I could not be prouder today. Quill’s first Single Broker Listing is live and looks great! On the Quill Blog, on Zillow, on Redfin – heck, it looks great EVERYWHERE!! By my estimation, this is what the future of real estate will look like: One broker marketing a property directly to buyers via multiple channels, without offering to pay the buyer’s agent’s commission (so no MLS number). Exciting times here at Quill!!
If you’re a home buyer and looking for information on how to win a bidding war (or “multiple offer situation”), check out my insight by following that link. For an academic discussion of the difference between the two terms, read on….
Ardell recently posted on this subject. She noted there really isn’t that much out there about this now-common aspect of buying or selling a home (common, that is, for MLS-listed homes, you can avoid the frenzy by looking for homes on MLS alternatives). She and I then engaged in some typically spirited discourse, which in turn helped me to further frame and analyze the issues raised.
Multiple Offer Situation and Bidding War defined
First, some definitions. A “multiple offer situation” is where a seller receives two or more written offers on the property. A “bidding war,” in contrast, typically refers to oral negotiations between the listing agent and two or more of the buyers’ agents. A bidding war typically erupts, if at all, after the seller has received several written offers. The listing agent then “shops” the best offer in an attempt to negotiate the absolutely best contract possible. (Note that a listing agent can also “shop” the first offer received and before receipt of others, particularly where the seller will not be looking at all offers on a specific date.)
Sellers encourage multiple offer situations by telling buyers that the seller will look at all offers on a particular date in the future. In response, most buyers will submit an offer that includes an escalation addendum (which automatically escalates the offer amount above some competing offer) as well as waive some or all of the usual contingencies (inspection, financing, title, and information verification). So the seller can expect to receive better offers that bid against each other, resulting in a winning offer at the highest offer amount. The seller can sign the winning offer, and the house will be under contract.
If you’re looking for information about how to win a multiple offer situation or bidding war, I’ve written about the topic on the Quill blog.
When a Multiple Offer Situation becomes a Bidding War
Sometimes, the seller might counter one of the buyers in an effort to get even slightly better terms. If it stops there, not a bidding war. But if the seller – or more accurately the listing agent – then calls ANOTHER buyer’s agent and gives THAT buyer the chance to beat the first buyer… Well, that’s a declaration of “war.”
It sucks to lose a multiple offer situation. For the losing buyers, of course, but also their agents who invested time and effort in the now unpaid endeavor. Bidding wars? That’s acid in the face of buyers and their agents. They are inherently unfair, as not every buyer is included in the bidding war negotiations. So buyers and their agents frequently cry “foul!” when they are subjected to a bidding war.
So is a Bidding War legal? Or ethical?
But is it a “foul” for the seller to instigate a bidding war? No, it is not.
First, the law. A real estate broker owes very few legal duties to the other parties to the transaction. And a broker has no legal obligation to keep the amount or the terms of any offer confidential. So can a listing agent legally shop an offer? Absolutely. Can a listing agent legally call one buyer’s agent, then another, then another, revealing details along the way in order to extract the best offer possible? You bet.
OK, well, what about ethical considerations? Does a broker have a professional ethical obligation to not shop an offer, or not instigate a bidding war? Nope, no formal ethical obligation either.
In the world of real estate, professional ethics are generally set by the National Association of Realtors. Most – but not all – real estate brokers are members of this association, thus earning the title “Realtor.” It is generally accepted that the NAR Code of Ethics sets the parameters of professional ethics.
The NAR notes that offers “generally aren’t confidential.” The Code of Ethics requires a broker to protect and promote the interests of the client. Thus, a seller may “even disclose details about [a buyer’s] offer to another buyer in hope of convincing that buyer to make a ‘better’ offer.” While the Code requires honesty in dealing with others, it does not require “fairness” given that term’s inherent subjectivity. On the other hand, the preamble to the Code notes that the title “Realtor” has “come to connote competency, fairness, and high integrity.” So at least arguably, if a broker discloses the facts of an offer to one buyer, the broker should disclose to all buyers, particularly if that broker is a “Realtor.” [All information in this paragraph pulled from linked sources.]
But that’s a long way from prohibiting a bidding war in the first place. So in fact, there is no legal or professional obligation to avoid a bidding war. Instead, if the seller so instructs the listing broker, the broker has an obligation to instigate one.
So why doesn’t every multiple offer situation result in a bidding war? First, because there are strong informal professional ethics in play, as well as personal ethics. Almost all agents represent both buyers and sellers at various times. So we’ve “walked in the shoes” of a buyer’s agent, and we know first hand how unfair a bidding war can be. And since most of us are in the industry for the long haul, we may need to work with the same agents again down the road. If we treat them poorly today…. Plus, most folks just have a general distaste for this sort of ruthless negotiating.
Second, and perhaps more importantly, bidding wars – like any war! – can end in disaster. If the listing agent shops the offer but all of the buyers are turned off by the aggressive negotiating, then the seller will have wasted the momentum of the multiple offer situation. So there is a good argument to be made that a bidding war, being so exceptionally aggressive, isn’t in the seller’s best interests.
I hope you found this information useful! And if you’re a buyer, hang in there. While inventory is unlikely to improve much today, it certainly will over the next year, or two or three. And if you must buy in the meantime, recognize that it will be a tough row to hoe. Best of luck.
A seller setting a time in the future when they will review all offers at the same time has become common enough to warrant a blog post explaining the general pros and cons and procedure for this type of listing instruction. I just did a spot check of new listings in Kirkland 98033 and a full 2/3rds have this instruction, including both single family homes and condos. If you look only at the single family homes, the percentage is even higher. There is very little written on this topic that can be googled, so I will try to explain the ins and outs of this process best I can. Everyone does it a little differently, so this is by no means a full explanation or an absolute description that pertains to all listings with this instruction. But it should serve well as a guide to those who have not run into this yet, such as first time buyers just starting to look at homes to purchase.
First it should be noted that the SELLER, and not the Agent, must direct this instruction. Usually as a result of a conversation with the seller regarding whether or not they “have to” respond to the first offer quickly. In fact while I noted 2/3rds of the listings have the direct wording “…will look at-review offers on…” At least half of those who didn’t show that restriction, throw in vague language insinuating that the seller will not be responding quickly because they are out of town for a few days. A roundabout way of saying “…will look at offers on…” loosely.
Let’s lay out the mechanics of how this works before discussing the pros and cons from both the Seller and Buyer side of things. To that end I will describe how I do it.
Usually I list a property on Wednesday night after midnight, which is actually Thursday morning. I do this because the public sites don’t always pull the photos in the same data pull as the listing information, causing the listing to appear in mobile instant alerts with no photos. By listing a property in the middle of the night, the photos have time to catch up with the listing by the time people wake up and view the new listing on their phones or laptops. So I do this whether there is a “…will look at offers on…” instruction or not. Most often the “…will look at offers…” day and time will be Monday in the evening with a deadline for receipt of offers in the afternoon. This gives the agent for the seller time to print out and review the offers, call agents if needed for explanations or changes, and often summarize the offers in advance of meeting with the seller to review them.
It really is as simple as that without going into the particulars of how, when and why to apply this instruction or not. So we’ll move quickly into what this means for Buyer and Sellers with some of the pros and cons.
When you first see a listing come on market that you want to see, you usually contact your agent. These days the first thing the agent looks for is this instruction, because it almost never shows in the public remarks and only in the Agent Only remarks. I don’t have a good “why” for that except that the public remarks has a limit as to number of characters, and most if not all of that is used to advertise the property with no room left to go into other topics. The agent only remarks area is even more limited, but there is usually room to very briefly describe this agent instruction.
The main reason the Agent for the Buyer first looks for this instruction noting how FIRM…or not…the instruction is, is to determine how quickly the agent needs to meet the buyer at the property.
If you see a property come on market on Wednesday or Thursday and they are not looking at offers until Monday, you still want to see it as early as possible to have time to consider the property before writing an offer. But if this instruction appears, you might not have to jump up from work with no notice or leave the children standing in front of school waiting for you to pick them up or interfere with the baby’s normal nap time. ALSO not all agents can jump up “right now” to run over to the property the minute it hits the market.
So the primary benefit to buyers and their buyer’s agent is it gives them a bit of time to schedule a convenient and mutually agreeable showing time.
That does not mean you wait until a Sunday Open House if the property comes on Market on Thursday and they are looking at offers on Monday. In fact most of the time I do not do an Open House during that 4 to 5 day period which encourages the buyer and their agent to view the property privately, which is usually better for the buyer. The more time you have after seeing the property to investigate further, collect your thoughts, make a good and firm decision before writing an offer…the better. The time frame is short enough from list to review date. Use that time wisely.
The second and possibly only other benefit to the buyer is it gives them some time to fully consider both the property and their offer before needing to submit that offer.
Some people are very quick decision makers and others are not. From what I have seen, buyers who have competed in multiple offers without success respond much more quickly than those for whom this is their first offer. This is not a “how to win in multiple offers” post, and in fact my next post may be “how to LOSE in multiple offers”.
This is just a basic outline of a common practice that most all buyers need to be aware of if they are looking for homes in some of the most popular neighborhoods in the Seattle Area.
Cons to the buyer of course are that they have to wait until Monday for an answer from the Seller and they are more likely to have to deal with multiple offers than if they could write an offer within an hour of the home coming on market and put a response time of same day. However this “con” from the buyer side will be addressed more as a “pro” from the seller side.
Whether it is a strong or a weak market, over the 25 years I have been helping sellers sell their homes and buyers buy them, most every seller likes the property to get past the weekend before responding to offers. Given the best buyers often work for a living, unless they are cash buyers, the seller would like the people who are working for a living to have a chance to see their home before the seller responds to offers. They like their home to be listed before the weekend and they like to look at offers after the weekend. This is nothing new. In fact I just saw a house that used a wishy-washy “…will look at offers on…” stated as “Seller would like to wait until after the Open House on Sunday to respond to any offers.” I’m not a big fan of wishy washy as it leads to confusion. Some buyers will read that as a hard and fast indicator that they have plenty of time, only to be very upset to find that the house was sold earlier and the Open House was cancelled.
It is very important for the Agent for the Seller to have a very LONG and detailed “What IF?” conversation with the seller, to pin this down very clearly as to the sellers’ wishes. If the seller is a couple, you need to have this conversation with BOTH sellers.
This is not to say that the Agent should guide the seller to a “…will look at offers…” instruction. But it is important for the agent to know the sellers intentions by asking questions such as:
“If you receive an offer on the first day the property is on market and the buyer wants a same day response, are you prepared to accommodate that offer as written?”
The answers to that question are many and varied and almost no one answers a clear YES. That surprises some buyers and even some agents that the seller wouldn’t be very happy to have a good offer on the first day and take it on the first day. But in my experience the answer is usually another question as in “Do I HAVE to?” Once the seller has indicated a reluctance to accept an offer, the Agent for the Seller needs to go through a whole series of what ifs to come to a full understanding of the Seller’s intentions as to how they plan to react to offers.
Historically the “reasonable” time frame for responding to offers has been 2 days, not counting the day the offer is submitted.
In the above noted scenario of listing by very early Thursday morning, the anticipated response date and time would be Saturday by 9 p.m. here in the Seattle Area where a day ends at 9 p.m., unless stated otherwise. HOWEVER the buyer is the one who types in the response date and time in the offer and what was previously reasonable and customary is not what all or even most buyers will do in a hot market.
Since control of that response date in the offer is on the buyer side…it is important for the seller to give an instruction if they do not intend to comply with whatever a buyer may write. It is not good for anyone to start off on the wrong foot by the seller being angry at the time given or the buyer being angry that the seller chose not to respond by the time given.
Most sellers whether they have an Open House or not would prefer the home be shown all weekend when most people are available to see it, than respond on Saturday night. So Sunday night would often be the earliest date the seller expects to respond and Monday night is not a stretch and gives those buyers who weren’t available until Sunday, or even very early Monday if they were out of town for the weekend, a chance to see the property.
You might ask why not longer, and the answer to that is buyers are often frustrated with waiting 4 days and so extending that to a week or 10 days is really pushing it and usually causes more harm than good. That is a conversation the Agent for the Seller and the Seller discuss in the “what ifs” discussion. Every Seller will have a different opinion and there are no hard and fast rules and every Agent for the Seller will have a different counsel on that subject. For the most part, since I can’t speak for every Agent in the Country, I am basing most of this on how I do it and on conversations I have had with actual sellers. But the options can be many and varied.
The obvious Elephant in the Room from the buyer side is “Aren’t you just trying to start a bidding war?” Or from the seller side “Do I HAVE TO take a full price offer?”
This is where the issue gets very controversial and it is not uncommon to get some very angry calls within the first hour the home is on market.
1) NO the purpose is NOT to instigate a bidding war. The purpose is to give the seller a reasonable time to market his/her property before having to accept an offer. By any definition and anyone’s perspective, 72 hours seems reasonable. So Thursday to list, Friday-Saturday and Sunday to view and prepare offers, and Monday to submit and respond, seems more than reasonable. Except to the person who wants to be “The Early Bird Who Catches the Worm”, and I don’t blame them. But that, in many if not most cases, does not give the Seller ample time to market his/her home.
For some sellers “ample time” could be much longer or possibly shorter. But the bottom line is the seller gets to decide what is and is not “ample time”.
2) Pretty much yes…you do “have to” as to the seller’s question of whether or not they have to accept a full price offer. At least this is the conversation BEFORE the home is listed for sale. Mainly because the Agent for the Seller needs to confirm that the seller is willing to take the price at which they list the home.
It’s OK to hope for multiple offers and a price higher than the list price. BUT it is NOT ok to list the home for less than you are willing to take.
To some extent the rules and practices of this particular topic have changed somewhat since Craig wrote a post with his concerns Titled “Offers to be Considered on a Future Date” Is this Really Fair to Buyers?” in that sellers have to attach the instruction before the home is listed and must note whether or not they intend to reserve the right to NOT wait until that date to respond. Still, reading his post via that link in conjunction with this one is advised.
I wish I had 10 or more links to others expounding on this topic, but the only other has been here on Rain City Guide that I can find. If you see any others on “…will look at offers on…” vs simply multiple offer situations which I will cover in my next post, please do put those links in the comments. Thank you.
Seattle Area – Choosing Best Place to Live. I recently received a request to write a new post on this topic. Even I find most of the articles I have read on this topic to be very confusing. Like this one that mixes a few “Really?!?” with the obvious best places. Or this one that jumps from one extreme to the other pretty quickly back and forth.
If you are renting vs buying you can use the lists of Best Places to Live in the Greater Seattle Area pretty freely, as you can skip around at the end of each lease until you find a place you may want to permanently call “home”. But if you are buying a home, you need to dig a lot deeper before spending your hard earned money, as switching out is costly and easier said than done.
Since this post is by special request, I asked the requester to give me some basic parameters he has set before beginning his quest as to where to find that type of home, at that price, in the “best” area his money can buy.
With inventory so very low and “best” homes in best areas selling very quickly and often with multiple offers, you can shorten your time frame dramatically by testing your parameters in advance. This way you will not be waiting and waiting for something that simply does not exist in the area you have targeted to search.
Again, these are parameters given to me by an unknown person in an email request to write this post, and not necessarily in the order given.
1) SCHOOL RANKING
The stated objective was:
Elementary School Ranking = 9
Middle School Ranking = 9
High School Ranking = 9
I think we can assume that this person is referring to GreatSchools.org when noting a 9 ranking. The thing that strikes me as odd is that there is a specific number vs a range like 8 to 10. Many if not most of my clients who have school ranking as one of their parameters will most often want 8 to 10 rank for Elementary School. That is a reasonable and common request at Elementary School level but not on all 3 levels.
What bothers me most about someone asking for “a 9 ranking” for school is it leads me to the conclusion that this person thinks school ranking number is a constant vs an ever changing number.
Let’s jump to the areas noted by the person who requested this post and see how this one main criteria alters and narrows even these modest area parameters. Referring to the photo above, nothing “paints you into a corner” faster than School Ranking as a parameter.
“Hopefully Eastside, Bothell, Kirkland, kenmore, Issaquah, Sammamish.”
There are only a couple of high schools currently ranking as high as 9 or better in Seattle. But since this person noted Eastside let’s skip over that for a minute except to say Ballard High School riding high at 9 right now is a big factor in the price run up there.
Kirkland is out, though one of my personal favorite Best Places to Live, given there are only two high schools Juanita weighing in at a 6 and Lake Washington High School weighing in at a 7. I clearly would not rule out Kirkland, but when I first saw this email I thought, well I guess it’s going to be Sammamish…maybe Issaquah, to get all 3 schools ranking as high as a 9.
Bothell High School is running at a 10 as is Inglemoor in Kenmore. Would I or most of my clients exclude Kirkland in favor of Bothell or Kenmore? Not usually. So really have to be careful about the corner you are painting yourself into with this requirement. All things considered, some of which are not in this post yet but are in the email, I’d still be at Issaquah-Sammamish and probably Issaquah I-90 corrider for this particular person.
My general advice for people planning to have children or with very young children just starting school, is to set your ranking based on Elementary School only. Middle school is a can of worms mostly having to do with puberty. Limiting by High School rank leads you into a very small corner, which may be fine as long as you happen to like that particular corner.
– Below $425,000 (may be even going up to $500,000)
– single family home
– town home with no to very low HOA
– area where property value is appreciating. If I buy now (resale after 5 years should be a profit)
– crime should be low
– commuting to Downtown Seattle should be good.
– King County
– newer construction
– few foreclosures in the general area
– areas with construction quality/grade of 8 or more.
Let’s hit these quickly:
King County OK though you can find lower prices outside of King and the Bothell option changes since most of Bothell is not IN King. I’d still be at Issaquah for that reason.
Newer construction…well depends on how you define “newer” but lets say 1995 or newer since home styles haven’t changed much in that time frame.
Few Foreclosures in the general area – When you have a school ranking of 9 or better and a low crime criteria, you usually don’t run into foreclosures generally except in a neighborhood where everyone bought at peak because it was built and sold at peak.
Low Crime is a given on the Eastside for the most part in the Cities mentioned, so not a big factor.
Commuting to Downtown should be good is where I get stuck as to Kenmore which is not known for its “quick commute” to most anywhere.
That leads us to the big one…price.
PRICE OF HOME
I ended with price, but in real life vs a blog post I START with price, because nothing draws a hard line faster than how much you can afford to spend.
I’m thinking Single Family Home is now out of the question and we are moving straight to townhome if “newer” is 20 years or less and High School is 9 or 10. Then we run into HOA dues that are likely going to be considered excessive. Let’s assume for a minute HOA dues of $300 a month and an interest rate of 3.75%. Now we move price to a $425,000 Townhome or a $485,000 Single Family Home being the same, given the $300 monthly dues value at $65,000 of price.
Here’s where the person who asked the question gets to go back to the drawing board with these questions.
1) If Kirkland only has two High Schools ranked 6 and 7 are you ruling out Kirkland altogether?
2) If the only place in Bothell that meets your parameters is in Snohomish County vs King County, do you drop the King County requirement? Bothell runs into 3 or 4 different School Districts pretty quickly.
3) If the only way to get a Single Family Home is to buy an old one vs a new one, do you stop at townhome or change the age of home criteria?
Without having to change anything you can get a newer 3 bedroom townhome in Issaquah High School…possibly Skyline High School, and pretty easily match that up with a high ranking Elementary and Middle School. Many if not most of these are close to I-90 for a pretty fast commute into Downtown Seattle. If 1995 to 1998 Single Family Home appeals to you more than a new or newer townhome, then Issaquah still an option.
Play with your own parameters now. Go to GreatSchools.org and put in the Cities you are considering and set the High to Low on Rank and you will easily see which schools you want to consider, or not, and note them by name. Once you have your complete list of schools it is easy for your agent to find the neighborhoods within those schools that fit your price parameters.
Point being that when you are using school ranking as a consideration you start there and you, the buyer, do the research to make an accurate and complete list of all schools that are an option for you. It is a parent’s job to pick schools…or not. When using this method it is then better to have an agent set you up in the mls for alerts than to use a public site, since it is pretty much the only place where you can put in a big list of schools vs setting up separate searches for each school. That still leaves you in a bit of a jam since individual schools is not a “required” data field. BUT if you start at finding the neighborhoods by looking at sold property over the last year or more…well, it’s a good start and good luck.
Personally, and for most of my clients, they pick their BEST WHERE first…and then find the best schools in that where, vs painting themselves into the corner of only being able to live in one place. Overall if this were my client I’d be adding Redmond to the mix and then choosing between Issaquah and Redmond.
As to Grade 8 or better as to construction, that’s pretty much a given after piling in all of your other parameters. 8 is not very high as to quality grade and new or newer construction is usually an 8 or 9 in modest price ranges. I just spot checked several and most all in that price range are an 8. So leave that check point for last after you find a home and before you make an offer.
Early Friday evening one of my favorite long term clients asked me this question: “Why is the market so slow these days? I have an alert for ($) houses in (zip code) and I barely get a couple of hits every week west of (the freeway). Almost always tear-downs.” (actual specifics from his email removed)
My first data set pulled was a line up the number of homes sold where I primarily work (North King County – North of I-90), by month, over the last 6 years from 2009 to 2014 YTD. This to answer only the first 8 words of his question “Why is the market so slow these days?” The easy answer would be “because it is past October 15th”. I test my knee jerk response by pulling all of the relevant data to be sure I am not answering like grandma in a rocking chair pulling some now irrelevant data from her long term memory bank. I also do this because I need to discover why this person’s current perspective may vary from the long term norm.
Something may recently have happened leading this person to believe that the standard progression is no longer the realistic expectation. I value his thought process as part of how I answer the question…by first pulling the data…lots and lots of data.
The line graph below documents the data pulled for the last 6 years. But as I almost always do when pulling stats, I went back 12 years because data expires! More on that in graphs 4 and 5. Since I almost never regurgitate already documented data from other sources, but rather only trust the data if I calculate it myself, I usually go back as far as my data source will allow, which in this case was 12 years.
First I test my perception that 2014 is not a low inventory year, even though there are tons of articles saying that inventory is low. Many articles talking about the frustration of buyers with “low inventory”. But look…no…my perception is indeed correct. The red line is the “low” or at least the first half of 2009 depicted in the red line. The green line of this year is not only NOT “low”…it is pretty close to the high over the last 6 years.
To be clear, I am using “homes worth buying” as “inventory” and the proof that they ARE homes worth buying…is someone actually bought them.
After I peruse some of the recent data as an attempt to start at the point where he may be coming from when asking the question, I dive into my own “expert opinion” perspective, which is my 2001 baseline. This information is really already carved in my brain, but since I turned 60 this year I figure it wouldn’t hurt to double check that my memory is still accurate. 🙂
I actually did all 12 years before honing in on the actual answer to the question, which comes from comparing 2014 with 2013 and 2013 with both 2001 and 2005.
To determine which were the correct comparison years, I had to first pull ALL of the data that the data source would allow.
While yes…my knee jerk answer of “because it is October” would have been correct, by pulling all of the data I can see from the variance of the actual stats from 2013 against the baseline of 2001 exactly why the question made 100% sense from this person’s perspective at the time he asked it.
This person, along with every average homebuyer, is looking week to week over a period of 6 months to 18 months for a home to buy. They have no “baseline perspective”. Their expectations come from more recent history’s actual activity, and rightly so, with no way to tell if the last 6 months was exceeding or under performing standard market expectations.
The bar graph below explains where the expectation may come from. I have 2005 in there just because it is the one year over the last 12 years when the most number of homes were purchased (ipso facto “available” to be purchased), so highest inventory year. But the key to answering the question is in the 12% of June 2013.
If you look at every piece of data on this page which looks at all 12 months for all 12 years in 6 different comparative charts…12% of a full year’s total inventory being available to buy in one 30 day period is pretty much unheard of! That was June of 2013.
I had another client who started looking in early 2013 and did not buy the house they could-should have purchased in June of 2013. After that they were progressively and continuously disappointed with the number of homes that came on market for months and months afterward. They had no way to know that the volume of homes coming on market since they started looking were many more than the normal market expectation.
In hindsight every subsequent month looked pss-poor in comparison. Pretty much all activity if you started looking in April of 2013, and didn’t purchase by June-July of 2013, is looking relatively dim. BUT in reality inventory is not dim. Inventory, the number of homes you can expect to choose from, is in fact currently performing at or over market expectations adjusted weekly for seasonality. All this can be gleaned from the 12% spike in that bar graph, noting the rational explanation as to why your expectations may be “off” by comparing relatively recent actual data against 12 years of data comparisons.
Basically that makes us both right. I’m right at “because it’s October” and the person asking the question is right to consider the options dim based on more recent relative comparison.
Posting the data and graphs that helped formulate the above. Worth noting, while I brought forward the Red Line year of 2009 to note inventory low point, the graph below shows that the 12 months of low inventory started in the 2nd half of the gold line of 2008 and proceeded to the lowest point of Jan and Feb of 2009, which some of my readers may remember as “my bottom call” that made front page news at the time.
Looking above and below at the thick green line of 2014 inventory against the high inventory years of both 2004 and 2005 you can easily see why all of the articles calling 2014 low…and actually they were saying that last year in 2013 as well, are simply not true.
While my analysis will continue to use 2001 as a baseline, you may want to use the bar graph below to set your expectations. This is the average good homes on market based on the average of 12 years worth of data.
I use 2001, as many of the variances over the last 12 years are influenced by Tax Credit Incentives coming in and out and artificial interest rate jockyings…not to mention all of the massive changes in loan approval criteria over this same period. For that reason 2001 is still the purist baseline by which to compare and contrast other market influences as they come and go from time to time.
WHY IS THE MARKET SO SLOW THESE DAYS?
Getting back to the first 8 words of the original question…because based on normal seasonal activity you can expect that there will be HALF the number of homes coming on market that are worth buying by December than in May. “coming on market” activity is the month prior to the sold month. So highest SOLD volume in June will = highest number of instant alerts of new listings coming to your phone in May.
Expect the numbers to increase from December through May and then begin a decrease through year end before beginning the next climb.
WHY IS DATA THE NEW BLACK?
Because it saves you time and reduces your stress to DRILL down the data from the general comparisons above and fine tune your actual parameters before you waste any time looking for something that doesn’t exist in the place where you are looking. That brings us to the 2nd and 3rd part of this person’s question ” I have an alert for ($) houses in (zip code) and I barely get a couple of hits every week west of (the freeway). Almost always tear-downs.” (actual specifics from his email removed)”
Only 25 houses were sold using a full $150,000 spread with your $ amount as the cap in the whole 6 months of “high season”. So expecting 2 a MONTH in low season let alone 2 a week…is an invalid expectation. Expect ONE really good one a month from here to February of 2015.
“Almost always tear-downs” means you are looking for a nice home at the price of the land alone. Again an invalid expectation. Changing your price to what that home will sell for there is not an option. Changing your choice of what to a tear down is also not a reasonable option.
The only answer to your dilemma is to change the where and not the price or the what.
(Required Disclosure: Stats in this post are not compiled, verified or published by The Northwest Multiple Listing Service.)
Selling a home in King County has been fairly easy to do for most people since early 2012 when the market started taking off again. We don’t have the same momentum in first quarter 2014 as we did in first quarter 2013. There are still many more home buyers than home sellers, so supply and demand hasn’t changed much. What has changed is there is not the same sense of urgency to beat out interest rate increases.
In early 2013 interest rates were as low as 3.25% in many cases and there was a lot of talk about them going up to over 4%. They in fact did go up to 4.5% – 4.625% by mid 2013 and no one is talking seriously about them going up further from here to over 5%. So same supply and demand factors…decreased sense of urgency. (chuckling as I just got an email while typing this that rates went down from 4.5% to 4.375% confirming no worries that rates will increase much if at all from 4.5% or at least that worry is not being factored into the market.)
There has been a LOT of confusing talk about “low inventory” for quite some time now and even some recent talk that inventory is improving for home buyers. Not really the case IMO and as you can see from the arguing going on in the comments on that post. Most people are not buying that there are or will be a better selection anytime soon for most home buyers. That is continued good news for sellers and more frustration for home buyers. New on market if priced right…IF PRICED RIGHT the key phrase here, will still sell quickly in multiple offers. So not a lot of change in 2014…just a little less chaos.
Now let’s talk about how inventory can be UP a bit on an overall basis and still be non-existent for MOST home buyers. The graph below illustrates this fairly well. Until you get to a million dollars, EVERY segment is running at less than 2 months of inventory. I would venture to say that probably 80% of those are homes no one wants…or someone would have bought them, except for the 20% or so that are very new on market and some of those are coming out the gate overpriced as well. Most sellers can still sell their homes in a week or less if they really put the right effort into selling their home, and keep the price at no more than 5% over the comps. So it goes without saying that for most buyers…there is nothing to buy.
As soon as something good that is priced right comes on market…still multiple offers after the interest rate increase to 4.5%. I haven’t witnessed it first hand so far in 2014 given it is early in the year, but that was the case throughout the 4th quarter of 2013, so no reason to expect that to change now. With less than 2 mos of inventory starting out the year, not likely we will get to any type of equilibrium as to sellers and buyers at all in 2014 except in the highest of prices. Even then…not so much in places like Clyde Hill where highest of prices still sells very well. More on that in the third price graph.
To better understand the absorption rate bar chart and why the price breakpoints appear to be “odd”, see the pie charts below. First using 2013 sold homes I broke the market into 5 pieces. So the first column above represents 20% of King County buyers. Each of the second, third and fourth columns also represent 20% of home buyers.
That puts 80% of buyers in the 1.25 to 1.63 months of inventory range. 80% of people looking to buy a home are looking at less than a two month supply of inventory and in many cases a 2 week to 5 week supply of inventory. Subtract the houses that no one wants…and you basically have NO inventory for 80% of the people looking for homes.
ALL of the last FIVE columns represent a breakdown of only the top 20% of the market. This in an effort to see where the inventory actually starts moving up.
It is not until you get to TWO MILLION and up that you actually see a buyer’s market. Everything up to $2 Million is a Seller’s Market at less than 4 months of inventory and for more than 80% of buyers less than a 2 months supply of inventory. Now let’s drop down to the last graph and check on home prices.
One of the reasons I check the stats at the beginning of each year is to test both my perception and also things I have been hearing and reading.
My perception was that Bellevue 98004 and 98005 were taking off like a rocket last year! To check that I added stats for just those two zip codes to my King County median price line graph. It is the purple line at the top with the light blue squares, and yes, my perception was correct. Up way out of proportion to the rest of the market. But the earlier part of the graph also showed a steeper decline which looked like “the bigger they are the harder they fall”. Still…almost back to peak pricing in 98004 and 98005.
The County as a whole also way up toward all time highs. Not quite there, but looking pretty “recovered” for now. As usual I am not really just “writing a blog post”, I am doing my own early work for my business. So in that regard I have to see how Kirkland, Bellevue and Redmond are generally faring compared to the County as a whole.
I need to study what is going on with Kirkland stats. For the Eastside line (green with pink squares) I combined 98033, 98034, 98011, 98052, 98004 and 98005. Not all of “The Eastside”, but a good balance of representation. It might make more sense to throw in more of the Bellevue Zip Codes instead of one of the three Bothell Zip Codes, but you can’t do that if you are going to track prices back to 2007. Kirkland, the blue line with the light blue squares, starts running under the main Eastside line. This because most of the large land mass annexed by Kirkland in 2011 was lower priced than the Kirkland before annexation. You see that dip between first quarter 2011 and first quarter 2012 when the median price went all the way down to $401k.
Considering that dip…for Kirkland to be back up to $510,000 is really quite amazing. I thought maybe the higher priced 98033 was carrying all of the increase similar to the big swing in 98004 and 98005. But not so. I tried to add that line here, but it just made the whole chart too confusing with all of the numbers overlapping. But the amazing part of the increase in Kirkland (which looks like a decrease because of the added properties) is that much of the increase happened in the annexed areas, especially in that part of Kirkland 98034 that used to be Bothell 98011. Back to why I added Bothell 98011 instead of more Bellevue Zip Codes. The later stats for Kirkland would automatically pull in some of what used to be Bothell 98011 prior to 2011, so the best answer was to keep all of 98011 in all the way through.
A little more explanation and graphs including Absorption Rate Data for Kirkland 98033, 98034, Redmond 98052 and Bellevue 98004 and 98005 in these links. Again just stuff I was working on for my own client reasons.
Single Family Median Home Prices are UP 6% YOY for the First Half of 2012 in Seattle.
First Half 2011 @ $399,000 – First Half 2012 @ $423,000
Bellevue School District is the Big Winner at UP 20% with a Median Home Price of $689,000.
Issaquah School District DOWN 4%, Northshore School District DOWN 2%
Lake Washington School District UP 4%
Median Home Prices for First Half of 2012:
Bellevue School District: $689,000
Issaquah School District: $521,000
Lake Washington School District: $498,000
Northshore School District: $376,000
Seattle School District: $423,000
Northshore School District has become a pretty good buy lately, given many of the schools have shot UP in the rankings and the median Home Price is by the far the lowest in the mix.
Required Disclosure: Stats are not Compiled, Published, Verified or Posted by The Northwest Multiple Listing Service.
ARDELL 206-910-1000 email@example.com ARDELL DellaLoggia, Managing Broker, SOUND REALTY
Not every client asks me where they SHOULD live. But the question comes up from time to time, and often from family members who are considering jobs in more than one city.
I am answering a more complex one for a family member who hopes to purchase a home vs rent. Scenario is they are graduating with an RN and looking at:
Los Angeles $82,000 Salary
Seattle $74,000 Salary
Colorado $71,000 Salary
The issue when people ask me is usually whether or not the salary differential makes up for the difference in the cost of the housing in various places. The offered salary is $11,000 more in Los Angeles than in Colorado, but does that compensate sufficiently for the difference in housing cost? In the past the scenarios presented to me were about renting vs buying, and often the differential did make up for that difference in rental cost. But when someone is buying vs renting…not necessarily the case.
In this particular example I am looking at Entry Level housing, VA Loan with zero down and a family that already has two children and is planning to have more children. So I need at least 3 bedrooms on this entry level housing.
Starting with “Seattle”…I know that the person is interested in The Eastside Cities of Kirkland, Bellevue or Redmond. For this “entry level” example, I am going to use a home that closed on Wednesday for one of my buyer clients BUT putting in the loan scenario of the family member of mine who is asking the question.
Price SOLD is $355,000. Plenty of space and yard for a growing family. Cul de sac lot. Could use some updating, but no expensive fixes needed. Had one owner for 44 years since it was built, in 1967. A good indication that a family can live there indefinitely without needing to upgrade to a larger home.
Now we’re matching this home purchase up to the above RN Salary for “Seattle” of $74,000 for the person asking the question, vs the person who actually bought it the other day.
First we’ll use the “rule of thumb” of 3 to 4 times annual income for the loan amount. That would put the loan, based on $74,000 Annual Income, at $222,000 to $296,000. A little short based on Zero Down for this home.
I’m going to move this WA scenario over to a home I sold in Mt. Lake Terrace that is a similar home, big lot, with a one car vs two car garage, but that sold for $250,000 vs $355,000. Edmonds School District. A reasonable example for Mt. Lake Terrace or Brier.
Now we go back to our 3X to 4X Gross Annual Income “rule of thumb”. and we can fit $250,000 into that $222,000 to $296,000 equation without approaching the upper limit. NEXT we go into the actual real detail of payments, which isn’t worth doing if the Rule of Thumb = No Way, Jose.
Conservative numbers put monthly housing payment, whether that be rent or mortgage payment, at 28% of MONTHLY GROSS income. VA guidelines are usually 40/40 ratios, allowing people with no debt to put the entire debt budget on home. This Family is a Zero Down…but also a Zero Debt, so they can go somewhere between 28% and 40% as the housing payment.
I am not a Lender…so you have to check the ratios with an actual lender before making offers, but since I don’t recommend going to 40% on housing payment even if you have no debt…as you may incur debt at a later point, let’s proceed.
This family would have ZERO Closing Costs on the above $250,000 scenario as they can be included in the price with a Seller and/or Agent Credit to cover the Closing Costs entirely. So we don’t have to factor in Closing Costs on the WA scenario. That will change for the other cities.
Rates are very low today…too low to use for this scenario, so I’m going to pump the rate up to 3.75%. We are going to stack the VA Funding Fee on top of the price for Loan Amount and Payment purposes. That amount is $5,375. It can be fully or partially paid as part of the Closing Costs, but let’s assume a stack on this one taking the Loan Amount up from $250,000 to $255,375 at 3.75% is . Property Taxes are $250 a month. Homeowner’s Insurance is $50 a month.
NOTE: There are different VA Funding Fee rates for different scenarios. Putting 5% vs ZERO down can reduce the Funding Fee by almost 2%. I have used a rough scenario based on the person who asked the question. These Funding Fee rules change from time to time, are different for Refinance vs Purchase Loans, whether you were in Regular Military or National Guard and whether it is a 1st time or subsequent use of the privelege. See your local lender for specifics.
OK…back to the payment on the $255,350 Loan Amount at 3.75%. $1,182.57 for the Principal and Interest plus $250 for RE Taxes plus $50 for Home Insurance (Fire, etc.) gives us a monthly payment of 1,482.57. That happens to be pretty close to what the home would rent for, probably less than rent for this style of home in other nearby places like North Seattle or Lake Washington vs Edmonds School District. Not sure about Northshore School District, which would also be in the mix as to Bothell homes. But all in all, a good basic scenario.
Back to $74,000 Salary in WA and $1,482.57 a month housing payment. $74,000 Annual Gross Income divided by 12 gives us $6,166.67 Gross Monthly Income which puts $1,482.57 a monthly PITA at 24% of gross. At 40% of Gross Income the monthly housing allowance would be substantially more at $2,466.67. $2000 a month PITA would be a loan amount of $430,000. hmmmm.
Let’s go back to the Rule of Thumb. $430,000 is 5.81 X Annual Income vs 3 to 4 times Annual Income. Low Interest Rates do impact this rule of thumb issue, but still…going over 4X Annual Income just doesn’t look right.
Let’s go back to the first house at $350,000. That payment would be $1,679.41 plus taxes of $330 a month plus insurance of $75 a month would be $2,084.41 a month or 34% of monthly gross income. That’s really enough to spend on housing, and likely appropriate in this case as we are only using one income at an entry level salary. So the payment will become more affordable with some supplemental income from the other spouse and future raises.
So let’s say either of the above examples will work…as well as something in between.
That’s the hard part. Now let’s throw up a $250,000 home and a $350,000 home in Colorado in the Cities of preference as noted by the person asking the question.
Most Every Home in Parker Colorado fits the bill. No problem there. So Parker Colorado, even at a few thousand less in Salary down from $74,000 in WA to $71,000 in Colorado…very easy to get a house for $300,000 give or take.
This big 5 bedroom, 3,200 sf home in Parker is listed at $314,900 and there are plenty of others to choose from. Easy to see why Parker Colorado made the list of options.
Castle Rock, another choice in Colorado, is even lower priced. This new 3,530 sf new home is listed at $288,000. But Parker doesn’t seem so far out of the way, and is plenty affordable.
That’s all I can say about Parker and Castle Rock Colorado, as I don’t know the area at all. It works, so it would depend on the salary offers in the various locations. WA works. Colorado works. Now to L.A.
We have a bit more room here, as the salaries are higher by $10,000 or so as the average. Using the same 34% of Gross I used above vs the 40% allowance, and using $82,000 as Gross income is $2,325 for housing payment. Let’s use $1,900 after taxes and insurance. That gives us a home price of $400,000 allowing the extra $10,000 for VA Funding fee on top of the mortgage.
What does that buy in L.A. in the specific areas of interest?
It doesn’t buy us anything in Walteria, one of my favorite not too Ritzy places. 🙁
It doesn’t buy us anything in Redondo Beach, even when I throw in 3 bedroom condo-townhomes.
There are a few in NW Torrance that would work, but they are short sales, so not sure if that price is reflective of “the going rate” for the area.
This 3 bedroom 2 bath, 1,468 sf home at $365,000
This house looks nice, but you can see a huge electrical tower behind the house.
Obviously L.A. is not as doable as WA or CO, so the salary difference would have to be higher. If the salary offer in L.A. was double that of WA and CO…well we can revisit this. But for a small difference…may not be worth it.
Let’s find an L.A. house and work the salary backward.
Well…I can’t find any for sale BUT the GOOD NEWS is I did find a few in Redondo Beach that SOLD. So the answer is there are a few…but the sell very quickly.
This one sold for $419,000. It’s only 914 sf though. 3 bedroom, 1 bath, but small. Nice sized lot and yard though…and it is warm and sunny enough to be outside most of the time year-round, unlike WA and CO.
This 3 on a lot sold for $410,000. Nice Street. 1,612 sf with 3 bedrooms and 2.5 baths.
BOTTOM LINE: All three are potentially doable…enough so to put out resumes in all three areas and see what kind of offers come in. WA is probably the best option for several reasons. L.A. is doable IF the salary offered is high enough…OR…if you rent for a bit until the salary improves by raises. Parker vs Castle Rock is probably an excellent option. Depends on how close to the actual work site they would be.
The purpose of answering the question “Where Should I Live?” is not to really answer the question, but to give some food for thought. There are some other considerations like schools and safety, but I already know the not Colorado options well enough to factor that in and the Colorado Cities seem to have pretty much ALL good schools. There are a couple of exceptions in Castle Rock, and I still prefer Parker for several reasons, but most Castle Rock Schools are pretty darned good except for one or two.
Shooting this link to the person who asked the question. Hope it helped someone else with the general “thought process” and work through format. No matter where your thoughts travel as to “Where Should I Live?”, it’s not to hard to do a comparison based on Salary Differences and Home Price differences. The cheapest homes are not always the best choice…nor is the highest salary.
Of course I’d have to say WA vs CO, but to compete, I’d have to throw in a nice looking house for $350,000 in Duvall. 🙂
Why is it that when you call to set up appointments to see homes that are for sale, the owner that gives you the longest song and dance, is the one that says “Motivated Seller”? It’s as if the agent is saying… I know the owner doesn’t appear to be motivated…but please ignore that.
Generally an agent calls to make an appointment and says something like: “Hello. I am planning to show your home today between 4 p.m. and 5 p.m.” The potential responses from the other end of the phone should be:
1) Thank You
2) NO…sorry, that’s not a good time.
Answers come in all forms:
1) Well I was going to go to the store, but I guess I could stay and clean up and go to the store later…
2) Can you come on Tuesday instead of today? Tuesday is a good day for me.
3) Can you call my agent because I like her to be here when agents show the home so she can tell you about all of the wonderful things about my home?
4) Is it a “serious” buyer? Because I don’t want people coming who aren’t serious buyers.
It’s a yes or no question. If your home is for sale and an agent calls to show the home, remember that is what you are supposed to WANT to happen!
Say Thank You and Yes…whenever possible.
The first step in buying a new construction home, unless it is an already built “spec” home, is to choose the lot. However, not all lots can hold all homes. So to some extent you have to choose both the home to be built and the lot at the same time.
Let’s look at a small subsection of a fairly standard looking new construction development as to variations of lots available.
Choosing the lot is likely the most critical phase of buying a new construction home that is not a spec home. It used to be a lot easier to pick the best lot…or at least a good one. A standard lot was built into the price of the home and there was a “lot premium” for the other lots. Let’s say the lot premiums ranged from $2,000 to $15,000. That gave you a gauge as to how much better than a standard lot, the lot you were selecting was.
Unfortunately those days are gone and most salespeople will tell you they are all “best” lots.
Looking at lots 1,2,3 and 4, lot 4 would usually have a premium as it sides to an “open space”. You might say the same for the corner Lot 1. But if the street to the left of Lot 1 is a very busy road…now it is a lesser lot without benefit of no neighbor to the left. In essence your “neighbor to the left” is a bunch of dirty, noisy traffic. Some people feel the same way about the drainage basin to the right if it is ugly and attracts mosquitos. Sometimes people think the drainage area is going to look like a “pond” the way it states on the site plan…and sometimes it does. But more often it looks like an unkempt ugly drainage pool.
Trees? Good Drainage Issues? Can you see a green, yellow, red blinking street light from your master bedroom window? All too often someone picks the lot without standing on the lot…bring a ladder. Stand higher. 🙂
Choose the best lot and the worst lot and assign values from there. Don’t do this from a site plan like the one above without walking the entire area to see what is on the outside of those perimeters. Will there be more new homes to the North or are there existing run down homes with a few junkyard dogs.
You have to get very close to picturing the home on this lot the same way you would if you were buying an existing home on that lot. This is VERY difficult for most people.
Generally speaking only people who buy the BEST lots choose the lot and build from scratch. It makes little or no sense to build a home on a substandard lot vs waiting to see what the home looks like on that lot.
So if all of the best lots are gone…you are often better off buying a spec home or a newer resale home, than building on a substandard lot with no recourse to not “like” it once the home is put on it.
New Construction is not for everyone. If you can get the biggest and best lot in the neighborhood…go for it! The end result can be very rewarding.