Last weekend I was working with a local young couple looking to purchase their first home here in Pagosa Springs. They both graduated from high school here and returned after pursuing their educations along the Front Range. They are both employed locally and have a new baby daughter. They are conservative with their finances and plan to only take on an amount of mortgage debt they feel totally comfortable with. The loan limit they have set for themselves is significantly below the amount the bank approved. We set out to look at several homes that fit within their guidelines. All of the homes are bank-owned or “foreclosure homes”. We found one that interested them the most and reviewed the details listed in the MLS. On Monday I visited the courthouse to obtain the recorded history of ownership and lending activity on the property.

The home was listed for sale in the $150,000 range. It had been on the market with the current listing agent for about 150 days, first listed with the agent at an asking price of $176,000. Previously, it had been listed by another agent at a price of $255,000. When I checked the ownership history of the property I found that when it had been foreclosed by the lender, the loan balance was over $230,000. I also determined that it had last sold in July of 2007 for $230,000. Based on the current asking price of roughly $150,000, the sales history would indicate the property had declined nearly 35% in just over two years! If my customers are successful in purchasing this property, they will not likely find themselves in the type of trap a few years out that many overly optimistic borrowers are now in. They are approaching homeownership in a sensible manner, with their eyes wide open and some intelligent boundaries in place. Because of this, I have no doubt, they will make a good investment that will help them grow a good nest egg for their young family.

A second example of a bank-owned home on the market with an interesting sales history. Presently the home is priced $114,000. It last sold in January of 2007 for $200,000, indicating a decline in value of 43% over the last three years.

A third property I looked into is currently offered for sale at $250,000, having last sold for $329,900 in September of 2006. The loan balance when the bank took it back was just over $273,000. Interestingly, there was an additional home equity line recorded in the amount of $90,000, indicating total debt of $363,000 against the property. Does this seem like extremely imprudent lending practices by out of area lenders, or is it just me?

In looking at these three examples, one can see that yes, there are some bright spots within our real estate market; especially for the first time home buyers. In addition to some very good prices, some of these lender-owners are offering incentives such as contributions towards the buyers closing costs and two year homeowner warranties. In some cases, the smarter lenders are even offering bonuses to the real estate agents.

If You Really Want To Know, Ask the Right Question.

“How are things going?”A typical question asked of local real estate brokers by members of the public here in Pagosa. “Things are going great, I’ve really been busy.” An acquaintance of mine recently told me that his real estate agent had told him that she was really busy and that the market was really improving quickly. I knew his agent and also knew her production was near the bottom of the list of all the agents in our market. I checked the stats and confirmed that she did not have any listings under contract and had only closed two small transactions for the whole year. My acquaintance interpreted the agents answer as confirming that things are really improving within the real estate market.

The problem was, the question he wanted answered wasn’t even asked. Yes, the agent is probably busy; however, the market statistics may or may not indicate the market is improving. Perhaps the agent is busy responding to the questions and concerns of her listing clients. Perhaps she is busy putting together Broker Price Opinions for the lenders that are foreclosing on homes in the area, or, perhaps she is busy trying to figure out how she will to survive in an economy her real estate license course never taught her about. Regardless of what it is she is doing to keep busy, it is not real estate closings that are taking most of her time.

Busy Working on Foreclosure Listings

Working on foreclosures and short sales takes a lot more time and energy than working for private sellers and buyers. Banks often utilize Asset Management firms with cadres of case workers, clerk, file managers and negotiators. They have systems full of different reporting forms and guidelines they utilize to track the huge volume of troubled assets they are handling. The brokers that work with the banks and Asset Managers are expected to process a lot more paperwork than is normally necessary or practical in a small rural market like Pagosa Springs. Getting responses to offers that are submitted can lead to be a lengthy and frustrating process. It is not uncommon for the owner of the foreclosed property to change hands while an offer is pending. The file then is transferred to a new file manager and the process starts over again. So, yes, some agents are busy, but, in many cases they are not busy doing closings, which is how they get paid. It is wise to be very specific when you are asking a question aimed at finding out how the real estate market is doing. If the broker had no leads last week and this week the phone rang twice, he might respond that he is twice as busy this week as last, but his answer may not tell you what you want to know.

Much of our local real estate market remains slow, with expanded inventories and a decline in the number of transactions. At the lower end of the market where purchases tend to be more tied to local buyers and mortgage availability, much of the buying action has been within the bank-owned foreclosure market. The middle of the market, homes priced from $300,000-$600,000 has also been relatively quiet. There is an abundance of inventory and while mortgage money is available, for loans above $427,000 buyers find themselves in the jumbo category where they are penalized with higher interest rates and tougher qualifying guidelines. These conditions coupled with the impaired markets of California and Arizona have greatly reduced demand for homes in this price range.

While these circumstances are disappointing, we are pleased to share with our readers that we have had a significant uptick at the upper-end of our market. Last week we closed on the sale of a home within Hidden Valley Ranch that had been listed at $2,400,000. Our firm represented the buyers, a couple from the Houston area that acquired the home as a family vacation residence. Next week we are expecting to close on the sale of a small ranch with a log home and a detached guest cabin situated on 112 acres. The property is listed at $1,750,000. We also just placed a homesite under contract within Hidden Valley Ranch that was listed at $599,000. It is scheduled to close during December. This activity is very encouraging because it shows that high net worth buyers have confidence in the future value of our area. We share that confidence and feel certain that buyers will return to the other price ranges as the recovery of the overall economy gains more traction.

We also want to thank the folks that referred this most recent business to our office. We have found the recommendations of others to be the most effective means of advertising for our business. We continue to be able to provide our high quality real estate service during lean times because of the support of our clients, customers and friends.

If you have any questions or comments related to real estate in Southwest Colorado, please drop us a line or give us a call. Thank you, Mike Heraty, Managing Broker/Owner.

Recently I participated as a member of a panel that made a presentation to the local Builders Association on the state of the local economy. As part of my presentation I briefly discussed the 3^rd Quarter Summary Report that is within this Blog Site. After our presentation a representative of Red McCombs, Clint Jones, made a 45 minute presentation about their latest efforts to move forward with the Village at Wolf Creek.

Jones replaced Bob Honts, the previous front man and local development manager for McCombs. Jones appears to be a much more qualified representative, at least in terms of his public demeanor and diplomatic skills. Jones presented the group’s latest proposal for developing land adjacent to Wolf Creek Ski Area which involves a land exchange with the Forest Service. If approved it would give the development direct access to State Highway 160 and provide them with 207 acres of more buildable land in exchange for trading 207 acres of their existing holdings which include a significant amount of wetlands. If the exchange is approved, it would eliminate the need for Forest Service approval of a special access point to State Highway 160, which has been difficult to obtain during the last several years.

According to Jones, they settled their legal issues with the Ski Area and now enjoy a friendly and cooperative working relationship. Jones stated it was the Wolf Creek Ski Corporation CEO that suggested the land exchange idea. Jones also stated that he had initiated productive discussions with Colorado Wild, a major opponent of any development adjacent to the Ski Area during the past several years. So, will there be a development up at Wolf Creek? Good question. Clint Jones indicated the land exchange could take up to two years to obtain approval. Next they would have to submit their revised development plans and go through the normal planning processes in Mineral County. Both the land exchange and planning process would involve public hearings and public input. The revised plan which includes the land exchange would result in a more scaled down version of the plan previously approved by Mineral County. From several perspectives, the new plan makes much more sense. Still, there are issues that will need to be addressed. First, can a ski area development be successful without a golf course or other summer season recreational components? The market for resort properties has changed significantly during the last three years.  Demand has declined considerably and project financing has nearly evaporated. As wealth as Red McCombs is, he, like all developers utilize outside financing sources. Second, will a development at 10,000 feet elevation work? The base elevation at Durango Mountain Resort is 8,800 feet. When my wife Lauri and I lived at Keystone Resort, our home was at 9,500 feet elevation and a good number of our visitors suffered from the effects of altitude sickness. What will the Village do for the energy needs of the commercial space, hotel facilities, condos and single family homes? Presently the nearest natural gas transmission line is over the hill along the East Fork of the San Juan. Will they have to truck fuel up to the development, or rely on more expensive electric heat? How will they handle the waste water processing for the development? There are many other issues and questions that will need to be addressed before we ever see development at the Village at Wolf Creek. In my estimation, it will be at least five years before we ever see condos on the mountain, if ever.

Not much in the way of good news to report after reviewing and analyzing the real estate figures for the third quarter of 2009. Our market, like much of the economy, continues to struggle, with too much inventory and too few buyers. Though mortgage money is still available to qualified borrowers as well as tax credits for first time home buyers, there has not been an abundance of buying activity. The number of foreclosure filings continues to be troublesome as eventually many of the defaults that are not cured will end up as bank-owned properties, competing with private parties for a limited number of buyers. Until the foreclosure inventory clears, its downward affect on property values in our area will continue. We are fortunate when we consider how other larger communities have been impacted to a much greater degree by distressed properties. Still, we feel some of their impact in that in past years, many of our second home buyers came from communities within Arizona and California, and that flow of buyers has dropped off considerably.

Looking for some positive factors, we can see that the dramatic downturn in building permits for new homes will keep the inventory of unsold spec homes from growing. Few builders are brave enough to build out of pocket in this market and very few lenders are presently willing to finance speculative building. When demand does begin to improve, Pagosa should be in a position to respond fairly quickly. We still have a good inventory of resort lots and small acreage homesites, and with demand having stalled out, some of the land values have declined to more supportable levels.

As can be seen from the table below, the number of closed sales and total dollar volume for the third quarter was down significantly when compared to last year. When you review the next table, 3^rd Quarter YTD you see that the Year to Date figures show an slightly more negative trend, with both the number of closed sales and total dollar volume off slightly more.

The next table displays the closed sales and total volume for the 3rd Quarter YTD, going all the way back to 2004. This shows the dramatic downward slope we have been on from the peak period of 2005 when there were a total of 363 single family homes sold by the end of the third quarter representing total sales volume of over $94 million, as compared to 104 sales and $31.4 million thus far this year.

The next table below shows the YTD Totals for Single Family Homes. These figures are fall detached, stick built homes. Considering the total single family sales volume for the current YTD is down nearly $63 million as compared to where the figures were in 2005, the financial ripple effects have been substantial. In addition to the loss of income among builders and others in the construction trades, we have the material suppliers, the surveyors, the title companies, the insurance companies, the real estate brokers and all the support staffs. You can further project how their reduced income translates to declining spending and investments throughout our community.

Many are searching for a way to survive and reposition ourselves while the market determines which way it will go and when it will change directions. Is it a good time to sell? That depends. Are you going to take your money and reinvest it in real estate in another market where prices have dropped to super-attractive levels? If you sell your property here now, will you look back in a few years and feel you left money on the table? Who knows? What seems sensible, for many, may be to wait things out. However, if selling your property here now enables you to achieve or reach closer to another worthwhile goal, why put things off and risk that you made the wrong bet?

I think the demand for the quality of life, exceptional natural beauty, and abundant recreational opportunities our area offers will return. When the economy in general improves, Pagosa will again stand out as a more financially sensible alternative to more well- known mountain resort areas. It is my belief that when the economy improves, buyers will remain more value focused. So long as we as a community retain a positive outlook, a tourist friendly attitude, practice sound fiscal management and continue to make tangible improvements to the infrastructure and amenities of our area, Pagosa will do just fine. Until then, there will likely be a few more bumps in the road.

Our real estate analysis also included the single family homes of $1 million and higher. If this market is of interest to you, let me know, I would be happy to share that information.  As our office has participated in a large number of high-dollar transactions over the last five years, we watch this category carefully and continuously. There have been some interesting trends recently. If you would like specific details of any portion of our real estate market, please give me a call at 970 264-7000, or email me at mikeheraty@frontier.net

Mike Heraty is the Managing Broker and Owner with his wife Lauri of Pagosa Source Real Estate Advisors. He has more than 36 years of diverse real estate industry experience including 15 years in Pagosa Springs. He is Pagosa’s only Certified Real Estate Brokerage Manager, his other professional designations include: Certified Residential Specialist, Accredited Buyer Representative, Senior Real Estate Specialist, Certified Sellers Representative, Master of Real Estate and Transnational Referral Certification. Mike has served as President of the Pagosa Springs Association of Realtors and four terms as a Vice President of the Colorado Association of Realtors. Mike can be reached at 970 264-7000.

The changes from last year were significant, though not unexpected given the state of the economy both nationally and locally. For the first half of 2009 there were 106 closings which included all property classes within Archuleta County, representing total sales of $18.7 million. During the first six months of last year a total of 179 property sales were recorded. These sales accounted for total volume of $47.6 million. The number of sales for the first half of 2009 declined by 41% as compared to the first half of 2008 while total sales volume declined by 61%.
Looking at the changes the economy has produced next door in La Plata County, (Durango), their figures also reveal substantial declines in the number of real estate closings and total sales volume. Unit volume declined 37% while total sales volume declined 40% as compared to their results for the first six months of 2008.

SINGLE FAMILY HOMES**

There were 65 single family homes sold in Archuleta County for total volume of $14.2 million for the first half of 2009. This compares to 112 closings totaling $36.2 million for the first half of 2008, representing declines of 42% and 61% respectively.

The number of homes on the market is up from last year with 529 single family homes presently listed for sale in the MLS. For all of last year there were a total of 237 single family homes sold with volume totaling $79.4 million. The current level of inventory represents slightly more than a two- year supply of homes based on the absorption rate for 2008.

During the first six months of 2009 there were 40 sales recorded within the land category for total volume of $3.48 million. For the six months of 2008 there were 58 closed sales, for total volume of $6.57 million. As of June 30, 2009 there were a total of 1,122 active listings of land. For all of 2008 there were 128 land sales recorded for total volume of $16.4 million.

Another significant change we are observing is the increased number of properties that have come on the market later in the season. Typically a majority of owners list their properties during April and May, ahead of print advertising deadlines for some of the summer real estate guides. This season our office has been fielding many more calls from owners during June and into July. We are finding from owners there are several reasons for this. One is simply the condition of the financial markets and the economy in general. Some owners have adjusted their financial priorities and decided they no longer need a second home or land here in our area. For other owners the cost of carrying their property here in Pagosa Springs has increased ahead of their discretionary income. Some of this increase in reflected in the Notice of Valuation from the County Assessor’s Office. Because of the timing of the valuation period, figures have in many instances gone up quite substantially, at a time when values have actually declined or stayed level. Much of this is due to the timing of the sales data the county must use, as mandated by state statute. For some owners the increased financial burden of more property taxes during a down economy has created the motivation to sell. While we fully expect the next real property tax valuation period to reflect the current down market, we are hopeful property taxes will go down. All governmental agencies are struggling for more revenue sources while they increase efforts to carefully control expenses. We are impressed with the positive changes that have taken place within Archuleta County and the Town of Pagosa Springs government during the last year, and look forward to more improvements during the remainder of 2009 and into 2010.

New construction starts remain slow in Pagosa Springs as it is across most areas of the country. The number of building permits issued for new home construction is at the lowest level we have seen during the last ten years. Anyone wanting to build a new home or cabin in our area will likely have plenty of builders and subcontractors to choose from. Lumber prices are down and the planning and permitting process is less costly and moves forward much quicker here than a year or two ago. For folks that were planning to build this year or next, we suggest if they have the resources set aside they should move forward and take advantage of current market conditions. Local banks have plenty of money available provided the borrowers and property meet their revised lending guidelines. Generally speaking, with good FICO credit scores, verifiable income and adequate cash for a 20% down payment there are a good number of lenders looking for your business. If you have any questions or concerns about available financing, please give me a call. We can provide you with good lender contacts that we have confidence in. We have seen an increase in buyer inquiries, previews and purchasing. Yes, the buyers we are working with are more cautious, they are shopping harder for the best values, but they are buying.

What direction are things heading out in front of us?

None of us has the crystal ball to predict the future. Certainly there are challenges within our economy, locally, nationally and globally. It seems likely the current level of government borrowing will result in future inflation pressures which may improve demand for tangible assets such as real estate. Certainly our community like most will experience some challenges in terms of the economy in the times ahead. We have a growing number of diverse stakeholders that are becoming more involved in guiding the direction the community grows in the years ahead. That is a good thing.

Good Market Conditions for Buyers

For those looking to acquire a home or land here for use and enjoyment, conditions are quite buyer-friendly. There are plenty of homes to choose from and an abundance of land options to consider. The Pagosa Springs area has not experienced the kind of massive reductions in home values that markets such as Phoenix and Las Vegas have seen. Our community was never saturated with excess new home inventory from large production builders that got way ahead of the market. Many of the buyers in our area during the last five years used little if any mortgage debt to acquire their properties. Also, we have historically had a high number of second homeowners from communities in Texas that have remained relatively stable during this economic downturn. We do expect there to continue to be a higher than normal number of foreclosure properties in the market and some of these will represent good buying opportunities for prudent purchasers that work with a knowledgeable real estate professional. We think the days of the quick flip for a big profit in housing are gone. Given all our area has to offer in terms of a beautiful, safe and friendly small mountain community, for many folks, it makes good sense to own and enjoy property in Pagosa Springs. How can a value be placed on the wonderful experiences and memories created here in the spectacular San Juan Mountains of Southwest Colorado?

Mike Heraty is the Managing Broker and Owner with his wife Lauri of Pagosa Source Real Estate Advisors. He has more than 35 years of diverse real estate industry experience including 15 years in Pagosa Springs. He is Pagosa’s only Certified Real Estate Brokerage Manager, his other professional designations include: Certified Residential Specialist, Accredited Buyer Representative, Senior Real Estate Specialist, Certified Sellers Representative, Master of Real Estate and Transnational Referral Certification. Mike has served as President of the Pagosa Springs Association of Realtors and three terms as a Vice President of the Colorado Association of Realtors. Mike can be reached at 970 264-7000.

A few weeks back we shared our thoughts on some of the better eating establishments in Pagosa Springs. Some of our out of area readers asked if we would publish a list of some of our favorite merchants in the area as well.  So, here is the first in a series, citing some of our favorites:

One of our very favorites is Paint Connection Plus.

Owners Mark and Michelle Mesker have worked hard building up this wonderful business over the last 15 years. At Paint Connection Plus you can purchase all the paint, stain, blinds, carpet, hot tubs, fireplace and grilling equipment you will ever need, and more. They are exceptional at customer service and strive to stay ahead of changes in the market. My wife Lauri and I have purchased three hot tubs from them as well as a Phoenix BBQ Grill, blinds for our home and office, and all the paint and stain we have ever used at our home and our office. Their prices are very competitive, even with Home Depot and internet stores. Most of all, they are friendly, honest, hardworking local owners and we highly recommend you do business with them.

Another of our favorites is Switchback Mountain Wear, owned by Ron and Anne Bubb.

They carry top quality outerwear and equipment and provide good product knowledge, great prices and exceptional service. They carry top brands such as Marmot, Royal Robbins, Sierra Designs and Vasque. Ron and Ann are extremely knowledgeable about hiking trails and everyone connected with backcountry travel in the Four Corners Area. Their store at 135 Country Center Drive, just east of City Market is always well stocked with everything you will need to enjoy the Pagosa Springs outdoors, any time of year.

For fly fishing equipment and supplies we have two favorites.

Larry Fisher’s Ski and Bow at 354 E. Pagosa Street, next to JJ’s Upstream Restaurant, is a large shop with everything a fly fishing enthusiast would need, and much more.

Thaddeus, the resident trout expert at Ski and Bow, knows everything about the fishing waters in the Pagosa Springs area. There are two nice ponds at the back of their shop where you can practice your fly casting or watch young kids catch some of the large trout that live in the ponds. Larry also has a great selection of alpine ski gear, including rentals and clothing as well as Bow Hunting equipment and supplies.

Our other Fly Fishing Shop is Let it Fly located on Putt Hill along Highway 160 just west of the downtown area.

Owner Pops is very knowledgeable and stocks a great selection of rods and reels by such manufacturers as Sage, Simms, Temple Fork and Galvan. He and Ski and Bow both provide professional guide services which access phenomenal trout waters in the area. Be sure to check out Pop’s selection of Custom Hand Tied Fly Patterns.

The Pagosa Springs inventory figures continue to show a significant oversupply in all categories, with land being the most out of balance. We are expecting more properties to come onto the market during the next 60 days as we approach the summer selling season. We reviewed the year to date figures for single family homes as well as land. As of this date there are 973 land listings on the market and 388 single family homes. During the last 12 months, a total of 163 homes were sold, and 122 land sales closed. If the absorption rates for the last 12 months hold, we now have nearly a 2.5 year supply of unsold homes and about a 7.8 year supply of unsold land.

Our 1st Quarter Summary Charts are shown below. The number of land closings in Pagosa Springs is down 30% from last year while the total dollar volume is down by 44%. Looking at the single family home closings, (the figures exclude condos, townhomes and manufactured homes) we see that the number of closings is down by 32% while the total dollar volume is down by 57%. As discouraging as these numbers appear, Pagosa Springs is still not in as bad a shape as other communities where overbuilding and speculation caused significantly more damage to the market. We have also not experienced the high level of foreclosures other areas have seen and as a result we have not seen values driven down, instead, the number of days on the market has increased as well as the amount of listing inventory. All these figures are bad news for Sellers, but good news for Buyers that have a down payment and good credit. There are a lot of properties to choose from and there is plenty of mortgage money available. These figures also make it apparent that serious Sellers will have to price their properties very aggressively in order to be attractive to the limited number of Buyers that are moving forward under the current market conditions.

After reviewing the market data as well as many articles and analysis of the conditions within the housing industry, we are challenged to make a projection of how many homes will sell within our area in the year ahead. Our best guess is that we will do well to equal the number of homes that were sold last year. Achieving that level assumes that something in the federal stimulus package will help to jump start the housing market. We know we still have lots of folks that would like to buy a place here in Pagosa Springs, but they can’t, until they sell something in another market. Unfortunately, a lot of those folks are in markets that have yet to reach bottom—Phoenix, California and South Florida. Still, rather than wait until our market bottom is clearly defined, we think it is wiser to make a selection while there are many choices and few competing buyers. So long as you are going to hold your property for a minimum of 3-5 years, we don’t see the potential for an additional downward adjustment of 5-10% as being especially frightening. As I have stated in earlier articles, if you are looking to buy a property to flip in this market, keep your money in your pocket. If you are looking to buy so that you can begin to enjoy the natural beauty and lifestyle our area offers, the time is right. Call us for details on any part of our real estate market. Review the charts we have provided, and let us know if you have any questions or comments. Thanks for reading our articles!

Mike Heraty ABR, CRB, CRS, CSR, GRI, e-PRO, MRE, SRES
Managing Broker/Owner

Bottom Feeder: An opportunist who profits from the misfortunes of others.

Recently one of our agents had a brief exchange with a real estate professional from another office here in Pagosa Springs. The other agent was lamenting the fact that the only interest her office was experiencing was from “Bottom Feeders”. In real estate, a “Bottom Feeder” is a prospective real estate buyer that is only interested in buying when prices are at the bottom of the cycle, or when they can acquire a good property at a price far below perceived value. Some agents and sellers have a disdain for this type of buyer, but I don’t and I will explain why.

During a typical real estate cycle, the market accelerates and prices appreciate rapidly. Then at some point events bring about a drop in demand, (a rise in interest rates, a large increase in unemployment, a huge drop in the stock market, or a meltdown of the mortgage markets) and the volume of transactions and the level of prices begin to decline. The curve downward steepens as demand further declines and supply increases, when more holders of real estate decide to sell. Generally, the first to sell are the experienced speculators, later the novice real estate speculators join in, and finally the more passive investors act out of fear and dump their properties. Eventually, over-extended borrowers find themselves unable to refinance, and lenders begin foreclosing and putting their properties on the market. For some areas severely impacted by foreclosed properties, the markets are driven by the low prices offered on “bank-owned” or “REO” residences. Other sellers are then forced to reset their prices in response to the lower prices offered by the banks. Until demand improves and the supply of property declines, prices continue in a downward trend and the average number of days on the market continues to grow. Pagosa Springs is no exception to this rule.

As the market begins to move toward a recovery stage, new speculators or Bottom Feeders re-enter the market and begin to invest. Typically, they only buy those properties that they have identified as exceptional bargains, often from sellers in dire straits; they look for properties that will appreciate greatly as the recovering market picks up momentum. For our area, these are not the typical second home buyers that so many agents have been used to dealing with during a strong market. They are driven by the potential returns on their investments, not by the thought of creating great memories enjoying the Pagosa Springs lifestyle with their family and friends. They expect their broker to help sort through all the available inventory to find the most motivated sellers, the best choices among all the properties, so that they can lock in a good return on the buy side by purchasing below perceived value.

This type of buyer expects a level of service that many agents never had to provide while the market was red hot. They want comparative market data that shows much more that the basics available in the local MLS program. They also expect the broker to know about rental rates, present and projected, rental inventory and trends, replacement costs, barriers to entry, etc. Many agents within the Pagosa Springs market don’t want to put out much effort in order to earn a fee, but with these buyers, it is what is needed expected.

Personally, I love Bottom Feeders. They are the buyers that fearlessly wade back into the water after everyone else has bailed out. They are the buyers that help confirm the bottom of the market. They help set the stage for the real estate recovery. They are a necessary force within the market that must be dealt with in order for the market to return to any form of normalcy. In exchange for the high level of risk they undertake by re-entering the market early, they are entitled to generous returns on their investments.

During the last major real estate downturn of the 1980′s I worked with many “Bottom Feeders”. Most of them made investments that seemed high risk to the average investor at the time. Five years later they looked like the Einsteins of the real estate world, having watched their early investments grow in value far beyond what anyone expected.

During that same period of time I worked with developers and investors that found themselves on the wrong end of the real estate debt leverage pendulum. Some of the owners ended up deeding their properties back to the lenders, for others we were able to restructure their debt in order to buy more time for the market to recover. The lenders I worked with knew very little about managing and marketing the real estate assets they had acquired in foreclosure. What they soon found out was that they needed someone to aggressively market their REO. The longer they kept real estate assets on their books, the larger the loss reserves they were required to set aside, the less money they had available to loan out. We developed and implemented some very creative marketing strategies to quickly liquidate large blocks of residential real estate and commercial land. In order to move property in extremely slow markets we had to find ways to attract and work with as many Bottom Feeders as possible. It was a “win-win” relationship. The banks disposed of a large volume of non-performing real estate assets, the Bottom Feeders made some very good real estate buys, and the geographic markets where the REO were located moved further along in their real estate recoveries. When I am working with experienced Bottom Feeders in Pagosa Springs, I know the beginning of the real estate recovery can’t be too far off. I love Bottom Feeders!

Over the last 15 years throughout Colorado, many of the large ranches have been bought up and developed. In most cases the popular parcel size is 35 acres. The reason for this is the Colorado Subdivision Act, passed in the 1970′s which defined a subdivision as any splitting of land into two or more tracts either of which is less than 35 acres. Under this regulation, parcels split into less than 35 acres come under significantly more regulations, both from the county and the state. To stay outside of those regulatory statutes, developers typically size the parcels to a minimum of 35 acres.

In the typical Pagosa Springs ranch development, a large ranch is divided into 35-acre parcels after laying out the roads, utilities and open space areas. Usually the developer will record protective covenants and establish annual assessments to cover the maintenance of the roads, fencing and common areas as well as a property owner’s association to administer the covenants compliance and other tasks. In the Pagosa Springs area, annual maintenance assessments run from a low of $600 to a high of $5,000.

In many of the ranch developments around Pagosa Springs, owners have opted to retain agricultural property tax status by maintaining livestock grazing within the ranch. In the typical arrangement the cattleman pays a small amount per head or per pair as a grazing fee and grazes the land from about May to mid October. This arrangement results in a substantial property tax savings for the parcel owners. By having an agricultural status on the land the taxes will typically be less than $100 per year. (This figure will go up of course, once a home is built on the land). By comparison, a 35 acre tract with a market value of $400,000 without agricultural status would run in the neighborhood of $4,000 or more per year.

So, what other costs are involved in owning a 35-acre tract near Pagosa Springs? Usually the costs are limited to the property taxes and the annual property owner’s association assessments. For some tracts the total annual carrying costs can be as low as $700. So, when looking at a ranch parcel as a potential investment, it is important to be sure the 35-acre tract is in a qualified grazing lease arrangement. You also want to be sure the property owner’s association is adequately funded. If it is not there could be substantial special assessments in the future. You also want to be certain that the roads are well built and that the private water system is in good shape. Replacement of roads or water system components can be very expensive. Well run property owner association will keep a prudent reserve for capital repairs and replacements.

Overall, the 35 acre market in Pagosa Springs has softened somewhat over the last five years, except for those parcels that are closest to town. It seems fewer people are interested in owning acreage that may be 20-30 minutes from town. We also know that many 35-acre tracts were purchased in past years for investment. Some owners have experienced significant losses in their stock portfolios and have decided to sell their land to try to offset some of those losses. We have seen more people looking to own land closer to town, most often within a 15 minute drive, especially if they are looking at living here full time. Nevertheless, an investment in a 35 acre tract can be rewarding in terms of future value if you follow these guidelines:

-Be careful when considering tracts more than a 15 minute drive from town.

-Choose a tract with an impressive view from the building site. Be sure the quality of the site won’t be compromised by an adjacent parcel in the future. (Some ranches have protected building envelopes, most do not.)

-Be sure the parcel is served with central water and that the system is sufficient to supply the entire development at full build-out.

-Look for a ranch that will retain agricultural property tax status. Without this your carrying costs will be significantly higher.

-Be certain the property owners association is adequately funded and well managed, talk with the directors about their plans for the future.

-Carefully review the protective covenants and architectural guidelines and be sure there is full compliance within the ranch.

-Don’t invest in a 35-acre tract with the plan to flip it in a year or two. You should be prepared to wait a minimum of 3-5 years if you expect to realize any significant appreciation in value.

If you follow these guidelines while working with an experienced Pagosa Springs real estate broker, you should do well. The supply of ranch tracts is limited and it is likely that new developments will be more expensive to bring to market in the future. There will always be those that dream of owning their own little Colorado ranch property, and a good number of those will follow through and make a purchase in the years ahead.

Feel free to contact us at 970 264-7000 to discuss any of the 35-acre ranch developments here in SW Colorado.