Low Inventory? Be Pro-Active

Low Inventory continues to be an issue for many. This weekend there were so many people at one of the houses I was showing, buyers with their agents, that it looked like an Open House. A few days before agents and buyers were standing in line out front (different house) waiting to “show”.

This is often the case with new listings this time of year, and just because there is a crowd in the first few days does not mean the house will sell in short order. The first one I mentioned did have 5 offers by late afternoon, but the 2nd is still Active with no offers.

One of the ways to be pro-active about inventory is to identify what you want in advance. If you have seen many houses over the last 6 months to a year and know which neighborhoods you want to live in, you can contact owners to find the one or two who are planning to list their homes in the next several weeks. It could give you a leg up.

I have a client who wants to spend about $400,000 for a house in X area. The best homes at that price are in X neighborhood. Only about 50% of the homes in that neighborhood fall at that price. You should not contact ALL of the owners in that neighborhod. Rather sort by square footage and assessed value.

1) If you know the minimum size of home you want is 2,200 sf, then first eliminate all of the small homes from the list using the tax records.

2) If you know you want to spend no more than $400,000 to $450,000, and all of the recent sales in the neighborhood have been at roughly 1.13 X Assessed Value (which is about the “going rate” right now for good areas and homes) you can next sort by Assessed Value. The lower valued homes you likely already ruled out based on square footage. So in the 2nd sort you are knocking off those that will sell for more than you want to spend. If 30% of the homes are assessed at more than $450,000, you can knock those off the “pro-active” list. Doesn’t mean one might not hit the market as a short sale or REO listing. Just means they are not the “target” for pro-active contact.

Now you have a nice list of 50% of the homes in the neighborhood that should be large enough for you, and should sell at the price you want to spend. Odds are maybe at least one or two of those are thinking about selling this Spring, and will be happy to not have to worry about whether or not it will sell. They may receive your letter and be very happy to have a ready, willing and able buyer without having to list their home.

I am not saying that is the best way for a seller to approach selling their home…but for a buyer who is fed up with the waiting game, only to find 5 offers when a suitable house comes on market, this is not a bad way to jump to the front of the line.

Being Pro-Active vs Reactive also feels like you are doing something to reach your objectives, and can be a very rewarding strategy.

An Improving Seattle Real Estate Market in Three Charts

We dug into the numbers on the Estately blog to see if we could make sense of the Seattle real estate crunch we’ve been hearing so much about. The summary: the market looks healthier this year than in the previous two and, in the first week of March, a whopping 1 in 3 homes sold for above the original listing price. We are looking at homes (not condos or townhomes) in Seattle and King County (excluding Seattle).

The numbers paint the picture of a recovering market:

1. Increasing numbers of homes sold, year-over-year…

Homes Sold

2. … And less homes for sale…

Active Listings

3. … means dramatically lower inventory:

Months of Inventory

More on the Estately blog

These stats not compiled, verified or published by The Northwest Multiple Listing Service

Should you buy a New home or an Old one?

Education Hill RedmondLots of people want a NEW Construction home, the same way they want a new car vs a used car. However starting the home buying process at “I want NEW” is just as wrong as starting the home buying process at “I want a foreclosure”.

As I have said many times, in my experience more people HATE their “home”, and want to move to a different one, because of WHERE it is vs WHAT it is.

“…and underneath all is the land…” and land is a limited commodity. So where is that NEW home going to be built? Maybe…just maybe…on the wrong piece of land. The lot no one built on prior to 2011…for good reason. Even NEW(er) home will raise this issue. So if you have your heart set on a NEW home…the number one question you need to ask is:


So many people limit their looking to the obvious and the house itself. If you are looking at new or newer construction…begin your investigations at the land that home is sitting on. Looked at one yesterday…without going to it…via Google Maps and the Stormwater Management Comprehensive Plan for that area, and the house was built on a lot IN “The Wetlands”.

Think about that for a minute. What are the various reasons a lot might be available for someone to build homes on today…that is close in to work and good schools and shopping? It’s common sense really. Especially today…after a huge building surge from 2004 to 2008…was there really a piece of land the builders didn’t find and build on during that time? Yes…a few…but not many.

IF wanting a NEW house is your goalyou would be wise to first examine the land of it…and why no one built on it before (unless it is a tear-down lot). Oddly, the one I checked that was “in the wetlands”, well…really, you have to ask yourself. How DID it get built there? Basically one is not allowed to build a house in Wetlands. Why does it not require flood insurance with drainage basins to the north, east AND south of the house?

Think you can “see” all that? Well what about too close to underground gas pipelines? Can’t see that.

My point is you are better off listing all the things you want from a neighborhood, a location and a home, without regard to AGE of home. Then…if none that have the best location are new…well, maybe NEW Construction should not be the FIRST item on your “wish list”.

Prioritize that wish list by the where…before the what in that where. It’s common sense really, isn’t it?

If it has been a Best Place to Live for 10 to 100 years…it was likely built on before yesterday.

The Seattle Condo Market: Are Sellers in La-La Land?

Having looked at several downtown condo listings lately (we have a client shopping for one right now), it seems to me that there is a real disconnect between comp values and listing prices. Based on my purely anecdotal investigation, condos are selling for less than $500/sf; many if not most condos on the market are listed at more than $500/sf. My client was interested in one listed well north of $600/sf, with two recent sales in the same small building (about 20 units), one just above $300/sf and one in the $430’s.

The listing agent and I exchanged emails. I expressed my concerns about the property appraising at a price that would be acceptable to the seller given the list price (and the agent’s admonition that the sellers are “motivated but not desperate”). In response I got this:

I have never in my long real estate career, had a problem with an appraisal–even in today’s market. One yesterday came in at 10% over list. I promise to justify the pricing if we can come to mutual acceptance with the appraiser. I have a way of doing it that seems to work well.

My client just forward me a link to this blog piece about this very topic, which includes this passage:

For just about every condo appraisal, the most suitable comparables are sales from the same building. That can lead to some appraised values that may disappoint some sellers/owners. The biggest item condo owners need to understand is that the appraised value of their unit will be determined by the most recent similar sales available to the appraiser.

So I’m curious to hear the experiences or insight of others: Does there seem to be a disconnect between list prices and “market value”? Or, more directly, has anyone had a problem with a downtown condo appraising for a sale price?

Please note: I am NOT calling ANYONE out…

Lessons from the Foxhole: A Nevadan Takes a Stab at Seattle’s Real Estate Future

joe salcedo[Editor’s Note: I get asked all the time if people from outside of Seattle can write for Rain City Guide and I always say no… I really like keeping RCG as a “Seattle” thing. However, recently Joe Salcedo of the Reno Real Estate Blog reached out to ask if he could publish a one-time post on RCG about his experiences with the Reno, Nevada market and the insights it might provide to the Seattle community… and I bit. I’ve published the article below. Enjoy! ~Dustin]

In August of 2005, our real estate market crashed.   It’s been five years and we’re slowly trying to get back on our feet.  I’m here to share some of the lessons I’ve learned along the way; the prodigal brother, if you will.

I started with a blank page.  One weekend after, baffled and fascinated and my curiosity violently piqued, here’s what I found out about your market:

  • If you waited until Seattle home prices went down in July 2007 (before you realized the market was having problems), you’re going to be at least one year behind.  Check for other signals. Home prices take too long to reveal itself profitably.

In Feb 2006, less than a year after the Reno real estate market crashed, I called an emergency meeting (coupled with other factors like plunging housing starts and declining home builder stocks) after being greeted by this chart:
Reno Home Resales
Yes, all markets are local but we all came from our mother’s womb.  Like a bearish stock market pulling down three out of four stocks with it – (both weak and strong companies) – majority of real estate markets fall with the general market.   Follow the home builder sector group in the stock market (Investor’s Business Daily tracks it every Monday). Check housing starts and building permitsto see a glimpse of the future:
Housing Starts Chart

  • For potential sellers: Consider cutting your losses short.  If you’re barely making it with house payments (perhaps using borrowed money just to make it) and hoping that the market would change soon, perhaps it’s time to think about making some tough decisions.  Distressed properties tend to pull home prices down further (see: notice of trustee sale graph below.)

If you’re comfortable with your mortgage payment (you bought a house on or before June 2005) and moving is too painful, it’s ok to stay; just know that based on present real estate conditions, it may take a few years before your house will appreciate from the price you bought it.

Percentage Home Price Change

Notice of Trustee Sale by Month Chart

(From SeattleBubble.com)

  • Short sales and foreclosures are like a mysterious disease that defies normal market cause and effect.  Inventory could be down, demand up, but price still down.  This has been happening in our market since 2007.

And like your resident queen, the author has made premature bottom calls by not taking into account the “black swan

Zillow and the SeattlePI Partner-up for Property Searches

Zillow and SeattlePI business partnership

As is being widely announced in the news this morning, Zillow.com and the SeattlePI.com websites have partnered to offer co-branded website property searches. Ironically as of 8am you can find this story on Reuters, Inman News, and of course Twitter and Facebook. But Ironically it is still missing from the Homepage of SeattlePI.com.

The website will also offer Zillow’s other features such as home values, “just sold” data, local market data, etc.  As well as their custom real estate community content via Zillow Advice and mortgage rates from their Mortgage Marketplace function.

This raises some interesting issues for other companies, organizations, brokerages, and agents who  have property search functionality built into their blogs and websites in order to drive traffic to their sites, and ultimately derive business from it. Rain City Guide is a great example of a website that has recently added property search functionality through M Realty in hopes of garnering more viewers, and potentially a revenue stream as well. Many agents, including myself, have spent years developing websites that we use to attract potential buyers and sellers. Is Zillow now officially our competition?

Strategically this makes a lot of sense for both companies as the SeattlePI is struggling to re-create it’s business model after shutting down it’s printed newspaper version in March. And Zillow has recently been monetizing their searches through selling advertising to agent’s by zip codes.

I wonder what RCG’s readers and contributers think of this turn of events. It’s definately a “game changer”. The question is, what’s the new game going be like, and who’s going to get to play?

Mukilteo Real Estate: #10 best community in America by Money Magazine

This past week I retrieved my latest issue of Money Magazine from the mailbox and was pleasantly surprised to find that Money Magazine ranked the seaside community of Mukilteo as among the very best communities to live in.   Ranked number ten in the country by the magazine,  the town offers spectacular views of the Puget Sound, the Olympics, and the Cascades if your home is situated to look east.   Among the reasons to consider living in Mukilteo were the good schools and lower property taxes when comparing to other communities in the study.

In today’s market, when you consider the housing price pullback, community, schools, employment and intangibles, Snohomish County offers some of the very best real estate in the Northwest.

I can certainly attest to the spectacular setting in Mukilteo.  While waiting for the Ferry to sign some clients on Whidbey Island this past Spring (one of the perks of being in the escrow business is traveling to different communities)   I took some pictures of the “glass-like” water scenery (can be very rough) in the morning.  I’ve never seen any portion of the Puget Sound water so calm.

Mukilteo Ferry Landing

Mukilteo Ferry Landing & Lighthouse -Photo Copyright Tim S. Kane 2009

Mukilteo Ferry & Ivars

Mukilteo Ferry at Ivars Fish Bar - Photo Copyright Tim S. Kane 2009

Mukilteo Ferry & Fishermen

Mukilteo Ferry & Fishermen - Photo Copyright Tim S Kane 2009

Are sales really “failing” to sell?

(From near the end of this post: “Looks like of the 1,081 combined pendings since 6/1/09, at least 21% are short sales. But of the 1,379 closed in 30 days, less than 2% were closed short sales.”) Read full post for more info. That indicates a HUGE failure rate on Short Sales, though some of the variance could be attributed to other factors.

It seems that since the mls removed STI (subject to inspection) as a status, more pendings are failing.  Is this partly because we are now counting the same property twice, and so only 1 closing for 2 pendings in many cases?

1) IF it is first “Pending Inspection” or “Pending Feasibility” study – Every house that is put into “pending subject to inspection” will “fall out” into “pending”, before it goes to “Closed”.

2) Likewise a large number of bank-owned sales are previous listings that may have been pending as short sales.  They DO sell, but by the bank seller vs the owner occupant seller. The house IS sold at the end of the day. We are just showing two pendings for that one sale, with one closing and the other one “failing”, due to the change of seller name from owner to bank.

The only way for us to know this is to track them differently going forward. There is no way to get prior stats of the switch out from Pending Inspection to Pending or failed short sale = closed bank-owned sale, without looking inside each transaction by hand.  Too cumbersome.  But in recent history I believe these are clearly marked and can be identified for individual study, so if we begin now, we should have some really good data as time moves forward.

Today is the first day of the rest of our…research. Let’s begin on the “right foot”.

I’m going to go to the beginning of June, assuming anything that “went Pending” on June 1 hasn’t closed yet.  We can turn it into graphs after several weeks of raw data are obtained. Sticking to “Residential Only” (which in Seattle includes townhomes and on the Eastside does not, by and large). Most stats available are for SFH, such as on Seattle Bubble, so I will exclude “condo” and other types of property. I will also exclude manufactured/mobile homes and houseboats, which may have different #fail as to finance issues.  There is also a status called “Pending BU Requested” which indicates the agent is thinking the buyer in escrow may not close and is looking for BU offers.  I am going to show them separately as they don’t “fall out” into another Pending status before going to Closed…but should indicate a higher expectancy that the sale will fail.

In future posts containing these Pending stats, I will link to this post and not repeat the parameters each time. If anyone disagrees with the parameters, speak up so we can make the changes at the beginning together.

King County: Went Pending since June 1:

Pending = 456  (PI – 499, PF – 6, PBU – 120)

Note: a property can’t have two statuses at the same time.  So the 456 “true” pendings, are not also contained in the other categories.  PI used to be STI-subject to inspection. PBU is generally reserved for properties expected not to close with the current buyer who is in escrow. PF always had a high fail rate as the buyer is saying I only want to buy it IF…”. PI and PF should eventually move to “Pending” and only counted there. PBU we will try to break down further:

89 of the 120 PBU (Pending BackUps) are noted as “Short Sales”

7 more appear to be short sales, but some with prior lienholder approval

Many of the remaining properties in PBU are also short sales, but the field is new and some are not yet using it properly, especially if the property went pending since 6/1/09 BUT was listed long before the SS field was implemented. This data should improve over time. For now note that MOST of the 120 PBUs are Short Sales.

In addition, at least 135 of the 499 Pending Inspections are Short Sales.

Closed in the last 30 days – 1,379

Best I can tell, given pendings are closing in longer and undertermined timeframes, we can’t study a relationship between recent pendings and closed sales. Unless someone has some ideas here.

But at least we can track and see if the “true and full” Pendings are increasing or decreasing, if the short sales are increasing or decreasing.

Let me check for one more thing.  How many of those closed sales were noted as Short Sales. WOW! only about 24.  There you go…as I’ve said before, A Short Sale is not necessarily for sale!

Looks like of the 1,081 of combined pendings since 6/1/09, at least 21% are short sales. But of the 1,379 closed in 30 days, less than 2% were closed short sales. I’m going to leave this here, but also bring it up to the first paragraph.

Now that you can see how we will be able to break down the stats into the future, your thoughts on meaningful arrangement of data much appreciated.

Seems to me we need to note closed since 6/1 here (451) as Pendings will drop as they are Closed.

The primary purpose of this post is to show you what data is available, so that you can request a customized format in the comments below this post. (I am going to tag this “Sunday Night Stats”, just so that tag will pull up the full year and a half of my data related posts. You can get more data in this link of Tracking the Market.)

Required disclosure Stats are not compiled, verified or posted by NWMLS

UPDATE: I am compiling median prices and price per square foot of “normal” sales vs. short sales and bank owned.  I just found a drop down vs. check box for identifying bank owned properties.  … link HERE to the additional data . Breaking it down to North King vs. South King. There is a huge variance in pricing and the distressed sales are not dragging down other property sales “to their level”. Though I do think as time goes forward, identification of distressed sales will be more and more accurate as the new required field is used often and properly from here forward.

Bottom Calling to Solicit Clients: Is it Ethical?

A question was asked by seattlerenter in this post at SeattleBubble about an advertising letter mailed out by a real estate agent. See comment 19:

Dear Renter,

Youve been patient. Youve waited for the perfect time to buy a home. Well this is it. Home prices have bottomed out. Many experts see prices rebounding from current lows. The $8000 Federal Tax Credit is available for a limited time. The….. Buyers Rebate is yours when you use me as your Buyers Agent. And now Mortgages are at their lowest since 1971…Your patience has paid off!”

Seattlerenter asks if this is legal and ethical, specifically, using the phrase “home prices have bottomed out.” Since I do not practice law, I cannot answer the legal side. In this blog post, I will analyze the ethical question.

First we need to differentiate between real estate agents and Realtors. Everyone is an agent but only some are members of the National Assoc of Realtors.  In order to solve any ethical dilemma, it’s important to first consult the minimum moral standard; the law.  First we would consult the state agency law. Next we would look to other state laws that may answer the question such as consumer protection laws. After that, there may be a federal law that addresses the question. If we still have no answer, we would consult MLS rules. After that, we would check with our own company for policies and procedures and company ethical codes that address honesty and advertising. Perhaps we belong to a professional association. Then we would consult the ethics code of that association for guidance.

Real estate agents who belong to the Realtor association consult their Code. Here is the link to the NAR Code of Ethics.

As we see in Article 1, a duty of honesty is paramount when working with a client. But at this point, we are soliciting to obtain a client. We don’t have a client yet.  Standard of Practice 1-3 says, “REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.”  In order for the marketing piece to be deceptive, the real estate agent must have known about the falling market in advance and intentionally choose to mislead potential home buyers and sellers. Since we can’t know the future, this article may not fit our situation.  Article 2 says “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property.”  If Realtors have facts that lead them to believe that now is NOT the bottom, then they might be in trouble here. For home sellers, that’s not going to be a problem (since selling NOW in a down market is better than waiting.) This would only be problematic for a buyer who was lead to believe through exaggeration, that we are at the bottom.
Here is what I’ve been waiting for. Article 12:

“REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”

How would a Realtor put up a defense against an Article 12 ethics violation for sending out the above letter?  Well, I suppose what he/she might do is to provide some sort of analytical proof with numbers, statistics, and graphs as to how he/she arrived at an affirmative realization that “now” is the bottom of the market. This Realtor may be able to defend against an ethics complaint by saying that he/she WAS being honest, based on the facts known at the time, and based on his/her analysis.

This leaves homebuyers to make their own decision as to if this particular Realtor’s personal opnion and analysis of the market can be verified by other third parties.

A prudent decision for a Realtor (who is going to embark on a bottom calling ad campaign) to do is to take his/her personal bottom calling statistics and analysis and have it reviewed by a neutral third party for accuracy. Similar to how we had our thesis papers reviewed by professors and then winced when they tore up our paper with obvious errors and made us do more research. We were better students because of those professors, even though we didn’t like doing the extra work, but I digress. Without neutral third party review, a bottom-call is just one person’s opinion.

If ever hauled in for a professional standards committee hearing, there would be ample documentation from a wide variety of local, state, regional, national, and international economists , Nobel Prize Winners, and other real estate industry experts who could provide solid opinions based on known facts as to if we were at the bottom on the day that marketing piece was mailed.

The third to the last step in any professional ethical dilemma is to consult one’s own set of values. What kind of a real estate agent/Realtor do I want to be? What behavior do I value in this world? For example, if I value honesty then I need to also be honest with other people, too.  Careful reflection is important when considering all the possible consequences.  Realtors value honesty, justice, beneficence and non-maleficence, responsibility, respect for persons, loyalty, and compassion.  These values are hidden all throughout the Realtor Code.  How does our marketing campaign support the values that we believe in?

The second to the last step is to make the decision.

The last step is to look back and reflect on what we did, how it turned out, and if we’d do anything different next time.

The person making the “bottom call” in the letter claims to have experts who agree with him/her. Who are these experts and where can the letter reader go to get more information? Perhaps the real estate agent who wrote the letter could provide that information in the letter.

At best, the letter brings to mind the viagra, porn, and loan mod spam in my spam bin, and I haven’t even touched the typos and the deception regarding the $8,000 tax credit. 

If Realtors care about their ethics as much as they claim to, then Realtors should talk with each other about the possible consequences of calling bottom in marketing material and provide guidelines as to what research to use.  It goes without saying that we would have benefitted from guidelines like this when we rode the real estate bubble on the way up. 

Using the NAR’s economist as the only source  would be a very, very bad decision.

Will First Time Buyers Bring It Home For Seattle……

The final amount of the $8000 tax credit was pretty disappointing after all of the anticipation for $15,0000, but surprisingly it seems to be generating interest among first time home buyers around the Seattle area. There were about thirty people through my Green Lake open house this last weekend, and while this area is known for its great traffic at open houses, the visitor count was still about twice of what was expected.Nine out of ten were first time home buyers and they were all asking about the tax credit for 2009.

In fact, most of the activity around Seattle last week was in the $500,000 and under price range.

A quick look at Seattle sales for the last week in the NWMLS (residential only) shows 50 closed sales in the city of Seattle. All but 13 of these were under $500,000. A look to lower priced suburbs just North of Seattle shows that all 20 of the closed residential sales in the last week for Lynnwood, Mountlake Terrace, and Shoreline combined were under $500,000 with a large majority hovering around the $300,000 mark. A look to the Eastside in Bellevue, Redmond, and Kirkland for the same period shows 27 closed residential sales with 18 of those in the $500,000 and under range.

Clearly, the $500,000 and under market is dominating the sales figures this last week, and if my last few open houses are any indication, first time home buyers are playing a major part or could be soon.

Is this really so different than last year with no $8000 tax credit?

Looking at a year ago for the same period there were three times as many sales in the city of Seattle: 150 closed sales in Seattle with 97 of them being under the $500,000 umbrella (44 of those sales were built in 2007 or after… a.k.a. new construction). In Lynnwood, Mountlake Terrace, and Shoreline combined there were a total of 24 closed sales and only 4 were over that amount. The real change is on the Eastside where out of 45 closed sales only 13 of them were driven by that lower market. The other 32 closings were over $500,000.

Except for the larger quantity of sales in Seattle and the Eastside and the flip flop of ratio of lower priced closed homes to higher priced closed homes for the Eastside, the data is strikingly similar as far as what price range dominates.

So will the $8000 tax credit stimulate first time home buyers in Seattle and drive our economy?

(Full Disclosure: The numbers gathered here were compiled by Courtney Cooper from data on residential sales only – including townhomes but not condos in the NWMLS)