[photopress:ted_Lewis.jpg,thumb,alignright]Using Ted Lewis’ famous line, “Is Everybody Happy?” as my guide, I am going through all of the people who bought and sold homes last year. Not just our personal clients, but the clients of other agents in the Company as well. While it is very common to do so at this time of year for financial reasons, I take some extra time to study who was very happy and why, and also who was unhappy and why.
I’d have to say 90% to 95% were happy, but I find myself more interested in those who were not happy. I think by writing about the unhappy people, maybe a few readers will learn not to go down that same path.
The least happy prospective home buyer, was one who was being forced to move. I had one prospective client who was being forced to move from her apartment due to a condo conversion, which is now Mira in Downtown Kirkland, behind the Post Office. Cheap rent; great location. While she could afford to buy a condo, she could not afford to buy a condo in the same location. She considered Juanita and Kingsgate and Totem Lake and finally I said, “Why don’t you just rent right here in the same location for now?” Finally…she was happy. Because what she liked most was being able to take her two dogs out for a walk and enjoy the same sights and scenery she had come to love, visit the same coffee shops that let her two little doggies come in with. Just because she was forced to move out, didn’t mean she was forced to leave her everyday happy times, which were location dependent. So the least happy prospective buyer was somone who really didn’t want to buy at all…and so she didn’t. Sometimes you make “a client” happy, by not selling them anything at all.
The least happy client of one of our agents was pretty much the same scenario. She was renting a house with her handicapped daughter, and the owner of the house sent a notice that she had to leave because the house was being sold. The agent was a friend of hers and found her house after house to buy, and nothing seemed good enough. Mainly she was extremely unhappy because she really just didn’t want to move! Unfortunately no one could fix that part for her. She did buy a house and eventually got used to the idea and the new home. But the only thing we really did for her was make it impossible for someone to knock on her door again and say, “You have to move because we are selling the house you are living in.” When you have a handicapped child, moving is ten times more difficult. The added burden of having someone give you 60 days or so to find a new place to live can be an overwhelming burden. At least it is not likely that she will have to face that event again, and will only move if she chooses to do so, not because someone sends a notice saying she has to move now.
The other day someone came to me who lives on Lake Washington Blvd saying, “I have to move by March 1 because I was just notified that the place I live in is becoming a condo conversion.” I am finding him a place to rent nearby so that when and if he chooses to purchase a home, more likely closer to the time when he is getting married next year, he can do so by his choice and in his own timeframe.
Studying the patterns of unhappy clients, can help you set the wheels in motion in the right direction for that next person, who is being told that they have to move now.
Unhappy sellers pretty much fit the same criteria, those who are being forced to move due to a divorce or job transfer. Those who did not electively choose to sell their homes, often leave “with a bad taste in their mouth”. Being forced into moving out of your home by events not set in place by you, seems to set the stage for the least happy buying and selling experiences…at least in the short term. Best you can do is try to make lemonade out of those lemons.
So when someone is telling you a war story about their terrible ordeal in buying or selling homes, ask WHY they were buying or selling. You may just find that what they were least happy with, was the fact that they had to move in the first place.
On a slightly unrelated topic: does anyone have any thoughts as to when is a good time NOT to buy or sell a home? I have been hearing a lot of talk about how it is a great time to buy right now, but that would seem to imply there is a good time NOT to buy. So when would that be?
Has there ever been a time in the last 20 years where one would have strongly recommended a person NOT to buy a home in the Seattle region? I am not talking about using the benefit of hind-sight (i.e. we would all love to avoid buying just before recessions, etc). Are there specific types of factors that someone should look for in a market to decide one shouldn’t buy?
If a big regional employer was having lay-offs would that be a reason not to buy? If prices had been dropping for a couple years, would that be a good reason not to buy? Would a recent spate of quickly rising prices be a reason not to buy? Would high interest rates be a reason to just say no to the market?
Or is there really no such thing as a bad time to buy, and real-estate prices will always rise over time, so someone should just get on board, and not worry about it. But if that’s the case, then the message campaigns about this being a great time to buy are mis-leading, because it really is just as good a time as it was last year, and the year before that…
Honestly Sniglet, most people do not buy and sell property based on good and bad time to buy.
Except for first time buyers, most people are buying and selling at the same time, so it is somewhat irrelevant. If the market is down they are getting less than they could have, for the house they are selling…but are also paying less for the house they are buying.
Reality is that people buy property for reasons that have literally nothing to do with good time or bad time to buy. They buy because they just had twins and need a bigger house. They buy because they are getting married. They buy because they want to move from Seattle to Kirkland or vice versa.
In 16 years I have never once had someone walk in and want to buy “because it is a good time to buy”. In the 24 years or so that I have owned homes, I have never once bought one “because it is a good time to buy.” I bought a “home”, not “a property”.
Investors? I’ve seen just as many lose money even when they bought at just the right time and sold at just the right time…because they bought the wrong property.
When someone puts out an ad that says “There’s never been a better time to buy.” it is really just to help motivate people who already DO want to buy. Not to convince someone who has no interest in buying, to do so.
No one…NO ONE can predict with any degree of accuracy if home prices are going to go up or down. The key is to buy the right property for the right reasons and not be forced to sell at “the wrong” time.
The best answer is always to buy something in the best location that needs some improvement and doesn’t “look too good”. If you can “leave a place better than you found it”, you will likely also leave it at a profit, or at least not at a loss. In a flat market, a new home will go down in value. In a down market, an ugly house that is now “less ugly” may come out whole.
There’s always something good to buy and something bad to buy in all markets…trick is knowing which is which.
Aye Matey: Me tanks de bestest time of da yer to buy ‘ur real estate in me opinion depeends on ye area.
Likeme ‘er in North Cacalacy (or Cackalacka, Cackalack) ; de best time to buy ye real estate is wend de weather starts to get me warm and ye and de agent can actually get away from de far place and out of de cubbie hole and actually go through de shack ye may be looking at and walk the cow paths.
Go Pirates!
Derek,
I think you need to go out and play some baseball 🙂
It’s a bit chilly outside to do that. Wood bat don’t hit too well in this cold weather and alumnium bats feels like you’re holding a handful of bees in your hand after making contacts.
I could go out and throw a little bit, but with this weather, there is no telling where the ball might end up at.
I told my agent yesterday not to send me to no cold weather team but it looks like the Blue Jays are going to be my best fit. Luckly I’ll be assigned to Virginia or Florida where the weather is a bit more tolarable! 10 week rookie ball coaching schedule works well for me; fits right in with my college stuff and of course, allows me the chance to go back to pro ball!
Ardell,
I agree with you that for most people it shouldn’t matter what phase of the cycle a market is in for deciding to buy and sell. So long as they can afford the place they want to live in, go for it (never borrowing more than twice your annual income, or spending less than 15% of your income on housing, say).
That said, I find it annoying to see these advertisements saying it is a “good time to buy”. It is just such a vacuous statement that doesn’t mean anything, and if it DID mean something there would have to be a corollary (i.e. that there was a bad time to buy). It would be very interesting to hear from someone who makes statements like this (i.e. that any particular time is “better” to buy than another) explain it.
Well Sniglet, you’ve set the bar just a little beyond attainable for most. But you can set yours wherever you like. It’s usually three times your income and 28% of your gross income on housing. Those are considered very conservative levels. I have never seen someone use 15% of gross income…maybe you are thinking net income vs. gross income.
I do think when interest rates were down in the 5% range…saying there has never been a better time to buy long term with a 30 year fixed mortgage, was probably fairly accurate.
Buying the house I currently live in was clearly the boldest move I have ever made…but I love it. Wouldn’t go back and change a thing. It brings me great joy every day.
Interesting… Do most people in the Puget Sound area follow the principle of borrowing no more than 3 times their annual income when buying a house? I wonder if this has changed over the years (i.e. do people typically take on a proportionately bigger debt load buying homes than they used to)…
Pretty much, IF the lender KNOWS their income. The 3X rule of thumb is not used as often as the 28% to 33% of gross income, and people with high debt loads can’t afford that much. If you have huge credit card payments, student loans or car payments, then the lender will allow less for housing payments.
The 3X rule applies again today, pretty much, but it was thrown out for awhile during double digit interest rate periods when 3X income was too much if your interest rate was 12%.
Here’s how it works. Income $80,000 equals $240,000 of loan. $240,000 of loan at 6.25% equals a monthly payment of $1,478. 28% of $80,000 equals $1,866.67. So once you add real estate taxes and condo dues (if a condo) to the $1,478 a month, then the three times income rule at 6.25% interest rate is about right.
Many people stretch that up on their first property, if they are single or married without children, so that the loan payment is a smaller percentage of their gross income by the time they have children.
By the time you have children in various and costly activities, your payment should be closer to 20% of your gross income.
Problem has been that people move around a lot more and keep using the higher ratio AFTER they have children. If you buy your first home when you get married, and keep it through the time your children are in school, the ratios work fairly nicely.
I said at the beginning IF the lender KNOWS your income, because way too many people use “stated” income, meaning the lender is not verifying the borrower’s annual income. That’s when the trouble starts. Stated income is used by way too many people these days.
Ardell,
Do you have any estimates based on your experience on how many people use stated income these days?
Wouldn’t “way too many people using stated income loans” imply that prices are not being supported by current incomes and that once lending standards tighten up then home prices will drop? Or is “way too many” too few to make a difference in prices?
A lot of people use stated income as a convenience, especially those who are self employed. I don’t think it is possible to determine which people use if for the purpose intended, and which use it for other reasons.
I am still seeing a lot of multiple offers on properties by well qualified buyers, so I don’t think the market is turning around any time soon in the hottest of areas with the highest appreciation levels.
Since foreclosures are way way up over last year, do these sellers generally seem less happy? Or do they accept their situation as a natural consequence of their actions?
We may see stated income either become more restricted or be replaced by a no-income verified loan. Stated income as also known as the “liar loan” in the mortgage industry and has often been used improperly.
No doc loans (no income, no employment or assets verified) are becoming more popular as well, since the pricing is usually not much more than a “stated”. It does take better credit to qualify for this type of program.
Bill,
I haven’t seen any foreclosure sellers, so I can’t say. The only ones I have seen upside down are ones that borrowed against their equity, once or even twice with a refinance, after they purchased the property. So the HAD equity, they just spent it all.
Rhonda,
That is why I DO think it is the agent’s business to assist in the loan process.
Good examples of stretching and stated that I have had:
Very busy woman who owned three day care centers. Was selling her big house and buying a townhome. No question but that she could afford the payment. She didn’t want to put money down on the townhome, because she needed more cash flow for the businesses. She didn’t want to hand over all of her accounting records for the last two to three years and just wanted a fast loan approval. She was willing to pay the extra 1/8 to 1/4 point to have a clean, fast approval with no work on her part sorting through bank statements, etc…She went “stated income”.
Young fellow, last year of medical internship. Would be making much more money than today, in future years. Had a second income partner who would be living in the new house, but they were not married yet and he was buying it in his name only. So his current income did not reflect a true picture of his ability to pay either today, or long term. He bought more than his current income would permit and went “no income verification”.
No income verification and stated income options have very good real life purposes for certain people. They are not a means for people to get a bigger and better house, who truly cannot afford it. It is not a way to push the back end out to 75% of gross, unless there is substantial additional, undocumentable income.
Another good example is “trailing spouse” income. Lender won’t count it, but not likely it isn’t going to be coming. Wife is just waiting until she gets to the other end to secure a job. Difficult to secure both husband’s and wife’s job at the same time, before the relocation to the new state.
Many, many really good reasons to have no income verification options. Problem has been that lending professionals and some less than savvy buyers have been applying these options in an abusive fashion. The answer isn’t to get rid of the options, the answer is that someone has to make sure that the right people are using them.
Is it common for people to pull out more than 100% of the equity?
Bill,
Yes and no. It is common for refi appraisals to be wrong. So it is more than 100% based on what the property will really sell for, but not more than 100% based on the refi appraised value. Appraisals have been insanely inaccurate this year. Not sure why that is.
I’ve seen three different appraisers in a nine month period, value the same house at $850,000, $795,000 and $702,000 in an area that is not fluctuating in value or going down in value. Part of Seattle just really do not have “true comps” and the appraisers are using what they’ve got, and what they’ve got isn’t sufficient to give a true picture of value.
Seattle has so many unique homes. Appraising a three year old townhome in a development of 190 townhomes is going to be really accurate. Appraising a house in the City of Seattle that was built in 1920 , is usually going to have a much larger margin for error, especially those in view corridors. If the appraiser is using a view property to value a house without a view, his discount for no view is never going to be accurate.
The worst house in town will always over appraise and the best house in town will always under appraise and the run of a mill, dime a dozen houses will appraise pretty much on target.
If the refi is 80% of appraised value, that does not mean there is 20% equity and it could in fact be financed at 110% of what it would really sell for. That’s how people get upside down. The refi appraisal was much higher than what the home would really sell for.
Hope that explains it better.
Hi Ardell, I agree those are GOOD examples of when stated and niv loans make sense.
With regards to Bill comment 16, some lenders will offer second mortgages that go beyond 100% financing. And another possible product is 103-106% percent financing when closing costs are included. Both of these scenarios carry much higher interest rates.
I would rather see a seller contribute towards closing costs than have a buyer finance over 100%, personally. But hey, I don’t work for the seller! 😉
Rhonda,
Glad to hear I can tell a good use from a not so good use 🙂 Where are the classes that teach agents what they really need to know in this business?
Agents can’t provide real value to their clients until the classes teach the right things. I just happen to have been in banking for 20 years before 1990 and have a sister who is an underwriter. We can’t depend on agents coming into the business with that kind of background. The lender really never gets as clear a picture of the buyer’s reality as the agent does. We spend so much more time with them and have many and varied conversations. Agents need to at least know how to spot a lending red flag.
Sometimes a buyer will find a house the day they meet the agent and call the lender the same day the buyer wants to make an offer. No agent should be writing an offer without a clear understanding of what will happen from day of offer to day of close, and shoving that whole responsibility onto the lender is not an effective safeguard for consumers.
Agent + Lender = 2 heads are better than one.
I agree again. It’s very helpful when everyone is on the same page. It can be difficult ,as a lender, when you work with an agent who “just wants the deal closed”.
Do you think most agents would attend such a class? I use to do a monthly morning meeting in South King County called R TEAM (I creted it in 1992 and we just quit late last year, I’m trying to revive it thru AR) where we would educate on such topics. I would have about 10-20 agents a meeting from various offices…then it began to dwindle and… so that was when R TEAM was put on hold.
I was going to say I’m a bit off topic…but… this does kind of fit into “is everyone happy”. The more we (agent/lender) understand “the why” a client is moving/buying and their financing program, the odds are they should be more comfortable with the process.
Rhonda,
Speaking of off topic…get this…I’m receiving an actual offer in a minute (just got the call) on a property that’s not for sale.