Moving to Seattle from the East Coast

Everyone who is buying a home comes to the marketplace with some preconceptions as to how things will proceed. If someone is selling a house in the area and buying a different house in the same area, there are not as many surprises that cause a lot of confusion. If someone is moving here from California, the process of buying a home is not different and the home styles are often so completely different that the expectation of what they will find is not carved in stone.

When someone is moving here from the East Coast, especially the Northeast, there are a few differences best known before you head out to buy a house.

1) THE HOUSES ARE DIFFERENT

facade

The main difference in the home style is what is called “Craftsman” style. If you are building a house, they often will ask “Traditional or Craftsman?” when asking for the main styling of all of the millwork in the house. While “Traditional” will resemble an East Coast Colonial style a little bit…”traditional” does not mean “colonial”. The floor plan may or may not be different, but the facade will definitely be different.

The four homes in the photo are basically new homes by the same builder with the two on the left being on the East Coast and the two on the right being in The Seattle Area.

Some of the main differences:

1) Wood or wood facsimile products vs Brick A lot of people moving here from other States and other Countries like the more solid look of brick. But know that one of the reasons this area avoided brick for the most part is due to earthquake activity. Wood has some flexibility. Brick and mortar joints do not. There are plenty of old brick tudors still standing that have been through earthquakes. But I have seen many where there are patches over time from the brick cracking in a step pattern. I had some pictures in my phone of a house over in Montlake with this issue recently. If you do buy a brick house, examine it carefully, not just for cracks but for sections where the mortar is wider and often in a step pattern. Do use a structural engineer in addition to or as the home inspector as well. The new homes the brick is just a “facade” and not part of the construction. Still, brick doesn’t move well, even to a small degree.

That said, many of the homes today are built with a wood-like cement product as the siding. More expensive and custom homes still use wood. But most tract homes use the wood-facsimile product that may not have more movement than brick. You just don’t have to deal with the mortar issues.

2) Shutters Most of the time you will feel like the shutters are missing. Often, especially when buying older homes of the exact same style you can find on the East Coast, people will remark that they need to add shutters. Colonial homes had shutters going back centuries of the type shown on the homes in the photos on the left. Once in awhile you will find a form of shutters here that are more of a tudor style shutter. Same with the uneven pitched roof on the bottom photo on the right. There is a tudor influence. But no shutters has been more common for a very long time and because the homes were built that way it may not be easy to add them.

3) Closing and Closing Day

ALMOST NEVER DO YOU MOVE ON THE DAY OF CLOSING ON THE WEST COAST. NOR DO YOU TAKE OFF ANY TIME FROM WORK ON CLOSING DAY.

This has always been the most significant difference in the process, and one that often confuses people who are buying homes.

DO NOT MAKE ANY ARRANGEMENTS FOR MOVERS OR ANY OTHER SERVICES FOR CLOSING DAY!

This is vastly different from the East Coast where closings happen all day and several times in a day, usually every hour or so.

Whether or not you are moving here from the East Coast, it does seem a bit odd for the seller to be signing over his house to a buyer before it is paid for. It also seems a bit odd to sign all of your closing paperwork as the buyer and even bring your funds to closing, and not get the keys to the house. Even more odd that the day of closing is not the day you can tell your movers to bring your belongings to your new house.

The difference is that on the West Coast (and several other States) “closing” means the County has actually recorded the Deed to the property in the buyers name. On the East Coast that is not the case and the Deed is often recorded “in due course” and sometimes a month or so after closing. HUGE difference. On the East Coast they do a table funding and the buyer and seller are often in the same room with the agents and the closing agent. They buyer brings their money, the lender sent the money early in the day, the seller gets a check and hands over the keys to the buyer. All that within one hour. So if the signing is at 10 you can usually have the movers start moving things in around noon. If your closing is at 1 you can usually have the movers ready to move things in by 3 ish.

NOT so on the West Coast. On the West Coast the seller sometimes signs the new Deed over to the buyer a couple of weeks before closing. The buyer most often signs a few days before closing. Closing Day is too late to do much of anything. If it all wasn’t done before Closing Day, or at least most of it, less likely it will close by end of day. Closing is a phone call saying “we have recording numbers”. That means the new Deed has been recorded in the buyer’s name and that usually happens between 4 and 5 p.m. (not always; but often)

BUT! KEYS ARE NOT DUE UNTIL BY 9 P.M.

Once in awhile the seller is not completely moved out by the time that phone call comes in. Technically they have until 9 p.m. to be vacated and hand over the keys. I have only seen it go all the way to 9 p.m. a couple of times in a dozen years. But neither is it practical to want the keys to the house as soon as you get the phone call that it is closed.

The Seller gives the keys to their agent. Their agent gives the keys to the buyer’s agent. The buyer gets the keys from their agent. Most always the Agent for the Buyer can’t get the keys until after it closes. There are a dozen different ways we arrange this depending on the agents and parties, but do know that having cleaners or movers standing outside the door at 5:30 p.m. can end very badly.

Things are changing a bit because of the new rules that lenders must follow as of October 3rd. We are seeing more table funded loans and more buyers signing the morning of closing. We can’t move to a system where all buyers sign the morning of closing. It just wouldn’t work for the Title Companies.

As a buyer you don’t get much notice as to when you will be signing. More and more people are paying an extra cost for a mobile signer so they can sign after business hours or very early in the morning before work.

Just know that Closing Day on the West Coast is very, very different and once your loan documents get to escrow, there will be a signing appointment scheduled with very little advance notice. It’s a bit chaotic, but, it’s just how it is done here.

If you have moved here from the East Coast and have some other observations as to the differences, do note them in the comments along with where you moved here from.

Multiple Offer Situation versus Bidding War: What are they, and why do they happen?

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.

HACKED BY SudoX — HACK A NICE DAY.

Real Estate – Why DATA is the New Black

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.

Volume 2009-2014

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. 🙂

Volume 2001 baseline

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.

Volume 2001-2013-2005

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.

Volume 2005-2008

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.

Volume 2001-2004

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.

Volume 12 year average

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.)

HACKED BY SudoX — HACK A NICE DAY.

Further Analysis of a Real Estate Broker’s Ability to Represent Buyers*

The method by which a real estate agent is compensated undermines the agent’s ability to represent his clients, particularly clients who are buying property. Before I get into the substance, though, I need to define the term “represent.”

Yes, the term is used in the “brokerage relationships” statute, RCW Chapter 18.86. However, I am unwilling to conclude that EVERY agent “represents” his clients simply because that’s what the statute says. In my book, “representation” requires more than the legislature’s decision to use that term in the statute as shorthand for acting as a real estate agent. Rather, I use the term to mean “to manage the legal and business affairs” of the client.

With that preliminary matter out of the way… Representation requires a high degree of loyalty to the client. Loyalty to the client is undermined by any interest that competes with the client’s interest, including self-interest of the person providing the representation (i.e., a conflict of intererst). Agents are paid by a seller, not by the client/buyer, and clearly there is a conflict of interest between the seller and the buyer. Moreover, the agent has no obligation to inform the buyer/client of the compensation paid by any particular seller. This system creates a serious conflict of interest that undermines an agent’s ability to represent a buyer.

Want proof? There is a general consensus that a seller should offer the “full” SOC of 3%. Correct me if I’m wrong in that regard. Assuming I am correct, this “general consensus” is de facto recognition of the reality that a substantial portion of agents put their own interests — getting paid a 3% commission versus something lower — above those of their client. If anybody believes otherwise I’d love to hear the argument, as this seems like a “slam dunk” point to me. There is simply no other explanation other than that an increased fee to a buyer’s agent will influence the agent to convince his client to buy the subject property versus some other. This influence over the buyer derives entirely from the agent’s self-interest to make as much money as possible, regardless of what may be best for the buyer.

The same logic is at work for a “bonus” SOC for a full-priced offer, which is permissible and not that uncommon. How on earth is it in the buyer’s interest to make a full price offer in this market? And in a situation where a full price offer is merited, it is merited because of the needs of the buyer, not the interests of the agent — or at least it should be if the agent is providing “representation.”

Want more proof? It is common for some listing brokerages to send a letter to the Selling Agent when a property is placed under contract. I recently received such a letter that reads as follows:

Knowing that selling a house at competitive market value can be a challenging process, I want to take this opportunity for professionally selling the subject property.

Wow! What an emphasis on “selling”! If an agent is truly “representing” a buyer, how is that agent “selling” the home? Those two terms are mutually inconsistent. A “salesperson” does NOT look out for the interests of the buyer. To the extent a “salesperson” claims to do so, it is — to a degree at a minimum, if not entirely — subterfuge to build a relationship of trust between the buyer and the salesperson, which in turn facilitates the sale. Does anyone really believe a salesperson when they say, “As a favor to you, I’ll…”. Salespeople sell, they don’t represent. Representatives in contrast look out for the interests of the client, they don’t work to convince the buyer to buy. Any decision to spend several hundred thousand dollars should be made by the client uninfluenced by the representative.

These are built-in conflicts of interest that undermine an agent’s ability to represent buyers. But even worse, these conflicts of interest are concealed from the client! The MLS refuses to reveal to consumers the SOC being offered on any property. Thus the buyer has no way of knowing that his “representative” may have a powerful self-intererst that is counter to the buyer’s.

Finally, I must note again one other example of how the system is inconsistent with an agent’s “representation” of a client. The client/buyer should have the right to select his/her own “representative.” After all, “representation” must arise out of a relationship built on trust. However, the seller’s SOC can be paid to ANYONE who sold the home, regardless of whether that person provided any representation at all. In other words, the fee paid is totally disconnected from the service ostensibly provided. Indeed, the fee is paid for a service — selling the home — that is INCONSISTENT with the service that the agent claims to provide.

In the final analysis, this state managed to get halfway to “buyer representation.” RCW 18.86 was a big step forward for buyers because agents now have at least some limited legal duties to their buyer clients (in the “good old days” EVERY agent worked for and had a duty ONLY to the seller, even if they only worked with a buyer). But they didn’t fix the underlying system. And that system seriously undermines the ability of agents to “represent” buyers.

To address this shortcoming, I formed Quill Realty. Every Quill client gets both an agent AND an attorney (and Quill pays the attorney’s fee). So Quill clients are truly “represented” in the transaction.

___________________________________________________

* Following “competing” posts by me and Ardell, Seattle Bubble asked its readers to weigh in, framing the issue as “Real Estate Agents: Advocates, or Dead Weight?” Both Ardell’s “rebuttal” and SB’s “poll” muddied my point significantly. I recognize that there are really great agents out there who do fantastic work for their clients and who hold themselves to an ethical standard that far exceeds what is required of them by law. My point is that there are substantial flaws in the system in which agents operate, and these flaws undercut an agent’s ability to truly “represent” his clients, particularly on the buyer side. Consumers should be able to rely on a fair SYSTEM and should not be charged with responsibility for finding one of the “good” agents. Similarly, its unfair and inaccurate — and overly inflammatory — to suggest that agents are EITHER an advocate or dead weight. That’s hyperbole, not a fair comparison, and serves only to inflame the passions of the audience, which again obscures my point. So from here on out, its “clinical” titles for me only.

Starter homes you can STAY in

First Time Buyer Big Red Flag = “I plan to sell in 2 to 3 years”.

Many people are out buying homes right now because of the $8,000 1st time homebuyer credit. Unless the credit is extended, these people have until mid to late October to find a a house and get into escrow, so they can close by the deadline of November 30, 2009 (“before December 1”). My best guess is there will be a 2010 homebuyer credit, but it will be a new one with different parameters, and not merely an extension of the current one. But all we know for sure at the moment, is the homebuyer credit we have at present will expire, if you don’t close by the end of November.

The credit is not the ONLY reason people are out buying homes. The fact that you can more readily buy a “starter home” for $350,000 or less in many areas, is likely a larger part of the reason people are buying. The linked post will show you that in the current market you are almost EIGHT times more likely to find a starter home for $350,000 or less in Kirkland, Bellevue or Redmond, than you were in 2007. In Bothell and Kenmore, homes selling for $350,000 or less represent more than a full third of all homes being sold.

This market is a blessing in disguise…lots of sadness for sellers, but an opportunity for some young families to get into a starter home for less.

My caution is this:  I don’t want to hear “I will probably sell it in….”. In the data sample I used in the link above I did not include any homes with less than three bedrooms or less than 1.5 bathrooms. I’m not saying you can’t or shouldn’t move in less than 5 years, I am saying don’t buy a house that you can’t stay in for more than 5 years. When choosing a home, you should have the option to stay in the home, as many people who are suffering today and must sell their homes, are doing so because they have grown out of them.

The moment I hear someone say “this will hold us for a couple of years”, that is a big red flag! The home below was purchased by one of my clients who already had a small baby. It was purchased in a great school district in Kirkland for about $310,000 and it is not likely they will “grow out of it”…well, maybe ever.

Moral of the story: If you can’t see yourself living in the house five years from now…don’t buy it.

starter home

The (legal) importance of a home inspection

(This post is not legal advice.  For legal advice, consult a lawyer about your particular situation.)

First, my apologies to the RCG community.  I recently took a lengthy vacation and have been quite busy since my return.  Moreover, I now need to hire additional staff and thus move to a larger office space.  So, please forgive my less-than-frequent contributions until things return to “normal.”

Recently, Russ authored a post discussing the recent Supreme Court case of Alejandre v. Bull (beating me to the punch, in the process).  This is indeed an important case for several reasons, one of which Russ and the subsequent comments touch upon: the importance of a thorough home inspection.

Initially, the home inspection (if performed competently) provides the buyer with information regarding the condition of the house.  Obviously, the buyer is best served having full knowledge of any existing defects and able to make an informed decision about whether to complete the purchase. 

In light of the Bull case, however, the inspection also has legal significance.  In that case, the Court (in paragraphs 32 and 33) noted that a buyer of real property may still have a claim of fraudulent concealment and/or fraud where the seller fails to disclose a known defect (notwithstanding the fact that the buyer does not have a claim for negligent misrepresentation due to the economic loss rule, as discussed by Russ).  To prevail on a claim of fraudulent concealment, the buyer must show that the defect at issue “would not be disclosed by a careful, reasonable inspection by the purchaser.”  To prevail on a fraud claim, the buyer must show that he had a right to rely on the alleged misrepresentation of the defect at issue.  This “right to rely” is “intrinsically linked” (using the Court’s words) to a buyer’s duty to exercise diligence with regard to the representations at issue.  

Accordingly, an inspection is critical to retaining the ability to make a claim of fraud or fraudulent concealment against a seller.  If a buyer skips the inspection, the buyer will have great difficulty showing that the defect would not have been revealed by an inspection.  The reverse is true as well: by getting an inspection that fails to uncover the defect, the buyer will have a very good argument that the defect would not be (and indeed was not) revealed by an inspection.  Similarly, absent an inspection, the buyer will almost certainly have failed to exercise the necessary diligence to identify the defect, regardless of seller’s representation.

An inspection has an immediate, practical benefit.  However, it also has a legal benefit.  If you forego the inspection, you essentially waive any claim against the seller for failing to disclose a known defect.

Where are those bargains?

[photopress:kit.jpg,thumb,alignright]In the last six months, two of my clients purchased homes that were real bargains in a hot market.  That was earlier in the year of course, when the market was stronger than it is now in the last quarter.

To me a bargain is a house where I can be confident that if the new owner calls me to sell the place in a short period of time, I can resell it at a higher price, regardless of market conditions.

I find that my definition of bargain is not a one size fits all definition.  Often when someone tells me they got a real bargain on a house, I have to zip my lip (no easy feat for me).  Their definition of a bargain is something that sold for way less than other homes in the neighborhood, you know, the bargain that will always be a bargain, both when they buy it AND when they sell it.  That’s not a bargain to me, that’s the bottom of the barrel choice that will always be cheaper in any market, and will go down the furthest in a tough market and up the smallest percentage in a good market.

While everyone wants a real bargain and everyone wants some assurances that if the bubble bursts they won’t lose money, I find that most people will not buy a true bargain.  Wanting anything you buy to go up in value always and indefinitely, is not realistic.  Often agents and flippers end up with the houses with the most profit potential, because people who are buying homes to live in them take a pass on the best values.  That’s what makes them bargains, most people won’t buy them.

Take a good hard look at the photo above.  Now that’s a real bargain!  I look at that and foam at the mouth.  A 72 hour do it yourself (mostly) makeover would improve the price overnight!…well, over two nights to be more accurate.  A weekend project.  Let’s remake just what we can see in that photo together.  Let’s make this a real “how to” demonstration.

There are three things there that I would need to hire someone to do.  By quickly defining which things I need someone to come and do, and scheduling that work before I begin, they can be finished by the time I am finished the do it yourself part.  It needs new flooring (whether it is in good shape or not…it has to go!)  It needs a six panel white door over on the right there and it needs a new light fixture.  I can’t lay a floor or hang a door or switch out a light fixture.  Maybe I could do that last one, but I prefer that owners not touch wiring if they don’t really know how to do that well.

1)  The first job is simply going out to buy the new floor, purchase it at the installed price and schedule a date and time for the install.  In this place the floor is so busy and awful, just a new one piece floor or lowest cost more neutral alternative is sufficent.  The change in appearance will be dramtic at a low cost.  Instant increase in potential sale price of home.

2) YOU go out and buy a light fixture and six panel door.  This is where people make their biggest mistake.  They hire a handyman at the lowest possible price, and then pay him to go to the store!  $25.00 an hour is a great price to get someone to change out a light fixture or hang a door.  But it is too high a price to pay someone to get stuck in traffic on the way to Home Depot, Lowes or Fred Mayer, or all three looking for just the right light fixture.  Buy the two items and anything needed to install them, like new hinges and door knob, and have them ready and waiting for the handyman you hire for the switchout of the two items.

3) Now for your part, which you can do while you are waiting for the floor install appointment and while the handyman is doing his two jobs.  Always work with the handyman, doing other things.  He’ll be more productive if you are taking down that wall paper while he is changing out the light fixture and hanging the door.  Just is…don’t ask why 🙂

Your part is to wet down that wall paper really well with wall paper stripping solution BEFORE you start peeling it, so you don’t damage the drywall.  A lot of people start gouging with scrapers and ripping dry strips that pull at the drywall, without wetting it down well.  Stripping rule is the same as hanging rule.  Wet three strips well, one at a time.  When you are done the third, go back to the first and take it off, wet the fourth then go back to the second, etc…  (My next door neighbor when I was a kid was Mr. Vitale…the wallpaper hanger.)  If you are lucky, that is “strippable paper” and the wall behind it was painted several times with semi gloss or “sized” before the paper was hung, and the wall will be ready to paint when you are done.  Wash off all of that glue before you start painting!  You don’t want a muddy paint job because some of the paint is mixed with old wallpaper glue.

Now let’s look hard at that photo one more time.  Doorway on left has no wood, just wall paper, so we’re done with that.  Back door is already white, but with a thin dark wood trim like the baseboard.  OK, let’s paint the back door trim only (not door), the base trim around the room and the door trim around the brown door on the right.  What color?  The same color as the back door and new interior six panel door, which is white. The new light fixture is hung and it’s tight to the ceiling now, so you don’t HAVE TO put your table exactly under it like you do with a hanging light.

[photopress:new.jpg,thumb,alignright]You have now transformed the 80s look into a “bright, light and airy” updated and clean look…all in 72 hours!  And if you call me and say, we want to move, I can sell the house for more than you just paid for it. 

Don’t walk away from the house that looks like the photo at the top.  You’ll pay at least $10,000 more for a house where the owner put in 72 hours worth of work and a few quick work projects.  Buy the true bargain.  Good location.  Good floorplan.  Ugly floor, ugly wallpaper and dark brown trim.

Buy the really good, well maintained, but really UGLY house.  It’s the bargain of the marketplace in any market.  Simple definition of this type of house is a “cosmetic” fixer. 

Negotiating the Buyer Agent Fee

[photopress:swan.gif,thumb,alignright] Greg Swann over at Bloodhoundblog wrote a lengthy piece on his feelings with regard to changes that are needed in the real estate industry.

I happen to be writing an offer as I write this, actually waiting for a buyer client to come over and sign it, who was the first client with whom I negotiated the fee at first contact over coffee. That is not my normal scenario of negotiating the buyer agent fee, as I generally like to see at least three homes, of my choice, with the buyer before having the discussion regarding commissions.

I like to see how they look at property, what types of things bother them, how many and what kinds of questions they ask, etc… Just as I need to see a house before I know what I would charge the seller, I have to have some idea of the level of difficulty involved with the buyer attaining his objectives, before I can establish a reliable fee base.

So while I do not totally agree with Greg that a buyer should, or even can, negotiate a fee before seeing any homes, his article is well worth reading. I plan to read it again more thoroughly after this contract is signed 🙂

I will mention, that this particular client and I renogotiated the intital fee we came up with over coffee. So breaking my rule of not looking at houses first, was not a good thing. Having some experience with the agent and vice versa, is the best way to establish a fee that will work for all involved.

Simplifying the buying process

5 years ago on a plane to Hawaii I started writing a Buyer Book to help me when working with my buyers. I couldn’t find a good one that made sense of our local market and spelled out what needs to be answered before a buyer even starts looking. I have a development partner in Hawaii and have good memories of writing this book, sipping Kona coffee from his sister’s plantation and eating Orange Bread on his incredible water view patio. Unfortunately, I had to come home and it took me three more months to finish in the rain.

Why did I write the book? Because I wanted buying a house to be fun and as simple as possible and buyers hate seeing houses they don’t really like. After all, how do you decide where to live and what to buy, if you’ve never been asked the questions that would get you a good working answer. So, after 10 years as an agent and starting out like all agents do by picking out 30 houses or so that “might” work for the buyer, narrowing it down to what I considered the best 10, showing those, making a buying decision and then the “buyer’s remorse” because they wondered what else was out there.

Given that I’m mostly an analytical person, I looked for the “kiss” in the purchasing process and came up with what has been unfailingly the most basic questions that must be examined before you even get into a car with a buyer. So here’s how I work: the buyers read the book and agree to independently (partners separately) fill out a questionaire that tracks with the book before the first 2 hour consulting session which is usually on the morning before going out to buy a home. Those 7 anwers are what I springboard from in the search. I have a picnic lunch prepared and we are now looking at only homes that really do meet their requirments. No buyer’s remorse since they’ve narrowed down the search themselves. The know that if they see a sign on a home that they didn’t look at, that it simply did not meet their requirements. These buyers are also prequalified and we know their housing price limit before our meeting.

People buy with the following criteria, whether they know it or not and buyers can use this criteria to find their home: (not necessarily in this order)

1. What importance is their choice of schools (I once had a young couple, he said it wasn’t important, she said it was, and she announced at the buyer consult that she was pregnant. I left the room :))

2. What importance is the commute: I usually hear 20-45 minutes (unless it’s a microsoft buyer), so then we talk about what hours the commuter works to determine how far out they can live, keeping in mind the school parameters.

3. What importance is a development with CC&R’s vs one without. I explain that although they might not want control on the color they paint their own home, but do they want an airplane parked in the front yard like I saw one day in a Parkland neighborhood near Tacoma. This is an extreme example, I know

4. How important is yard size. These days with all the dogs, many buyers think they ‘need’ a large yard, which leads me to the next question.

5.What importance is the age of the home. Most 30 somethings hate the home they grew up in and they almost always hate the splits. However if you want a large yard, but want a new house, then you’ll probably be paying 3 times what your budget allows, so if the large yard is really really important, then be prepared for 15-20 year old home or older. You have to buy a home where the land was developed before the local jurisdictions started enforcing federally mandated land use restrictions requiring greenbelts or common areas. The result of the federal legislation is that by 1999, all municipalites had to come into complaince with new land use rules. Over a 10 year period, all municipalities had to ensure that all developments must have a very large portion (40-60%) of a development set aside as communtiy area. The latest municipality that I know of to come into compliance was Montlake Terrace, which barely made the 10 year limit. For the developers to make enough profit to make the development feasible, the remaining land had to be divided by the same number of lots, making the lots much much smaller.

I’ve done my own casual research on how the public sees this land use change, and when I ask customers which they’d rather have, large yards or community spaces, they overwhelmingly chose community spaces. So, though we don’t like it, we don’t like it less than we like the new communities with all their parks and community feel (Ergo, the popularity of Issaquah Highlands).

6. The next question is how important is the style. In other words, do you hate splits, do you like to see alot of volume and want a vaulted living room, or does that mean you have to just heat the empty space. Do you have to have a rambler, and depending on budget, are you prepared for townhouse or condo living.

And last but not least

7. Do you want to have a house in complete move in condition or can you do some of the work yourselves after closing.

These 7 questions have been all that I’ve needed to narrow down the search. My buyers fill out the questionaire first before our 2 hour meeting, then armed with those parameters, I have a pretty good idea where the buyers will end up. We pick out thier own houses online and then with a picnic lunch, out we go to preview the properties that they picked. Normally, they buy on this first day, since we have narrowed down their search together and they almost never have buyer’s remorse since they pretty much scoured the enitre market themselves with me just acting as coach.

This has worked great for the last 5 years. My buyers love it and are amazed at how you really can create a structure out of the 6500 or so listings online. AND be right about it!

Would you lie for God?

Yesterday’s theme was PreFab, today I’m back to simply providing links to 10 interesting real estate conversations…

  1. Prosper is an online marketplace for people to lend money to other people. Shaun has been playing with Prosper and has some interesting observations.
  2. I don’t agree with Mark’s conclusions, but I think he makes an interesting case that a good time to “upgrade” is in a down market. (via Steph)
  3. For those looking to improve things before they sell, Rory provides some great home improvement links.
  4. If you are going to be upgrading (up market or down), you’d be wise to follow Noah’s advice and sell first!
  5. Will the number of sold homes rise in August as Bill suggests? But I sincerely doubt it.
  6. Todd, since you asked… My take is that if you are going to change domains, you want to do it sooner than later. You’ve still got lots and lots of growth left in your site, but the longer you wait, the harder it will get. Even better, consider getting a hosted version of WordPress that you can put under your own domain. Many hosts have made it so that there is a “one button” install of wordpress and they even manage the upgrades on the backend. (WordPress.org has a list of their “preferred” hosts.) In the long run, this will definitely give you the most flexibility with things like video/podcasts and stat tracking.
  7. Jim’s thinking he wants a sideblog plugin… I’m thinking just take notes and when you get to 10, hit publish. Have you noticed? 🙂
  8. Fran is good for providing a useful tip every few days… Today it is about the importance of the buyer walkthrough.
  9. Jay Thompson (of AZ) gives us a “pick of the week” that includes one hell of a house!
  10. Larry Cragun tells us to watch out for real estate transactions involving religious institutions. Some people are more than happy to lie for God.

I’m actually shocked at the number of emails these lists have generated. Don’t people know I have a job? 😉