What Home Improvements Will Yield 200% Return on Investment?

images-10Every year there is a report published with information on what home improvement projects provide the highest return on investment. If you aren’t “in the know”, the 2016 report may have a few surprises mixed with the old “go to” projects. According to the Remodeling 2016 Cost vs. Value Report (www.costvsvalue.com) midrange projects win out with the highest ROI projects being:

1. Manufactured stone veneer at 99.9% ROI, followed by
2. Attic insulation at 87.4% and
3. The old faithful modest kitchen remodel was a close third at 87% ROI.

The highest ROI in the report’s “upscale” projects category is:

1. Engineered siding replacement at 83.7% and
2. Garage door replacement at 82.7%

Now, this isn’t to say that other improvements aren’t worth doing. In fact, replacing your front door may only return about 75% on investment but if you do it yourself, you could see a return of 600% (http://www.houselogic.com/home-advice/home-improvement/diy-how-much-do-you-save/). While the same article reports a 91% return on installing pre-finished hardwood floors if hiring a professional or 238% return if you do it yourself.

Now while all of these improvements seem to offer the highest ROI, you might find it interesting to learn that many of the HIGHEST ROI projects haven’t been mentioned yet. Courtesy of research done by Nationwide (https://inthenation.nationwide.com/diy-home-improvement-infographic/), the highest ROI projects are related to elbow grease and maintenance. The top three being:

1. Clean and declutter at 403% ROI
2. Lighten and brighten at 299% ROI
3. Electrical and Plumbing 293% ROI

What this should tell you is work from the bottom up. Clean and declutter, lighten and brighten, fix plumbing and electrical first. Then move on to the replacing and remodeling. If you would like further guidance, give me a call and we can formulate a plan or projects specific to your property and situation. As always, for free with no hassle and no obligations.

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The “Level or Lie” Conversation

Real estate brokers have an ethic obligation to be honest with sellers about the value of their property. Further, brokers are required to have the knowledge and experience to correctly determine a property’s value. If they are NOT experienced in an area or property type then they are obligated to disclose this fact and at that point it is “buyer beware”. One of my biggest pet peeves is brokers inflating values or telling a seller what they want to hear just to “win” the listing. Often brokers are what I call sign throwers. The main objective is to just get as many signs in as many yards as possible. Then, after over pricing, these unsuspecting homeowners are faced with the ugly conversation of a price reduction in 30 days. And yes, even in this market!

That’s when I come in. I have conversations with homeowners after the above mentioned takes place. I begin by asking, “Do you want me to tell you what you want to hear or do you want the truth?”. I do not come to be your friend. You are going to pay me good money for my expertise. So, I won’t tell you how beautiful your paint color is or how I love your “friendly” dog jumping on me. If your dog jumps on me, I won’t mind. However, I will explain how you need to be sure your dog is locked away for showing appointments. And if your paint is ugly, you will know it. Further, if you replaced carpet, it probably needed it. If you ask me if you should replace carpet, then the answer is probably yes.

And as far as what your property is worth. There will be very specific criteria used to measure value and it starts with data. All good brokers, educated buyers and appraisers will compare your house to others like it. Meaning, if you have a two story… then it will compared to other two stories. If you have 2600 square feet, then it will be compared to houses that are within 100-200 square feet of yours (in general). Adjustments made either up or down are not a mystery. If your property backs to a highway it will be worth less than a house that doesn’t. If your house hasn’t been updated and another has, the other is worth more. And your house is not necessarily worth more if you replaced the roof, water heater or furnace. The value placed on mechanicals will depend on many factors. And bottom line….. Your property’s value is not what you want for the property or what you owe or what you paid for it. The value is ultimately determined by what the market will give you.

So, before you hire a broker you should ask yourself if they are trying to level with you or lie to you. And if you are honest with yourself, you will know. My advice is to always get a second opinion if you feel something doesn’t sound right. If you are in need of a second opinion call me.

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Colorado’s Population Increase and Housing Crunch In Perspective

I usually try to avoid the “classroom” and do my required training updates online but every so often I force myself into a classroom with my peers. I do this so I can gauge “the competition”. I am interested in what other brokers are saying and telling the “public”. This most recent training was a small class but full of insight. The following has nothing to do with the actual training but rather the side conversation that took place on “broker opinions” about the market.

The side conversation always starts with brokers piping up about the market…. how busy they are. Everyone trying to size up others. One broker starts by talking about how “unusually busy they are”. Then another broker pipes up and says the influx of activity is due to the legalization of marijuana and all the “potheads” moving here. My ears perked up and she peaked my interest and I was sucked into a short debate. I asked if that was the only reason or if perhaps there may possibly be other influences on how crazy our market is. Her response was “80,000 people moved to Colorado due to the legalization of marijuana”. I asked where she obtained that information. I asked her about net population migration, economic factors and she was confident in the one single reason. So I left the conversation.

So as a public service I will help the ill informed about our crazy housing market, the reasons for it, and put the numbers in perspective. First, there were a total of 100,986 that moved to the state from July 2014 to July 2015. Two-thirds of these people were from “net migration” (those that moved here minus those that moved out of the state). The other third was do to more births minus deaths in the state. So, the 80,000 number she spouted was incorrect whether you are looking at the total or net migration. Now, this number is less than a 2% increase. As a matter of fact, in the 70’s and then again in the 90’s we saw migration numbers that were 3-4% which had NOTHING to do with legalized marijuana. A population increase of 100,000 people is NOT unusual. If you missed the article by Jonathan Gonzalez from 9News, you can read it here

The more accurate reason for the migration would be our jobs growth and unemployment rate as well as the factors that have contributed to migration BEFORE the legalization of marijuana which include our lifestyle, climate and in the past included affordability. But even these factors aren’t the “main contributors” to our current crazy housing market. Our current market has to do with housing production or lack thereof.

The housing market bubble and the Great Recession were serious and they took their toll. It is only now that we are seeing a combination of better employment numbers, looser lending standards and what we call “boomerang buyers” re-entering the market. Boomerang buyers are those that fell into foreclosure or bankruptcy that have cleaned up their credit and can now buy again. Builders aren’t keeping up with demand and homeowners aren’t as eager to sell now as they would have been in the past.

Now, I am not going to say that the legalization of marijuana hasn’t added to our net population or that it isn’t a contributing factor to the housing market. What I will say is that it is not THE contributing factor and is not even a heavily weighted factor. To say the opposite is a short-sided, simple minded, biased answer that does a disservice to our clients, customers and the public.

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To Be or Not to Be: The Debate Over Solar and Resale Value

Over the last few years we have experienced greater homeowner interest in “going solar”. New home builders are now offering solar as an option during the purchase process and existing homes are installing panels at a quicker pace. But there are many still on the fence on whether it is worth it. I just got another inquiry on whether adding solar will help or hurt resale. It is coming up so frequently that of course I had to write about it.

I will admit, our family was all for it until I found that I couldn’t get enough panels on my roof to justify the cost. So, we are trying to find an alternative option. Does this mean that I am 100% sold on the resale value? Not necessarily….. I have been saying it depends. If you are thinking of going solar but need help determining whether it will help or hurt future resale value, here are the top things you should consider before jumping in:

1. Cost: There are two payment options when considering installation of solar. The first is to buy the system outright. The cost is fairly significant ($8,000-$12,000) seems to be a range I keep hearing from my encounters. This option is like doing a kitchen remodel or a new roof, etc. You pay for the materials and labor and it is yours. The second option is to lease the system. SolarCity is a big one in our area. They will sell it that the lease will pay for itself via saving on utility bills. However, that isn’t always the case. In my case we would have the cost of the lease and still pay utility bills because our roof couldn’t hold enough panels to net zero or usage. So, have the analysis ran and understand your usage versus cost. We are still going solar eventually only because I want to reduce our carbon footprint. But we won’t be leasing.

2. Resale Value: As a broker, I have seen my share of houses with solar. Most for sale that have solar are tied to the lease option. What this means to a buyer is if they want to buy the house, they also have to agree to take over the solar lease due to the seller’s obligation to SolarCity or whomever. This, so far, has been a turn off. It is like telling a buyer they have to agree to be married to your preferred security monitoring company. They don’t want that attachment, especially if they don’t have a good understanding of the agreement, cost and benefits. So, while buyers say they are now wanting solar…. they don’t want to pay an additional cost above what they are paying for the house.
There was a recent study done (click here to read)on the resale value of solar that concluded when the system was owned outright, it did improve resale value. Banks and appraisers are finally stepping on board and agreeing that additional value should and will be added for owned systems. The study says the average watt system adds about $15,000 in value. Keep in mind the study is based on past data and on limited data due to the availability of subject properties.

3. Depreciation of Value: Finally, you need to keep in mind that like with anything, whether it be the roof, the appliances, etc., there is a depreciating value. The difference with solar is the above mentioned study suggests that there is “an apparent sharp depreciation rate” as the systems age. So, if you are installing a system now and sell the house fifteen years from now do not expect that you will “get your money back” from the system. However, if you install it now and sell a year or two from now, the likelihood is you can re-coop the cost and the system will make your property move attractive than those without solar. Keep in mind that property values are based on more than one feature or criteria.

So, bottom line…. If are you are interested in solar but worried about resale value, at this point it is better to buy the system outright than lease. SolarCity knows this and they expect that sales of systems will start outpacing leases. Having solar won’t HURT resale value but how much it positively impacts value depends on if the system is owned and how old the system is.

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“Pocket Listings”….. When Are They a Good Idea??

For YEARS this subject has been a point of irritation for me. First, let me explain what a “pocket listing” is and the history or original purpose and then I am sure you will see where I am going with the discussion. A “pocket listing” is a listing that a real estate agent keeps in their “pocket”…. meaning they do not offer the listing for sale in the Multiple Listing Service (MLS). Historically, this type of service was saved for very expensive properties owned by celebrities, politicians, etc. due to privacy concerns. Typically, the agent would work through a network or other agents and use alternative marketing means to try and find a buyer without exposing the seller or property to the entire world.

However, over the last few years, real estate agents have been turning to the “pocket listing” strategy for other reasons. Typically, these agents will offer the seller a reduction in commission for giving the agent the opportunity to market outside of the MLS and try to find a buyer without another agent. For example, if the agent charges a 6% commission, he/she may offer to reduce the commission to 3.5%. Initially, this sounds like a win/win for both parties. The seller saves money and the agent makes extra money on the commission. The problem is that many agents are not looking out of the best interest of the seller. Rather, they are interested in the chance to make more money. Some will argue that there is no harm in the agent making a little extra since the seller is actually saving money on the commission by doing so. This is not necessarily true.

It should be the agent’s top concern to get the seller the best price and terms. By exposing the property to the greatest amount of people you are creating competition among buyers and often times multiple offers. These offers will compete, giving the seller the BEST opportunity for the most favorable price and terms. Limited exposure will lead to limited results. Further, buyers are growing frustrated with having to try and find where these pocket listings are. The entire idea of the MLS is to bring buyers and sellers together for mutual benefit. The only one winning in this situation is the “pocket listing” agent that happens to earn the extra commission.

These type of listings are not “illegal” but they are definitely frowned upon in the industry. So much so, that the National Association of Realtors as well as local boards are having ongoing discussions regarding how they are handled. The first point of concern is how are these listing agreements coming about? IF the seller is made aware and agrees to the “pocket listing” then the agent is doing things above board. However, the question remains…. has the seller been “sold” that the “pocket listing” is in their best interest? Is the seller aware of both sides or just what is being presented to them?

Another major concern is that of skewed MLS data. For example, if a seller insists on wanting to sell for $30,000 more than what the agent thinks the property will sell for, they may do a pocket listing. The reason being, all agents are aware of what is considered the “golden market” time. This is typically 60-90 active days on market. After this time frame listing get “stale” and looked over by buyers. So, to avoid becoming stale, the agent doesn’t market the home at the desired price in the MLS but “tests” the market through a pocket listing. At some point the seller decides to drop the price and the agent puts the listing in the MLS. The agent may have done a “pocket listing” agreement contract for 30-60 days. When that contract expires, they do a new listing contract to market on the MLS. This gives the impression that the listing has been on the market less days than it actually has. Economists and large tracking firms depend on the MLS data to provide a picture of market conditions around the U.S. Skewed information doesn’t give a clear picture, making it frustrating for everyone. It is an argument of immediate individual greed versus the long term common good.

So, I promised to tell you when a “pocket listing” is in the best interest of a seller. The answer is RARELY. If you are looking to sell and have a very sick family member (as in bed ridden, terminal, etc.) then a “pocket listing” MAY be the answer, but I would have other suggestions first. Another situation for entertaining a pocket listing may be if you were a high profile executive and did not want your company knowing that you were planning a move… but again I would argue that others means are better suited to the situation. Finally, if you wanted to “test the market” to see if you could get a very specific asking price or terms, try a pocket listing…. However, I would again argue that if you have a specific price in mind or terms, you are better off exposing the property to as many people as possible.

The bottom line…… doing a “pocket listing” sounds like a winning situation for the seller. However, if you are being asked to do a pocket listing by an agent, you should be aware of not only your own motivations but the underlying motivations of the agent presenting the option of a pocket listing as well.

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