… just by bringing bagged lunch and brewing your own coffee. Ignore your raises to save the rest. Also, lots of calculators including a balloon calculator.
Tag Archives: Buyer-Information
Agents and Consumers – A Perplexing Business Model
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Seems to me that misinformation fuels many of the conversations regarding relationships between agents and consumers in today’s real estate marketplace. So let’s take a crack at one of Craig’s comments in #48 of Dustin’s post.
“If the mls were “open” – i.e. anyone could list – then agents will have an even harder time justifying the 3%/3% commission.”
Last I looked, every option known to man was available to sellers, with very few “having to pay” 3% to their listing agent, at least in the Seattle area. Many if not most agents do not charge 3% on the listing side, if the seller buys their next home from the same agent. There are many flat fee options available for limited service. High end often pays 1% for full service, especially on new construction homes. 2% is fast becoming the norm for the average Joe. 3% is more typical in the lowest of price ranges where 3% doesn’t amount to much and is a bargain for full service on a $120,000 condo. I have to wonder why people keep pretending that sellers by and large pay 3% to the listing agent? As this figure is not published, there must be some “hidden agenda” to the purveying of misinformation, I think.
As to why sellers offer 3% to convince more and many agents to come and show their home, I guess because it must make sense for them to do that, or they wouldn’t be doing it. That doesn’t mean the Buyer’s Agent GETS 3%, that only means that there is an allowance in the List Price, up to that amount, as far as the SELLER is concerned. Then it is up to the buyer and his agent to determine the actual fee, as they negotiate it within the target amount set by the seller.
Clearly all commissions are negotiable and always have been. Anyone who believes an agent, or attorney in this case, who pretends otherwise is mistaken. All commissions are and always have been negotiable. You just have to understand the structure, and the reasons for it, to maneuver within the system to your best advantage. If you don’t understand the system in place, you leave yourself open for someone to take advantage of your lack of knowledge, by exploiting that weakness. Know that you can, for sure, and in fact, negotiate any fee you want AND participate in the mls system in place while doing so. This is true for both buyers and for sellers, as long as the seller negotiates his side, and the buyer negotiates the other side. There is absolutely nothing in the system, as it exists, that prevents you from negotiating commissions, other than the misinformation which is keeping you from understanding the system.
As to using an attorney instead of an agent in a real estate transaction, it’s apples and oranges. No attorney purports to do, or even tries to do, what an agent does in a transaction. A great attorney is no replacement for a good agent in a real estate transaction. A monkey is a sufficient replacement to both, if they are not good, and monkeys may be more pleasant to deal with 🙂
What’s hot and what’s not in Seattle?
Where to invest next in Seattle/Eastside neighborhoods? I’ve been thinking about the list Seattle Metropolitan Magazine came up in April (see below). With gas prices up, rapid transit going in, I think the next hot spots will be along those rapid transit routes like what happened in San Francisco and Portland.
Here are 2 lists, one from last month and one from 3 years ago. My clients usually make a decision where to buy based on either the commute or schools, sometimes as specific as a certain grade school. What about home age and style. It has been suggested that buyers like the homes their grandparents lived in, not the ones they grew up in, so Will the next batch of buyers want the 50’s and 60’s houses as has been suggested and if so, should we be buying in those areas? There was supposed to be a trend away from large homes, and that’s probably the case considering home prices are so high most can’t have the size home the buyers of the 90’s did.
Here is the Seattle Metropolitan Magazine list of 15 of the hottest neighborhoods in it’s April issue.
[photopress:bill_gates_residence.jpg,full,aligncenter]
Grandes Dames: established and well rooted neighborhoods:
- Medina: (recognize the house above?)
- Madison Park
- Admiral
The Rock Stars: fast rising districts surging with glamour and vitality.
- Ballard
- Pike/Pine Corridor
- Moss Bay, Kirkland
Cinderellas: Formerly neglected areas now traipsing to the ball
- South Lake Union (courtesy of Paul Allen)
- Columbia City
- Georgetown
- Westwood
Sleeping Beauties: Location, economy and neighborliness drawing overdue attention
- Upper Rainier Beach
- North Greenwood
- Monroe
- Stadium district, Tacoma
- Cape George Colony, Port Townsend
This is a dramatic change from 2003, when SeattleMagazine.com had their list of hot neighborhoods
- Bryant
- Montlake
- Sunset Hill
- North Beach
- Blue Ridge
- Olympic Manor
- Phinney Ridge
- Greenwood Manor
- North Admiral
- Westwood
Almost all of these were north of the U District.
Does this mean that our citizens are fickle and don’t have favorites more than 3 years in a row? Or was it this kind of story that drove the prices up in those neighborhoods so that they are now not affordable? Is it possible in 3 years that even Georgetown will be sizzling? I’d love to tap into the collective minds of RCG bloggers and see what you think.
I think Burien is an up-and-coming area and it’s not on either list. Any other hidden gems out there?
Where do the kids sleep?!?
[photopress:dig_deep.jpg,thumb,alignright]Whether you are a buyer or a seller, you really need to dig a little deeper when determining the value of a home. One thing I noticed when I first started practicing real estate in the Seattle area, is that almost no one digs deep enough when determining value based on “buyer profile”. This is an old fashioned concept, I guess, that I learned many, many years ago when I was the Certified Corporate Property Specialist (CCPS) for a large real estate company on the East Coast. That’s a fancy name for someone who must quickly sell the vacant inventory homes of relocated executives whose homes were “acquired” via a “buyout” corporate perk. The very first question I had to ask myself when I went to the property before putting it on market was, “Who is likely to buy this house?” I needed to know if I had an expanded or diminished buyer “pool”.
Remember, the market is shifting from a “baby boomer” market to a “Generation X” market, and we have to change our thinking and valuing with the trends that are affected by this shift. “We” meaning anyone interested in the “value” of property, whether that be buyers, sellers or real estate professionals.
Here’s a simple scenario. Four houses. Each 2,600 hundred square feet per mls. Let’s say everything is comparable in terms of neighborhood, lot size, view considerations (all have a view) and improvements. The ONLY difference being the placement of the square footage, each being 2,600 square feet not including the garage.
House #1 – 1,400 square feet on the main level and 1,200 square feet on the second floor. 2,600 above ground square feet with 4 bedrooms on the second floor and none on the first floor. View from all “main” rooms, (kitchen, living room, entertainment spaces and master bedroom).
House #2 – EXACTLY the same house as House #1, but with views out the front door, not visible from main rooms and views from all children’s bedrooms only, when inside the home. In other words on opposite side of the street so front door faces the view instead of the rear of the house facing the view.
House #3 – 2,000 square feet on the main level with 3 bedrooms on main level and 600 finished square feet in basement level with one bedroom in the basement. All views from main areas on main “entertaining” level.
House #4 – 1,300 square feet on the main level with only the master bedroom on the main level and 1,300 on the basement level with three “children’s bedrooms” down in the basement. Another variation would be two bedrooms up and two bedrooms down.
What really concerns me, is I see people getting info from the internet regarding total square footage, and doing comps based on this total square footage. “The house across the street sold for $800,000, so this one is worth X on a “price per square foot” basis. Even if it is the house next door, PLEASE stop valuing property based on price per square foot based on TOTAL square footage. Clearly you can see that those four houses, all 2,600 square feet, have considerable differences with regard to value.
When a pregnant woman and her two year old walk into house #4, they have to walk right back out. Do you really think she is going to love her master bedroom with view, if her newborn baby and two year old are sleeping “in the basement”? Now, personally I love my kids being “in the basement”, as mine are grown. But I wouldn’t pay as much for the house with a huge master suite on the second floor and all other bedrooms in the basement, as I would for one with more bedrooms “up”, even though that suits MY “buyer profile“.
Diminished buyer pool means that the average family buying a home cannot live with that floor plan, and that affects value, even if that floor plan suits YOUR needs. If the answer to the question, “Where do the kids sleep?!?” is down in the basement, on a separate floor from “Mommy”….hmmmmm.
Investors be very aware of this concept, as what you are thinking is a “bargain” in the neighborhood, and buying as a flip project, may be the ones with this “floor plan flow” problem. You sink a ton of money into granite counters, etc. only to find the low price was based on these types of differences in square footage placement, and you get nailed on resale of the improved flip house.
If a house is not selling and the price is reduced below the prices of the neighboring properties, make sure you know WHY that is happening. Likewise, if a real estate agent prices a house with 3 bedrooms on the main level and views from main rooms like house #3, based on the price “per square foot” of the house next door like house #4 with the kids in the basement…THAT house may be a TRUE bargain.
New Construction Closing Dates
Further to this string of three posts, I think we need to talk about new construction closing dates. I received a call about ten days ago from a former client whose brother was pulling his hair out regarding a new construction purchase. He was TOLD that the home would be ready in July or August, or at least that is what he heard. All of a sudden he got a call telling him that closing was in 2 days.
It was a very large, well known builder of moderate priced homes in this area whose contract stated they had about 60 days to build it and then the buyer had 2 days after that to close it. The buyer’s first language was not English and relied more on what he was told and did not read the contract specifics. I jumped in and resolved the problem for him. All worked out and I won’t give the details of how I did that, as that is not the point of this post.
The point is that buyers of new construction must know that builders ALMOST ALWAYS have a condition in the contract that the buyer must close within X days after the home is completed. Unless the builder takes a contingency on the sale of your home AND a contingency on the fact that the sale CLOSES, you are required to close within 10 days or less usually of the time the home is completed. Builders often do not put close dates unless it is a spec house already built. They do not want to carry that house after it is completed, they want to close. Read your contract carefully with regard to when you will be required to close and do not rely on “proposed completion dates” or verbal representations by the sales people.
Usually there is NO PENALTY to the builder if the home is built later than expected and there is a per diem charge to the buyer if the buyer does not close within the X days of the completion date. Also the builder does not have to extend the close date, so paying the per diem may not even be a viable option for the buyer. If you cannot buy unless you sell, you need to be sure you understand the complexity of meeting these builder contract requirements. Matching a sale to a new construction purchase is extremely challenging and ridden with potential pitfalls.
Going, Going…GONE!
[photopress:gavel.jpg,full,alignright]A few days ago a property came on market just after noon at 12:48:39. The property was emailed to me through the mls, so I saw it fairly quickly after it was listed. I emailed it to a client of mine, even though it was not in the area he requested, but it was in the price range.
I don’t know why I sent it to him, except that I knew it was an exceptional property in an exceptional location and priced to sell. There are hundreds of properties on market in his price range, but this one caught my attention. This one above all others. Sometimes I wonder how we can just instinctively know that as we are emailed listings, while we are in the midst of doing other things. Now there’s a REALLY good one.
The property was apparently viewed, an offer received and accepted and the property changed from ACTIVE to STI by 9:58:46 the same evening. No, my client didn’t see it or buy it. But he did change his instructions to me and asked that I, rather than following his instructions, send him anything in his price range that I felt was not only appropriate to his needs, but a good property. Sometimes just knowing “how to pick ’em” is what sets you apart.
I do see some weaknesses in the marketplace. In fact, I don’t like most or many properties that are for sale. But we are, as always, waiting like cats to pounce on the next good one coming out the gate.
Buyer Agent Bonuses
[photopress:50_50_1.jpg,thumb,alignright]For the purposes of this discussion, let’s assume that in normal market conditions, the division of the total commission agreed to by the seller in the listing contract is divided evenly between the agent for the seller and the agent for the buyer. In the diagram, the blue portion represents the listing agent’s compensation and only the yellow portion will be the subject of this discussion.
When a seller or seller’s agent is having difficulty “moving the product”, that being the house, sometimes they will raise the “offering” to the Buyer Agent as an incentive. For instance, if the price of the house is $350,000, each percent of price equals $3,500. So the seller could offer the Buyer Agent a bonus of 1% or 2% above the area norm, and spend less than a price reduction. Let’s say that it would take a price reduction from $350,000 down to $325,000 to get the property sold. That would “cost” the seller $25,000. Instead, the seller might increase the “offering” to the buyer agent in the mls by 2%, which would only cost him $7,000 in this $350,000 example. Even if the seller doubled the “offered fee”, it would cost him less than the price reduction, as doubling the compensation to the buyer agent might cost him $10,500, and dropping the price to the point where it would sell would cost him $25,000. So increasing the offering makes total sense from the seller’s side of the fence.
OK, now for the tricky part. Click here and read this before considering the rest of this post.
[photopress:33_66_1.jpg,thumb,alignright] The seller is increasing the fee to persuade “YOUR” agent to “SELL you” his house. By doing so, “your” agent can double his money. The idea that increasing the buyer agent fee will be effective in selling the house, is a holdover from the days before buyer agency existed. As the agent for the seller, I would still use this strategy when advising the seller, as it is a more cost effective method of selling a home that isn’t “moving”. However, as a buyer agent, the concept that I might be motivated by a higher fee to me, is insulting. While I generally do not believe in buyers signing buyer agency agreements, this scenario points out one of the advantages to the buyer for doing so. Even if the buyer cannot negotiate the buyer agent fee below the area norm, the buyer can stipulate that any Buyer Agent Bonuses would go to the buyer, and not to the agent. However, a more appropriate strategy might be to ignore them entirely, and simply focus on the attributes and value of the house, without regard to these incentives.
The yellow portion of the fee is the amount that the seller offers “to the person who brings buyers to his home”. It is also, and simultaneously, the amount that the buyer perceives that he is paying to the agent for representing him, the buyer, in the transaction. Until we all agree that it is the latter and not the former, buyers will never truly have equal representation in the real estate marketplace.
This duality of purpose for the same monies, continues to be a problem in the industry. One that should be talked about a whole lot more than it is. So let’s talk. What do you think? While you can comment anonymously, please note if you are responding from the point of view of a seller, a buyer, an agent, or a giraffe.
This odd duplicity of purpose regarding the yellow portion of the fee (the mls offering/buyer agent fee) has been going on for about 15 years. It’s time we began the process of coming to terms with it, by discussing it openly. There are NO easy answers to this one, but engaging in a dialogue might help move the topic out of it’s current “holding pattern”. Until and unless agents all agree that they are in the business of representing people and not in the business of SELLING anything, we can’t get to the appropriate answer. And then the consumers would have to likewise view what is happening accordingly, and not hire an agent “to sell” their house, but to “represent them in the sale of the house”.
But we can, at least, open up Pandora’s Box in the hope that the discussions will begin moving things in the right direction.
Multi-family investments – recommended reading
Generally I have an issue with most real estate books as they are usually advise on how to make a million dollars in 90-days or some similar hype. So it’s refreshing to come across the few books that are sound, practical advise on investing in real estate. The latest that I’ve read that fits into this practical advise category is The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges.
Let’s face it, with high vacancy rates and low rents, multi-family hasn’t been a great place to invest the last few years in the Seattle area. But with the increasing prices of entry level homes, number of condo conversions removing units from existing inventory and the increased interest rates the rental market is seeing renewed demand. So where do you invest and how do you analyze the deal?
That’s why I like this book. Steve Berges doesn’t promise to make you a millionaire overnight. Instead he lays out tax planning, case studies and financial analysis examples that help you develop some investment strategies. I was a finance major in college, plus several years at Microsoft brainwashed me with the metrics mantra — if you can’t measure it, it doesn’t matter. So I really appreciated the financial analysis part of this book. Sample spreadsheets on how to calculate different ROI scenarios and determine the best investment among several properties.
This isn’t an exciting, feel-good rich dad, poor dad type of read. It’s practical advise on how to get into the game, analyze your investment and calculate your exit strategy. For anyone contemplating multi-family investments, I highly recommend this book.
One last note — don’t spend useless hours trying to recreate his spreadsheets from the book. I wasted several hours on that before realizing the obvious — all his analysis tools are available on Steve’s website www.thevalueplay.com
What is a view worth?
[photopress:lake.jpg,thumb,alignright] The higest value attributable to the view component of a property, would be “an unobstructable panoramic view”. The lowest, would be a potentially obstructable “peek”, or a “winter view” meaning the view is totally blocked by deciduous trees, and the view only appears when the trees shed their leaves in winter.
The value of a view is built in layers. The value of the lot, with no house on it at all, contains the first layer of view value. Some people are amazed when they see a property with no view at all, that is practically falling down, valued at $800,000. Who would pay that? If the answer is that no one except a builder would pay $800,000 for that “house”, then the house becomes a “tear down”, as the “value is in the lot”.
How a house is constructed, and the positioning of the rooms, and the windows in those rooms, is ultra important to its value. Especially here in the Seattle area. If the best views are from outside on a deck, then the value is diminished to the number of days in a year you can be outside to enjoy that view. If the best view is from “all main rooms”, meaning those rooms where you spend most of your time and do most of your entertaining with guests, the value will be higher than if the best view is from a little “cozy art studio” perched high above the main living areas. If the view is only from a bedroom, the house will be worth more if the builder puts the master bedroom in that view corner, rather than one or two, or even all, of the “odd” bedrooms.
Then you have the “bad” side of the street and the “good” side of the street. For instance here in Kirkland, the Market Street side of 1st Street will have a lesser value than the opposite side of the Street, particularly in those blocks where the opposite side is higher…much higher. The noise factor from Market Street and the ability to see traffic going by at a steady pace, detracts from the value of the view, even if the long distance view is pretty much the same from both sides of the street. The house on the “bad” side of the street, blocks the view of Market Street from the “good” side of the street, so that house being there, adds to the value of the property across the street.
If all of the properties in your view have already been built out to max height, the value is more likely to be retained long term, than if all of the houses, between your house and the view, are older ramblers that could potentially be built up to max height. So when you look out the window, don’t just look at the view. Look to see if most of the homes, between you and the view, are newer construction at “max height”, or “tear downs”.
What is “max height”? You can do a quick and fairly accurate determination, by spotting the newest houses in each level of slope between you and the view. Construct a “view viewer” with your hands (thumbs together and palms up, the way movie directors used to do to construct a facsimile “frame”), and move your hands from the height of the newest house, scanning over the entire landscape in your vision. This is one of the cases when Zillow can’t value a property for you, because Zillow has no hands! LOL
When it comes to view…do not make the mistake of basing what you will pay, on “what you see is what you get”. You have to determine the long term probabilities of view retention. Don’t expect to be told by anyone that the view “may” at some point in the future, be obstructed. You are pretty much on your own in that regard, as what “might” happen to your view is usually not a disclosure item, unless the neighbors have already pulled permits to build. Even then, I have yet to see a property flyer say, “This great view is going to be obstructed by a condo complex going up sometime next year”.
All that being said, for a view-oriented person like me, a home with a view is indeed “priceless”. Waking up each morning to see the Seattle Skyline across Lake Washington, AND Mt. Rainier to the left, brings a joy to my life that is hard to place a “value” on. But being a real estate agent, I can place that value, and for my house it was $50,000 when I bought it, and hopefully will be $250,000, after I finish enhancing certain features to capture more of the view’s value.
So to Mr. Freakonomics, who asks “Why do agents get more for their homes than other people”? Maybe it is because we tend to choose homes where a seller “left money on the table”, and then make those minor changes that capture value, before we sell. Always choose an agent that helps you make the same kinds of decisions that they would make, if they were buying or selling the property themselves.
Passing the keys to the new owner
[photopress:DesiArnez_LucilleBall.jpg,thumb,alignright] An obtuse suggestion.
Ardell says, “I’ll meet you at the house with the key the evening the property records!”. I’m all excited.
Buyer: “Ardell we love you, truly we do”. BUT, uh…sometimes three’s a crowd”.
Duh, what was I thinking?!
Whether I am the agent for the buyer or the agent for the seller, I generally like to “pass through” the property after the seller is gone and before the buyer enters it for the first time. You would be amazed at what we find there sometimes! Most recent worst story I heard from an agent was that she had to hire TWO DUMPSTERS to remove junk from inside, but mostly outside, the property on the day of closing.
Most unusual request I have personally had, was a seller who called me after closing and said, “I forgot my gun that I have hidden on the ledge just inside the attic crawl hatch.” I escorted him back into the property, but I didn’t touch the gun.
On several occasions I have arrived at the property to find the seller, in a terrible state, trying to get everything out of the property. Mover was late. Friends that “promised” to help never arrived. I’ve carried mountains of clothes from the upstairs closet down into my car, and made several trips from the seller’s “old” house to their “new house”. I’ve rolled up my sleeves and carried mattresses down a flight of steps and out to the truck. I’ve sent handymen back after closing to fix scrapes or holes made, particularly in the staircase wall, when sellers were moving out.
It is the buyer agent’s responsibility to get the keys from the seller’s agent and get them to the buyer. My favorite method is to have the seller put all keys and garage door openers in a kitchen drawer along with any warranties and appliance manuals. I ask the agent to leave the lockbox with the key to the front door there for an extra day. I pull the key from the lockbox, walk through the property, address any issues. I make arrangements to pass that one key to the front door to the buyer, everything else he needs being inside the kitchen drawer.
Often the buyer prefers to pick the key up from me, away from the property, so that first step through the doorway is NOT with agent in tow.