Read the latest newsletter from Berkshire Hathaway HomeServices Rocky Mountain Realtors in Colorado Springs. BHHSRMR keeps you updated on market stats, Downtown news and events, plus helpful homebuyer and home seller tips. In this edition, you’ll find an invite to our Downtown Holiday Party, plus understanding your home warranty.
Real Estate Terms
You’ve probably heard about home warranties, especially if you have recently bought or sold a home. But are you still confused? You’re not alone, and a lot of people don’t really understand the specifics when they purchase a home warranty. The question we get asked all the time: Is A Home Warranty Worth Buying?
First of all, you need to understand the basics of what a home warranty is before deciding whether or not it makes sense for you.
It’s Insurance For Your Home Mechanicals, Appliances, and Amenities That Aren’t Typically Covered By Your Homeowners Insurance. Like any insurance, you are purchasing it “in case” something happens so that your financial risk is reduced. This could be anything from a refrigerator to a hot tub, based on the package that you purchase. Also, keep in mind that the coverage is repair or replace, but there are some catches and each company is different.
It’s A Limited Coverage Time Frame. Typically, you’re paying up front for the coverage, which can vary based on the home warranty company. We usually see the coverage period between 10-14 months, with 12 months (1-year) being the most common for a basic package. Once your term is up, you’ll have the opportunity to renew it again so you’re covered for another year.
Understand The “Caps” on Each Covered Item. Caps are the maximum amount the home warranty company will pay to replace your appliance, system, or other covered item if a full replacement is required. Make sure you understand not only which items in your home are covered, but also how much you could still be liable for if it requires a full replacement.
Make sure you know which systems and appliances are covered.
Know Which Items Are Covered. A base package may cover some of the major appliances and even systems in your home, but you can pay an additional fee to assure that more unique items are covered too. For instance, if you have a hot tub, 2nd refrigerator, water softener, or septic tank you may want to request rates for coverage. Each company is different and some will even add these items for free with a satisfactory inspection prior to coverage.
Service Fees Are Standard. Some people are caught off guard when they’ve already paid $400 – $500 for the home warranty, and then are expected to pay for a service call when they need to use it. The good news is, it’s usually a fairly minimal charge (usually under $75) and it’s waived with most companies if something needs fixed or replaced.
Most Require You to Use Their Contractors. Although more of the home warranty companies are starting to allowing you to pick your own, you’ll normally find that you’ll need to call the home warranty company when you have an issue, and they’ll send one of their preferred contractors.
In the real estate industry, we often see home warranties purchased (by either the buyer or the seller) to give peace of mind, especially in older homes where the systems are older and may have exceeded their expected life span. Home warranties can be used as an incentive (i.e. “Free home warranty with full price offer”) or a negotiation tool (seller purchasing home warranty for buyer instead of fixing inspection items).
Home warranties are one of those things you hate spending money on…..until you need it. Then, you can be very grateful that you have some financial relief and organized service when dealing with unexpected problems. Each situation is different, so reach out to your agent for some recommendations and contact information for a home warranty company to get specifics.
If you’re on the way to purchasing a home and debating your financial situation, let’s look at some of the costs you should expect once you get under contract. This may help you determine if it’s the right time for you to buy or find other sources to help pay for the upfront costs associated with purchasing a house.
Earnest Money Deposit: Your First Out-of-Pocket Cost
Once you start the process of submitting an offer on a home, there are out-of-pocket expenses that you’ll have to be ready for immediately. The earnest money deposit is typically about 1% of the purchase price in the Colorado real estate market, so on a $400,000 home you should expect needing $4,000 in a bank account with immediate access to the money (check, wire, cashier’s check, etc). Although the contract allows for this deposit to be made after the offer is accepted, it’s typical that the seller will want your funds in an account within a few days of a signed contract (usually held at a title company or real estate office in an escrow account). The good news is, this money is truly a deposit and as long as you meet your deadlines and eventually close, you can apply these funds towards your downpayment or other closing costs. In other words, you’ll potentially get the money back but you’ll need the funds available to deposit at the time of your accepted contract.
Home Inspection: It’s More than Just a One Day Event
Your due diligence and inspection period allows for you to do inspections of any kind on the property as long as you’re not negatively altering or damaging the property. This means not only can you do a typical home inspection (in which you hired a home inspector to do an inspection of systems, mechanicals, exterior and interior condition, etc), you can hire contractors for specific issues and inspections. For instance, you may want to have the sewer line scoped, engineering reports of the structural integrity, or substance testing for things like mold or presence of drug residue. Depending on the home inspection company, they can often do testing for things like radon gas levels but there is usually an additional charge. Currently, rates for a home inspection vary depending on the size, age, and other factors of the house, but expect about $400-$500 and then additional items like radon gas and sewer line scoping will run another $150+ each. So, this “inspection amount” can change dramatically based on your concerns and curiosities as a buyer, but it’s not hard to reach nearly $1,000 just for basic inspections. And keep in mind, these contractors and inspectors are paid when the service is rendered so it is a direct out-of-pocket cost while you’re under contract. Also, there are other things that won’t necessarily cost you money but you should definitely consider researching as part of your home inspection period.
Property Survey or Improvement Location Certificate (ILC)
It’s possible that either the lender or title company may require a land survey or ILC. Typically, these are due at time of service and estimated starting cost would be $800+ for this type of service. Usually if the home is in a neighborhood with lot and block, this won’t be a required item. However, during your contract period, you can certainly choose to do this yourself so you are aware of the property boundaries, especially if you’re considering building a new structure, putting up fencing, or expanding the current home.
Downpayment on Your Loan
When you first start the process of searching for a home, you’ll talk with a lender about getting a loan to help pay for the purchase (unless you’re buying with cash). The lender will help find the best type of loan for your situation and qualifications (VA, FHA, Conventional, Jumbo, USDA, etc) and unless you have VA benefits from the military, your loan will probably have a minimum of 3.5% down (FHA) but probably more like 5% down (or more). Based on the type of loan, intended use of property, and other factors this can be 20-25% down. So, with a purchase price of $400,000 you could be looking at $100,000 as a down payment for the loan, and you’ll still have closing costs in addition to that amount. More money down can also reduce your monthly payments, decrease your interest rate, and waive the need for mortgage insurance. Make sure you talk with an experienced real estate agent and your mortgage lender to make sure you understand the entire package and what your monthly payment will be with principle, interest, taxes and insurance (PITI).
Depending on your offer, a portion or all of your closing costs can be paid for by the seller. However, it’s not as typical in a seller’s market as it directly affects their bottom line. So, assuming your paying your own closing costs this will be a collection of fees at closing in addition to your purchase price and loan downpayment, minus any credits you’re receiving. Closing costs include a variety of processing and document fees, lender escrowing funds for things like homeowners insurance and property taxes, appraisal fees, title company fees, recording and document fees, and any administrative fees charged from the real estate company.
Moving Into Your Home
Keep in mind, these expenses aren’t accounting for the setup of your new home, including things like buying furniture, doing landscaping, basement finishes, interior paint and flooring, or simply maintenance issues that might have come up during your inspection. If you can, start putting money away in a separate bank account as an maintenance fund to pay for large expenses like replacing a roof, driveway, exterior painting, tree removal, flooring updates, etc. Ask your agent first when doing these type of updates to help discover if there are ways to save money and for a list of recommended companies.
When two or more people take title together to real estate in Colorado, they will have to decide what form of co-ownership to take: joint tenancy or tenancy in common. It is important to understand the difference between the two types of co-ownership, especially as it relates to how ownership can be severed by one of the owners and what happens to the property if an owner becomes deceased.
Tenancy in Common
Tenancy in common is presumed in Colorado law, unless joint tenancy is expressly stated in the deed.
When two or more people (natural persons) or entities (corporations, partnerships, LLCs, or trusts, for example) take title to real property as tenants in common, each co-owner has an undivided interest in the property. This interest is “freely alienable,” meaning it can be transferred by sale, gift, will, or inheritance.
In practice, this means that each co-owner has the “non-exclusive right to possession of the entire property.” At the same time, each co-owner also has the right to mortgage, sell, or otherwise transfer his own interest in the property without the consent of the other owners.
There can be any number of tenants in common. Their interests do not have to be equal but do have to add up to 100%.
Severance of tenancy in common:
Upon the death of a co-owner, the deceased co-owner’s interest will pass to his or her heirs, based on that person’s will or the state’s law of intestate succession. The probate requirements must be met, including the appointment of a personal representative and the recording of the personal representative’s deed conveying the interest of the deceased co-owner.
If a co-owner is an entity (a corporation, partnership, trust, LLC, etc.) and the entity terminates, the entity’s interest must be conveyed by a suitable deed executed by representatives of the entity in accordance with the state’s laws for that type of entity.
Joint tenancy can only be created if expressly stated in the deed.
To create a co-ownership in joint tenancy, the instrument conveying the property must state that the property is conveyed to the grantees in joint tenancy or as joint tenants. This can be done using the phrase “as joint tenants with right of survivorship” or “in joint tenancy with right of survivorship,” or by using the abbreviation “JTWROS,” which stands for either of the two phrases.
The number of joint tenants is not limited to two persons. There can be any number of joint tenants. Prior to 2008, joint tenants had to hold equal interests in the property; after the passage of HB 1248, effective April 25, 2008, the interests of joint tenants no longer have to be equal but must still add up to 100%.
Joint tenancy can only be created between natural persons (no entities) for the obvious reason that the joint tenancy is terminated upon death of one of the joint tenants.
Severance of a Joint Tenancy
As in a tenancy in common, each joint tenant also has the right to mortgage, sell, or otherwise transfer his own interest in the property without the consent of other joint tenants. Doing so, however, may result in the severance of the joint tenancy.
On the death of any one of the joint tenants, the remaining joint tenants will continue to own the whole property including the interest of the deceased joint tenant. There is no need for probate or any deed conveying the interest of the deceased joint tenant to the remaining joint tenants. The interest of the deceased joint tenant does not pass to the heirs. (A death certificate and supplementary affidavit must be recorded in the county where the property is situated.) The remaining joint tenants will acquire the interest of the deceased joint tenant free of all liens that may have attached to the interest of the deceased joint tenant.
A joint tenancy between two persons will be severed if one of the joint tenants conveys his interest to a third party. The remaining owner and the new owner will hold the property as tenants in common.
When property is held in joint tenancy by three or more joint tenants, a conveyance by one of them will destroy the joint tenancy only as to the grantor’s interest. The other remaining joint tenants will continue to hold property in joint tenancy between themselves, while the grantee holds his interest as a tenant in common with them.
If one of the joint tenants encumbers his interest, the joint tenancy continues. If the mortgage or deed of trust is foreclosed, or a judgment creditor forecloses on the judgment against one of the joint tenants, the grantee under a Public Trustee’s Deed or Sheriff’s Deed will acquire that interest as a tenant in common with the remaining joint tenants. The filing of a petition of bankruptcy by any joint tenant, however, will not automatically sever the joint tenancy.
For joint tenants who are married, the granting of a decree of divorce will automatically terminate the joint tenancy, and the former spouses will hold the property instead as tenants in common.
If one of the joint tenants in murdered by another joint tenant, the perpetrator cannot acquire the interest of the deceased joint tenant.
Although types of ownership can be changed post-closing, it’s easiest if you know what type of ownership you’d like to take prior to your real estate agent writing the contract. Consult a lawyer or ask your agent for more information.
When purchasing a home, there’s more to think about than just the home itself. There are many factors that may affect your comfort in your new home, both mentally and physically. Make sure during the contract process you do your due diligence as a buyer and research the things that are important to you or might affect your decision to purchase the home. Check with your real estate agent on dates and deadlines to make sure you know the time-frame you’ll want to accomplish this research.
Property Insurance / Homeowners Insurance
Call your current insurance company and other property insurance companies to compare quotes. Make sure you have the information about the property in front of you (either a MLS sheet or assessor records) and can answer basic questions about the home. The main purpose of this step is to make sure you’re (1) comfortable with the potential rates (2) that the home can be insured based on the current condition.
During your home inspection phase, you have the right to test for substances in the home as long as you’re not altering or destroying the home. This means you can test for things like methamphetamine, marijuana residue, mold, lead based paint, radon gas, and more.
Sex Offender List
Keep in mind your neighbors will come and go and things can always change around your home. However, if you’re concerned about potentially living around someone who is a register sex offender, you may want to consider doing a search prior to purchasing the home so you’ll at least know where they live in your area. https://www.nsopw.gov/
Many buyers are curious about the crime rate in the area surrounding their potential home. Whether you’re currently under contract on a house or still searching for a home, knowing the crime stats might help you pick your desired neighborhood. Consider asking locals and friends as well, or get feedback using local area groups on sites like Facebook or Nextdoor. https://coloradosprings.gov/police-department/page/cspd-statistical-and-annual-reports
Flight Patterns, Train Tracks and Highways
Take time to research your proximity to transportation routes which might be a nuisance. Whether it’s noise from a nearby highway or interstate, or the travel patterns or trains and airplanes, some people like the noise and others might regret ever buying a home near these routes. Make sure you experience the neighborhood at different times of day and night, ask the sellers, and do your diligence if you think it’s going to be a concern down the road. Also, check if there are future plans for these types of improvements.
Check with your agent or use the link below to verify if your home is in a flood zone. If it is, most likely the lender will require you purchase flood insurance (if you’re getting a mortgage to purchase the home), and sometimes even the title company will require flood insurance. Keep in mind, flood zones can change.
The history of permits pulled on a property is all public record. You can search any address to find if permits were pulled for home renovation projects, home additions, mechanical systems like a new furnace, plumbing upgrades or fixes, electrical changes and additions, etc. Details including the date and contractor are available on Pikes Peak Regional Building Department’s website.
Let your agent know if there are other things that concern you or that may keep you from purchasing a home. Your agent doesn’t want you to regret the decision or be surprised in the future. Check with your agent on what type of items are required to be disclosed by the seller and get a seller’s property disclosure prior to your home inspection date.
Despite the curveball of COVID-19, the real estate market continues to thrive. We’re still experiencing a sellers market, often with multiple offers exceeding list price within a few weeks of listing a home. Prices are up and the number of homes sold is still ahead of where we were at this time last year. However, we’re still dealing with the low inventory challenge: simply not having enough homes on the market for the number of buyers that are ready to buy.
Some things have changed regarding getting qualified to buy a home, but typically if you’re back working again with a regular income, there are programs available. Plus, with the incredibly low interest rates, it’s a great time to take advantage of buying a primary residence or investment property. Now’s the time to make a move to take advantage of quickly increasing prices. Consider this: Five years ago in June 2015, the average sale price was just over $279,000. As of this June, we’ve exceeded $400,000.
Are These Mortgage Interest Rates Low?
Mortgage interest rates are at historic lows, despite the slight climb in 2018. Although we’ve seen rates increase a bit over the past year, this chart is a reminder of how spoiled homebuyers have been, especially over the last few years. In the last quarter of 2018, we’ve seen rates gradually increase 2 to 3 tenths of a point each month. Even with the rates increasing more than 1 point during calendar year of 2018, be thankful that you are not paying the 18% or more that buyers were burdened with around the early 1980’s.
Is It Better To Wait Until Rates Go Down Again?
Also, it’s important to look at the trend for the last five years. Although there are some ups and downs, rates are gradually increasing. It’s a great time to talk to your favorite real estate agent about purchasing a home. Whether you are a Springs transferred military buyer considering using your VA benefits or a first-time buyer looking to get a conventional 30-year or 15-year loan, the past 5 years have shown us overall that the more time that passes, the more you will pay for the loan. Right now, people who were thinking of buying a home 5 years ago are kicking themselves for not taking advantage of those low rates. Thankfully, they still have the option of homeownership with the advantage of securing some of the lowest interest rates over the last 45 years.
What If Interest Rates Go Back Up?
Talk to your agent and mortgage broker about locking in your rate so you secure the lowest possible mortgage interest rate without fear of it increasing during your contract period. We know this stuff can be confusing, but that’s why we’re here: to provide direction, advice and even professional hand holding for your next real estate transaction.
These enticing rates along with home sales slowing in the last quarter provide the perfect recipe for buying a home, condo, or townhome.
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With the recent hail storms in Colorado Springs, HOA communities are assessing damage and often passing the costs onto the homeowners. If you live in an HOA community, special assessments could be mandated to homeowners often costing you thousands of dollars unexpectedly.
Why Would an HOA Charge a Special Assessment?
Typically, these are one-time required payments by each homeowner. Special assessments can be collected for general maintenance of a complex or shared community space (such as painting, roof replacement, paving shared driveways, etc), but generally these assessments follow a “sudden and accidental event” such as a hail storm, fire, or other type of loss. Sometimes the HOA will allow owners to pay in a few payments for larger amounts, but either way, we’ve seen special assessments as high as $7,000 per unit (owner). If you’re an investor and own multiple units, it could be a huge financial obligation that forces you to scramble to figure out how to pay your share.
What Can Homeowners Do to Protect Themselves Financially?
One option to be prepared for a special assessment is create a savings account for HOA fees and assessments. Just like your HOA, you should have some reserves to pull from for the unexpected expenses. However for many of us, this isn’t practical or attainable.
Perhaps the easiest and most immediate solution is call your homeowners insurance agent today! Ask about the Loss Assessment Coverage and find out if you’re covered and your coverage amount. Some policies automatically include this coverage, but the default coverage amount is very low and most likely should be increased to assured you have proper coverage. Carl Adams, owner of Red Letter Insurance, says, “I typically recommend going with the highest coverage offered” because the additional coverage is so affordable.
The Loss Assessment Coverage is very inexpensive (one client got $50,000 worth of coverage for $85 per year) but is worth every penny. Basically, if your HOA creates a special assessment, you file a claim with your insurance company under the loss assessment coverage and after you pay your deductible, your homeowners policy covers the remaining cost (up to your coverage amount).
What Are the Pros and Cons of Adding Loss Assessment Coverage?
If your HOA determines to charge a special assessment to the owners, your loss assessment coverage could cover any additional amount after you pay your deductible. But keep in mind, it is considered a claim on your policy. Adams recommends, “Talk with your insurance professional about what makes the most sense.” Sometimes, filing a claim, although it will pay for the single incident, may not be the best option if it increases your rates, stops your claims free cashback perks (with some companies), or makes it difficult to shop around for insurance because of a past claim.
Keep in mind that HOA’s are usually set up in condominium and townhouse complexes, and the Loss Assessment Coverage typically applies to HO6 Insurance Policies (the type of policy you’ll typically get for a condo or townhome). But it can also apply to single family homes in a Homeowners Association. Check with your insurance broker or agent to verify your type of coverage and coverage limits.
For more information, contact your favorite real estate agent or insurance agent.
Carl Adams, Insurance Broker
Red Letter Insurance
As we launch into the summer season, it’s going to be easier to sell a home but tough as a buyer. The May 2018 numbers have been released, and we continue to have more home sales each month and fewer homes being listed. Although our days on market are down even from the previous month (April 2018), our average home price continues to increase.
Keep in mind, these stats are for the entire Pikes Peak MLS, which includes El Paso County as well as other surrounding counties including parts of Teller, Chaffee, Custer, Douglas, Elbert, Fremont, Lincoln, Park and Pueblo.
Average Home Price: $355,927 (Single family homes and patio homes – doesn’t include condos/townhomes)
This has increased from $348,527 only a month earlier in April 2018. As the average home price increases, we see more sales activity in the $300,000-$400,000 price range. Just a few months ago, almost half of the sales activity was in the $200,000-$300,000 price range. As of May 2018, each price range now make up about 30% of sales. That means over 60% of home sales between $200,000-$400,000. If you’re a buyer in this price range, you’re competing in an extremely competitive market, and homes on average are selling for 100.54% of list price (meaning, over the listed price).
Average Days on Market: Dropped to 22
If you’re just looking at El Paso County, the average days on market is 21. However, for our entire PPMLS area, it’s 22 days which is the average across all price ranges. This has decreased from April as well, so homes are selling quicker even in the past month. Also, if you’re in that “hot spot” price range of $200K-$400,000 the average days on market for the past 90 days = 6 days on market. Homes in that high demand bracket are selling in less than a week.
Sold Homes and New Listings Both Up
We saw an increase in the number of homes sold in May, jumping from 1,286 in April to 1,568 in May. So, nearly a 22% increase in sales of homes and as mentioned above, they’re selling for an average of $7,000 more than they sold in April.
Also, our total number of new listings in May was 2,080, just about 100 more new listings than we saw in April (1,972). It’s almost exactly what we saw in May 2017 as well, when we had 2,053 new listings so year-over-year there was no significant change.
What to Expect for Summer 2018
We have no reason to believe this market will slow down, even in the next few years. It will remain a seller’s market and prices will likely continue to increase with homeowners seeing drastic appreciation (probably averaging 13-18% per year). Whether you’re looking at statistics for single family homes, or condos and townhomes, all area appreciating very well and at a steady rate. It matters more on the area, rather than the style of home. Contact your favorite agent to find out stats on your specific neighborhood and how it’s appreciating in value.
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