I ran my stats this morning to track where the market is heading for 2007, based on properties For Sale, In Escrow and Closed so far since the first of the year. I use the stats for Bellevue, Redmond and Kirkland as the basis for my market research, as this area has a huge component of housing in almost every market segment,and represents are high expectations for market conditions. When this area turns weak, we need to take notice.
So far, it appears that my prediction that 2007 will meet or exceed that of 2006, appears to be on target.
The full data is on my site, with more graphs, but here are the quotes of particular relevance.
“…75% of the market will still be a SELLER”S MARKET in 2007, based on how the year is opening up so far. We do not begin to see inventory tipping over into a balanced or buyer’s market until we get over $800,000 in price, which only represents about 25% of the housing market, in the area I have chosen to examine.”
“The dominant portion of this market is between $200,000 and $600,000…which is by and large “the safer zone” representing 63.6% of all home buyers and sellers in the Bellevue, Kirkland and Redmond markets and the area most likely to rise at 15% to 25% or greater in value by the end of this year.”
“Statistics not compiled or published by NWMLS.” NWMLS is the data source I used to compile the data and I created and published the graph. MLS rule to post this.
Interesting. 15 to 25% rise expected, yet Rhonda insisted just a few days ago that she’s not seeing a big jump in incomes among her mortgage applications – and there don’t seem to be any stats (yet) indicating that the area has seen much of a rise.
Are her clients significantly different than the ones buying in your target area?
Bill,
My numbers show 176 sold from $200,000 to $400,000 and 166 sold from $400,000 to $600,000 so far this year. Presumably some of those that sold in the lower range, took their equity from that sale, and put it into the next tier of value.
The incomes do not need to match appreciation or prices either, unless all of the buyers were previously renting. Which is not likely. Those buying at 25% higher are also selling with at least two or more years of equity to put down.
The market doesn’t seem to be affected by incomes. Lower incomes simply have more money down, due to appreciated values of their existing properties. That’s why a two bedroom condo as a starter pays off for those who trade up, vs. those who wait while prices are appreciating. Same goes for those who buy townhomes and trade up to single family.
Bill, can you please point me to the comment your referencing about me? Thanks a bunch.
Ardell,
Actually I thought 2007 as a year is already a buyer’s market.
Here is an example, New SFH, same dimensions (4 BR, ~2500 sq ft), same area(Redmond Education Hill), same builder(Camwest), Woodlands was selling last year for U$ 740-750k, now Tyler Creek is for U$ 650-700, that seems like a price drop of approx 10+%.
Thoughts?
Amit
“While Buyer’s might see some advantage to the Supply being higher than the Demand here, this market segment only accounts for about 10% of the market in a year’s time. ”
Ardell,
10% sounds small when compared to 100%. But when compared to 33% (the percentage of the largest market segment – 200k – 400k), it sounds a lot bigger.
According to your data, I’m feeling good if I’m a 800k + buyer.
WoodinvilleHomeowner,
I had a little trouble following you there. I think that quote is from the full article on my site referring to the $800,000 to $1,000,000 range chart and comments where the market starts tipping a bit to the buyer’s side.
That would make it 10% in the top 25% vs. 33% of the mainstream 75%. That price range impacts about 2/3rd to 3/4 less people than the $200,000 to $400,000.
I try to look at the stats in a manner that affects the most number of home buyers and sellers. 75% of the people in this area will be dealing in a seller’s market. 15% in a buyer’s market (above $1 million) and 10% in a more balanced market with a slight tip toward the buyers.
When people ask “Is it a buyer’s market or a seller’s market”, the answer is a Seller’s Market until you get over the $800,000 range and a Buyer’s Market at $1 million and above, higher than that for new construction than resale.
$800,000 to $100,000, the range you are quoting from, is the area that is most in balance and affects about 10% of the people buying and selling homes in the target area.
Of course if you are in that target price, it is mega important to you, and rightly so. But if someone is simply taking the market pulse, clearly the Seller’s Market affecting 75% of the buying and selling public is more significant for stat purposes.
Amit,
Running to an appointment. Will get back you on that.
Rhonda, my bad – it was Reba’s post that indicated she didn’t see incomes rising dramatically – yours just seemed to say that what you saw was in line with the published statistics – but those stats don’t show much of a rise either, so I was inferring that you were also not seeing a rise. Am I wrong on that?
Thanks, Bill. I was scratching my head trying to recall if I made a specific statement! 😉
I’m in the process of reviewing my closed transactions from last year. I’m curious as to what trends I will personally see. I’m sure that incomes have not raised at the same rate as home prices have this past year.
PS: My main office is out of Kent and most of my business, although I can provide mortgages throughout Washington state, has most likely been South King County/Pierce County and I’m just starting to do more Seattle and Eastside business. You are correct that there is a difference between the stats that Ardell is quoting (eastside) and where a majority of my past business has been.
Ardell,
Why the focus on merely the eastside? Why not use King County NWMLS stats? Are you implying that as Bellevue, Kirland, and Redmond go, so goes King County?
Matthew – that’s a good question. My take on it is she’s saying the opposite. Those areas are prime, so that is what she chooses to focus her business on. And why not? Many of the outlying areas are overbuilt and the low appreciation isn’t going to fund move up buyers based on their (apparently stagnant?) incomes.
Last time around, the Eastside was the hardest hit when the market slowed. You can find articles in the Times from 91-92 mentioning 10-20% drops in some areas. A friend of the family bought a waterfront house in Kirkland for 20% under the tax assesed value in 1993!
Ardell,
I’m a potential buyer in the 700k to 750k market. Based on your helpful data, I may wish to stretch a little and put myself in the 800k market for a better negotiating position. What do ya think? Is this what you mean by “mega important”?
WH,
No, I wouldn’t stretch your budget to get into a market that is just slightly tipped. In fact I feel the $700,000 to $750,000 gives you more room to expand without as much fear of losing value sometime in the future. I would stay at $650,000 to $750,000 if you can find something you like, and will like long term, in that price range.
Be sure to look in the high $600,000s before shooting up to $750,000 or more, and make sure the housing is worth the $50,000 plus difference to you. Always look a little under your price range. Something might surprise you. Sometimes you don’t get enough more for your money to justify the extra $50,000 to $100,000. Look at both.
What I meant by “mega important” is that if someone is selling a home in that range, clearly what is happening there is mega important to that person. But in looking at the trend, I look at the segment that affects the greatest number of people.
You should never stretch yourself into a higher price range based on market conditions in that segment. If you would do that, it would only be because you liked that home a lot better than ones that fit your budget better. But given the higher ratio of houses to buyers up there, you might look at something priced at $800,000 or a little higher, that has been on market awhile and see if it might go at $750,000, if you like it.
Matthew,
One of the reasons I track Eastside is because it says “Eastside Specialist” up there next to my name 🙂 There are other agents in this group blog who may post similar information regarding Seattle. We try not to step on each others toes and give one another space to post on different markets.
I have spent more time, or at least equal time, in Green Lake, Ballard, Greenwood and around the north end of the lake into Kirkland. The Seattle markets react more on a neighborhood to neighborhood basis. One pocket is hot and another not so much. You can have one house with 20 offers and another one five minutes away in a neighborhood no one seems to want today, just sitting. You can have townhomes in Ballard being scooped up as fast as they can slap them up, and have a whole section of almost identical townhomes in Lake City with no offers at all.
Kirkland, Bellevue and Redmond doesn’t react that way. There are always plenty of buyers for any given neighborhood. So when something is sitting on market, there is a good reason why. When things start sitting on market with no reason why, we will know the market is turning. It is easier to see the market turning on the Eastside than in Seattle. There is really no such thing as not being able to find a good option in every style and type on the Eastside. The same is not true in Seattle.
As to King County…much too broad of an area to extract market trends. You could have 10% foreclosures in South Seattle, and it would not impact Green Lake or Eastside. The markets do not work in tandem.
Bill,
Stats can be just cold hard facts, unless I can envision the property, and the reasons why buyers are or are not buying them. I need to see why something is not selling in order to determine if the market is slowing, or if there are a lot of pent up buyers waiting for something that is not currently for sale. Are there no buyers? Or are the properties for sale just not pleasing the buyers.
That is not as important in April through July as it is early in the year. That is true every year. Strong sales and low inventory in the $200,000 to $400,000 range early in the year, is an indicator of a strong season. As the lowest early market moves forward, so does the year throughout the higher price ranges. You can’t really track that in Seattle because there just are not as many options, in the areas I work in, at lower price ranges.
Seattle reacted very eradically last year. I expect it to do the same this year. I can’t put my finger on exactly why, except that you have to get pretty high up in price before you see anything decent. Not so on the Eastside.
Too many people are priced out of the market in Seattle, because Seattle just does not have the varied inventory. I think you will be seeing a lot more tear downs in Seattle than ever before. Builders want the land more than buyers want the houses on them. Not sure how that is going to pan out in the next couple of years. Could go the way of Kirkland where the land values start appreciating to the point where the houses recede in value and the builders start knocking them down. Seeing some of that already in some of the hotter Seattle neighborhoods.
As Rhonda pointed out, you have to get pretty far South before you start seeing similar types of options, as you do on the Eastside.
You can still get a great two bedroom, two bath condo with high ceilings and lots of light in Kenmore, with territorial views, for about $215,000. You can get a nice townhome, or single family attached on the Eastside in a good school district with a two car garage and three bedrooms up for $350,000 or so in North Juanita. You can still find a nice newer home in Northshore School District for $500,000 give or take. There is really no reason not to buy on the Eastside, except if the market is turning for the worse. So looking for weakness in the market is better done on the Eastside.
That’s how I see it anyway. Someone else will have to carry the ball for what is happening in South King County. I rarely go there.
Amit,
Sorry it took so long, but your numbers weren’t matching my recollection. So I checked.
Woodlands
$689,000 for five bedrooms and three baths with 2,900 squre feet in September of 06
$697,000 for 4 bedroom, 2 3/4 bath with 3,007 square feet in December of 06
Most of the Woodlands sold in the over $700,000 range, were over 3,000 square feet and on prime lots.
Tyler Walk is expected to go into the over million price range for the prime lots on the far right in the front of the development. I find it hard to believe they will end up at $1.2 million as the site people suggest. If they get to $906,000 that will be a 25% increase over the Woodlands at the end of 2006. I think the development should cap out in the high 8s given location issues. We’ll see. Still a substantial increase.
There are some location issues that affect price there overall, so the same house there could cost a little less, but that’s not what I am seeing.
The first lots sold and sometimes the few last lots sold, will often be sold at discount to get the development “moving”. The one I saw there was at the busiest corner and $689,000 for 2,400 square feet. Clearly not a drop from the sales in the Woodlands from Sept. through Dec. of 2006, given the decrease in square footage of about 500 square feet and the location considerations.
I’m looking at actual sales in the Woodlands which would include the upgrades over base price, and seeing over 3,000 square feet selling at just under $700,000. Where are you getting your numbers?
I’m seeing a 2,640 sold for $642,000 back in April of 06, not the 2,500 sold for $740,000 to $750,000 you mentioned. If you email me I’ll give you the detail on closed sales for bigger homes at lower prices. I’d have to drive by some of them though to see if the lots have the same negative issues in each. I don’t think they do.
Sometimes what is outside of the house affects price more than what is inside the house, and affects price per square foot. Those are the most susceptible to price declines in a buyer’s market, or even on resale in a seller’s market.
Hi Ardell,
Thanks for digging in deeper.
The discounts came in later 2006, Oct or so when the remaining were not selling. The discounts were in better kitchen andor lower mortgage for a few years.
The last house on the camwest woodlands website was listed at $749. One should get the closing nos for the last 2-3 soon.
I did not quote the numbers of the first few houses on Tyler Creek, they were as low as U$600k but are now upto 650.
Amit
Amit,
I used $200,000 increments in my charting, but I will agree with you that it is much easier to sell a house at $600,000 to $650,000 than it is to sell one for $750,000. I did not separate the values that way this time, but late last year I did a separate analysis for my own purposes that indicated $500,000 to $650,000 as the highest demand price. I included Northshore areas of Kenmore and Bothell closer to Finn Hill in that analysis.
That said, regardless of market conditions, a builder always has trouble with supply and demand factors. If you list a house when there are no others for sale, you could have multiple offers. If you list a house when there are 50 comparable homes on market, that is a buyer’s market. A builder always faces the danger of creating a buyer’s market by flooding the market with too much product all at once.
Also, for financing of the project reasons, they often need to get a block sold out the gate. That is why there is often “pre-construction” pricing that is the lowest price in hindsight. I would need to compare pre-construction pricing on the first lots (not the last ones) in the
Woodlands with pre-construction prices of the new project.
It is difficult to find them as the tax records do not call them Woodlands, making it hard to do a general query search. I would expect the first lots there to be lower than the first lots in the new project. That would be an apples to apples comparison. Not last lots to first lots. Hope that makes sense. Pre-construction to Pre-construction is an accurate comparison, if both complexes had the big towers.
Did Woodlands have the big towers too? Hard to find land close in to build on, so would have to compare the location negatives one to another as well. Inspectors are often more skeptical of new construction as one has to wonder why no one built on this land before. Not always a negative, but often.
On that basis I will agree that almost any new construction can be a buyer’s market in any market, as the supply is greater than the demand at most times. That is why the builder tries to create the impression of there being only two available at any given time, per my previous article on new construction.
P.S. Amit,
First and Last are almost always lower in large new construction projects, regardless of market conditions in the neighboring areas.
Ardell, you said:
“The dominant portion of this market is between $200,000 and $600,000 which is by and large the safer zone representing 63.6% of all home buyers and sellers in the Bellevue, Kirkland and Redmond markets and the area most likely to rise at 15% to 25% or greater in value by the end of this year.”
What does this statement mean? Do you mean that you expect this segment to rise by 15% to 25% this year? (One could think that this segment was “most likely” to rise by 15% to 25% of all the market segments in Seattle but still think that the chances of doing so were one in a hundred.)
Also, you said: “As to King County, much too broad of an area to extract market trends. You could have 10% foreclosures in South Seattle, and it would not impact Green Lake or Eastside. The markets do not work in tandem.”
I agree that you have different markets in King County, but do you really think that 10% foreclosures in South Seattle (which would result in a sizable fall in prices there) would have zero effect on prices in Green Lake or Eastside? Surely there is some relationship between real estate prices in geographically close markets, don’t you think?
kpom,
Take a two bedroom condo in Juanita. Last season the comps for one I sold were in the $175,000 range and I sold it for $207,500. A 25% increase is not hard to come by on the Eastside from April through September, depending on “the product”. Saw 35% per year over at Bellevue Manor for a one bedroom condo two years back to back with a 70% increase.
I don’t see that same scenario in Seattle because Seattle hasn’t had really good options in the under $200,000 market at the same time.
Also I saw single family homes in the Moorlands Elementary area jump from $470,000 or so to $560,000 pretty quickly. The housing was “newer” or new. Seattle has fewer newer houses, so to a large extent I see some pretty awful old houses with huge deferred maintenance issues in Seattle, moreso than on Eastside.
It is not simply about appreciation factors. It is about the huge differences in the type of housing that exists.
Newer in Seattle is either very expensive or “limited buyer profile”. The new townhomes never seem to have three bedrooms up, and that affects appreciation. Few people with children want to put one child down two floors and one up. Floorplan considerations make newer housing in Seattle not much of an option for someone with one boy and one girl plus parents. Three bedroom townhomes on the Eastside will most often have three bedrooms up, making them more viable alternatives for families. Hence the appreciation would be greater with a larger buyer pool of demand for the supply.
As to the fact that all markets do not work in tandem, look at it this way. Someone will go to Monroe if the prices are cheaper than “close in”. But if Monroe can never get higher than “close in” and if Monroe drops in price, that will not affect the prices of “close in”. So if Kirkland, Bellevue and Redmond drops, then Monroe will have to drop to stay in the same relationship of value. But if Monroe drops, close in markets do not have to react in tandem.
King County is not a “market” that moves in domino fashion. Greenwood and Phinney work off Green Lake. Maple Leaf works off Green Lake. Kenmore and Bothell have to stay in line with Kirkland and be cheaper than. Lake Forest Park has a relationship to Lake City. But all markets do not react with one another on a County-wide scale.
If you can get a nice home in Auburn for $350,000, that does not affect the price in Bellevue or Capitol Hill. Never has; never will.
“seller’s market”
I think there are going to be all sellers, no buyers.
I’ve never seen a market with “no buyers”, even in double digit interest rates. Is that even possible?
In fact we need some studies like this in our market…
This article pushed me forward…thanks.
“I’ve never seen a market with “no buyers
Mick,
I usually delete inane comments like the two you posted. But I have to say that the more some people insinuate market weakness, the harder I look for that weakness. So it helps to keep me balanced.
Mick: Since you’re a fan of Lincoln:
“I am rather inclined to silence, and whether that be wise or not, it is at least more unusual nowadays to find a man who can hold his tongue than to find one who cannot”- A. Lincoln
Brian, your Lincoln quote reminded me of something….In the classroom where I am doing my student observation (future history teacher), they have drawings from the students as well as quotes. I can’t remember the quote but one student wrote something about a wise man never talking to himself.
Speaking of honest Abe, I can make quiet a case that he was born in North Carolina if any of you want to argue 😛
I have to agree with Ardell on this one (GASP), even in markets with staggering declines there will be people buying. There will always be people that think the market has bottomed out, at all stages.
Matthew! I’m going to print and frame that!
Of course someone is always buying a house for personal reasons. Even as an agent, I’ve never bought a home to live in based on market issues. I’ve picked the homes based on value considerations, but I’ve never decided not to buy at all due to market considerations.
The more one is concerned about future appreciation, the more careful they need to be about which house to purchase. Ugly interior is the safer bet. New construction often the worst choice, if the market turns on you.
It’s more about which house to buy, then whether or not to buy at all.
If you plan on staying in your house for a long time, and don’t stretch yourself on your mortgage, you’ll be able to survive in any market. Unfortunately in this day in age of want now, worry later, that advice seems to often times fall on deaf ears.
Matthew- may be better to say if “you’re able to stay” – hardly anyone plans on losing their homes, but with the way things have been going in 2007 you’d think NOD’s are trendy all of a sudden.
Bill-
Good call. I agree.
Sorry..what’s an NOD? Jillayne clued me in to POS off site 🙂
Notice of Default.
Thanks Biliruben,
Anyone can end up in a default. Even a 30% down loan with high salary, if they lose their job while owning the property. So NOD alone doesn’t really mean much in terms of the professional’s responsibility who were involved in the original sale. No one expects anyone to have a crystal ball for years out.
Bill,
I have never had a client with an NOD except someone who calls me to sell a home, when I was not the person who sold it to them. In all of those cases the person lived in their home a long time.
Two had business failures that caused the NOD, and had nothing to do with their ability to pay the mortgage really. They could still pay the mortgage but stopped paying it because they were losing the house anyway, as the used the house as collateral for a business loan. A couple were nasty divorces where both parties refused to pay the mortgage. One was a fab house where the seller defaulted early on, but I had the new buyer of that house, and no relationship to the seller who defaulted.
I had one client who had some problems because the person he bought the house with left. Buying property with someone you are not married to, and counting both incomes, can create this problem. But he stuck it out, paid the mortgage by doing a cash out refi. He then sold it at a tax free gain after two years, that was well over the cash out refi he took to stay afloat. So worked out more ethan OK.
We cannot eliminate all risk. But so far…I’m batting 1,000.
I did have one person a while back I refused to work with who stretched past her limit and got into trouble. But she found another agent to sell it to her. I refused to work with her as her “stated” income was not realistic. She just found another agent to do it. Wouldn’t be surprised if she defaulted. Heard she was trying to blame the lender, but really she insisted on buying above her means. It’s not always the lender or agent’s fault. Sometimes the buyer is purely responsible for their predicament, and won’t listen to good advices.
Top two reasons why people default on their mortgage:
1) divorce
2) failure of a business
Jillayne – is that a historical account, or representative of the defaults on mortgages issued in 2005-2007?
It seems things have changed- in the recent past the highest incedence of default was between between years 3 and 5 – now defaults (if they happen) are in the first 18 months.
It could be that people are divorcing more often, and having their businesses fail earlier, but why is this happening? As a small business owner, the past 2 years have been great, and only one of my friends has divorced (ironically over financial problems brought on by digging themselves too deep in debt although neither lost a job).
Jillayne,
Where did you get your info for #39? Does that apply to all mortgages or subprime?
WOW Jillayne! Looks like my experience is pretty much on target. Very interesting.
So maybe those who worrying about NODs should start preaching about the benefits of staying married and not using their homes as collateral for their businesses 🙂
Ardell – looking at the recent Notices of Trustee Sale in KC, at least half of the deeds of trust are held by single people. Even for the married folk filing for divorce why would they stop paying on a loan?
Granted, emotions can get out of control – but default pretty much guarantees that both partners are going to get screwed in the deal for years to come. Only the most mentally unstable people would risk trashing their own credit for the satisfaction of screwing their EX.
Failed businsses? Happens. But stats on business failures show that they are on the decline. The last 4 years have been a great time to start a business.
Question for you guys: in a new development, construction what is the normal process that follows when the home is listed as say 2500 sqft, but later the same home plan “appears” on website shown as 2450sqft?
1) The builder did not notify person who bought home abt this. buyer noticed it on their website
2) the same floor plan was available in other communities even redmond too, but is now shown smaller
3) is this behavior normal on part of builder
to me this 50sqft is bit much, and shd call for compensation…
what is the norm here?
Sandy,
The norm is that the contracts protect sellers and agents for differences in square footage. Builders almost always have one on the floor plan, and the square footage is not in the contract at all.
Sounds like they planned for 2,500 square feet before that model was ever built. After they built one, it turned into 2,450 and they corrected their materials as soon as possible after knowing that. The original plans usually don’t allow for diminished square footage from outer walls created by studs and drywall. These small amounts can add up. So it could be closer to 2,500 if the person doing the sf calculation is measuring the outside of the house (some do) or if they are measuring the interior of each room.
My guess is as soon as one hit the tax record after sale, and the County Assessor placed a square footage on it, they modified the info on the site.
Even that 2,450 could be inaccurate from house built to house built. It’s never “spot on”. Agents for resale usually show tax record as source, but square footage is not guaranteed. You figure 4 inches for studs and drywall in every single room and closet, and that can add up quickly.
I have “heard-tell” of suits where an owner recieved an award by the court for square footge differences, before everyone started putting “not responsible for differences in square footage” protections in the purchase and sale agreement. If you get 3 people to measure square footage, you may come up with three different answers.
She can consult an attorney but she’d have to base it on the actual square footage of her house, and not what the website says today in other developments. I think it would have to be less than 2,500 sf using the “measuring the outside of the house” method for her to consider a lawsuit.
Maybe the attorneys will chime in here.
Ardell, if I understand you correct, nothing can be done here? I dont see 50SQFT as a small difference. Are they supposed to explain which rooms are smaller? Do builders compensate with upgradeS?
Sandy,
You asked for “the norm”. I don’t have any info about that person’s home from your original comment. You never said whether or not that particular purchasers home is or is not 2,500 square feet.
If it is built and she has closed, then she has to prove the actual square footage of her home, and see what her contract said about square footage, if anything, and bring that to an attorney.
If it is not built yet, then it appears she knows it may be 2,450 in advance of closing, and needs to raise this matter before closing, and possibly cancel based on the square footage issue before closing. If she closes after being aware of the square footage issue, I think she is accepting the fact that it is smaller than she was told, if she doesn’t raise the issue as a condition to close.
Don’t have enough info on the particulars of the house in question. She can always write a letter to the builder or consult an attorney. I have never seen a builder compensate for differences in the square footage, as most note next to the the square footage, that it is an estimate and “as built” will, always, be different.
Can she do something? Sure. She can consult an attorney. She can talk to the builder. She can do lots of things. But if she hasn’t closed yet, it could come down to does she want the house at 2,450 at the same price or not. If the builder can sell it to someone else at that price, then he will likely let her cancel. If he can’t sell it to someone else at the price or more a this time, he may make a concession. But if she’s not willing to cancel the sale and the builder says take it or leave it ,and it hasn’t closed yet…she’ll have to make that decision.
I do think if she cancels she has a basis for getting her Earnest Money and costs back, as the difference could be roughly $15,000 on a price per square foot basis. Probably less if they take the land cost separate from the house cost, but the cases I heard about didn’t do that.
I would suggest that she consult an attorney before approaching the builder, so she doesn’t say the wrong things to the builder. Let the attorney handle it. Sometimes the builder or seller just getting a letter from an attorney is enough to get a positive result.
I didn’t say she couldn’t do anything. I just think most contracts protect sellers and builders these days regarding being off on square footage. She’ll have to have an attorney review her contract to be sure. Obviously if it were a significant difference, the disclaimer would not likely apply. But if the house is 2,500 from the outside and 2,450 from the inside, that would bea sticky issue.
How much difference is “significant”? An attorney can likely tell you if the cost of his services is worth pursuing it at 50 sf.
I would think that at either 2,500sf or 2,450sf, the builder is “rounding to an average” and it is not the actual square footage in either case.Could end up being 2,463 on one house and 2,467 on another house of the same model, after they are built.
Unfortunately 2,500 vs. 2,550 would be less of an issue than 2,500 and 2,450 for resale purposes. It’s a bad place to have a variance in quoted vs. actual.
Great analysis!
Regarding the square footage issue above, it is next to impossible to get a definitive number on the actual figure. Appraisers, inspectors, builders. . . if they were to all measure independently using various accepted methods for computation, the number would likely vary – sometimes considerably.
From experience, I would argue that with all of the disclaimers in place and the inability to provide a clear and definitive measurement of actual SF, an experienced real estate attorney would likely find the difference too insignificant and difficult to argue in court to warrant the time.
I agree Art, unless the attorney could argue that we are in the age of internet home-hunting where 2,492 is not “good enough”. There is a huge value factor between 2,492 and 2,501 from a market standpoint, but to a judge it would look frivolous to fight over 9 square feet. When buyers plug in “2,500 sf or better” in the internet, 2,492 is not even “for sale” in that result.
You’re right, that does make a difference in search parameters. I’m not convinced that the suing party could show that in a market as hot as ours, that small difference would lead to monetary loss.
Having been taken to court for this issue before, I pound it into buyers and sellers that they must read the disclaimers – caveat emptor as we all like to say!
Please tell about the court thing. What happened?
I “learned” that Caveat Emptor went out in 1993, as to real estate purchases involving a Buyer’s Agent. I seriously don’t get why people are still saying Caveat Emptor. I think if you represent yourself or use Redfin (meaning you and you alone are responsible for selection of property) that Caveat Emptor does not apply.
Am I incorrect there?
If I had a client and a builder showing 2,500 sf on a model plan, I would clearly warn them that it could end up at less than 2,500, and the ramifications of that on resale value. Sure it will still sell, but there will be a diminshed buyer pool. Diminished buyer pool equals lesser price.
Hi Ardell,
I was being semi-facetious when I used Caveat Emptor 🙂
My point is that in the transaction I had put together, everything was very clearly disclosed. Tax records showed one SF figure (smaller than the number that was used for the listing) but the seller had records indicating that SF was higher due to an addition that had been done. The source was disclosed on all paperwork with the disclaimers that buyer should independently verify. They sent someone in to do just that (who they later claimed was not actually a professional qualified to do such; at the time of the measurements, he was “an experienced appraisal professional”). The deal closed, buyers seemed happy, and then I get a call from their agent and lawyers 3 months later slapping a lawsuit against my sellers and I for negligence.
In retrospect, I think the problem was that the buyers’ agent had been negligent and in the course of trying to close this deal, had provided his clients with misleading information. That came back to bite the agent in the behind, and instead of admitting to fault (which he eventually had to do anyway) he blamed the seller and I in an attempt to pass the blame – using the inconsistent SF figures as the reason. The buyers felt cheated and wanted someone to pay; they sued for a ridiculous amount in damages, emotional distress, etc. After months of stress, lawyers and the whole bit, the buyers dropped the suit with us and probably went after their agent.
During the course of the case, the sellers hired a couple of appraisers/inspectors to measure SF. None of the numbers we had on file or that we could obtain from the professionals matched up – which came as no surprise – but they were close.
I see your reasoning with stated SF (e.g. 2,500 sf) versus actual (maybe only 2,460 sf). However, if I was to do a CMA for a 2,460 sf house and a 2,500 sf house (that were identical except for sf), my pricing would be the same. Priced properly, both would sell for full price in a solid market like Bellevue’s. Would the buyer pool be smaller? Possibly, but I don’t think there would be any effect on the price.
Your line of reasoning is definitely something to consider. Some my clients set a minimum sf of 2,000, so a house with only 1,950 sf, for example, would probably miss their searches (but not mine!). Although in this case the sellers would have a smaller buyer pool (they’d at least miss out on my buyers), I believe that all else being the same, their 1,960 sf house would probably not sell for less than a similar 2,000 sf house.
In other words, I see the possible correlation between a diminished buyer pool and lower sales prices, but I do not believe that a diminished buyer pool necessitates the cause of a lower price. In this instance, I don’t believe that there would necessarily be an effect at all.
Another similar search parameter that I think creates some debate is pricing. Does pricing at $344,950 pull in more buyers with their search parameters than $348,000? It might, but if the $348,000 home is priced well, it will still sell at the full price in a good market, meaning that the effects of a diminished buyer pool on pricing are irrelevant.
Those are my two cents 🙂
Art: “In other words, I see the possible correlation between a diminished buyer pool and lower sales prices, but I do not believe that a diminished buyer pool necessitates the cause of a lower price. In this instance, I don’t believe that there would necessarily be an effect at all.”
I totally agree, based on today’s market conditions. But it is still a disclosure to the buyer, and possibly harmful to the buyer, if and when he sells the property. I always disclose negatives that could affect the buyer, when he goes to sell it. True, today, no harm. But what if when he goes to sell it there is a glut of good homes on market over 2,500 sf. Then people would have no need to look at the less than 2,500 sf.
The harm would be in a buyer’s market with many properties for sale, not at the time of purchase. By then it is too late…the damage is done…too long into the future to complain about what happened when they bought it. The damage done. So best to look at this at time of purchase, regardless of current market conditions.
As to $344,950 and $348,000 no difference ever. But make that $399,950 and $409,000 and whole nuther story. Again, current market conditions may make the issue less of a problem. But why lose 10 buyers who would have looked? Maybe you can still sell it. But maybe you would have had two or more buyers with an increased buyer pool. One offer equals full price much less often than two offers equals full price. If everything is selling at full price, then everything is underpriced.
Let me explain more: This is a new construction. The home was listed at 2530 sqft and now revised at 2480sqft. The problem was how it was handled: 1) changed was made online not communicated to buyer 2) revision downwards was due to some architect error in computing living area by counting external non heated area. the living area per se remains the same 3)for a week this explanation was not offered 4) offer to back out given to buyer but no apology or compensation since they have many more folks ready to buy there. sure there are disclaimers EVERYWHERE. But is customer service dead?! I dont know abt others – but i wld feel let down, and suspicious of what else is subject to change with little or no notice!!
Sandy,
All new construction floor plans are approximate and never match as built, especially if the builder is just starting out that model and has no as built experience with it.
Not every house built will be exactly 2,480 according to the revised approximate square footage either.
All the builder can do is give them the right to cancel and get their money back; which they did. Many things are subject to change with little or no notice. Hopefully nothing of consequence.
I feel 2,480 vs. 2,530 could be of real consequence, given it passes the 2,500sf point. But the only thing the builder can do is what he did. Give them a chance to say I don’t want it at 2,480.
the same house plan has been built for 4 years now, even in the city/county where it was 2530sqft. (same elevation exterior too).
an an explanation was offered that was what was said saying this is the exact same home as always built. does it mean the guys who bought it before us in same city are also getting lower sqft
while i see the right to change almost anything for the builder with no notice at all as part of the documentation – this is not good customer service. i mean put ur self (agent, lawyer, builder in buyers shoes) how would u feel?
In a hot real estate market customer service defintely goes to hell.
I think it is called “market forces prevail”. Absolutely correct on that one Sandy. Supply and Demand. If they are having trouble selling, them they will absolutely act differently, than if there is a five person deep waiting list wanting that house.
That is the same in resale. When the market is hot and a buyer wants the seller to make repairs, the seller will sometimes just say no and switch to a buyer willing to buy it “as-is”.
I’m pretty sure if it were the other way around, if they had 2,480 on the plan and it turned out to be 2,530, they could not charge more for it.
Honestly i think this is a loop hole in the system (real estate or law) that is being explioted.
Sandy,
The last time this became an issue, everyone used room sizes instead of square footage. It is just not possible to guarantee square footage and three different people will calculate it differently. It is not an exact science. Room sizes are easier to define with accuracy, than total square footage.
Everyone needs to know that square footage is never exactly accuate ever. One inch off down the entire side of the house creates a moderate variance in total square footage. If someone is building many homes, they are never totally identical as to square footage.
Agents usually quote tax records as “source” and always have a disclaimer that source can be incorrect. We can tell if it is a lot off, but 50 sf off? Not likely something anyone can notice.
I am absolutely sure no buyer would want to pay more if it is 50 sf bigger than stated, so reverse should also be the case.
great information…. I”m also an agent in the L.A california area and just bought a condo in s.w seattle… 1 bed for 150,000…. what are your futuer predictions?? what area do you recommend that i buy next???? thanks monica L.A
Monica,
I’m always a big fan of “the closer to Microsoft the better”. But some have inflated pricing these days, so be very careful to check the comps and condition of subject property against condition of comps. Also…big issue…where situated within the complex. Windows facing 148th should not sell as high as the quieter units in the rear of the complex. Make sure you do an on site evaluation of the comps and subject property.
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Ardell,
We are considering buying a house in Tyler Creek. It will be helpful if you can provide details on the location issues that you mentioned in your comments before?
Hi Wookie,
I was giving generic info re new construction without naming a development. Once the development is named by someone who comments, I can’t write about it, even if the one named is not the one I was originally talking about.
I can’t give my honest opinion, pros and cons, about anything for sale except to a client of mine. I try to write generic warnings of what to look for and what to pay attention to when making purchase decisions. But I can’t say “here’s what I think of Tyler Creek”.
If you weren’t around for the fireworks, that’s what Redfin just got a $50,000 fine for doing. So I can’t take the bait 🙂
You can hire me to meet you there and talk about it and to represent you in the purchase. We can agree on my fee vs. whatever the developer is paying. Otherwise, I can’t target a specific development.
I did have a long back and forth with someone who isn’t my client about the pros and cons of a new construction purchase this morning. But I was careful to point out that it was his thinking that was skewed, and not the developer 🙂