Archives for March 2018

Double Digit Price Increases Return… We’ve seen this movie before

First Quarter sales dropped slightly for the first time since 2012 from 391 last year to 358 this year. After the Lost Decade that began in 2009, first Quarter sales, and sales in general, have never recovered to the high point reached in 2006.
In 2006 first Quarter sales reached 543 properties and there were routinely around 3000 total sales per year in the mid-2000’s.

You can only analyze it so much…
This is why we live here after all!

Last year 2258 properties sold in Summit County, 24 percent fewer than in 2006.

Prices, however, have been on a rampage increasing by over 15 percent last year alone, the largest one year increase since 2007. Lack of inventory has exacerbated the inflated prices.

Each new listing hits the market with perhaps 400 automatic notifications going out to buyers who have been waiting for new inventory. This has made multiple offers routine with outrageous terms like escalator clauses, huge down payments and waived due diligence.

Understandably, new buyers feel whipsawed by the quick action required and the prices and terms they need to match on the first couple of tries. Then they either decide this market is too crazy for them or they get aggressive.
More of them are choosing the first option and the number standing in line is diminishing. That is another reason sales have been flat for three years.

This is exactly the kind of market we saw in 2005, 2006 and 2007. Buyer frenzy for scarce inventory drove double digit price increases. Then came the Bush Depression of 2009 and by 2011 the average price had dropped by 20 percent and sales by more than half.

That was the first time ever that prices had declined by more than 5 percent and for more than one year in Summit County. There had been a couple of dislocations like 9/11 and the Dot.com bust that had caused soft prices for a year, but prices were essentially flat.

That has changed now. Although our society seems to have adjusted to chronic chaos and uncertainty, the overwhelming confidence that characterized the 25 year period from 1984 to 2009 is certainly gone.

Summit County is a luxury second home market and as such depends almost entirely on consumer confidence and growing disposable income. Economic uncertainty causes consumers to think twice about luxury purchases.

Because there are twice as many Americans as 50 years ago, there are also twice as many with the resources and confidence to buy second homes. But many are Boomers who have done so already. Our buyer market is now largely made up of those wishing to move up from the entry level properties and a lower number of affluent youngsters than during the Boomer years.

Those who have their place in the mountains are generally going to keep them now that their retirement plan is in place. So the immediate future is probably characterized by continued low inventory and fierce competition for it until the next economic cycle begins. That could be tomorrow or ten years from now.

Don’t get caught up in the frenzy just because everyone else is.
Buyers and sellers in this market should act based on their own desire to be here in the mountains, to enjoy the life here.
Get informed, but don’t try to outguess or overthink this.

Do what makes sense to satisfy your own needs and dreams then enjoy the results.

 

 

Dealing With a Raging Seller’s Market Requires Strategy

Trying to buy a property in Summit County? Here’s what to expect.
Since October of 2017, there have been the fewest number of properties for sale in history. The number of properties priced under $700,000 has hovered around 100 for six months. A thousand will be sold this year.
For the past six years, the inventory has declined steadily each year. In the first half of the year, we should have about 1500 properties of all types on the market. The inventory should peak at around 2000 properties in July. This year we have under 550 properties for sale and last July the peak was under 1000. This year it will probably be less than that.
Buyers for the lower half of the market have been waiting for the next property to be listed. Every active Realtor in Summit County has several buyers on automatic notification so that they know instantly when a new property appears. New listings routinely get four or five hundred notifications sent out.
A couple of dozen buyers respond, several travel to see the property in its first few days on the market and often a couple of those make an offer. Sometimes the offer comes from a buyer who has not seen the property but has their broker walk through for an iPhone video.
Usually an accurately priced property is gone in a day or two. Only the most unrealistically priced properties stay on the market longer than that. Even million dollar plus properties will sometimes sell in a few days, but that market segment remains oversupplied.
Buyers who have been through this process and lost out have begun to add an “escalator” clause to their next offer. In short, this tells the seller that the buyer will beat any other verifiable offer by a certain dollar amount, usually with a cap, sometimes not, typically resulting in a sale at more than the asking price.
So what does a buyer have to do to get an offer accepted? The best chance begins with a full price cash offer with the escalator. Every contingency or other out for the buyer lessens the odds of success. Buyers even waive inspections, appraisals and loan conditions.
Buyers who need a mortgage should put as much cash down as possible and have a pre-qualification letter in hand from a lender to go with the offer.
Personal letters to the seller from the buyer explaining why their offer should be accepted are common and sometimes result in the seller taking a lower offer for sentimental reasons.
The point is that buyers need to convince sellers to take their offer over another and it takes planning and strategy to get this done.
This will change when a normal inventory returns and it’s not such a brutal seller’s market. But for now, this is what it takes.

If You Need Rental Income to Afford Your Second Home… Read This

The short-term rental market is changing. Every year brings more regulation, more license fees and taxes and political pressure for fewer short term units and more long-term worker housing.
Three forces are driving these changes:
First, towns and counties can’t raise enough sales and property tax revenue to fund operations so they are turning to other taxes and license fees to bring in revenue. Because tourism is the largest part of our economy, lodging is the logical source for new revenue.
Towns are going as far as to pursue online travel companies for taxes on bookings at their sites and tracking down bandit landlords on social media and Craigslist.
Second, because half of second homes are never rented, many neighbors who don’t rent don’t want short-term renters next door. Short termed properties tend to bring more traffic, parking and noise issues among other things. Many homeowner associations are limiting rentals to several weeks or more.
And third, there is a continuing perception that somehow short-term rentals are stealing housing from locals. Never mind that instead of making owners rich, short-term rentals can only help defray the cost of a second home and a long term tenant rules out occasional owner use. Also, properties that are affordable for locals to buy are generally not good prospects for short-term rental.
In addition, because so many absentee owners rent through VRBO and AirB&B, towns and associations are starting to require a local manager to monitor the property. This and licensing helps governments keep track of who’s renting and helps them collect the lodging taxes.
There will never be enough local housing and tourism will only continue to grow. If your property isn’t subject to these changes yet, it will be sooner or later.
Ask questions about these issues if you are a prospective buyer and if you are an owner, pay attention to the news.
And beware of managers who project astronomical income from renting your property short-term.
Our main short-term rental season is from Thanksgiving to April 15 in the best of years, 150 days or less when rents are the highest for the year.
Summer rentals bring half as much.
If you use a manager, you’ll pay a hefty commission out of your gross income.
If you use your place at all for Christmas, New Year’s, MLK week, Presidents week and all of March you will cut into your best revenue period.
If you are dependant upon rental income to do more than defray some of your costs, you may not be ready for a second home.

 

 

Consider An LLC to Protect your Assets

from National Assoc. of Realtors Magazine January 2018 | By Bruce Ailion
If you are a second home owner or thinking of becoming one, you may want to talk to a lawyer about setting up a limited liability corporation or other legal entity and operating the second home as an LLC.

In case you are sued by someone using the property after you bought it, you can limit your damages and protect your personal assets against losses.

Suppose a contractor makes negligent repairs to a deck and it collapses while tenants and guests are having a barbecue. The judgment in a case like this could easily exceed the equity you have in the property and even the coverage limits on your insurance policy.

Or let’s say the carbon monoxide detector is faulty and the property has a 20-year-old furnace that develops cracks, releasing gas indoors. Tragically, a family of four staying in the property is killed. The owners could face four wrongful death actions caused by negligence.

These are rare occurrences, to be sure, but they point to the gravity of risks that investment property owners can face. In fact, the scenarios illustrate one of the main differences between real estate and other types of investments like stocks or bonds: real estate can carry risks that exceed the investment in the asset.

Of course, an owner’s first layer of protection is insurance, but owners might fail to recognize that their losses can exceed coverage limits.
Investing in real estate can be a smart decision. The right property can outperform other investment vehicles.

But it makes sense to have sufficient insurance and to consider setting up an LLC or other type of entity to separate your liability from your personal assets.

Rumor, Gossip & Innuendo!!

Frisco Bay is going to be deepened…. Can cruise ships be far behind? The project has no expected start date yet, but is in the planning stages. 75,000 cubic yards of dirt later, Carnival cruise lines will be able to pull right up to Main St. where colorful locals will weave baskets and hats for happy cruisers to take home. Steel drums, anyone?

Having won about half of the medals from the Korean Winter Olympics… residents of Silverthorne have changed the name of the town to Goldthorne. Doesn’t roll off the tongue like Goldenthorne would, but townies didn’t want to be confused with that other Golden down in the Front Range. Silverthorne must have the highest gold medal per capita number in the world right now.

Now if Lindsey Vonn (82 wins) and Mikaela Schiffrin (43 wins) would just move to Silverthorne… every other ski town could just give up. Well, they only live 30 miles away. We could just claim them. You know… East Vail, West Vail, Eagle/Vail, why not Silverthorne/Vail?

And the debate is on… should Colorado host a Winter Olympics? We turned them down once before and there are great arguments both for and against. Some think we should have them just to get I70 fixed properly. Good luck with that. Seems that Nordic events couldn’t be run in Summit County, though. Olympics big-wigs think it’s too high here. Wimps.

It surfaces every Spring so maybe we should change the name of mud season… the innovators at the Town of Breckenridge are considering DNA testing (Really!) to track scofflaws who don’t pick up after their dogs. Fill in your own joke here.

The Final Word

There was a time in my 32 year career when I thought I’d seen it all and could forecast what would happen next in our market.
I am not ashamed to say now that I have no idea what’s gonna happen next.
The best any of us can do in these circumstances is to be ready for anything.
Really… anything.
So as Red Green down at the Possum Lodge used to say: “Remember, I’m pullin’ for ya. We’re all in this together.”
Call me any time and until then, keep your stick on the ice.
Chuck Leathers, CRS owner/broker

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