I’ll admit, I didn’t think we’d be sitting here less than a year after moving to Denver, preparing to close on a mortgage. I thought we’d be able to make it happen eventually, but I didn’t think it’d be this fast.
Before we go, I wanted to write up some thoughts about an invaluable resource throughout the whole process: The Consumer Financial Protection Bureau. The bureau gets a lot of attention for its enforcement actions mission, and while that’s an important one that’s provided relief for millions in the bureau’s short history, they also have an educative mission. They provide resources for navigating worlds that usually involve taking out several thousand dollars of debt like paying for college, buying a car, and owning a home, and transactions that help you and your family stay safe and solvent like planning for retirement, sending money overseas, and using prepaid cards. They explain your rights, what to expect, and what to watch out for, and break the process into discrete steps that correspond to how consumers actually approach these things.
When I worked there, the bureau was in the midst of their Owning a Home project and I knew the people working on it were doing tremendous amounts of research to understand all the terms and design an experience that worked for the American consumer. I remember how excited the team was to be launching something so impactful. When it first launched Owning a Home provided data and basic information about home loans, interest rates, and closing documents. Now it looks like this and, as it developed since 2014, became a comprehensive guide to the home owning process. I didn’t know anything about homeownership then but I knew about the financial crisis, and how people got talked into loans they couldn’t afford only to then have their home, brokers took shortcuts and took risks they should have known not to take, and the system was generally stacked against the consumer. Putting this information into the world would only help protect people and better know their situation up front.
Today, as we prepare to walk into closing and make a huge financial decision, we’re confident we can afford the house and the loan, confident we understand the terms, and confident there’s someone who can help if things get murky.
The CFPB is the killer app of the banking world. I know people lived without it in the past but I really can’t fathom how. If you know someone who is starting to deal with these financial decisions point them toward CFPB’s Consumer Tools. If CFPB has been valuable to your home buying process, write your Senators and Members of Congress and tell them. Then tell them your story. They’re doing an important public service over there, and stories like this reassure them that they’re on the right track.
Thank you CFPB, and all the brilliant designers and policy professionals you have working on keeping us safe and confident as we navigate these weighty and stressful decisions.
We’re officially under contract. In Colorado this means it’s our deal to walk away from. It doesn’t mean that the negotiations are over. After you settle on the price of the home, there’s the inspection, the appraisal, and then closing on your mortgage. There’s also all the unexpected things that can come up between you and the seller between when you agree to a price and close.
Our inspection went really well for a house that’s almost 110 years old. (RSVP now for the house’s 110th birthday in 2018!) Since we’ve told people a little about the house there’ve been a few things people have raised eyebrows at and said will be “fun” to fix. Every house has weird quirks. Some of our friends had a house with a basement that was finished but had low (read: 5′ 6″) ceilings in every room but one. Our house has its furnace in the attic which is weird because the first thing everybody knows about heat is that it rises. Why put your heat ducts in the ceiling if heat rises? It doesn’t make a lot of sense.
The furnace is also 19 years old, which is nearly the end of life for a furnace, and one of the things our inspection brought up. Furnaces are expected to last about 20 years. Long than that and you’re getting lucky. Shorter than that and you better hope you started saving when your warranty came up.
The sewer is the other issue the inspection raised. Apparently 100 years ago people built pipes out of clay because plastic pipes didn’t exist for another 30 years. That’s not what happens anymore and PVC pipes are better at protecting your sewer against things like tree roots and general wear and tear on yard between your house and the tap — where your water comes in and out from the city. To get a good close look at your sewer — don’t pretend like you haven’t wondered where all that water goes when you flush — you get a sewer scope. A camera attached to a long cord, it looks like a medical scope. Like you’re looking into someone’s heart, except that it’s actually your toilet.
Our sewer scope found a bunch of cracks and breaks in our sewer line. Between that and the retired furnace, we are able to save a bunch of money on our closing costs by insisting that the seller credit us the expense of replacing both.
Apparently sellers used to be able to give buyers cash to replace these things. While that would be amazing, it’s not hard to see how that system was easily exploitable and contributed to the housing crisis. So now they can only pay your closing costs for you. If your inspection throws up a lot of red flags, you can still ask the seller to fix them for you, which is good if there are major problems and you have a willing seller. The risk of doing that is not controlling who gets hired and which product is selected, limiting your ability to correct errors or do market research.
One thing we’ve learned is that everything is negotiable. Our seller asked us to engage in a post-closure occupancy agreement (PCOA) to accommodate their tenants, that was a negotiation point. When they no longer needed the PCOA, that, too, was a negotiation. More time, less time, credits to closing costs, discounts on the sale price: it all gets a little dizzying. It’s hard to know whether and how we might jinx ourselves by telling people we bought a house and harder to decide how to set expectations for our current landlords.
The best lesson we’ve taken away from all of this is that working with a realtor is worth it. They can be a semi-neutral party who can help you make decisions. Granted, they want their commission — the seller pays that when you’re buying — but our realtor has been fair, giving us enough options and enough information to understand how to make a decision. If you’re getting into the market, make sure you’re realtor understands your needs and is your only point of contact.
We offered on a house this week. It was one we’d looked at a couple months ago when it hit the market but discarded because it was out of our price range. Then it sat, and by the time we went to tour homes for the first time, the price had dropped.
Why drop your price in a hot market? Because in a hot market your house should sell. A seller’s market doesn’t mean prices are arbitrary, it means inventory is low and expensive, but the seller still needs to find the equilibrium price at which buyers will start to offer.
When you offer on a house, you consider the price of the house, the square footage, what’s included or excluded from the sale, and you compare all of that to other houses in the area. Then you send over a contract — that’s all an offer is, a contract you intend to make good on — saying how much you want to pay and what concessions you are or aren’t willing to make.
If your offer is accepted, things move very fast for you. You have a day or two to come up with “earnest money,” confirming your intent to make good on the contract. Then you get an independent inspection, review a bunch of documents, and take the next week to figure out if you’d actually want to live in the place. If you do, you’re “under contract.”
Colorado is a “buyer friendly” state, meaning you have a lot of rights when you’re under contract. For example, as long as you want and are able to buy the home, the seller has to sell it to you. If someone comes in with $40 grand more in cash the day you go under contract, you still get to buy the house. If you, on the other hand, decide you don’t want to buy it, you can walk away. There are some sunk costs, like the inspection, the further you get in, but it’s nice to know it’s our house to buy if we want it.
When we entered this market we were told it’s a “sellers market.” It’s no secret that Denver’s market is hot, meaning there are a lot of people trying to buy but few looking to sell. Supply is far lower than demand. If you remember from your last macroeconomics class, that means prices go up.
Denver’s market has been like this for a while. According to the Denver Post, home prices gained 12% per year between 2013 and 2015. A home that cost $100k in 2012 would go for $336k this year. That’s insane (to me). We’ve met a few people who bought homes during that time and their stories are wild. Homes that are “fixer-uppers” would go for $30k over list price. Just as you put in an offer on a home you can both afford and live in, someone swoops in with a cash offer $40k above yours — and yours was already several thousand over offer.
Our realtor has told us we’re still in a seller’s market, especially with our budget. In a balanced market, sellers and buyers can not only negotiate price, but also things like who pays for closing costs. It was pretty common, five years ago, for the seller to pay the buyer’s closing costs. That’s less common today because sellers can pretty confidently assume they’ll find a less demanding buyer — or simply find a buyer who won’t have closing costs because they’re paying cash.
Being in a seller’s market is maddening. The list prices are unreliable because you never know when someone is going to come out of nowhere to buy the house from under you. You assume that if they say they’re taking the appliances, they mean it. As first time homebuyers, you know your offer is the least attractive if you can’t offer more than the bare minimum 3% down — even though the seller gets paid the same — someone with 10%, 20% or 40% down is considered “stronger” than you (and they’re probably getting a better deal on closing costs, those jerks).
Houses cost a lot of money, especially if you know you’re going to pump another $10-20k into just fixing things. We offered on our first house this weekend, and went about $25k under list price. In the listing, the seller said they were taking the water heater, washer and dryer, and microwave with them. The house currently has a lean-to porch attached with a sliding glass door that doesn’t lock, and the door into the house itself locks but has an open pet door attached. The microwave, whatever, but the back door will be on our short- to medium-term plan for repair.
We knew our offer wouldn’t get accepted but we didn’t think the counter offer would be simply list price. Such is a seller’s market. The owner of the home now knows that we’re interested and maybe taking that as a sign that he figured out the market equilibrium for his house or got close enough that all he has to do is wait a day or two and another offer will come in that beats ours. And that’s all despite the fact that home sales have started to slow down, a sign the market is cooling down.
If this doesn’t work out, maybe we’ll wait and see what 2017 holds.
We’re currently in the look-at-all-the-homes-all-the-time phase of home buying. There are a handful of neighborhoods where we can afford many homes, a few where we can afford some homes, and many neighborhoods where we can afford the occasional home. This weekend we learned a little more about what that spectrum means. We looked at six houses this weekend. Two in East Denver, two in North Denver, one in our neighborhood, and one in West Denver.
East Denver is where we see the occasional home, and many of the newer neighborhoods east of Monaco Parkway seem designed against walkability and architecturally exclusive. It feels suburban and disconnected. Limiting our search is another decision we’ve made in balancing our desire to live in a diverse community with our ability to experience the city. I’m starting to worry that it will also mean we simply don’t get to buy a home.
We visited two homes in East Denver and learned that, with our budget, it might be hard to find a livable home in those neighborhoods. We also learned why our realtor told us not to trust photos in the REColorado listings. The first house we visited here had been staged for its photo shoot. All but the kitchen appliances were different in the photos from what we saw in the house.
It was hard, stressful even, to tour houses like that and not wonder about the lives of the people living there right now. Do they own or rent this house? How many people are living here? If we buy this house, what will happen to them? Will they be displaced into housing they can afford? How often does that happen to this family? Many of the homes have appreciated eight to ten fold since they were last sold, is that money going to the family living here or a building manager who is kicking these people out to make a windfall? If they’re moving, why? Did someone lose a job? Did several people lose jobs? What does their leaving mean for this house? For this neighborhood? For Denver?
We looked at a couple houses where it looked like ultimately the house would be either flipped or demolished and rebuilt.
We also saw a few homes in West Denver including one in West Barnum we were interested in after our bike journey. Ultimately, it was really hard to imagine living there. Sure we could turn the yard into a small farm, but there was either a living room, or a dining room, and the kitchen was remodeled in a really strange way. We’re glad we saw it, though, because it’s one thing to see a home from the outside and imagine living in a neighborhood by biking around it. We learned that in West Denver, we’d want to be east of Federal Blvd., otherwise we feel too disconnected from the rest of the city.
North Denver is another neighborhood where we see an occasional house. These neighborhoods, also called the highlands, have developed fast in the last couple years and, like East Denver, most of the homes for sale are far outside our price range. One of those homes was a tiny house in a neighborhood we already know we love. In some ways it’s just as removed from the rest of the city as neighborhoods we’ve ruled out, but it also has a little village nestled into the city with accessible amenities nearby.
Nevertheless, we left our Saturday of looking at houses with mixed feelings. We had three (of six) homes to watch and the remaining ruled out. One of the three has already gone under contract, which is honestly kind of a relief because while it was really nice, the location wasn’t our favorite. I think we mostly feel really stressed out at this point. I found a house yesterday in Ruby Hill, a neighborhood we’re interested in but haven’t really explored yet, and it already went under contract.
A friend of mine gave us the advice to approach this experience with a little spiritualism. There will be plenty of houses we like, plenty we want to offer on, and plenty we will offer on, that will be scooped up from under our feet. Thems the breaks, in a seller’s market. It’ll be important for us to keep that in mind as we search, and take plenty of time for self care.