Monthly Archives: February 2006

How do you get a bargain?

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How do you get a bargain when purchasing a home in a hot market, without getting a lemon?

I have thought about the many times over the years that I have helped people purchase property at less than fair market value in all kinds of markets. Up markets, down markets, buyer’s markets and seller’s markets. I have used several different means to accomplish this goal for my clients. Today I will talk about one of the most recent transactions where a buyer achieved a true bargain price.

My partner, Kim, and I recently helped a buyer purchase a property so undervalued, that appraisers have called asking how we were able to acquire the property at that price. Answer was terms. A property came on the market in North Seattle at such a low cost that agents swooped on it like vultures. The seller’s agent was from out of the area, and the property was difficult to value, and so it came on market at a low price. But it would have bid up to “fair market value” or beyond, if we didn’t stop the other bidders in their tracks. We offered terms, or as we Italians like to say “I made dem an offer dey couldn’t refuse!”

One of the things agents do is “pre-negotiate” before they write an offer. I called the listing agent and let her blab on and on about anything and everything. I gleaned a few gems of significant data. The seller was buying new construction out of the area and they were scared about having to leave their current home before their new home was completed. Bingo!

We wrote an offer that did not compete as to price, but allowed them to stay up to a month after closing. This way the sellers had the comfort of knowing their property was sold, they had their equity in the bank three weeks before they needed to close on their new home.That gave them a whole lot of peace of mind.

The sellers did not consider any other offers and accepted ours hands down before several agents even had time to write an offer. Complaints from the trenches? “Why did the seller accept an offer without waiting for us to submit an offer? My buyer would have offered more!” The answer. Terms! Never presume when it comes to terms. Fast closings are not always better, if it forces the seller to pack and move before they are ready. Always base terms on what you know this particular seller wants and needs. Not on what you presume all sellers should want and need.

Condo Conversion vs. New Construction

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Given the popularity of condo conversion communities in the Seattle area, I think it is worth noting what these are, and what these are not.

I have heard both buyers and escrow companies refer to condo conversion communities as “new construction”. Please know that these are not new construction, but remodels, for the most part asthetic remodels, of older, rental communities. While you are buying the interior, and the interior is remodeled, you are also buying a fractional interest in the exterior. If there are 100 units, you are taking on a 1/100th responsibility for the new roof or exterior paint and all of the major components shown in the reserve study.

If you are buying into a condo building or community that has always been a condo community, the monthly dues for the last 15 to 20 years should have provided for an accumulation of “reserve funds” to replace the roof. If you are buying into a condo conversion, make sure the developer has “contributed” enough monies into reserves, to compensate for the fact that there were never before “unit owners” putting monies into the reserve account toward future replacement needs.

The roof may be OK today. But if it is a 20 year shingle and a 15 year old complex, there should be 15 years worth of accumulated monies set aside by the developer before he turns over the complex to the Home Owner Association. This is to insure that when the roof needs to be replaced in 3 to 8 years, there will be sufficient funds in reserve to buy the new roof. Also make sure that the monthly dues set by the developer include a sufficient amount for reserves. In five years when you need a new roof, you will need five years of owner contributions, plus the 15 years worth of reserves set aside by the developer, so that the roof can be replaced without a special assessment.

Understand that if a condo community or building functions as it should, there should never need to be a special assessment. Every owner, via their monthly dues, should be paying their fair share of future repair and replacement costs each year. It’s a simple calculation which assures that the monies will be in the reserve fund at the time the Major Component item needs to be replaced.

So I leave you with this warning. Find those things that are not new when buying into a condo conversion, and make sure the developer is contributing an amount into reserves reflecting that portion of “useful life”, used to date.

Climbing into bed with the competition

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I caught an investigative bug tonight, and I feel a strong need to post this speculation…

  • Fact 1 — Rob over at Your Seattle’ Neighborhood Specialist had some great commentary on Zillow in the months leading up to their beta release
  • Fact 2 — Rob has been silent since the release of Zillow
  • Fact 3 — Marlow Harris also noticed this, so I’m not the only one wondering what happened to Rob
  • Fact 4 — A reader pointed out to me that hourlyagents.com service is no longer available.
  • Fact 5 — Rob used to heavily promote the Hourly Agents site and his blog still has a link to it
  • Fact 6 — The hourly agents site now says “This Domain is For Sale — Please contact info@hourlyagents.com for details. — In the meantime, please join me at Redfin”

So when Marlow asks:

Where are you? Where are all your editorials and opinions? You were writing up a storm before, but now that Zillow has revealed itself, you’re silent.

Did you get that job there, after all? Did you sign some sort of oath of silence?

WHAT DO YOU THINK???”

I think the answer is worse than an oath of silence… I don’t think he’s working for Zillow (those people have definitely woken up to the idea of communicating!), but rather, I think he must have climbed into bed with the competition!

UPDATE 1: I just found out that Redfin started blogging one day before Zillow, but… it slipped past me as they haven’t shared any link love (yet!).

Update 2: Redfin added Rain City Guide to their sidepanel! Thanks you guys! Now all I need is for the HouseValues blog to add a link to Rain City Guide and I’ll have completed a Seattle Real Estate Technology Trifecta! 😉

Update 3: The Trifecta is complete!

You don't know the power of the dark side

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vaderAfter playing with Zillow for the past couple of days, the first words that come to mind are “Impressive, but you are not a Jedi yet”. I have a hunch the guys at HouseValues are going to get “Netscaped” if they don’t take their game to next level.

The Good
The UI is slick. The mapping isn’t quite Virtual Earth / Google maps slick but it’s close (if you add mouse wheel zoom, arrow key navigation support and resizeable maps, I’d put it in that league). Seeing all the lot boundaries displayed on the map is something that I haven’t seen done well before and is a feature that will be expensive or difficult for Zillow’s competitors to match. I like the fact that they partnered with GlobeXplorer, since I believe that will enable them to out map RedFin.

The Ugly
I find all the trash talk about uptime and availability amusing. As any experienced software engineer will tell you, the first days for any web based service that has had the anticipation & hype of Zillow are going be rough. After all, if the mighty Microsoft had troubles with X-Box Live when Halo 2 was launched a few years ago, the fact that Zillow’s first day had some minor troubles is hardly surprising. Besides, I’m sure Rich Barton and the boys will buy a few AMD Dual Core Athlons CPUs with the new WD Raptor drives during the next few days and cure that problem.

The Bad
I suspect biggest problem with Zestimates is the current lack of high quality data. (Gee, the same issue I keep complaining about). Any realtor will point out, doing an accurate completive market analysis house is a problem that involves many, many variables. I understand it’s a hard problem, but the fact that the Zetimates are so far off for my house (which I thought should be an easy case) is disappointing. I don’t expect accurate estimates for waterfront, hilltop views, high rise condos, Bill Gate’s house or rural properties. But my house is a cookie cutter house is suburbia (with lots of similar houses for sale). I would think my house would be an easy one to get right.

Just for kicks, I implemented a quick & dirty Compeitive Market Analysis feature for the Rain City Guide home search. I found it to be more accurate than Zillow for my house, and Dustin thought my estimate was right on the money for his home (after he entered the correct square footage). Anyway, play around with it and let us know how close to the “right” price it is for your area.

BTW – My version just goes against active NWMLS listings (so forget about trying it if don’t live in Washington). It’s pretty crude and it’s not as cool as Zillow, but then again, I hardly have $32 in venture capital (much less $32 million), so cut me some slack!

I think the nay sayer would be wise to recall the words my former boss once said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” Zillow’s Zestimates may be off in Safeco Field right now, but I have no doubt they will get much better over time. And when they do get better (not if), you better be ready.

Well, I’m going to shut up now and let my code do the talking. I’m sure the engineers at Zillow are following suit.

Robbie
Caffeinated Software

Updates – NAR and Zillovania

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I suggested a while back that the National Association of Realtors start a PR campaign because they were looking so bad. Well, the $25 million campaign has begun.

As for Zillow (a company with $25 million in investment thus far), my take is this: predicting real estate values is a clever and successful (and expensive!) starting point for them. When they say that their model will be entirely based on advertisements (zads?), I predict a very broad interpretation of advertisement. You could say that homevalues is all advertisements, right? What if Zillow charged $10 (initially) to list a home and $200 to make it a “featured home” – those would be advertisements, right? Same goes for advertising agents (a la this very promising site). All they’re saying is, for now, they aren’t going to take on RedFin for the 0.5% of the market that wants to buy a house entirely unaided.

It’s a clever model because consumers will go to the site to check the value of their home before they sell and to check the estimated value of a home when they buy (even for a laugh if it’s wrong) – this was money very well spent and is worth 10 times more than advertising. If (when) Zillow starts showing listings on their site, that seller will go to an agent to list it (until they find one through Zillow) and they’ll say “lets list it on Zillow for $10,” or, “I’ll list it on Zillow for $10 if you don’t want to.” Zillow will not make it in the long run without houses that are for sale on the site. According to Rich Barton, CEO and founder, working with the approximately 900 MLS in the United States would be “a Herculean task” that they’re not willing to take on. So they get the eyeballs that every MLS-alternative has been clamoring for now, and they get the revenues in the future. See? Clever.

I think Keith Castonguay (perhaps melodramatically) hit the nail on the head, but he was wrong about the eyeballs: they will come from features and word of mouth, not primarily advertising. He’s also wrong about the absolute nature of Zillow; just as there are competitors for online travel booking, there will be competitors for this. Don’t think Zillow’s undertaking is without risk; they have to get a lot of listings (and features) on there before someone with an alternate model gets computer generated house values next to MLS listings. It’s a pain to search for property when only half of what’s available shows up. If Zillow prices listings too high or people just don’t sign up fast enough, other giants will stomp on it.

I also expect Zillow to make money from other ventures too – mortgage ads, home staging recommendations, what-have-you.

Galen
ShackPrices.com

Who Benefits from a Buyer's Agreement?

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(Editor’s Note: I’m happy to introduce Russ Cofano as a new contributor on Rain City Guide. He is a practicing real estate lawyer in Seattle with a tremendous amount of legal and business experience. Among his many roles and accomplishments, Russ is the former retained General Counsel for the Washington Assn of REALTORS (“WAR”), Seattle-King County Assn of REALTORS and Tacoma-Pierce County Assn of REALTORS; he was a key contributor/drafter of important real estate legislation in the State of Washington such as the Real Estate Brokerage Relationships Act and the Residential Transfer Disclosure Act; and he is an expert on MLS and Intellectual Property issues having been invited to speak at national real estate conferences including Inman’s Connect in San Francisco and MLS Connection. Russ can be reached at Russ@cofanolaw.com)

In the 90’s (sounds so long ago, doesn’t it), the concept of buyer agency entered the real estate brokerage world. For years, buyers working with agents were always surprised to find out that the agent typically was a sub-agent of the listing agent and legally represented the seller, not the buyer. This was true even though that agent almost never had any contact with the seller and usually had a much more significant relationship with the buyer. For a variety of reason (mostly because it made sense), the historical concept of sub-agency went away and agents working with buyers actually started representing those buyers.

As this concept took hold, folks like me would tour around far and wide and talk about the virtues of getting an agreement in place with buyers. This seemed to make sense because, heck, listing agents got sellers to sign listing agreements so why wouldn’t a buyer sign something similar. Well, if it wasn’t for my quick feet and years on the basketball court, I would have had many a projectile hit me in the head when I would suggest to agents this new way of dealing with buyers. The response was usually based on the fact that most agents felt that buyer’s would never be willing to commit themselves to a single agent like seller’s do in the listing agreement. In the same breath, those same agents would curse about those cheating buyers who would use them for days, weeks and months and then leave them at the last minute to work with someone else or (egads!) work without representation.

Fast forward to 2006. In Washington (as well as many states around the country), we have agency laws that define both seller and buyer agency roles. In Washington, if an agent is working with a buyer and is not the listing agent on the property that buyer wants to purchase, that agent will be the buyer’s agent (unless they have an agreement otherwise).

So what do buyers legally get from buyer agents. Well, look behind door number 2, and you will see the following duties:

  1. To be loyal to the buyer by taking no action that is adverse or detrimental to the buyer’s interest in a transaction;
  2. To timely disclose to the buyer any conflicts of interest;
  3. To advise the buyer to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise;
  4. Not to disclose any confidential information from or about the buyer, except under subpoena or court order, even after termination of the agency relationship; and
  5. Unless otherwise agreed to in writing after the buyer’s agent has delivered the Agency Law Pamphlet, to make a good faith and continuous effort to find a property for the buyer; except that a buyer’s agent is not obligated to: (i) Seek additional properties to purchase while the buyer is a party to an existing contract to purchase; or (ii) show properties as to which there is no written agreement to pay compensation to the buyer’s agent.

My question is this: Doesn’t a good buyer’s agent deliver significantly more value to a buyer than those measly duties outlined above? If so, why would a buyer not be willing to sign an agreement that requires the agent to deliver all those “extras

Zillow's Impact On Day 1

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Despite the fact that the Zillow site spent most of the day gasping and sighing, a ton of digital ink was spilled discussing their service (or lack thereof). Here are the articles I found most interesting from Day 1:

By the way, if you scrol through this Technorati search, you’ll notice that not only was I the first blogger to break the story, but I announced Zillowblog an hour before it went live!)

Who is the "BEST" lender?

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There are three separate and distinct functions of a lender in the home buying process.

 

1.  Determining the cash needs and monthly payment in advance of house hunting.

     a)  Dollar amount of Closing Costs

     b)  Montly payment including estimated taxes, insurance and codo fees

2.   Providing a “Pre-Approval” letter to submit with an offer to purchase.

3.  Providing the actual loan to be used in the home purchase.

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The “BEST” lender to use for Step 1. will be the lender

 that most accurately predicts your eventual closing costs

(and monthly payment) BEFORE you make an offer. 

*************************************************************************************************Variances Inaccurate predictions can be costly, and even cause the escrow to “fail”.  If you do not have enough money to close escrow, you can lose your Earnest Money, as the Finance Contingency only covers loan approval.  It does not cover “not having enough cash to close”.  I have not in 15 years personally had the experience where my buyer client has needed to find money at the last minute to close, but I have seen many who have had that experience when working with other agents.

If you do not have a lot of cash to play with, or if it is your goal to close escrow spending as little of your own money as possible, you should try to narrow down your choice of lender in Step 1. to the one you will likely be using by Step 3.  Very important if you are planning to fold your closing costs into your offer.  If the  lender you speak with at Step 1. says your closing costs will be $4,000 and by Step 3. you choose a lender with actual closing costs of $8,000, you will need to dig up an extra $4,000 if you only wrote “$4,000 toward closing costs” into the contract.  Lender costs are sometimes “credit score driven”, same as rate, so the lower your credit score, the more important this will be for you.  Costs can also change dramatically from one lender to another and from one loan program to another.

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The “BEST” lender you can use in Step 2.

is the lender that the SELLER, will value the highest. 

*************************************************************************************************

To determine who will be the “BEST” lender to use in Step 2., you need to understand the TRUE purpose of the “Pre-Approval” letter.  The quality and credibility of the pre-approval letter often plays a major role in the negotiating process.  The seller and the seller’s agent read a lot of things into that letter, especially in multiple offer situations.  Even when there is only one offer on the table, the seller will sometimes accept a lower price from a “highly qualified buyer” who is using a lender that the seller’s agent is certain will close on time.

 Often the Buyer Agent sells the lender and the buyer’s credentials when presenting the offer.  And many, many times I have seen a seller switch to a lower offer with a better “letter” and sales pitch by the Buyer’s Agent, regarding the buyer’s ability to close and to close on time.

Consequently, if you use a lender that the listing agent does not believe in or has had a previous bad experience with, it could cost you the house, or at the very least, raise the price the seller is willing to take from you, using that lender.   I have seen one too many pre-approval letters faxed crookedly on the paper, written with poor English and grammar, with many mis-spellings and two paragraphs of disclaimers.  The phrase I commonly use for that type of letter is “it might as well be written on toilet paper”.  Sorry if that offends someone, it’s that Philly.NY “in your face” honesty, I refuse to shed 🙂

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The “BEST” lender to use for Step 3.

 is the one who has the very best rate and program for you

 within the first five days after you are “signed around”

and can LOCK you there with a “float down”.

 *************************************************************************************************

None of the rate quotes or program evaluations that you acquired prior to house hunting, is a true indicator of what exists in the marketplace the day you are ready to apply for your loan.  Generally, you do not truly apply for your loan, until after you have a Contract to Purchase a home.  Most lenders will not permit you to lock in the rate, until you have a contract in play. You can with some lenders apply for a loan with a locked in rate “subject to house”, a tool used when interest rates are expected to rise during the house hunting process.

One might say that the “moral” of the story is that you can “use” any lender you want to process your loan, without regard to whom you “used” in Step 1. or Step 2.   But, hopefully, by seeing in advance the three separate and distinct functions of the lender in the home buying process, you will be better able to choose the “BEST” lender from the beginning.  A lender that will excel at meeting all three of your lender needs in the home buying process.