seller is to give them the most money.  In theory it’s easy give them more than anyone else.  In practice, given limited information, it’s very difficult to know what others who are exactly in your position will do.  On average in 2015, those homes that sold for a price over asking price sold for 4% above. The range is from just a few hundred dollars over to 20% over. Now that’s using a sharp and effective arrow!
  2. Escalation Clause – This could be a subheading under price but I think it’s worth giving it top billing.  An escalation clause is a paragraph inserted in the contract which states; that the buyers agrees that if their offer isn’t high enough their offer will be automatically increased to beat any competing offers by $X,000 up to a cap price. Some sellers and their agents announce that they will not accept escalation clauses because they view them as a hedge (we are willing to go higher but only if we need to).  For a buyer an escalation clause is a good way to state your intentions to the Seller without paying way more than you need to.  If a buyer is going to use an escalation clause, I recommend that the contract price be strong as well.  If you offer $10,000 lower than asking price but are willing to go up t0 $30,000 above if pushed the seller may not see this as earnest as an offer who offers $25,000 over the asking price right off the bat.
  3. Financing – Sellers want the most money with the smallest potential of the contract cancelling.  It doesn’t do any good to get a great price and then not be able to close.  As a buyer you can tie into this fear by making your financing as clean as possible. Cash is king. And it removes many contingencies as well.  But if you don’t have cash you can do well by having your financing in order. Get pre-approved not just pre-qualified. Have your lender picked out.  Choose a local lender. Make sure your lender is available to answer questions about you.
  4. Waive the Appraisal – Your lender will require an appraisal but if you are putting enough money down you can still waive the right to object to the appraisal.  In a fast appreciating market the appraisal contingency is something sellers worry about and if the appraisal doesn’t match the price as explained in #1 above the transaction has a real chance of not closing. But as a buyer if you are putting enough money down (think at least 25%) you can talk to your lender and see if waiving the appraisal provision is a possibility.
  5. Inspection – Some buyers come in really strong during the negotiations and then try to re-negotiate during the inspection period. As an earnest buyer you can promise the seller that you will not negotiate after the inspection. To do this we add a clause to the contract that states that the buyer will take the property in as-is condition but that they still retain the right to terminate the contract if they find something big or unexpected during the inspection.
  6. Personal Letter –  Earlier this year I had a listing that received three offers.  The two best offers were nearly identical; same price, same escalation clause, closing date within a week of each other, local lenders with the same down payment. There was nothing in either of the contracts that was swaying the seller.  The only difference was that one buyer sent with their offer a personal letter that introduced themselves and let the seller know how much they loved their home.  Winner, winner chicken dinner!!
  7. Clean Contract – Your agent needs to do their part by writing a “clean” offer. This means that the contract is filled out correctly, all required paperwork is attached, all dates in the offer are reasonable and make sense, all negotiable payments like HOA transfer fee and title closing fee are at least split if not.  Small things that cost a few hundred dollars can make all the difference when you are competing.  Also, if you like working with your agent chances are that the listing agent likes working with them as well.  This cooperation is essential and it’s a feather in your cap to work with an agent who has experience and is known as easy to work with.  Working with an agent with a tag line of “The Enforcer” (this is made up) may be an indication that they may like to fight and win and not cooperate.  When given a choice agents like to work with other cooperative agents.

Good luck out there. These multiple offer strategies have worked well for my buyers over the past couple of years.  If you are looking for quality representation please let me know.

 

Choose Your Lender Wisely

Choose Your Lender Wisely

At the beginning of October new guidelines took affect that changed the way that lenders interact with borrowers. The new TRID rules require earlier and supposedly easier to read disclosures to go to borrowers. Both at the beginning and the end of the process. These new disclosure requirements have lengthened the time it takes to close on a loan and now more than ever it’s important to choose your lender wisely.

In the past it was very common for lenders to swoop in to the closing at the last minute with documents and closing figures. Sometimes this happened the day of closing which left the buyer/borrow in limbo wondering how much money they really needed to bring to the closing. Many times buyers were forced to get a cashier’s check for an estimated amount plus a little extra to make sure and then get a refund from the title company.  We’ll the good news is that these last minute shenanigans are no longer possible. It is now required that the buyer/borrower view and acknowledge the newly revised closing disclosure three business days in advance of the closing. This eliminates the last minute paperwork on the day of closing but it doesn’t seem to have eliminated the drama.  It has just moved it up a few days.

As lenders are getting their act together and setting up systems around these new rules the disparity between good lenders and the not so good ones has become even more apparent. Here is my wishlist for a lender:

  1. Do a thorough pre-qualification/pre-approval process so that there are no surprises later. This goes beyond checking boxes on a software program. This involves experience and knowledge that anticipates and handles potential stumbling blocks in advance. In my experience a  brand new lender working as a part of a team in a bull-pen at a big national lender doesn’t excel here.
  2. Communication throughout the process should be easy. Having one person who knows what is going on at all times has been the best scenario for me. Having a team or an office that is handling the loan leads to communication gaps that can last days.
  3. Having someone who takes personal responsibility throughout the process allows things to get done when the chips are down. I have found that a local lender who is looking to build ongoing relationships with both the borrower and the agent will go the extra mile and get it done.
  4. Having a lender who has a proven track record is, in my opinion more critical that saving an extra 1/8th of a % point on the rate. Many times the advertised rate doesn’t actually make it to the closing table and having a lender who will get the loan done on time is good insurance. Many buyers don’t realize that if their lender doesn’t perform it’s they who are on the hook. The penalties for not closing range from not closing to not closing AND losing their earnest money.  The lender will not pay you back the lost $10,000 even though it was their fault.

I’m writing this because I have three bad experiences with out of state lenders this year that added stress to all involved and definitely put the buyers at financial risk. The first one was a big national company who advertises directly to the consumer on sports broadcasts. This lender seemed organized until a day before the appraisal deadline they asked me, the buyers agent for a list of local appraisers. The appraisal should have been ordered at least two weeks previously and they were just now realizing that they didn’t have one in the queue.  It turns out that they needed my help because none of the local appraisers wanted to work with them. The appraisers that I talked to said that they were busy enough and didn’t think that this big out of state company would pay them if the property didn’t close. So in the end they found an appraisal company out of Minnesota, I’m in Colorado, to do the appraisal but that it wouldn’t be in until four days after our scheduled closing date!  We were able to extend and close two weeks late but it certainly wasn’t convenient and the buyers almost lost a great price on their townhome.

The second and third instances were with the same bank. This out of state bank offered a great deal to physicians. But their processes were so bad that both closings were delayed and it took some major hand holding by myself and the buyers in order to get it closed.  One was a week late and the other was three weeks late.  In both instances the buyers were able to get an extension (vacant homes) but it cost them on a per-diem basis. The most frustrating thing about this bank was that there was no-body who took personal responsibility and their internal communication between departments was really bad. When the files went to underwriting they would disappear behind the dark side of the moon for days and or weeks with no news leaking. As we were working hard to finally get a closing disclosure signed the person who was working on it sent it to the title company and then left for the day. Of course there were a few mistakes but nobody to fix them. If it didn’t get taken care of that night it would mean that the closing would move from Friday to Monday and the buyer would incur an extra $600 in fees.  Luckily at this point the lead lender was able to rouse some after hours people to make the changes and we closed.

If you’d like to avoid this type of drama use a good local lender. Yes, I have some recommendations. Just ask.

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