Tag Archives: seller

Buying wisely in any market

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[photopress:seg.gif,thumb,alignright]I find that most people who track countywide stats, looking for bubbles and market trends, are not people who are buying and selling property. Anyone who is actually buying or selling property knows, that countywide stats tell you both everything and nothing. It is in the small subsections of any given market that you will find the information you need to make wiser choices.

For instance, can you really compare ramblers built in the 60s to newer housing choices? Can you compare “too small for anyone” condos of 400 square feet, to the saleability of 2 bedroom 2 bath condos? Lumping everything together tells you nothing. Houses on busy roads, for example, will not sell as well, and will sell worse at times like this when buyers are being more cautious. I think of houses on busy roads when I hear comments like, “The market is getting weak! I see more and more for sale signs every day while driving to work!” Well let’s assume that most people do not drive on quiet 25 mi. per hour residential streets when driving to work. So what they are seeing is the weakness of properties situated on busy roads, not the market in general.

A good example is tracking newer townhomes, in the $300,000 to $500,000 range, within 3 miles of Microsoft. This is a market segment that is driven by its own forces and outperforms the market in general. In the last six months there were only 21 townhomes sold, built since 1990 and within 3 miles of Microsoft, between $300,000 and $500,000. Of these 21, 16 sold AT or better than full price in less than 30 days. Several in less than 10 days and most in less than 20 days. At the moment there are only 3 available, all on market less than 15 days and two at less than 5 days on market and there are 3 in escrow.

So of the total six month inventory, you can expect four to sell per month and there are only 3 on market, two of which have only been on for two days and three days, respectively. Those are some pretty strong market stats. What are the odds that these will start dwindling on market for excessive periods of time or go down in price? Slim to none. Making offers on this product, based on what you are reading about the King County market in general, would make no sense whatsoever.

So Chicken Little, maybe the sky IS falling for older ramblers built on busy roads with only one bathroom. But conversely the sky is still the limit in newer townhomes for sale within close proximity to Microsoft. There’s a whole lot of varied stats in between. Make sure you are making your choices based on the product and market segment that YOU are considering buying. Buying the biggest “bargain” on market, could lead you into buying in that segment of the market that will not appreciate, and will be difficult to sell later for at or more than what you paid.

Woohoo!! Merv's got it DOWN!!

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[photopress:sc.jpg,thumb,alignright]At first glance it might appear that Greg Swan and I are like-minded when it comes to commission issues. but not so. Greg and I do agree that the buyer should not be led around thinking they are getting a free ride compliments of the seller, and we are both part of a growing minority in that regard. We do in many ways lead the cause of buyers controlling their side of the fence, though sometimes Greg goes a little over the net on that one.

But Merv has got it DOWN!!! Agents like Merv and I are running the test cases that will prove to be the real answer to all of this. No One Size Fits All commissions. A range of prices for various scenarios. A range of prices based on a collaborative effort of determining the client’s needs…a collaboration between the agent and the consumer.

Merv, I am totally with you on this one, and I too have case studies, though by and large, and specifically as to commission negotiations, I was not planning to unveil mine until Jaunary 2007. You GO BOY! Woohoo! The agent and the client TOGETHER determine the services and advices that the client both wants and needs. The agent cannot participate in the consumer cutting themselves short of what they need, to be successful in the client’s goals. Nor should the agent build everything around a total package of high fee services, that always leads to a win for the agent, by including more than the client needs.

For instance, just closed one where the buyer represented himself, after first trying a “full service”/full fee agent. The seller and I gave the buyer the FULL 3% buyer agent fee. Buyer just moved into his new home and is thrilled! Seller is happy and has moved on, after unsuccessfully trying a full stripped down mls only version, before hiring me. Total fees paid in that transaction – 2%. In another instance, on a different property, a buyer called and said she was going to represent herself. I asked her a few questions and she knew absolutely nothing about what I was talking about and was missing several key details needed to represent herself. Seller and I said NO, you can’t represent yourself, you just don’t have the background of knowledge needed, in this particular case, on this particular property. Total fees paid in that transaction (different fully represented first time buyer) – 6% split 3% to me and 3% to buyer’s agent. Portion of my fee used to make repairs to property. I made more on the one where the seller paid 2%, than I did on the one where the seller paid 6%. So much for percentages…they are truly irrelevant.

The agent needs to be involved in determining whether or not the buyer or seller’s wants and choices, fits the consumer’s objectives AND abilities. The consumer in turn has to be realistic about what they can do themselves, and what they can’t do themselves. It’s a collaboration with neither party “dictating” to the other.

THIS is the model of the future. Just as you can hire an attorney to fully represent you, or to partially represent you to save some money, you should also be able to hire a real estate agent to fully represent you or to partially represent you. But no attorney is going to get into the middle of partial representation unless he makes the judgment call that the client is fully capable of handling a portion of the duties. No agent should hand over responsibility to someone without making the judgment call that they know what they are doing, with regard to the services selected and not selected.

A buyer who assumes responsibility for selection of property, via the internet or other means, should not pay the same fee as one who needs agent advices. A buyer who just can’t assume full responsibility for all lender issues, should not pay the same fee as one who needs no assistance with the lending issues whatsoever. A seller who has everything ready when you walk in the door, should not pay the same as someone who needs the agent to help with getting the property ready for market. A seller who can’t read the contract, should not be able to purchase a service that says “all offers to be submitted to the seller direct”, nor should an attorney/owner pay a real estate agent to explain a contract.

No one size fits all commission! No trading in one “one size fits all” for another “one size fits all”! That’s where Greg and I part ways. I love that Merv…and Pam. Get Merv’s blog on your MUST READ list today!

Should You Pay More For THIS House?

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[photopress:polly.jpg,thumb,alignright]When determining how to structure an offer on a property, one of the key considerations is, “How scarce a commodity is this home?” How scarce it is to you, depends on the parameters you have set, and why you like this particular home, which varies from person to person.

If the property is unique because it has the largest lot in the area, then the seller is correct in putting a premium on this feature of the home. But, if why you are buying it is NOT because it has a large lot, then maybe you should not be the one to pay the “justifiable premium”. A justifiable premium for the seller, is not necessarily a justifiable premium for the buyer.

Often the seller will dramatically highlight their “premium” feature, such as a large lot, when they should not. I remember showing a home, with the owner in the home, and they kept raving about how huge their lot was. I could tell that the buyer had totally tuned out and had no interest in the property, but we couldn’t leave because the owner was going on and on about the size of the lot. When we got outside the buyer said, “Not me! I’m not spending my life maintaining the biggest lot in town!” I asked if he would have been worried about that just by viewing the property, without the seller’s influence. He said no, but now that I have this picture in my head of spending all of my weekends mowing the grass and maintaining the landscaping, AND paying MORE for the house for the “privelege” of it sucking up all of my free time, I just can’t see myself in that home. Otherwise, I may have bought it, but let’s just get out of here.

So the seller may indeed “deserve” more money for his house than anyone else in town, because he has the largest lot. But that does not mean that every buyer should offer that premium, in fact some will discount it, for the very reason the seller is raising the price. The buyer may deduct for the extra maintenance of the larger lot, while at the same time the seller is adding a premium for the extra land.

The photo above is in reference to “our Polly” who had the best question in the month of August. Before responding to a counter offer from the seller she asked, “What is the likelihood that you could find us a similar home within the next 60 days?” I was knocked out by this fabulous question! If only two of those have sold in the last year, then the liklihood is slim to none. If 40 of them have sold in the last six months, then you can play hardball with the seller. Excellent question to ask while in the middle of negotiations.

No Credits "For Repairs" Allowed

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This excerpt from a recent comment to an old article of mine, deserves more than “comment back” attention.

“we said we would take $5,000 for…repairs…The addendum was signed by both seller and buyer….Our lender wanted us to take the word repairs out of the contact, but we wouldn’t do it, so our loan fell through…’

Lenders do not want to lend out money for future repairs to a home, nor do they want to finance properties that need repairs. Let’s say a house needs a new roof and the cost of that roof is $7,500. Agents cannot write a contract with an addendum that says “Seller to credit Buyer $7,500 for a new roof” and expect the sale to close. Nor can the lender simply say “remove that addendum”, as if the buyer is supposed to pay the same price without a new roof or the money to buy a new roof.

Clearly this situation has come up several times in my career. Most recently, the roof was OK, but was two layers of composite over a wood shake roof, meaning at time of replacement all three layers would have to come off. Also, since wood shake roofs do not have sheathing, the new roof would have to include all new components and not just new shingles. The owner agreed to “pay” for most of the new roof and the buyer “agreed to pay” for a portion of the new roof. The new roof was installed by the seller prior to closing, and the sale price was increased to include the buyer’s share of the roof cost. Excellent resolution as the lender financed a house with a brand new roof. Everyone is happy.

Another good and often used solution, if the buyer wants to take a credit and pick and install their own roof, is for the buyer to take a credit “toward closing costs”, They simply use the money they were going to use to pay closing costs, to put on a new roof. It’s just a replacement of these monies for those monies. It satisfies the lender, as they will usually allow a credit toward closing costs, but not for repairs. As long as the appraiser doesn’t “call” the roof and require it to be done before closing, the buyer can get the monies this way.

So is Denise “bad” to refuse to take the word “repairs” out of the addendum? Or are the agents (if there were in fact agents involved) “bad” for writing and accepting an addendum in the first place, that they should have known would cause the loan to fail?

It is no surprise to me that a lender would not fund a loan that included a $5,000 credit “for repairs”. It is worth noting here, so that others do not write or accept addendums that offer credits for repairs, that send up red flags to the lender that the house is not in good condition. Perhaps it was a For Sale By Owner that Denise purchased without the assistance of agents. So to For Sale by Owners and private individuals buying from For Sale by Owners. and attorneys who assist in transactions without agent involvement, please note that generally speaking, a lender will not fund a loan with a repair credit, especially if there is little or no downpayment.

"Carpet" Credits, et al

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[photopress:w.jpg,thumb,alignright]We are at that time of year when houses are not selling like hotcakes. So we are back to that age old question, “Can’t I just offer a credit?”

Often agents will tell sellers that they need to remove wallpaper, paint rooms or put in new carpet. A common response from a seller is “Can’t I just offer the buyer a credit?” The short answer is NO. The long answer is, if you offer $2,000 as a credit to the buyer to remove that ugly wallpaper, the buyer will offer you less after having seen the wallpaper AND they will take your $2,000 on top of that as well.

So yes, you can offer the buyer $2,000 and he will happily take it. But he will still take $10,000 off the price of the house, because he hates the wallpaper.

Don't Outbid Yourself

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[photopress:stop.jpg,thumb,alignright]It is time to use Escalation Clauses in reverse. Many, if not most of my clients, were previously working with another agent. Some have explained that they were not happy with the fact that the agent was always, and without exception, recommending that they offer full price, with an escalation clause over the asking price. While this may be a sure way to insure that you get the property, you may at the same time be outbidding yourself. While over the past few years, buyers have used escalation clauses to WIN the house, it is time to use them in reverse, to protect yourself against overpaying for a property.

Recently I have seen a couple of these “Seller will not look at offers until…” backfiring to where the seller has no offers on that stated date. By requiring buyers to wait a week or so before the seller will look at the buyer’s offer ,and by pricing the property too high at the same time, the seller ends up “A day late and a dollar too high”. Just because “everyone is doing it” doesn’t mean that *you* can do it, and get away with it. You meaning the seller in that context.

Now that the market is winding down a bit, will we see an end to escalation clauses? I hope not. It is time to shift gears and use them in reverse.

Let’s say the seller is asking $530,000. Instead of putting $530,000 as your offer with a cap of $550,000, you might want to offer $500,000 with a cap of $530,000. Many falsely assume that if a property has many offers, that the property was underpriced. Clearly not so. Some who have made offers at full price or better with an even higher cap, have found themselves paying full price or better, even if they end up being the only offer on the table at the end of the “seller will not look at offers until….” timeframe.

No one can predict at this time of year if the “sluggishness” is seasonal, or a sign that the market is turning. Even during the period where it seemed prices were just shooting to “the sky’s the limit”, there are periods of sluggishness. Periods of sluggishness can be as simple as many, many agents are away on vacation (August). Many, many buyers don’t want to buy what happens to be for sale (Halloween through January 2). The period from now until early next year, with the exception of a “spurt” in September, is always a slower period with no way to predict what will happen in “high Season” (January through July).

I do know this. It is a very bad time for a seller to be “off” on his condition and asking price. It is a very bad time for buyers to assume that just because a seller will not look at offers until next week, that the seller is going to get multiple offers. During the time that you are waiting for the seller to be ready to look at your offer or respond to your offer, pay close attention. If the house has any inherent negatives, particularly with regard to location, do not outbid yourself by offering full price or better just because you “assume” that the seller will have more than one offer by next week.

To sellers…you have to be “positioned to sell” by September 15 unless you are willing to take the risk of having to wait until January 2. By the way, January 2 has always and forever been my favorite day to put a property on market. But that’s another story…

Lynlee's Tips to maximize seller proceeds

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[photopress:Lynee_Signing_1.JPG,thumb,alignright]

Photo to right: Lynlee Kane w/ clients

We frequently close transactions in which the buyer offers a higher price than the list price in exchange for the seller paying buyer closing costs. Most of the transactions of this type actually result in the seller netting less than if they accepted a full price offer without concessions. We recognize that many buyers are cash poor and need to have the seller pay closing costs.

When writing your contracts please consider that the higher price will result in the seller paying higher excise tax, real estate commissions, escrow fee and title premiums.

For example, a very common $10,000 seller concession (offset by increasing the sales price) will cost the seller $778 (6%, 1.78% excise) in excise tax and commissions alone.

Sellers usually do not consider these costs until they come to the closing table and actually review the numbers on the settlement statement. This obviously creates an awkward situation for the listing agent who may have told them it was a wash.

Over the year, we have documented only one case where the listing agent addressed the increase in excise tax via a commission credit. Only about half the time we receive addendums stating that commissions will be based upon the lower or original list price.

While assisting 100% financed borrowers with closing costs is helpful in making a sale, make certain your sellers understand that it may cost them more.

  • Consider Excise tax at 1.78% in most jurisdictions
  • Consider the additional commissions at 6%
  • Consider that title and escrow premium may also increase

Wishing you all the best in smooth closings!

How to Value a House

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[photopress:bullseye.jpg,thumb,alignright]While “market value” and “appraised value” are not always one in the same, calculating a home’s value is both a science and an art, whether the value is being ascertained by an appraiser or a real estate professional.

The purpose of the valuation can actually have some bearing on the value itself. If you have a client who is purchasing a property to remodel and flip it, the value for that client has to take into consideration the cost of the improvements and the eventual resale value. Consequently, one has to be involved in both knowing, and making recommendations with regard to, which improvements will produce the greatest return, before the client makes an offer on the property.

Just as a lender has to take into consideration many factors when recommending various loan programs, a real estate professional has to take into account many factors before determining a home’s fair market value. When you are representing a seller, you have to lean towards the high end of the value range. An appraiser would call this “highest and best use”. A real estate agent would call that “if purchased by a person of the best buyer profile. For example, someone purchasing a property to live in it, will pay more for a property than a builder who is going to tear it down or an investor who is going to remodel and flip it.

When you represent the buyer, you have to consider the home’s resale value and any money left on the table by the seller. A seller leaves money on the table by various means that are generally not reflected in the asking price itself. I use this test when valuing a property for the buyer: If they called me in a very short period of time to sell it because they decided to move back from where they came from, could I get them out whole, meaning purchase price plus the costs of purchase and sale. By being a “listing agent” in your mind when representing a buyer, an agent will perform a better valuation than if they are just considering how much the buyer wants or likes the property. Of course, the buyer can always choose to pay more than that value and say “I don’t plan to sell it as I plan to live here for a very long time”, but they will at least know how much they are overpaying for the privelege of getting the home. Very important when the buyer is trying to determine the cap on their escalation clause.

Let’s go to the science part of the valuation. Some houses have what are called “true comps”. This would be most true in a very large community of newer homes. I am not going to spend a lot of time on valuing property with “true comps” because here in the Seattle Area, there are very, very few houses that can be valued by those normal methods. In fact the only ones I have been able to value by normal methods have been newer townhomes. Proximity to the subject property is not always relevant, especially in Seattle vs. Eastside. The comps have to be ones built in the same “finish period” and have the same “buyer profile”. For instance, a property built in 1991 may have white cabinets, gray countertops, white appliances and 4″ white tile in the baths. Using that as a comp to a property built in 1995 with granite tile countertops vs. gray laminate and maple cabinets vs. white cabinets, will not produce a reliable end result. Nor would using a comp with granite slab counters, stainless appliances and hardwood floors.

For the most part, we are lucky to find one recent sale that is quite similar to the property we are valuing. I call that the home’s “significant other”. An appraiser will still use three solds, whether similar or not, to ascertain value. A real estate agent will pull the significant other from the solds and move to properties that are pending and STI and ACTIVE in determining what a buyer will pay or should pay or what a seller should set as an asking price.

A few recent examples. When I valued a property for a seller back in May, I had comps of $325,000, $327,000 and $337,000. I priced the townhome at $350,000 and it sold for $350,000. The upward momentum of the marketplace from May was a significant factor. For this particular townhome, best buyer profile was someone who was relocating to the area and the buyer was in fact relocated here for her new job.

When I recently valued a newer townhome at this time of year, I needed to be more “right on target” as we are in a sluggish month of August aka “agents take vacation time month” and running into September which generally has two weeks out of four that are hot. The buyer profile of this particular townhome was a single person who would take in roommates. It did sell quickly and at full price to a student taking in two roommates. The danger on this one was pricing against new construction. You have to be as high as you can without encroaching on the price at which a buyer can get a brand new townhome nearby. I could not use the comps at all when valuing that property, because the subject property was built in 2001 and the comps were 2003 and new. The interior finishes were not comparable and could not compete, so to get a fast full price was their best chance of not having to bargain down to a level below the highest achievable price.

Let’s flip to buyers and how I value a property for a buyer vs. a seller. I’ll have to make this another article as the Vicodin for the root canal is kicking in and I’m going to barf.

"Tiptoeing" through ethical minefields

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It’s getting a little warm in the kitchen of Real Estate

Two questions have been eating at me for some time.
First, one of the most difficult questions to answer deals with my own brethren in the escrow industry. Why is it that a traditionally transaction “neutral escrow company or service” only receives compensation if a transaction successfully closes?

To me, at least in the realm of escrow, this is the mother of all potential conflicts of interest. Isn’t it a conflict of interest to the parties involved and our fiduciary duty to the lender (yes, folks we do have a duty to protect the lender from potential fraud, which is clearly stated in escrow instructions from some lenders) if we are only paid if the deal closes? Wouldn’t that create a lot of problems, particularly if you have pressure from loan officers or Realtors to “just get it done

What else is Zillow good for?

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If your Zillow Zestimate is higher than what your home sells for, than you will likely have no trouble appraising for the buyer’s loan, AND you can let it bid up if you get multiple offers without fear that it will not appraise.

If the Zillow Zestimate is lower than what you are able to sell your house for…don’t count your money until after the appraiser leaves, and be sure to take the offer with the most money down, and the buyer who is willing to make up the difference between sale price and appraised value in cash.