Monthly Archives: January 2006

Kirkland Real Estate

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I find in my daily chats with people, that the public’s perception of Kirkland Real Estate is a far cry from its reality. So this morning, with one eye open drinking my coffee, I put together some stats for you to bring this point home. I think you will be surprised by this piece I will call “perception vs. reality” which also points out the “housing bubble” area of Kirkland.

For the purpose of these numbers, I have used the mls and not the tax records.

People ask me all of the time in passing, at parties, etc…”How can anyone afford to live in Kirkland?” General perception being that real estate prices in Kirkland are all over a million dollars. That is greatly because the consumer looks at what is for sale. Reality is in what has sold, not what is for sale. We call “for sale” that which has not sold and not particularly reflective of the marketplace.

We will be using an economic forecasting tool called the Rate of Absorption, which is further described in my blog.

Of the 2,042 properties sold in Kirkland (PO) in 2005, only 92, less than 5%, sold over a million dollars.

  • 616 (30%) sold for less than $300,000
  • 856 (42%) sold between $301,000 and $500,000
  • 349 (17%) sold between $501,000 and $750,000
  • 129 (6%) sold from $751,000 to a million dollars
  • Only 30 properties sold between a million and $1.2 million
  • Only 14 properties sold from $1.2 million to $1.3 million
  • And 48 properties sold higher than $1.3 million in 2005

Many people think that Kirkland is the town for millionaires. That is because they look at what is for sale creating this “perception vs. reality” issue. Only 2% of homes sold in Kirkland last year sold for $1.3 million or more BUT a whopping 26% of the homes currently for sale are priced over $1.3 million.

Now let’s get to rate of absorption before my client comes to my house to sign an offer on his way to work.

616 properties sold in 2005 under $300,000. 56 properties on market are priced under $300,000. That’s about a one month supply. If it takes a year to sell 616, it should take a month to sell 56.

856 properties sold in 2005 from $301,000 to $500,000. 63 properties are for sale in that range. That’s slightly less than a one month supply.

349 homes sold in 2005 between $501,000 and $750,000. 62 properties are for sale in that range. At a rate of 29 homes sold in a month, it will take about two months to sell 62 (two months supply on market).

Here’s where it gets very interesting (to me anyway).

While only 129 homes sold last year between $751,000 and a million dollars, there are currently 47 for sale. That’s a 4-5 month supply carrying over from last year. Add that to people who list their homes in the next 4-5 months and you have an oversupply.

While only 11 homes sold last year between a million and $1.2 million, there are currently 30 for sale. Let’s call that a 3 month supply.

21 sold from $$1.2 to $1.3 million and 14 are for sale that’s about an 8 month supply coming out the gate into the new year.

And now for the Piece de resistance! !! (apologies to the French)

While only 48 properties sold over $1.3 million…there are currently NINETY (90) N I N E T Y!! for sale!!! That is almost a TWO YEAR supply! I’m not shouting at you, but I find that incredible. Next they’ll be saying the bubble is bursting because there is pressure on this high end! Oh yeah, they already said that just yesterday in the King County Journal.

Yesterday one of my agents posed this question. Her client was buying a condo for $142,500 and was worried about “the bubble bursting”. I have a client today buying a condo for $99,900. Is HIS bubble going to burst? Of course not. Unless you are up in the air in “bubble territory” over a million dollars, you don’t have to worry about the air getting too thin.

Have a good day! If you would like me to find the bubble range in your neighborhood, just ask as a comment, or email me. While Dustin has “dubbed” me “the Kirkland Specialist”, I have actually sold more property outside of Kirkland than in it, at present. I have sold real estate in PA, NJ, FL, Sacramento and L.A. (kind of two states) Seattle and Eastside. So ask any question you like, about any place you like.

Seabrook, WA – Buy or Not To Buy?

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(Marian is a friend of mine who has been following the Seabrook development on the coast of Washington. Based on many interesting conversations that we’ve had about this development, I thought it would be fun let him write updates about the process of buying into this development. -Dustin)

Buy or Not To Buy?

That’s a question to all of you Seattle beachcombers who like ocean sunsets, salty air, sand dollars and beach fires. If you’ve been taking your family down to Newport, Cannon Beach or Seaside in Oregon, now you have a comparably beautiful alternative on Central Washington coast. We are not talking Long Beach or Ocean Shores. We are talking about Seabrook.

I fell in love with this part of the Washington coast several years ago, before anyone announced plans to develop properties in this area, when our family visited the Griffiths-Priday state park. It reminded us of Oregon Coast with its sand cliffs, dunes and beaches. Seabrook is being built just north of the park, on adjacent 88 acres of land on a bluff overlooking the beach and the ocean.

seabrook layout

I have to give kudos to Casey Roloff and his team at the Seabrook Land Company for making their vision of building a town on the undeveloped part Washington coast a reality. Using the New Urbanism approach and building a dense, pedestrian-friendly neighborhood with the public amenities of a small resort and the atmosphere of a beach town, they hit a jackpot. Seabrook is a runaway hit! Just 15 months ago, new 3 bedroom/2 bath “cottages

Take the Money and Run!

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Be gentle. It’s my first time.

While I am waiting for an agent to get back from the Seahawks’ game to look at the offer I just presented, I’ll try giving this a whirl.

I stole the Title line from Steve Miller “Take the Money and Run” to explain something you may (or may not) find to be of interest. That is, how can you get the Real Estate Commission into your pocket. Whether or not you should or should not get it, is not going to be discussed here. Let’s just assume you want it, and that is reason enough for me to describe how you may or may not be able to get it.

Let’s assume that if a real estate commission is involved, that you are either a buyer or a seller of real estate. If you are a seller, well that’s easy. You simply negotiate the fee and you get to keep the money. Trick is to get the best agent for the least money. Most think that they need to take the worst agent to pay the least money by signing up with some cheap service. NOT TRUE! All real estate commissions are negotiable with the seller, always.

I think it’s a crime and a shame that most sellers think they can’t get a top agent, without paying top dollar. I think it’s a crime and a shame that sellers think they have to go to those who advertise low fees, to get low fees. I think it’s a crime and a shame that sellers think they can’t get a really good agent, if they want to save money. Do you really think builders pay top dollar? Do you really think builders get less than superlative agents? They can do it; so can you. There is no set fee. All commissions are negotiable.

That’s the easy part. Now for the hard part.

How does the buyer get to “Take the Money and Run!”. Not quite as simple. Especially if you want the cash in your pocket, rather than an adjustment in the price of the home.

First, the basics. The contract that determines the Buyer Agent’s fee is already signed by the seller before the house ever gets in the mls. The Buyer Agent represents you and doesn’t even know the seller (usually), but the seller is the one who put the Buyer Agent’s fee into the asking price. Technically the Buyer Agent is not paid by the seller or the buyer. The Buyer Agent is paid by the Listing Company, and if the buyer takes the money from the seller, the Listing Company may still have to pay the Buyer Agent, even if that money went directly from the seller to the buyer. The Listing Company may have to pay, what they promised to pay in the mls, simply because they promised to do so. Now if that makes no sense to you whatsoever, I’m not surprised. But it’s the truth and one of the reasons why it is hard for a buyer to go around an agent they have “used” to see property.

That being said, let’s get back to the subject at hand “Take the Money and Run!” Understand that the amount of money you can receive is limited by your lender, not by the real estate agents or the seller. If you get any money, it has to be shown on the closing sheet and your lender can and does “disallow” it at the last second. So just when you thought you were going to put the money in your pocket, the lender says “No you can’t”. Getting money “off the sheet” is illegal. It’s called lender fraud. The person committing the fraud would be you the buyer, not anyone else, so be careful.

Jeez, they don’t make it easy for buyers to negotiate their agent’s fee do they? Well it can be done, and I have done it successfully and legally, but not easily.

But the Seahawks just WON!! and I have to go finish negotiating that offer. I’ll take this up again later.

Thank you for your time…and remember…be gentle…you’re my first.

Garbage In = Busy Maids (Cleaning up the MLS mess)

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On the soapboxAs promised in my previous post, I’d like to get on my soap box and complain about the state of NWMLS data. As an application developer, I’d rather spend my time developing new & exiting ways of visualizing data instead of developing new & exiting ways of correcting inaccurate data. Unfortunately, in order to accomplish the former, a lot of effort is spent on the later.

For example, of the 20,376 properties that were in the database when I started writing this blog entry, 32 have bogus zip codes. I’m not talking about hard to find errors like a Sammamish property with an Issaquah zip code. I’m talking about outright typos and easy to catch errors. Zip codes like 00000, WA, and other obvious errors, like zip codes smaller than 98001 (which is the smallest zip code in Washington state).

Another bone of contention, is that nearly 7% of the properties in the NWMLS database have a square footage of 0 square feet (1,389 properties). How hard is it to contact the county assessor’s office or the property owner and get the number? Can’t you just give an intelligent guess? Needless to say, this complicates compiling price per square foot statistics because computers have this thing about not wanting to divide a number by zero.

Even more annoying, nearly 18% of the properties in the NWMLS database have a 0° north latitude & 0° west longitude (3,637 properties). Can’t you just go to a map web site and enter an intelligent guess? If you can afford to be a competitive realtor, you can afford a cheap GPS receiver to put accurate data into the MLS when you list a property. I’m sorry, but you if you say your client’s property is located in middle of the Atlantic, 350 miles off the coast of Accra, Ghana in Western Africa, why should I believe anything else in your listing?

Perhaps most disappointing is that over 50% of the properties in the database don’t have elementary school, junior high, or high school information associated with the listing (10,419 properties)! How is a client supposed to make an intelligent decisions on the quality of schools, if that information isn’t available? I can only imagine how frustrated professional realtors must feel about this since their livelihood is dependent on the quality of this data!

Now, given the frequency of these errors, it astounds me that I have yet to find an instance in which a county, city or community name was misspelled. So obviously, it is possible to have high quality data in the database. But why is only some of it of consistently high quality? And why do we have so many errors of commission?

To paraphrase one of Murphy’s Law “If builders built buildings, the way the local MLS (and local realtors) compile data, the first woodpecker would’ve destroyed civilization“. Why is the data so bad? Are some realtors too lazy to bother with listing a property with complete and accurate information? Does the MLS not care about this? Are the MLS data collection tools so bad, that the fact we have any data (much less accurate data) is a feat worth celebrating? Perhaps most importantly, what can we do to improve this sad state of affairs? To quote General Beringer, from the movie WarGames “I’d piss on a spark plug if I thought it’d do any good!”

Robbie
Caffeinated Software

PS – Go Seahawks!

Zillow fans, meet your new blog

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Blog of Spencer Rascoff, employee of Zillow. Today’s post gives out (already available) information about Zillow. They’ve raised $32 million. It sounds like they’re settling in on a business model: Zillow’s 75 employees (mostly engineers) will manage to get the beta version out within the next 6 months. The comparison of Zillow to Hotwire is also very informative.

-Galen
ShackPrices.com

Is it bad if everyone else does it too? What if you're one of the best?

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Realtors are the subject of another balanced-but-critical New York Times article today. This time it’s for a whole host of lobbying-related fair market-blocking activities.

Frankly, I don’t have a lot of sympathy for banks, but the strong-arm tactics of the National Association of Realtors described in the article make banks look like victims of injustice. The story meanders away from bank-blocking tactics to easier to explain subjects, like the federal suit brought against the National Association of Realtors for locking low-cost realtors out of many listings. It appears the government (a very pro-business administration, at that) wants to create a level playing field:

When the suit was filed, J. Bruce McDonald, a deputy assistant attorney general, said, “Our job is to ensure that one group of competitors doesn’t tell some of its members they can’t compete in a certain way and undercut the level playing field.”

The defense:

Ms. Janik warns that major changes to the multiple listing services could cause large nationwide brokerages to pull out of the system and establish their own private listings. That, she said, would be a far greater threat to small firms.

So what’s the story? As I understand it, the progressive (egads!) North West MLS does not allow brokers to selectively block listings from competitors sites, which is what the realtors say they have a right to do. And, as far as I can tell, Windermere and the other monsters still list their houses with the NWMLS. Why? Because listing on the MLS allows way more potential buyers to see their houses and, sorry FSBO lovers and separate MLS creators, having more potential buyers increases the speed and price at which your home sells. Also, it would be extraordinarily two-faced if they first said “don’t do For Sale By Owner (FSBO) because you won’t get the exposure that you would get with a full-service brokerage” and then said “list with us even though only we’re going to intentionally reduce the visibility of your property to only buyers who talk to our agents.”

If anything, the Justice Department’s suit should keep realtors in business longer. If the system is open just enough that innovators and alternative pricing models will use it, they keep people in the fold and maintain some pricing power. If the system is locked down, innovators will tend to create MLS replacements systems until one of them succeeds.

Realtors: a PR campaign is in order. Your organization is blocking open markets left and right in order to enforce a 5-6% commission structure. The reputation of the National Association of Realtors is headed toward car salesman and lobbyist territory and when other folks find themselves having monopoly-like pricing power, they spend some of that money on goodwill (see: Microsoft). When other organizations find themselves in this making lots of money, not very popular pickle (for good reasons or bad), they also advertise on NPR (see: ADM, Exxon, Walmart).

On a side note, why haven’t I heard of the sell-your-home-get-a-Toyota model?

“Because the industry functions as a cartel, it is able to overcharge consumers tens of billions of dollars a year,” said Stephen Brobeck, the federation’s executive director. “Consumers are increasingly wondering why they are often charged more to sell a home than to purchase a new car.”

-Galen
ShackPrices.com

Should You Leverage Your Home or Pay it Down Rapidly?

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There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let’s examine the pros and cons of both strategies.


Leveraging Your Property. In order to understand why you’d want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here’s an example:

If Consumer “A” buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer “A” now has $160,000 in equity.

Consumer “B” buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer “B” has $100,000 in equity, which is the same appreciation as Consumer “A”, a net $100,000.

As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn’t use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.

However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, “Buy term and invest the rest.” The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.

Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.

It’s important, however, to understand that regardless of how rapidly you pay your home off, you’re not getting any greater rate of return on your investment than if you paid it off slowly.

Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it’s been proven that your rate of return over the long-haul will be far greater than the rate you’d pay for a mortgage in today’s rate environment. It’s important to seek the advice of a skilled investment advisor to ensure success with this strategy.

The second scenario is best for those who have a difficult time managing their money or who’ll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers “bite off more than they can chew” with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.

If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It’s an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.

The Joys of Geocoding

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In my last post, I was asked what the accuracy of the locations in our generated Google Earth files are. Before I divulge that information, I’d like to explain some of the challenges of getting accurately geocoded data. (I’ll get on my soapbox and complain about the state of NWMLS data in my next post).

GPS Signal WiggleNow, in partial defense of realtors and the MLS, it is unrealistic to expect perfect data. For example, consumer-level GPS receivers aren’t always as accurate as one might think. This weekend I loaded up Microsoft Streets & Tips 2006 on my desktop computer, hooked up my GPS receiver, turned on GPS tracking , created a GPS trail, and walked away for an hour. An hour later, my map had a line drawing that resembled the type my 3 year old son likes to create. So even if a realtor was to use a GPS receiver, to get a latitude & longitude reading, it’s entirely possible that the measurement would be off by a house or two (or four).

Another problem, is that most digital maps are created with data sold by companies like TeleAtlas or NavTeq. The companies compile their data by driving around previously unknown streets & neighborhoods, with computers & GPS receivers (kinda like how that annoying guy in the Verizon ads, test their network). I should note that in-vehicle navigation systems are more accurate than GPS receivers alone, because the vehicle’s navigation system can also use the vehicle’s steeling wheel position and the speedometer to determine what your location is.

Unfortunately, by the time the Microsoft’s, Yahoo’s and Google’s of the world get their hands on the data, it is at least 3-6 months out of date (and probably closer to 12-18 months out of date by the time it gets on the web or published on a CD). This is a problem because about 25% of the properties in the NWMLS are new construction (where new construction is defined as a property that was built in 2005 or later). Since new construction is often located near new roads, the giants of digital mapping may be unable to help and are always in a position of playing catch up.

Then when the companies convert the raw data into digital maps, they end up using multiple sources of data, and interpolating it into one set of data they are going to use for a map. However, the data sources don’t always agree on where a point of interest is.

For example, Google Earth thinks the top of the Seattle Space Needle is at 47.620367° north latitude & 122.349005° west longitude. Meanwhile, Microsoft’s Virtual Earth, seems to think it’s located at 47.620336° north latitude & 122.348515° west longitude. Now, a few ten thousand-enths of a degree means the difference between the tip of the needle & one of the air conditioning units on the roof (a few yards). But if they can’t agree on where the top of the Space Needle is, it’s likely they aren’t going to agree on where 742 Evergreen Terrace is either. However, a few yards of error is better than a few miles of error (which is what can happen when I use raw NWMLS data)

Because of this, I have to geocode every single property in the database because I don’t trust the NWMLS data. So I to call Yahoo! Maps Web Services – Geocoding API to get a latitude & longitude for everything. Although Yahoo is far from perfect, at least it’s free and try’s harder than the MLS. So without further delay, here is the current geocoding precision of the points on our generated maps.

Geocoding Precision No. of properties Percentage
address 16341 80.20
street 1975 9.69
zip+4 43 .21
zip+2 343 1.68
zip 1644 8.07
city 25 .12
state 5 .02

In closing, I’d like to ask real estate professionals to be as complete and as accurate as possible when submitting listing data to their local MLS. I’d also like to state even if the MLS was accurate, it’s unrealistic to expect prefect geo-coding from imperfect data. If digital mapping companies and GPS technology can’t get it exactly right, a house or two off, is probably as accurate as you can realistically hope for given the current state of the art.

Robbie
Caffeinated Software