by neil kearney | Aug 13, 2025 | For Buyers, For Sellers, Real Estate 101 |
-Multiple Offers-
We are working in a buyers market. The average days-to-offer in our market is around 75 days. It is unusual to have houses go under contract right away. You would think that multiple offers and offers over full price would be non-existent; but they happen. 
When there is a large inventory of houses on the market buyers become very good at spotting a good deal. When after looking at 20 homes, buyers see a new listing that they “know” is a good house for a good price, they tend to jump on it. If they are smart they give a good offer and wrap up the negotiations as quickly as possible. Chances are they are not the only buyers looking in that area and price range. What happens if two buyers decide to write an offer on the same house. Here is some advice from the buyer and seller perspective.
From The Buyers Perspective:
- Check to see if you have competition. Your agent will call the listing agent to announce your intention to write an offer. Make sure you know if you are competing with another buyer. At the same time have the agent ask for the sellers preferred closing date and for any items that will be excluded from the offer. All of the information below assumes that there is another offer.
- Make your decisions quickly. Getting your offer in a day ahead may make a big difference. Ask for a quick acceptance deadline.
- Do your homework: Check comparable sales and decide the maximum price you will be willing to pay. Also, think about how you would feel if you would lose this house over a couple of thousand of dollars.
- Do a thorough walk-through: When you see a house you are interested in, take your time. Check on the condition of the house, what would you need to do to make it yours. Are the systems (furnace, roof, windows) in good condition?
- Prepare a clean offer: Don’t ask for Sellers to pay for appraisal, cleaning, HOA transfer fees etc. When the seller is considering two similar offers, $50 can make a big difference and send a signal that the buyers asking for all of the small stuff will be tougher to work with down the road on inspections etc.
- Have your financing in place and make sure to include a letter from a lender along with the offer. I prefer to see a local lender who can jump in and make the closing work in a difficult situation rather than somebody who is working a toll free line.
- A nice touch is to write a personal letter to the seller explaining who you are and why you love their house. The seller has an emotional attachment to the house and wants to sell to someone who will take care of their house.
- Consider an escalation clause. When the house is a good value and you know there is competition one effective method is to write in an escalation clause. This clause in the contract automatically raises the bid price if another offer beats theirs financially. For instance it could read “the offer price shall be automatically raised to a price $1,000 above any other bonefide offer, the purchase price shall not exceed $xxx,xxx”. This is where the buyer has to know how much they are willing to pay; is it full price or $5,000 over?
From The Sellers Perspective:
- If you are attracting more than one offer it shows that you have taken care of your home and priced it correctly.
- You want to make sure that all interested parties have a chance to submit an offer. Have your agent communicate to each agent who has shown the property recently to gauge interest.
- When reviewing offers look at these main points: net price to you after all closing costs, dates and terms and buyers ability to pay and close.
- Try to read between the lines and get a feel for motivation. A buyer who has been transferred and is living in temporary housing is a stronger candidate than an investor who will not be living in the house.
- Try to tie up some of the loose ends now. Use a counterproposal to change dates and terms. You will never again be in a better negotiating position.
- Choose what feels right and be open with your agent .
- Remember, you have a right to choose what offer you accept but you do not have the right to discriminate against a buyer. Choose an offer based upon what is on the paper.
From The Agents Perspective:
- Make sure the communication lines are open. Get a dialog going with the other agents. If all parties feel informed about the process and situation there will be no hard feelings. If a second offer comes in after the first, it is customary to call the first agent and give them a chance to change their offer.
- If you are in an agency position with your client they will lean heavily on an agents advice. Give them good information and let them choose from the possibilities.
Every situation is different but remember the buyers agent is charged with helping the buyer get the house and the sellers agent or listing agent is charged with getting the best price and terms for their client.
by Neil Kearney | Aug 23, 2019 | General Real Estate Advice, Real Estate 101 |
Millions of dollars are being poured into the real estate industry through venture capital and much of that money is going into a segment called “iBuying”. IBuying is when a consumer sells their home to a corporation whose business it is to purchase homes using a streamlined process for a price derived by an algorithm, The sales transactions are cash purchases and can be completed quickly. In this article I will provide a high level overview of what it is, who is involved, the nuts and bolts of the process and the pros and cons of working with an iBuyer.
The concept isn’t new. We have seen homemade signs tacked to power poles and post cards offering to buy your “ugly house” for decades. The idea has always been to provide convenience to a small segment of the market who values the idea of selling their house quickly over getting every dollar out of the house. The logistics of how to get to your next house while dealing with the unknowns (time, price) of selling your current home are often a huge factor in the reason why people decide to stay put. Providing a method that simplifies that puzzle is a much needed service. But are the associated costs worth it?
The main entrants into the iBuying space are public companies (Zillow), venture capital backed startups (Opendoor, OfferPad, Knock), and brokerages like Keller Williams and Redfin. For these companies there are three possible revenue streams: 1) The return on buying a property for a discount and then selling it (sometimes at a much later date after renting it out or renovating it) for a higher price. 2) Fees collected as part of the transaction. These fees can run up to 10%. 3) The value of the name of the potential sellers who turn down the offer. Let me explain a bit more about each of these.
- Each company will generate an offer priced based on available data fed into their proprietary data stream. I can imagine that the algorithms include recent sales, forward looking market trends, assessor data, neighborhood statistics and more. After asking for an offer, the seller can expect an offer within 24 hours. There is no opportunity for negotiation. The price offered includes a discount for the liquidity provided and the risks to the company that include; condition risk and market risk (this hasn’t been tested in a stagnant or falling market). The price offered, while competitive is less than what the algorithm thinks that the house is worth. They are after all looking for positive investment returns and providing a convenience for the seller. They hope to buy as low as they can and sell later for a positive return.
- On top of the lower than market price there are fees associated with selling to an iBuyer. Reportedly these range between 7% and 10% of the agreed upon price.
- One figure I saw while researching this article said that as many as 90% of sellers turns down the offer. In today’s economy good data is money and qualified leads are money. These companies including Zillow realize that brokerages and individual agents will pay good money for a stream of seller prospects who have indicated that they are ready to sell. Like relocation companies who fund their services by charging hefty referral fees to Realtors, this data source will be an increasing source of revenue for the companies involved.
After requesting an offer from an iBuyer you can expect to receive a price within one day. If you accept the price and associated transaction costs in the offer you can then expect an inspector to visit your home to see if there are any repairs needed. If there are any repairs needed you can expect that the offer price to be adjusted to reflect the work needed. If the transaction proceeds past this stage you can expect to close as quickly as you need to.
Pros
Here are some of the reasons a seller may choose to work with an iBuyer.
- Fast closing schedule.
- Fewer unknowns, knowledge of what you are going to get up front.
- No showings. No prepping the house for showings.
Cons
Here are some of the reasons that a seller may choose not to work with an iBuyer.
- Not maximizing the sales price. Lower price given for a quick guaranteed offer. Just one offer, no supply and demand factors at work.
- Costs are typically 7-10% of the agreed upon purchase price. This is more than a typical commission.
- Not available for every home or in every market. Currently iBuyers are expanding quickly but are only available in 20 markets. They are not typically interested in luxury homes or higher price ranges.
In summary, iBuyers are expanding. It provides the seller with the peace of mind and convenience of a guaranteed offer and a flexible closing date. However, that convenience comes with a hefty price tag. It’s not for everyone but for those in a pinch it might be a good option. If you are considering working with an iBuyer it would be prudent to call a Realtor as well to get an opinion of price and an estimate of net proceeds after expenses. That way you will have the information you need to properly weigh your decision. Let me know if I can help in this manner.
by Neil Kearney | Jun 13, 2019 | For Buyers, For Sellers, General Real Estate Advice, Real Estate 101 |
When the weather gets hot and the big thunderheads grow in the afternoons along the Front Range of Colorado, there is a chance that ice will fall from the sky. Most of the time these hail storms are very localized and most of the time the size of the hail isn’t large enough to cause property damage. But when the conditions are right, the hail stones can grow to be quite large and cause massive damage to cars, roofs, fences, windows and gutters (not to mention damage to plants, flowers and crops).
Last year we had a series of hail storms in Boulder County that caused extensive damage. I was working on a number of home sale transactions when the storms took place, so I have a good sense of the contractural obligations and practical steps needed in order to keep the sale moving forward. Before I go any further I’d like to say that I’m not an attorney and I can’t give legal advice. Use this article as a guide, not as gospel.
The good news is that with most roofs and with most insurance companies, if there is enough hail damage it will be covered by your homeowners insurance. Your only obligation is to pay your deductible. The first step after a hail storm that has caused damage is to call your insurance company. One clue that damage has been done (besides the earsplitting sound of hail on your roof) is that you might start seeing roof contractors in your neighborhood, they may even knock on your door and ask to inspect your roof.
If your home is listed for sale but has not yet gone under contract with a buyer, your main obligation in terms of the real estate transaction is disclosure. In addition to communicating with your agent and revising your Sellers Property Disclosure, I would recommend taking the steps necessary with your insurance company quickly so that you know if the damage is covered by the insurance policy. Once you know it is covered start taking steps so that a new roof can be installed. Having the time to interview contractors and get bids is a luxury that becomes more rare once a buyer is involved. A new roof is a good selling feature and any damage will come up during the future inspection process once you find a buyer, so taking proactive steps is a smart way to go.
If the hail storm happens after you are already under contract with a buyer paragraph 19 of the Colorado Contract to Buy and Sell Real Estate (CBS1-6-18) is a good guide as to the rights and obligations of both the Buyer and Seller. It is printed below, but here are a few of the high points:
- Once the property is under contract, the seller has an obligation to deliver the house at closing “in the condition existing as of the date of this Contract, ordinary wear and tear excepted”.
- If the damage is less than 10% of the price on the contract and the Seller can repair or replace the damaged item with something of at least similar size, age and quality, then the contract moves forward. Be sure to disclose to the Buyer what has happened and what is being done.
- If the damage is more than 10% of the price of the home or the repairs cannot be made in time to meet the scheduled closing date, the Buyer has the right to terminate the contract and get their earnest money back. Buyers rarely choose this option because if they hang in there they will get the house and a new roof.
- Paragraph 19.1 deals with property damage that will be covered by insurance.
- Option 1: If work can’t be done by the closing and Buyer and Seller do not agree to extend closing, and the Seller has received the insurance proceeds, the Buyer has the right to the insurance proceeds in the form of a credit including the amount of the deductible. In practice, if there is a lender involved they don’t like this option. They require to see the roof completed prior to the closing or an escrow set up that ensures that the roof will be done. The insurance company also holds back a portion of the proceeds to make sure that the roof is done.
- Option 2: If acceptable to the insurance company and the Buyers lender, an agreement stating that the the insurance proceeds will be assigned can be agreed to. In practice if there is a lender involved they don’t like this option for the same reasons stated above.
- Option 3: Enter into a written agreement drafted either by an attorney or the parties to the contract (Buyer and Seller, not the agent) that outlines what will happen, when it will happen, who will pay, who gets to choose the style, etc. In the transactions I worked on last year where there was not enought to to install a new roof prior to closing, this type of agreement was signed by the parties. In one case the Seller wrote it and in the other the Buyer hired an attorney to write it.
From the Colorado Approved Contract to Buy and Sell Real Estate:
Except as otherwise provided in this Contract, the Property, Inclusions or both will be delivered in the condition existing as of the date of this Contract, ordinary wear and tear excepted.
In the event the Property or Inclusions are damaged by fire, other perils or causes of loss prior to Closing (Property Damage) in an amount of not more than ten percent of the total Purchase Price and if the repair of the damage will be paid by insurance (other than the deductible to be paid by Seller), then Seller, upon receipt of the insurance proceeds, will use Seller’s reasonable efforts to repair the Property before Closing Date. Buyer has the Right to Terminate under § 25.1, on or before Closing Date, if the Property is not repaired before Closing Date, or if the damage exceeds such sum. Should Buyer elect to carry out this Contract despite such Property Damage, Buyer is entitled to a credit at Closing for all insurance proceeds that were received by Seller (but not the Association, if any) resulting from damage to the Property and Inclusions, plus the amount of any deductible provided for in the insurance policy. This credit may not exceed the Purchase Price. In the event Seller has not received the insurance proceeds prior to Closing, the parties may agree to extend the Closing Date to have the Property repaired prior to Closing or, at the option of Buyer, (1) Seller must assign to Buyer the right to the proceeds at Closing, if acceptable to Seller’s insurance company and Buyer’s lender; or (2) the parties may enter into a written agreement prepared by the parties or their attorney requiring the Seller to escrow at Closing from Seller’s sale proceeds the amount Seller has received and will receive due to such damage, not exceeding the total Purchase Price, plus the amount of any deductible that applies to the insurance claim.
Should any Inclusion or service (including utilities and communication services), system, component or fixture of the Property (collectively Service) (e.g., heating or plumbing), fail or be damaged between the date of this Contract and Closing or possession, whichever is earlier, then Seller is liable for the repair or replacement of such Inclusion or Service with a unit of similar size, age and quality, or an equivalent credit, but only to the extent that the maintenance or replacement of such Inclusion or Service is not the responsibility of the Association, if any, less any insurance proceeds received by Buyer covering such repair or replacement. If the failed or damaged Inclusion or Service is not repaired or replaced on or before Closing or possession, whichever is earlier, Buyer has the Right to Terminate under § 25.1, on or before Closing Date, or, at the option of Buyer, Buyer is entitled to a credit at Closing for the repair or replacement of such Inclusion or Service. Such credit must not exceed the Purchase Price. If Buyer receives such a credit, Seller’s right for any claim against the Association, if any, will survive Closing.
What happens if the hail damage is discovered after the closing?
This happened to me last year as well. The Sellers were not aware of any damage and we had a successful closing. Soon after closing the Buyers noticed roofing contractors working on their street and had a contractor look at the roof. Damage was found. The Buyer’s contacted me and I in turn contacted the Sellers. The insurance company was called and it was determined that there was damage and that the last storm (they track these things closely) happened while the Sellers still owned the home and their policy was in place. The outcome was that the Buyers got a new roof and the Sellers had to pay their deductible and their insurance company funded a new roof.
Lessons learned:
- Keep the lender involved in the discussions. Different lenders handle this situation differently. Some allow credits and post closing escrows and some don’t.
- It’s helpful but not required to have a contractor meet the insurance adjuster at the house for the initial inspection.
- Some policies have depreciating coverage as the roof ages. This does not relieve the obligation of the Seller to replace the roof.
- After a hail storm it is really difficult to schedule contractors. Real estate contracts are time sensitive. Call quickly and be first on the schedule!
As I mentioned before, this is not exhaustive but I hope it does give you some useful information regarding hail and how it affects a real estate transaction.
by Neil Kearney | Nov 30, 2016 | For Buyers, General Real Estate Advice, Real Estate 101 |
If 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
The 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
How 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.
by Neil Kearney | Nov 28, 2016 | General Real Estate Advice, Real Estate 101 |
Am 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.
- Home appreciation – the prices of homes rise with inflation and local supply/demand factors. Prices rise over time.
- 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.
- 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.
by Neil Kearney | May 25, 2016 | For Buyers, For Sellers, Real Estate 101 |
Do you know what PITI is? If you have a loan on your home you probably know that these are the four elements of a mortgage payment. P stands for principal; the first I stands for Interest; T stands for taxes and I stands for insurance. Together they make up the amount you pay for your home on a monthly basis. If your PITI payment is comfortable for you, you will have extra funds available to pay for all of your living expenses, be able to save some money on a monthly basis and have some left over for some fun. But many times as we consider how much of a house we can afford we key in on the price of a home and the interest rate (these go into determining the ‘P” and first ‘I’) without much considering the ‘T’ and the ‘I’.
Before I get started talking about property taxes I want to make it clear that this is not a comprehensive article on taxation. There are many elements that go into the discussion of total taxation that include income tax, various sales taxes, car registration fees, use fees, transfer taxes, etc., this article just focuses on one element and is therefore not a comprehensive picture. It doesn’t fairly compare apples to apples across states. However, I think it’s an interesting and relevant topic because it comes up often in my discussions when I am showing property.
Corelogic recently did a study ranking the median property tax rate across the country. The highest property tax percentage is in Illinois where taxes are 2.67% of the assessed valuation and lowest in Hawaii where the property tax burden is just .31%. Colorado is ranked 5th from the bottom with .66%, meaning that we have the 5th lowest property tax burden in the United States. Despite the arguments* that there are too many elements not included in this study I think in general it’s true that the cost of ownership in places like Illinois, New York, New Jersey are much higher than they are in Colorado. In Colorado the “T” portion of our payments is much lower than other states and therefore, all things being equal, we can afford more expensive homes with the same payment.
Local Property Tax Comparison
Now let’s get more granular. Within my market area buyers need to look closely at property tax rates within the different localities. Here is a quick comparison of homes currently on the market. I have tried to choose homes that are similar in price and similar in assessed value.
- Boulder – 4616 Talbot Dr. | List Price $574,000 | Assessed Value $423,900 | 2015 Taxes $2,766 | Tax/Assessed .648%
- Louisville – 453 Centennial | List Price $599,900 | Assessed Value $450,200 | 2015 Taxes $2,988 | Tax/Assessed .664%
- Lafayette – 369 Caribou Pass | List price $580,000 | Assessed Value $464,300 | 2015 Taxes $3,180 | Tax/Assessed .685%
- Longmont – 5712 Clover Basin | List Price $575,000 | Assessed Value $409,700 | 2015 Taxes $2,971 | Tax/Assessed .725%
- Superior – 3103 Castle Peak | List Price $599,900 | Assessed Value $464,100 | 2015 Taxes $3,881 | Tax/Assessed .836%
- Erie – 1276 Greening | List Price $560,000 | Assessed Value $399,950 | 2015 Taxes $3,483 | Tax/Assessed .871%
- Broomfield – 4630 Nelson | List Price $569,000 | Assessed Value $466,710 | 2015 Taxes $4,490 | Tax/Assessed .962%
The order listed is ranks the local communities for property tax burden as a percentage of the assessed value of the property. Boulder has the lowest tax rates and Superior, Erie and Broomfield have the highest. If a buyer were to be comparing homes in Boulder and Broomfield, the taxes make a difference. The differential in the monthly payment is around $100 per month, definitely worth looking at.
*Some of the arguments that invalidate this report are: a) Different states base taxes on different amounts. Assessed value vs. actual value. b) Some states give a homestead exemption. c) Some states assessed value doesn’t change until a sale and then it goes to the purchase price. d) The report doesn’t take into account special assessments or the prevalence thereof within states.
When there is a large inventory of houses on the market buyers become very good at spotting a good deal. When after looking at 20 homes, buyers see a new listing that they “know” is a good house for a good price, they tend to jump on it. If they are smart they give a good offer and wrap up the negotiations as quickly as possible. Chances are they are not the only buyers looking in that area and price range. What happens if two buyers decide to write an offer on the same house. Here is some advice from the buyer and seller perspective.
