There are some changes coming that will have a significant impact on property owners in Summit County, and every other tourist destination, in the future.
The rise of the VRBO and AIRB&B Internet property sharing industry is quickly forcing changes in law and regulation as well as in the established rental management industry.
All of the towns, the County and even individual homeowners associations in Summit County are writing or have already put into place restrictions and registration requirements on short-term rentals by owners.
A lot of this has been caused by the lack of supervision by absentee owners of their short-term renters now that local management companies are handling perhaps only half of the short-term properties they used to.
Regulations vary a lot but owners usually have to hire a local supervisor of some kind to control noise, parking, trash and other nuisances quickly. They will also increasingly be required to register short-termed properties with local government and buy a license to enable enforcement of these rules.
Many homeowners associations are limiting or halting short-term rentals. This has not impacted property values to any great degree so far because about half the second homes in Summit County are not rented. The impact will probably be limited in the future, especially since rentals can only defray some of the costs of ownership at present levels and are not needed by most second home owners to be able to afford the property.
Long-term rentals of six months or more are generally not being restricted except in two or three neighborhoods where occupancy even by the owner is limited to less than 12 months per year to prevent the properties from becoming de facto affordable full-time housing.
This is not just a Summit County thing. Most resort and tourism oriented areas in the US and other countries are feeling the impact of over-visitation and support among the permanent residents is building to restrict visitation to sustainable levels (think Venice Italy). As the world population has grown and approached economic parity with the First World (think China) tourism has become the largest sector of the global economy.
Watch for more restrictions like noise ordinances (Frisco) occupancy restrictions (certain HOA’s), and limitations on visitor numbers (Yellowstone, Kauai, etc.) attempting to keep things the way they used to be in the olden days. Good luck with that!
There are some changes coming that will have a significant impact on property owners in Summit County, and every other tourist destination, in the future.
2018 is on track to be the fourth year of stagnant real estate sales numbers. If the present trend holds, there will be fewer than 2200 sales this year. This is a far cry from the peak years of the mid-2000’s when about 3000 per year sold.
Stagnation in the midst of a market where new listings are snapped up in hours at record prices: this is what a no-inventory market looks like.
And the result is fewer properties are sold for ever-higher prices. There was only one month of the first six in 2018 where more properties sold than the previous year. Overall, there were nearly 7 percent fewer sales in the first half of the year than in the previous year.
The inventory of properties for sale at the end of June, always the peak inventory for the year, was fewer than 750. And 200 of them were vacant land. That left about 500 residences of any kind or price for sale.
But wait… only 280 of them were priced under $1 million and 90 were priced under $500,000 and 10 of those were deed restricted.
372 residences were under contract, 150 of which had sold in seven days or less.
Each year since 2010, the peak inventory in Summit County has been lower than the year before. Eight years of declining availability has created a chronic undersupply situation that has driven prices up steadily and sometimes alarmingly. In 2017 the average residential sale price increased by over 15 percent.
So far in 2018, residential prices have increased by only 3.8 percent and this during the part of the year that historically brings the highest average price for the year. So the price inflation may be slowing. In fact single family home prices are down about 3 percent so far this year.
Days on market are getting shorter. So far in 2018 it has averaged 84 days to go under contract. Last year it took 102.
Land is making a minor comeback with an average price that increased by 13 percent in the first half on 91 sales as opposed to 69 in the first half of 2017. This reflects the increase in the price of a single-family home to an average of $1.1 million currently. It is starting to make sense to build instead of buying an existing home. It still takes 311 days on average for land to sell, however, down from 353 last year.
Remember, there were still 200 lots for sale on June 30 however.
In a normal market, an urban area for instance, the shortage of property for sale would bring builders in to fill the void. This is what is happening on the Front Range where urban sprawl stretches from Colorado Springs to Ft. Collins and every piece of buildable land is being used.
But in Summit County, we are out of land. What new construction there is has been in ones and twos on infill lots. Or County government acquires some unwanted Forest Service land or uses some vacant land the towns have been sitting on to build affordable deed-restricted local worker housing.
New market priced development such as Angler Mountain Ranch, Silver Trout and Summit Sky involve a relative handful of new construction homes at prices beginning in the $900’s and way up from there.
It’s only gonna get tighter, folks. No relief from new construction, more people with disposable income wanting to be here, and those who are already here holding on like sea urchins in a heavy tide.
Interesting times ahead.
With prices rising quickly, many owners who haven’t been thinking of selling now want to take advantage of the current market conditions while they last. They suddenly decide to sell and want to get that property on the market ASAP.
But wait… what about the renters they put in years ago when it looked like prices would never recover?
You know, those long-term renters who pay every month faithfully, raised their kids who are now in high school there and will have a really hard time finding another rental in the tight market? Or those seasonal renters who have booked the place for the last ten years from November to April and paid a premium while treating the place like it was theirs and adding hot tubs and furniture? Or all those VRBO short termers who come year after year on the same dates and have already booked for next ski season?
What was a steady stream of automatic pilot income is now a problem. Most buyers will want to use the place themselves immediately after closing. And the move-out cleanup and repair will take weeks before the property is ready to show.
And it’s mid July already, the best season for selling is here and this property won’t be showable until maybe September.
Folks, real estate is an investment that demands long-term big picture thinking and planning.
Here’s some tips:
Plan to be on the market not later than June 1 of the year you want to sell.
Give your tenants plenty of notice. Law demands 30 days but in this market that’s just not reasonable for the long termers to find replacement property. Your short term and seasonal tenants should be notified at the end of the season, not the beginning of the next.
Get into the property yourself well in advance of the move-out to make a list of repairs and renovations that need to be made. Last minute work will cost more and won’t be as good as when the contractor has time to schedule his crew and order the things that need to be replaced.
Talk to your tax advisor and get advice about the capital gain you’ll probably be paying so you’re not shocked just before closing… or worse, just after getting under contract.
And don’t neglect the property while it’s rented then try to catch up just before selling. You won’t get $45,000 more when you sell to compensate for the kitchen and bath remodel you finished last week. But renovating two years before will reward you with the highest current price when you finally do sell.
Best advice: always have your property in shape to sell quickly when market conditions dictate.
Summit County, and Silverthorne in particular, made a big Olympic splash… It began when Red Gerard won the first gold medal of the games and before it was over, four more locals won medals. The town threw a parade and celebration and Gerard was nominated as Male Olympian of the Year by ESPN. Goldthorne, indeed!
The packing crate hotel is a go… the gentrification of Silverthorne continues. “The Pad” was approved by Silverthorne recently and will go on the banks of the Blue across the street from Town Hall. It’s going to be a hostel made out of trans-oceanic shipping containers… really.
The Buffalo Mtn. fire scared the bejeezus out of Wildernest and Mesa Cortina residents in mid-June… but no residences burned. They threw everything from AS350s to DC10s at it and stopped it 50 feet from homes. Everyone was relieved and grateful except for a few ingrates complaining about the red fire retardant on their homes. We can’t even agree that stopping a fire is a good thing… forget climate change or gun control.
And speaking of climate change… A-Basin barely made it to June 3rd this year. Remember when you could ski through July and only had to stop because they stopped running the lifts?
It was the biggest bike race event for Summit this year… that no one’s heard of. The seven day, 526 mile Mavic Haute Route Rockies came through town in late June with a hundred riders or so on a race over Loveland, Hoosier, Tennessee, Guanella and other passes in addition to Pike’s Peak and Battle Mountain. Makes the USA Pro Challenge look like wimps. And women were right there in every stage… Imagine!
Be careful what you say, it could cost you money… or make you some.
A study by the University of Guelph Ontario looked at 20,000 Canadian real estate advertisements over 3 years and found that when it comes to descriptions of property for sale, style sells, substance doesn’t.
Using the phrase “good value” cost owners 5 percent in sale price. Pointing to “landscaping” sold the home 20 percent faster and “move in condition” homes sold in 12 percent less time. “Beautiful” homes sold 15 percent faster and for 5 percent more.
“Motivated seller”, “foreclosure”, and “handyman special” all cost sellers money at closing while “granite”, “maple” and “gourmet” brought higher prices.
Some material facts helped (“golf” or “lake”), while other presumably good features (“new paint”, “new carpet”) hurt sales prices.
And the ubiquitous “must see” had no effect whatsoever.
So if you’ve just listed your beautiful granite and maple filled gourmet home with great landscaping and curb appeal on a lakeside golf course lot in move-in condition, get ready to move out!
They say that the result of the perfect negotiation is that neither party is entirely satisfied. That sums up the Summit County real estate market pretty well right now.
Sellers still expect 10% more than the last sale and buyers are already prickly about the historically high price they are going to have to pay. The result is inspections are becoming a hard negotiation instead of sticking to items of safety, habitability and working condition. Sellers are very resistant to concessions thinking that there will be another desperate buyer along any moment.
At the end of the transaction we often have two parties who both feel shorted.
Realtors know that there are elements of truth in both positions. There are enough buyers to keep demand higher than supply, but if the seller blows the first one off the holding costs of increased time on market may outweigh the gain of another offer. And some properties get a reputation for difficult dealing which never helps.
If there were a normal number of properties for sale, our market might be in trouble because demand is actually not increasing. The number of properties sold over the past few years been essentially flat. But the lack of inventory has created an artificially “hot” market that could evaporate if events move everyone to sell at once. It’s happened before. Think 2009.
Meanwhile prices increased by15% last year. Higher prices take some buyers out of the market due to sticker shock. Rising interest rates this year means other buyers can no longer qualify for a mortgage.
Realtors are always walking a tight rope between buyer and seller expectations. And the disconnect between those expectations has rarely been greater.
Sellers need to remember that if the national economy or world events change substantially, the number of buyers will probably decline and the number of properties on the market will increase.
Summit County is still a second home market and those buyers don’t have to buy. Our primary home buyers are usually stretching to get into the home already and any problem can take them right out of the market.
At any moment, Summit County’s market momentum could tip back towards buyers. This will require flexibility, a concept that has been dismissed by sellers for quite a while in our market.
Sellers may need to price more aggressively than they are presently willing to do. This doesn’t mean slashing the price or “giving the property away”. It means pricing with or even slightly below the last sale. That will probably still bring the highest price ever paid.
Buyers need to recognize that there is an historic low number of properties for sale, prices are increasing and for as long as that lasts, sellers have leverage.
Well it’s summer again in Summit County and the visitors and second home owners are all back again.
Lake Dillon has become a stand-up paddle mecca and there are more bicycles than can fit on the paths. The Buffalo Mtn. trails affected by the fire in June are open again and hikers are all over the back country.
Despite the fire ban that cancelled all fireworks over July 4th, the parades and concerts were jammed and no one complained about the lack of pyrotechnics for a change.
Just another Summit County summer… enjoy it while it lasts!
See you here!
Chuck Leathers, CRS
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.
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.
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.