Monthly Archives: January 2006

Where's the Beef?

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In my last post, I awoken Ardell from her winter hibernation. To which I feel I should both apologize and take the credit . Ardell raised many interesting points, that I feel that merit a response. First and foremost, I’ll admit I am somewhat biased, since I tend to view things through buyer-colored glasses and I overlooked the reasons why a seller might be less than completely forthcoming with their listing information.

Where's The Beef?Admittedly, my gripe about bad zip codes is pretty minor (less than 1% listings are affected). However, entering an incorrect zip code is like misspelling a street name, it just shows buyers a lack of attention to detail. If I’m a buyer looking for vacant land in an Issaquah zip code (98029), I don’t want to see listings in Bellingham. If I’m looking for rental property in a Redmond zip code (98052), I don’t want to see listings in Mercer Island.

Regarding my beef about school information; since only half the schools surrounding Lake Washington are above average, are only half are listed? I wonder if the MLS near Lake Wobegon has this problem? Besides, who makes the decision that the school that serves a property is bad? The buyer might think XYZ school district is great, but because the seller had a differing opinion (and didn’t disclose that information), they just lost a potential buyer who won’t bother looking at a property that they otherwise might have.

Regarding my beef about latitudes and longitudes; OK, you the agent have no control over this. It still doesn’t explain why the MLS does such a bad job of geocoding! Admittedly, most people probably don’t care (unless they use a computer). Unfortunately, since many people use computers to find property information (and that number is only increasing), it’s a problem that will only become more noticeable.

When you combine latitudes and longitudes with free digital maps and inexpensive computer databases, you can see the location of listings in the neighborhood and other points of interest with an ease that was impossible to do (or at least very expensive) only a few short years ago. As they say, the 3 most important words in real estate are “Location, Location, & Location”, which means the most important part of a real estate listing web site is going to be “Maps, Maps & Maps” (as you can see by the growth of map-based real estate listings web sites this past year). Not having accurate latitudes and longitudes, makes it harder for software engineers to develop features the real estate buying, real estate selling, & internet surfing public increasingly are going to demand.

Pop quiz, which house is the better value? This ~$800K house or this ~$800K house? Without knowing how much living space I’m getting for my $800K, it makes my job as a buyer more difficult.

Just because you can’t get an exact measurement, doesn’t mean you shouldn’t measure. Most real estate listings & transactions have more legal paperwork & disclaimers than a Microsoft EULA! Furthermore, the NWMLS has the source for the square footage information associated with a listing. Couldn’t an agent argue the source should be liable? I assume the agent pays only pays if the error was in the sellers favor? Otherwise, isn’t listing a property with 0 square footage is asking for a lawsuit? Granted, I’m not an attorney, but if the risk was meaningful, I’d suspect all properties would have a square foot value of 0! So, if you get 3 different answers, pick the lowest value! Throw out the measurements from the French & Russian judges! Inaccurate data is always better than no data (at least for buyers).

Lastly, as computer based listing search & analysis tools become easier to use and more sophisticated, bad data is only going to be easier & easier to spot and less & less tolerated. Missing data makes the buyers job harder. Perhaps ironically, it also makes the sellers job more difficult as well. How can you draft an accurate competitive market analysis report if you don’t know what the size of your competitors are / were? Sure an agent could do the extra leg work of looking at the county records, but it’ll cost you more time (and time is money).

I guess the moral of this post, is caveat emptor. Although buyers may want to trust MLS data, sellers have a motivation to give you a reason not to. Perhaps, there is a market for a CarFax like service, that provides better MLS data, than the MLS? Despite my complaining, none of these obstacles are going to stop software engineers from giving the internet home buying public what they want (complete & accurate listing data). The internet has given the buyer more knowledge & more power in the marketplace. Sellers (& their agents) would be wise to embrace this trend, instead of avoiding it.

Robbie
Caffeinated Software

PS – This blog posting information is not warranted. Reader should verify all information to their satisfaction. Information is based on data available to the poster, including county records. The information has not been verified by the poster and should be verified by the reader. To the maximum extent permitted by applicable law, in no event shall the poster (Robbie), Caffeinated Software, or its suppliers be liable for any special, incidental, punitive, indirect, or consequential damages whatsoever (including, but not limited to, damages for loss of profits or confidential or other information, for business interruption, for personal injury, for loss of privacy, for failure to meet any duty including of good faith or of reasonable care, for negligence, and for any other pecuniary or other loss whatsoever) arising out of or in any way related to the use of or inability to use this blog post.

Condo Hazard Insurance

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If you own a condo, even if you have owned it for many years, it is a good time to check on your Hazard Insurance. What you want to note from the Insurance “Dec” Page, is the amount of the deductible. These days, relying on the Home Owner Association’s policy solely, for your Hazard Insurance needs, may not be good enough. In fact, it may not cover you at all for most of your needs, even if it once did.

A major change occurred after 9-11. The Insurance Industry, having paid out some major claims, raised their prices on HOA Insurance policies, more-so than in some other areas. In order to keep costs down and monthly condo fees stable, many Home Owner Associations drastically increased the deductible amount in the insurance policy. So you may not be as protected as you think, or even as you once were. Deductibles that were once commonly $1,000 per claim, climbed first to $2,500, then to $5,000 and in some cases as high as $10,000.

Real Estate Agents should not be telling you “You don’t need Hazard Insurance because the HOA takes care of that”. If you live in a third floor condo and stuff your washer with too many clothes and go to work and it overflows down to the condo below you, are you covered by the HOA policy? Or will you have to pay the downstairs neighbor for the damage out of your pocket? If your hot water tank blows and floods not only the downstairs neighbor, but your two next door neighbors, and the damage is $8,000 and the deductible on the HOA policy is $10,000, where does that leave you?

Here’s what you should do. Get the current “Dec” page for the HOA policy. You should be getting this annually, though you probably throw it away or stick it in a drawer. It looks like a form with lots of blocks and numbers on it and should say something like “Declaration of Insurance” (commonly known as “Dec (deck) Page”. Take that page to your insurance agent, or contact the company who provides the HOA insurance, and ask for a quote for a “supplemental policy” that covers you for the things the HOA does not cover and reduces the deductible. Get quotes for a $500 deductible and a $1,000 deductible.

Even if your Condo Association has a low deductible, you should have a supplemental policy to cover your belongings and your own negligence items, like overflowing washing machines.

While you may not need anything besides the HOA Dec Page to close escrow, that does not mean you do not need your own Hazard Insurance Policy just because it is not an escrow requirement. It never did, really. But today it is even more likely to be grossly insufficient than it was in years past.

If you are on the Board of Directors of a Home Owner Association, the Board should send a notice to owners regarding the increase in the deductible amount, along with a recommendation that they all go out and obtain their own supplemental policies. If everyone has a supplemental policy, the HOA is less at risk for claims and lawsuits. Reducing risk helps everyone keep their condo fees down. The supplemental policies of the owners should cover small claims, and the HOA Policy should be used only for fires or major incidents that affect more than just a few owners. One person’s claim on the HOA policy, instead of their own policy, increases everyone’s costs and dues.

Moving away from relying solely on the HOA policy, is in everyone’s best interest. If too many claims are filed against the HOA Policy and the insurance company “drops” you, you being the entire Association, everyone suffers.

Radcribs Stealing Trulia Code for their Real Estate Search?

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I received this email from a Rain City Guide reader this morning:

Radcribs had to take down its NYC real estate mashup. Radcribs basically copied every bit of its code from Trulia (all the javascript, all the CSS for layouts, all the HTML templates, etc). Trulia’s lawyers made short work of that. You’ll see that Radcribs is back to just providing what is basically a ripoff of PropertyShark’s service. (PropertyShark actually had to file suit against Radcribs for copyright infringement to get Radcribs to back off.)

Like the top-notch investigative reporter that I am ;), I was able to confirm that Radcribs was stealing appeared to be copying code from Trulia from a very good source who I’ll leave anonymous.

Without a doubt, I’m going to take RadCribs (and CityCribs, which appears to be run by the same people) down from my list of Innovative real estate search tools since they don’t seem to be doing much innovation.

If I hear anything else interesting about this story, I’ll be sure to report it!

UPDATE: Based on some feedback from my source, I decided to tone down the assertion a bit since I may have been overzealous in my reporting…

ZIP, Zillow and ZAP – Part 2 of ?

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OK. Everyone seems to get what ZAP is so far. Though many don’t see how it cuts your ability to benefit as a buyer with regard to commission issues. If the $9,000 on the table turns into $7,000, the agent’s gonna want to keep it all. If they are willing to pay that $2,000 to the lead generator, then why wouldn’t they agree to buy something for you with it? Same money, isn’t it? But once it’s gone…it’s gone. Either you have it, or the lead generator has it…your choice.

Darren points out, “I would think a well established (real estate agent) that doesn’t need to market themselves would also be reluctant to negotiate with you.” Joe says, “It sounds like you are describing a scenario where buyers can expect an agent to pay them some of the commish back in the form of washers and dryers, inspection fixes etc…”agent that feels less able to lavish unannounced gifts on buyers.”

The most common form of “negotiating” the buyer agent fee is for the agent to use some of the commission to pay for something for the buyer. It is generally not a direct negotiation, because the seller is paying the buyer agent, not the buyer. So the agent takes some of the commission that the seller is paying to the buyer agent and buys something with it for the buyer. As an example, a common thing the agent may buy that I am sure you have seen, is a home warranty. That can be purchased by the seller’s agent from his part of the fee (it will be a rider on the sign if that is the case) or it can be purchased for the buyer by the buyer agent from her portion of the fee.

Are you with me so far?

There are laws against handing money to the buyer. So you have to pay closing costs, or pay for repairs from the home inspection or include a washer and dryer in the sale and pay for it. It’s not about “lavish gifts”. The only way to negotiate a commission (paid by the seller) is to “gift” it to the buyer in the form of a “thing”. Even then, the lender has to approve that gift, or you have to be creative, so the agent cannot promise it up front. The lender will only allow so much of this to happen. If you are a cash buyer this is not the case.

Since the commission is in the loan, the thing that gets paid with it has to be in the house or in the purchase costs and the lender has to know about it and approve it, otherwise it is lender fraud and we all go to jail.

I’m going to stop here, because I sense from your comments so far that you may have questions on this. How do you think you get to negotiate the buyer agent fee? Did you think you could be handed a check? I’m curious…though not yellow, obviously.

Five more comments and we’re on again. I need to know what you are thinking to know how to proceed. I’m not the “Word Nazi” 🙂

Oh, Steph! ZIP is Zip Realty.

You can, by the way, reduce the purchase price of the house by the negotiated amount, but then you need to get the seller to sign it and sometimes they won’t. It is not as unilateral as paying for something with it. I commonly fix things in the house that come up in the home inspection that aren’t big things that the seller will do. Then the lender doesn’t need to see the repairs needed, which helps the buyer get his loan and it is not lender fraud because the repairs are fixed at closing and the money did go into the house in case the lender needs to foreclose. The value is in there. If you take that money and go to Hawaii…well then the lender will have a problem as all of the monies loaned and the downpayment need to be in that house at closing. There’s a huge law on this that goes on and on. I’m trying to keep it simple.

We have so many laws and rules and fines, you have no idea. Licensing laws, mls rules and they can fine you $5,000 a pop if you break them, RESPA Federal rules. There is no end to them and if you stacked them all up they would hit the ceiling.

I’m just trying to give you the practical application. Everything has to be shown on the final closing sheet and the closing sheet will not allow a line that says “I handed the buyer a check after closing so he and his wife could go to Bermuda.” LOL Of course most of these laws were written before buyers had agents…that’s part of the problem.

The seller negotiates the fee…no problem there. But the buyer negotiating the fee that the seller set up front…a little more confusing. Hopefully it’s worth understanding. If not…then don’t comment and I’ll stop here.

Where in the World?

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Since last September, I’ve been using a free stat program that maps the visitors to Rain City Guide. Last time I logged into the site, I notice that they’ve added a new toy (a poll feature) that has inspired me to ask a question I’ve wondered for quite some time…

The “cool” part about the poll is that the results will be mapped out based on where you are when you click “Add my Vote”! To see the map, just click on the “Show Results” link (or click here!)

How does it know where you are? The results are based on the IP address you use to access the internet. Big brotherish? Maybe… But that’s the reality when you surf the web, so it is probably best you’re aware of it!

Should you do For Sale by Owner (FSBO)?

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Four out of five homeowners use the services of a real estate agent to list and sell their home. Twenty percent will try to do a For Sale by Owner — should you?

I think that if you have the time, patience and real estate transaction experience – absolutely. I sold my last house as a FSBO before I became a Real Estate Agent. But…I also had extensive experience as a result of 7 or 8 transactions in a 5 year period through investment real estate. I also had my own company with an experienced staff so I had the time for marketing the home, showings and follow up to make sure the deal went through. But it’s harder work than most realize. According to statistics from the National Association of Realtors, eighty percent of people who do try to sell their home FSBO will eventually list with a realtor

I think part of the reason people are compelled to sell FSBO is the perception that realtors just list your house on the MLS, print a few flyers and that’s it. Unfortunately, the reality probably matches the perception in a lot of cases. A good professional will do so much more than that. From helping you accurately price your home, being available day or night to answer your questions and those of potential buyers, to making sure you get the right buyer who can actually close the deal – there’s a lot of work a professional realtor performs if they are doing their jobs correctly.

I’m curious as to other people’s experience in this area. Any bad FSBO experiences? (Aside from the pushy suede-shoe, old-school realtors that kept trying to convince you there is no way you can do this with out them). Success stories? Those who started FSBO and eventually listed — what was the compelling reason? Any stories in defense of realtors?

—Robert Gray Smith

Speechless on eminent domain

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I’m not familiar with the laws on eminent domain in Washington State, but an article in the New York Times about new laws to limit eminent domain struck me as interesting. Eminent domain law means a lot to folks involved in real estate as it is often used to dramatically overhaul neighborhoods. It is almost unquestionable that it is a necessary evil, but the specific rules and regulations around it can get into sticky issues like declaring an area “blighted” and condemning low income housing.

The outcry has given heart to property-rights advocates. “We lost the Supreme Court case, but we’re ultimately going to win in changing the way that eminent domain is going to be used in this country,” said Dana Berliner, a senior attorney for the Institute for Justice, the most prominent advocacy group.

Eminent domain is important, though:

But around the country, developers and city officials say weakening or destroying the power to condemn property will seriously undermine efforts to rehabilitate decaying cities and might even hinder the rebuilding of New Orleans. Without eminent domain, the Inner Harbor, which played an essential role in Baltimore’s success in building its tourist industry, could not have been redeveloped, said Ralph S. Tyler, the city solicitor.

If Washington doesn’t act to justify or tweak the eminent domain process, I’d put decent odds on a Tim Eyman-backed initiative to restrict eminent domain law. Ohio is ahead of the game:

In a more cautious vein, Ohio has effectively denied state funding for one year to private projects in nonblighted areas that involve condemnation. The state also created a bipartisan task force to study the issue. “Ohio is saying, ‘We need some breathing space,’ ” Mr. Morandi, of the National Conference of State Legislatures, said.

It’s really too bad that most state governments don’t follow this cautious approach instead of reacting once a situation goes bad.

I suggest consulting David Pogue’s How to Be a Curmudgeon on the Internet for suggestions on how to comment on posts. The comments at Rain City Guide have been far too civil and substantial.

-Galen
ShackPrices.com

What Seattle-area real estate professionals would you like to see blogging?

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Life is beautiful!First-things-first: Wow! Life is Beautiful!

It’s been wonderful to take a few weeks off from blogging and I’m so glad that Galen, Robbie, Marian, and Ardell picked up the slack and continued to post very interesting articles! Thanks to all of you!

With that said, I’m definitely looking forward to writing again and I have a whole bunch of ideas for Rain City Guide that I’m planning on implementing in the near future! The most obvious improvement that you’re likely to see is that even more real estate professionals have signed on to post articles! I have a vision for building Rain City Guide into the best resource for real estate information in Seattle and I plan to do that by seeking out a diverse group of real estate professionals with excellent writing skills!

With that in mind, what Seattle-area real estate professionals would you like to see blogging?

Some of the people high on my list include:

  • Rich Barton of Zillow . It definitely would draw some much needed press to this attention deprived start-up!
  • Marlow Harris of SeattleDreamHomes. She’s web-savvy and the odd–ball type stuff on her site would make for some great blogging. (Whoops! just before posting I noticed that Marlow has had a blog since October 2004, six months before Rain City Guide! I guess this only goes to show that unless you embrace the blogosphere by linking to other posts, you’re likely to hide away in obscurity!)
  • Elizabeth Rhodes of the Seattle Times. I’m thinking a few blogging posts would loosen up her style a bit and we might get interesting real estate reporting along the lines of what John Cook does for venture capital reporting on his Venture Blog.
  • Tom Holst of SeattleModern. Some might argue that Tom already has a blog with his weekly redesign of his site, but the site is missing some key ingredients that make for good blogging (and easy reading), such as comments, RSS feeds, link-friendly URLs. Because he changes the URL of his pages every week, I can’t link to any of his articles because they will quickly be out of date! With all that said, once I make my way through the ever-changing layout of his site, I find Tom’s writing and photos to be very interesting and top-notch… Hence, the reason I wish he was blogging!

Of course, I realize that some of these people are not yet ready to post on Rain City Guide, but it is fun to imagine the possiblities…

Who makes your list?

ZIP, Zillow and ZAP – Part 1 of ?

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OK, let’s “Get Real” for a minute.

On the one hand we have the consumer who wants what they need, no more; no less, for a price that seems reasonable.

Now, let’s look at the “service providers”, both as you know them, and as I know them as an insider. From an insider’s perspective there are three tiers of “service providers”. The traditional full service model, the “discounted” full service model and the stripped down to “you are mostly on your own” model. None of these are “good” or “bad” in and of themselves. It’s more a matter of what is good or bad for you, depending on your skills. But that’s for another day. Just wanted you to know that each of these is good for someone. Only question is which is right for you.

Technology has added a fourth option that is not a “model” in the “service provider” sense, but one that many consumers at present are opting for, which I will call ZAP.

I have to use analogies because I am somewhat limited by my insider position in discussing commissions and companies. Straight shooter that I am, being a little vague is not my normal modus operandi, so bear with me. Hopefully my descriptions and analogies will be obvious enough for you to follow. If not, you can ask questions in your comments or by email.

Let’s discuss and eliminate the ZAP option first, since it is not a “service provider”, but a place where many consumers get trapped without knowing that they are getting ZAPPED. It is worth mentioning here that ZIP is not a ZAP. Now back to ZAPs. The most obvious ZAPs have a button that says “Find a Realtor”, or something of that nature. When you hit that button to find a Buyer’s Agent or Seller’s Agent you are decreasing your ability to negotiate the commission, without knowing it. The technology whizzes who create these websites take a portion of the commission, without disclosing that to you the consumer. They do not provide a service to you, the consumer. They provide a service , for a fee, to the agent who is a “participant” at a cost. There are many of these and we call them “lead generating” sites, “bottom feeders” or “troll” sites.

Let’s take a specific example of how these work, and there are many of these available to you. Let’s say you are a buyer, rather than a seller, of real estate. You go to look at property on one of these sites, which is how they reel you in. You then hit the “I need a Buyer’s Agent” button and are connected with an agent. Let’s say based on the price of the house you will eventually purchase, that the commission will be $9,000 as pre-set by the seller of that house when he listed it for sale in the mls. When you connect with the agent by hitting that button, you have generally spent in that process of merely hitting a button on the website, the money you could have negotiated toward your closing costs or repairs or against the purchase price.

The agent who “gets you” has paid for you. He pays for you out of the $9,000 on the table in your “transaction”. Sometimes he pays it up front in a monthly cost of say $1,000 a month. So if it took three months for that agent to “get you ” (“the lead”), he has paid $3,000 for you. When you try to negotiate something for you from the $9,000, the agent has already given $3,000 to the 3rd party ZAP company, and so you get zapped, as your ability to negotiate has been diminished or entirely eliminated without your knowledge.

Some other sites are not “pay as you go” for the agent, but “pay as you close”. In that case the agent will owe the ZAP a percentage of the commission, if and when you close escrow. Again, the monies you may have been able to negotiate with your agent have been sucked up in advance without your knowledge.

Some of these sites operate like the one sided mirror glass of an interrogation room that you see on shows like Law and Order and the like. I find these lead generating “Big Brother” website options to be exceptionally creepy, but hey, that’s technology at its “best”, I guess. When you sign up to the site to view and save property, you are assigned to an agent in the queue without regard to whether or not it is a good match. Those who have paid in to “look at you look at property”, get the leads kind of like the way a lottery ball pops up to the top and gets “pulled”. I’m trying to give you the facts without editorializing, but it’s difficult for me as I find these sites intrusive and deceptive.

OK, back to facts. The agent who “wins you in the lottery” of the moment, gets to see everything you are doing from the inside without your knowing he is watching you. He can see what properties you are viewing. He can see which ones you are saving vs. ones you are trashing, he can “get inside your head” a bit. He gets all of the info you have put in to register for the site. You then get an email from him, and maybe a phone call, saying “Would you like to go see X property”? You are dumbfounded and amazed and think he is absolutely clairvoyant! Or maybe you DO want to see that property and don’t think about how he “guessed” you might want to go see that property and you just go see that property without a second thought.

LOL OK, I can’t stop editorializing, can I? Don’t you find this just absolutely creepy? Maybe it’s me. I’ll stop here for today and will continue after some of you comment on this so far. Maybe it’s just me. What do you think? I’d like to hear from you before I go any further. After 5 comments I will go to Part 2 of ?

As to the Title of this entry, let’s review. We are mostly talking about ZAPs that ZAP you, the buyer consumer. ZIP is NOT a ZAP. While you all sit at the edge of your seats awaiting Zillow and it’s wonders, we’all (the insiders for lack of a better term) are sitting back expecting another exploitative ZAP type. Of course “No one knows, but the Shadow”, but at least know what to look for when it comes. My expectation is that it will not give you what you want. That being “What you need, no more; no less, at a reasonable cost” as noted in the second sentence of this entry above. (Someone let me know if that IS what the consumer wants, please. Thanks.)

But it will WOW you with it’s technology, reel you in, and then sell you off to the highest bidder. No one knows yet, but if you hear anything new about it let me know and I will decipher the code.

Five comments from YOU, the reader, and then we will move to the actual means a buyer has to negotiate their commission, unless they have already “shot themselves in the foot” by being totally or partially ZAPPED without their knowledge, from the ability to negotiate.

Have a good day! Look forward to hearing from you!

Ardell