Hello, South Denver Metro homeowners and prospective sellers! I’m Stacie Duffy, your go-to Denver Metro Real Estate Resource. With the 4th of July just around the corner, let’s dive into a crucial topic for today’s seller’s market: Appraisal Gap Coverage or Guaranteed Appraisal. This strategy is vital in making informed decisions when selling your home, especially in a rapidly appreciating market.

Understanding Appraisal Gap Coverage: Appraisal gap coverage is a term you might hear from your realtor or from friends who recently bought a house. It’s a strategy used in multiple offer situations, particularly beneficial in seller’s markets like we’re experiencing. In essence, it’s an “insurance policy” for the property’s appraised value.

Why It’s Important: In markets where property values are rapidly increasing, appraisers face challenges in justifying the rising prices. They compare your property to similar ones that sold recently—usually within the last six months. If the market is appreciating quickly, the appraisal may fall short of your escalating sale price. This is where appraisal gap coverage comes into play.

How It Works: As a seller, you might encounter a buyer’s offer that includes a clause about appraisal gap coverage. This means if the appraisal comes in lower than the purchase price, the buyer agrees to cover a certain amount of the difference, up to a pre-agreed limit. This could range from a few thousand dollars to covering the entire gap. Remember, the lender will only lend against the appraised value. If the appraisal is low, the buyer’s offer of gap coverage can be a deciding factor in accepting their offer over others.

Strategic Advantage in a Seller’s Market: In a seller’s market, where multiple offers are common, having a buyer willing to provide appraisal gap coverage can be a game-changer. It offers peace of mind, knowing that even if the appraisal falls short, the agreed-upon sale price is more likely to be met. When evaluating offers, consider the strength of the appraisal gap coverage clause. A strong offer with significant gap coverage can be more attractive, even compared to higher offers with no such coverage.

As a seller in the South Denver Metro area, it’s important to understand the dynamics of the current market, especially regarding appraisals. Discussing with your realtor about how to handle potential appraisal gaps can be crucial in getting the best deal for your property. If you’re planning to sell your home and want to navigate these complexities with ease, I’m here to help. For more information or to book a Home Seller Consultation, visit www.calendly.com/RealtorStacie or call me at 720-295-9089. Feel free to drop any questions or comments below, and I’ll be happy to address them. Happy house hunting and here’s to a successful sale!

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 I wanted to talk about today why not to put your kids on your title for your property. So I know for a lot of people that tends to be how they’ve done things or how they want to avoid probate or how they do will planning or estate planning. That’s one way of doing it. I don’t recommend it for a lot of different reasons because it causes a lot more problems than it solves. So I’m gonna hit on four topics quickly and there’s a lot of info in here. There are four big reasons not to put your kids on your title:

Selling the Property
One, if you ever try to sell that property and now you have three children, for example, along with yourself on the title, guess who all gets to decide, and every single sale decision, which means what realtor do you hire, how much are you willing to pay them, what price do you wanna list the property for? Do you wanna do staging? Oh, by the way, we listed the property and now we got an offer and now all these people have to review the offer and we all have to agree to every date, every term, every single fee of who’s paying what in the offer. Let’s say you have three kids, getting five adults to agree on anything is practically impossible. Nonetheless, when it’s something as emotional as selling the childhood home and what season and oh my friend’s a realtor, or oh my, my wife’s brother-in-law is a realtor or whatever, guys, it gets messy. Not to mention what is, let’s say one of the kids says, “No, I don’t wanna sell the house. I wanna get that house because that’s my childhood home.” Well, maybe mom and dad wanted to sell that because they needed the money for to go live in their dream retirement home or have some live in care at a smaller house. Don’t make things any harder than they’re probably already gonna be.

Liability
Second is liability. Let’s say for this example, one of those three kids is not the most responsible but you love them cuz they’re your child, but, and you want them to get an equal share so you put them on the title. But let’s say, well they just haven’t found their way and they haven’t paid their income tax for a few years, but they didn’t tell you that. The IRS files a tax lien on your house because, oh wait, they’re on the title. So it is that person’s asset that can now be foreclosed on because they haven’t paid their income taxes. Don’t lose your house to the IRS because your kids didn’t pay their taxes and you put them on the title. Okay, let’s avoid that one. Not to mention if they get sued, if they get, you know, in a car accident and can’t pay personal entry lawyers, you’re opening, you’re essentially giving them this big empty, you know, or this big bank account for them to just have someone else go after them for let’s not do that, okay? So don’t open yourself up to that kind of liability.

Title Policy
Third is your title policy. So when you purchased the house, you probably should have purchased a title policy with it. And like I said, I’m gonna speak to the state of Colorado, that’s my sandbox, that’s where I play. But let’s say you, you know, purchased with a title policy and you had a special warranty deed when you purchased that property and you quit claim deeded your children on which you have now lowered your warranty of your deed level from a special warranty, which has a level of warranty and other things that go along with it to a quit claim warranty, which carries no warranties. So you’re not putting any guarantees with the deed. So you’ve now dropped the guarantee of your deed, which means is that title policy that you got, the title company’s like – we ensure these people for this deed level for this house. You just added all these other people and now you’re having an ownership issue because you own mineral rights and someone’s trying to take that. The title company says they’re not on your insurance, they’re not part of your title insurance policy and all you had to do was call the, and say, “Hey, I wanna add somebody.” And we could have maintained your warranty deed level and we also could have just charged like a $200 endorsement to update your policy to add that person. But because you didn’t, your insurance is warrant is voided. That’s a big problem, especially if you ever have a title issue. Which the more people you add the title, the better chance you’ll have a title issue.

Capital Gains
Number four is capital gains. It gets really messy depending on investment vs personal vs all this kind of other stuff. But if you were doing this to avoid probate because people think, “Oh, probate’s expensive and it costs,” it’s attorneys in the state and the court and all this other stuff, I just don’t wanna deal with that. I don’t want my kids to have to deal with that. Let’s say you bought this house in 1965, you put all your kids on it, you avoid probate, great. Now those kids wanna sell that house and it is appreciated significantly in that period of time you are paying capital gains because it’s not their primary residence. So they don’t get to claim that as an exemption. They are now paying capital gains on the entire appreciation because they’re on title and they didn’t pass. There are certain things that adjust the basis, which is essentially the base level that the gain is calculated from. The longer ago you purchase it, chances are the lower the basis is right, you do some capital improvements. You can adjust it down a little bit for the money you spent, but then you to sell it and let’s say it’s appreciated, you know, $500,000 in the last 50 years. When you pass and the property either goes through probate or a trust or a beneficiary deed or some other method, that is much better to do these kinds of things, a lot of those things will trigger an adjustment to the basis, which means, now you’re not paying capital gains on all of that money. Only the money that you’ve made from the market value of the property at the time of death vs when you sell it. For a lot of people, that is hundreds of thousands of dollars of capital gains tax you won’t have to pay by keeping your kids off the title and handling, dispersion of assets a different way via probate, via trust via beneficiary deed, via something else than just quit claiming your children onto your title.

Anyway, just a few top a few reasons, there’s plenty more, but if you have more questions about this, like I said, if you’re in the Denver metro area and you want help with this, you’re getting recommendations on attorneys or things like that that can help with these types of things, please feel free to reach out to me directly. My contact information is on my website, link for that is here. If you’re looking to sell and need help with an estate probate trust situation, a lot of realtors don’t understand the details. I wanna make sure you have the appropriate assistance and knowledge basis and competency for the transaction that you’re looking to accomplish.