Lower Cost Options for Buyers & Sellers of Real Estate

As I get ready for 2008, I reflect back on the progress, and lack thereof, of an industry flailing with the challenge of providing more and varied options for people buying and selling homes.  Seems to me that the answer is in each and every agent being their own business within the company, and offering options to consumers, vs. the company as a whole trying to provide the more and many options consumers need.

How does a company survive?  How does an agent become one who stays vs. one who quits?  How do you accomplish these two objectives AND nurture the environment of better cost options for consumers all at the same time?

I’m throwing my thoughts out here, not necessarily in order of importance, to spark some discussion that may help us all in 2008 and beyond.

First let’s look at the agent specific issue.  It is that time of year when many real estate licenses go back to the DOL.  Not because the license is due for renewal, but because it is time to pay both MLS dues AND REALTOR dues.  Many who have held on to a license just in case they want to buy or sell a house, or to help their friends and family buy homes, are opting to turn those licenses in vs. paying the dues.

Brokers should step aside and even encourage agents to get out of the business of selling a house or two a year.  That is not to say that every agent who only sold a house or two last year should quit.  But if your goal isn’t to become excellent at what you do, and sell at least 10 to 12 houses in 2008, maybe it’s time to sign out altogether.  OR agents should (and their broker’s should let them) develop a model that provides a lower cost option to consumers indicative of the agent’s lack of expertise in the meantime.  Be honest with consumers about your credentials and price your services accordingly.  This way you will have assisted many in achieving their objective of lower cost, and at the same time increased your experience level by participating in more home sales and purchases.  Seems like it could be a win-win strategy, as long as the consumers are happy with a decreased experience level at a decreased price.

How does a company survive?  If the company has to charge the agent more and more to survive, causing the agent to charge consumers more and more to survive, well then maybe the company should quit.  OR brokers should charge agents less, so they can be free to price their services more fairly, and maybe all will become stronger as a result.

While consumers seem to want the transparency of a NEON SIGN heralding a cheap price for real estate services, seems the answer lies somewhere else.  The answer lies not in the smaller quantity of companies trying to configure into more and varied options.  The answer lies in the vast number of individual licensees each being free to offer varied prices.  More options for consumers would be greatly expanded if each and every licensee could negotiate freely with consumers and develop varied options, vs. simply the companies that house the licensees.

If an agent gets to keep most of the commission, vs as low as half of the commission, then the agent can negotiate better deals for consumer as a result.

My thougts are this.  I’d much rather have 60% of agents be excellent at what they do than the typical 10% to 20% of agents.  I’d rather have more agents paying less per sale, and paying the smaller cap rate, than lots of agents selling one house and paying 50% of the commission to the company.  I’d rather have all agents free to negotiate with consumers, than one set price  or small range of pricing, dictated by a company policy.  By giving each agent the freedom to create their own business model, consumers will have more choices than any number of companies can provide.

To Brokers, take your cap rate of say $30,000 per agent and reduce it to $20,000 or less.  Instead of taking half the commission from ANY agent, try to have double the amount of agents paying you the lesser cap of $20,000, than paid you the higher rate last year.  Now you will have more money, agents will pay less and hopefully charge consumers less as a result, and each agent will have more freedom to capture more money for themselves via better priced options for consumers.

At year end double check to make sure that the agents passed some of the savings that you gave to THEM, on to the consumers.  Don’t reward greed and don’t charge less simply so the agent can make even more.  Make sure they are honoring the spirit of the change by passing forward the benefit in a meaningful way.

Sounds a bit like a fairy tale, I know.  But it’s the time of year to dream and plan and strategize based on your highest hopes for all.  Peace On Earth…Good Will Toward “Men” is not just a quote from on high.  It’s a way of life, or it’s just a bunch of words.  Do your best in 2008 to create a better way for as many as possible, yourself included.

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ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: ardelld@gmail.com cell: 206-910-1000

102 thoughts on “Lower Cost Options for Buyers & Sellers of Real Estate

  1. It seems like agents will be charging more in the near future. I know home prices are much higher then they used to be but its taking way more time to sell. I think the flaky agents will get out of the business and there wont be as much competition. Listings will need more marketing and attention. I really don’t think sellers will mind paying a little more to get a whole lot more.

  2. Great post, Ardell! There’s a real sense of seriousness and .. scarcity .. in here. Maybe the Seattle area REALTORS® can see the writing on the wall and are preparing for 2008. Good for you to get beyond denial and steel yourself for what is coming.

    Does spring selling season begin after the Superbowl? You will see an avalanche of properties on the market, as everyone heads for the exits at once. You will be very busy!

    That’s the first chapter, the second is the glut of overpriced condos and crummy townhouses flooding the market. All of this will be set against the backdrop of systemic financial crisis as the stock market tanks and the US banking system struggles to stay solvent.

    Go out and get ’em, tiger! Because only one thing counts in this life: Get them to sign on the line that is dotted!

  3. Having spent much of the past year working corporate relocations and earning about .75 of one percent, I can say in a lot of these transactions there’s no money to give.

    Relo companies won’t surrender their cut. Brokers won’t surrender their cut. There’s almost nothing left for the agent to work with, much less to pay the bills with.

    Seemed like a really good idea to jump on the relo treadmill when I did so, before realizing it’s a hamster wheel.

    Moving to a brokerage with different splits and caps often involves having some money stored in the bank to get through the lull with the switch. Of course, it’s hard to store the money when working at the higher caps and lower splits.

  4. Jonathan,

    What people would give to only pay that which you say you make, .75 of 1%. Why is the industry so happy to let everyone whittle down the commission…except the consumers themselves. It boggles my mind.

    As to the moving part, an agent recently told me they couldn’t leave their brokerage until they were “paid up” on their monthly desk fee. The bill keeps piling up in the meantime. Sounded like an indentured servant and that song “I sold my soul to the Company Store”.

    I don’t mean to suggest, by any means, that I have all the answers. But clearly there must be many ideas of how to make changes that will benefit all involved. This is just my stab at it. But from what I have seen over the last 17 years, every time there is a savings to the agent, something else creeps in to take that money before it passes down to a savings for the consumer.

  5. Ardell –

    You’re on my side right now. For me to be able to afford a Seattle SFH someday, the REALTORS® are my close friend and ally. You’re on the front lines of the cold-water brigade, splashing buckets of it in the faces of clueless sellers who want (need?) their 2005 price. It’s your job to knock some sense into them and get them to list it at a sane price so it can sell. You are an agent in service of deflation.

    Ouch, for those who foolishly spent their equity from the housing ATM, though, that ends in an auction downtown. But President Bush has got their back, so they can slither away without worrying about receiving a 1099. Here’s to 2008!

  6. I am not bitter, Ardell. I am very, very angry, and afraid of what is coming. It cannot be avoided now, only made longer and worse like that endless Japanese recession.

    I am deeply ashamed at the mass of greedy and foolish Americans who believed the lie about RE appreciating forever, who bought into it and now find themselves stranded, leveraged, buried in debt.

    I am fiercely hostile at those who belittled renters and told us we would be priced out forever, playing the fear card. I am indifferent now to the fates of my friends who ignored my warnings.

    I am disgusted with our decadent elites, the economists and bankers who are supposed to know better, who are trusted with immense power and expected to behave responsibly.

    I am saddened that so much of the wealth squirreled away by the “Greatest Generation” will be washed away in the meltdown. Their humble middle-class ambitions and decent frugality have been replaced with the cult of bling and a desire for instant gratification and effortless wealth. Or at least the appearance of wealth.

    I am shocked that the Baby Boomers have such paltry savings. I am horrified that our savings rate has already been negative in supposedly good times.

    I am extremely smug about California, boy, do they deserve what is coming to them. In spades.

    I am hopping mad that Delicatessen Meyer in Lincoln Square, Chicago is being demolished for … condos.

    I am a Republican. I write code, hike a lot, collect rare books, and admire Austrian-school economics. I have one toddler and a second child due in April. They get to grow up in a world shaken by systemic financial risk, ballooning debts at all levels, and absolutely rotten elites. You bet I am mad about this, but will do all I can to shield them from our decaying society.

    I know Casey Serin personally. I took him to lunch at the market after he returned from his Australian odyssey and came through Seattle. He’s a good kid, but he’s certainly earned the deep hole he dug for himself. He was a mark in the scam.

    This was all so obvious, for so long. Yes, I have a chip on my shoulder, I have a great big “J’accuse” aimed at all of you who pumped up the bubble and guaranteed a disaster for us all.

    2008 will be very exciting! I am right about this, you will see.

  7. Ardell, I think as long as there are low barriers to entry in the industry, there will be a lot of agents that don’t do much.

    But don’t confuse quantity with quality. In the legal profession we call people who can get a lot of clients rainmakers. The rainmakers are often complete idiots, but they can get clients, and they let the people who can do the work–well work. The same is true in the real estate business.

    I can’t tell you how many experienced agents I’ve run into that wouldn’t recognize a legal description if it bit them in the butt. What do you think the chance is that they could help out if you get into a transaction that runs into trouble? Or the situation I mentioned with the undisclosed short sale. All experienced agents, and one of them even locally quite famous.

    Anyway, there are two distinct parts to this job. Getting clients and servicing clients. Some are better at one part than the other, and it’s part of the reason I believe agents working as teams is the best. Each can focus on what they’re the best at.

  8. Trust me on this one, ChristianGustafson. Nothing hurts a child more than having an angry father. Shield them from that, as they will be much more affected by your angry disposition than the “decaying society”. My husband was an “angry Republican” at your age. It did not serve the children or me well.

    Give me, and your family, the gift of having something nice to say this Christmas. I’ll be watching for it.

    There are many places in this Country where real estate is dirt cheap. Maybe you would be happier some place else? Might it make sense for you to go some place where you can be happier?

    I’m seriously concerned and not being rude or sarcastic. It’s not good to live this way and be truly miserable.

  9. I’m not a big fan of teams, Kary. A partnership of two where one gets the business and the other does it, seems to fit your description better than a team. A large team often leaves things falling between the cracks as a client is passed forward to different people through different phases of a transaction. Lacks a cohesive effort and continuity, and no one person who knows the client well. Just my opinion and preference. No right or wrong answer on that one.

  10. Ardell-

    I do not understand why people become so angry with real estate agents because of a housing slow down. I am a STRONG believer (and have blogged about it for years now) agent’s commissions should not be connected to the value of the home… BUT… I AM A STRONGER believer in supply = demand.

    Agents are not fools. If the market is there, to charge 3%, be an opportunist. The foolish will be the agents who are not careful when the market adjusts… but so far that is not true.

  11. The thing about a team is each person has to be good at what they do. You can’t just pass someone off for the sake of passing them off. I’d probably agree with you about large teams, but I’m not that familiar with large teams.

    But just an example, my wife (also and agent) is really good at keeping track of the doings and non-doings of mortgage brokers and escrow people. In fact her keeping track of them verges so close to harrassment that I expect to see a request for a restraining order filed any day. 😉 But as a result of this activity, we have very few transactions where the closing date needs to be delayed. So at that stage of a transaction, I will tend to hand things off to her, because she, quite frankly, is better at that than I am.

  12. The trouble with the practice of real estate is that to stay in business you have to be every department in a typical company. You have to be the marketer, the legal guru, you have to be computer savvy enough to create email marketing and have a data base, you have to have personal charisma, stay educated, know how to deductively find the right home, win in a listing presentation where I believe sellers are normally “sold”, solve the intense problems wrought by the short sales you blogged about as well as work through divorces, bk’s, new marriages. You need to know enough taxation to know about deficiency judgements, 1031 exchanges, personal residence exemptions, know how to read builder addendums that boggle the mind, understand mold, etc. Just look at all the topics we blog about that we’re responsible for understanding and advising correctly.

    I’m trying to think of another career where you get so personally involved with your client and are so obligated to be intelligent, driven, but emotionally available. That to me is the problem with real estate. Few people are able to sustain a career because of all these demands on them of their personalities
    I’d like to see real estate companies provide better services to the agents, like marketing and constant education, so the demand is less to be all things.

    Ardell, thinking of the good agents you know, and factoring out superman and wonderwoman, don’t you think most agents have shortages in at least some of the above areas?
    I think it’s marketing that is why most agents fail. They simply don’t know how to get clients, other than asking for referrals or working open houses, which is how I built up my business. At least until I could develope a functional referral program. I was, at one time of another with Scott, Windermere and CB. Not once, never, no how, did I ever get assistance with marketing that really worked. The only leads cost 45%, the only training was in geographic marketing which, unfortunately, costs a fortune and works only in special circumstances.
    Until real estate companies begin to offer agents lead sources and marketing and rich education support (I don’t mean sending out just sold postcards), I don’t see how any agent that isn’t all things to all people can survive. When I was working on a fee for service model, I built a spread sheet and listed all the items that needed to be done in a listing and then figured out the hours and then the hourly rate of the person doing the job. The activities went on and on and on. Even using $12/hr for many things, the sum of all the activities went beyond 3%.
    Raise the bar to get in, be more realistic in hiring agents, provide a bundle of services for the agents, so that can just work with clients. Give them a fair split or desk fee. That is how I see the statistics change to the 60% you want to see.

  13. Kary,

    I can so relate to the “restraining order filed any day” part. I’d love to meet her if you two are free the Saturday after New Year’s Day, the night of my Annual Holiday party. Agree about the Rainmakers vs. the Real Estate Experts. Partnerships work well for me, and partners who live in the same house tend to act more in unison, with very little falling between the cracks. I’ve always liked husband and wife teams.

  14. “…provide a bundle of services for the agents, so they can just work with clients.”

    We’ve been tossing this around lately. Our website generates thousands of “leads” each month, which is a help for many. But I do think there is such a thing as doing too much for agents, when it comes to a bundle of services. If other people are doing too much of the work at hand, the agent never acquires the expertise at all things needed to anticipate problems. It may give them what the agent wants most, but not necessarily what their client needs most.

    Also, agents are not equal in the areas where they fall short. So a fixed bundle of services is not necessarily the answer. You say to put Superman and Wonderwoman aside, and yet if we do too much for the agents, you almost rule out the benefit of more becoming Superman and Wonderwoman.

    I find that agents who can almost always do most of the work at hand deserve to keep 80% of the commission and a cap of $20,000 or less. Those who can’t grasp most of it, and always need more than an average level of assistance, do not.

    To provide a fixed level of services helps the least adept and raises the costs for those who didn’t need it. It plays to the lowest common denominator, and so attracts the lowest common denominator and puts off the best of the industry by charging them for services they don’t need. It fuels the 20% adept model.

    The other day someone asked if we send “Just Listed” postcards. I asked what the listing was. As it turned out as we spoke, I was able to assist her greatly in marketing the property properly, and it wasn’t via a “just listed” postcard in that particular case.

    When you take into consideration what the client most needs, vs. what the agent most needs, giving the agent a fixed bundle of services usually doesn’t cut it. The client needs us to give the agent what the client needs most, not what the agent needs most. And that is often different on a case by case basis.

    The industry model has always been to set the fee for a fixed level of services both to agents and clients. This sets the stage for everyone paying the same, and those who need less paying for those who need more. That’s the model we are trying to break, we being the world at large and not simply you or I.

    Thinking out loud here. We talked about including a photographer, for example, as a fixed service to agents. But then you build in that cost and some agents and some sellers don’t need that service. So growing the fixed bundle doesn’t make a dent in trying to reduce costs for consumers. It may help with attracting agents to the business, but somewhere down the line it trickles into supporting a higher cost for the consumer.

    My mind went to Athol Kay’s collection of bad mls photos. Sending a photographer out on every listing on the first day, would likely produce photos of cars in driveway and undies on the floor. Sounds good to an agent, but in practice I don’t think it would produce the best results for a client in many cases.

  15. Ask WaMu how bundled services has worked for them…with their appraisals.

    I think the more indendent sources a buyer has working for them, the better off they’ll be. There is unavoidable conflict of interest when services are “bundled”. Competition is in the best interest of consumers.

    The local real estate companies with ownership interest in title/escrow companies are not providing a discounted service to consumers. They are making more money and promising agents this will help keep their desk fees low while they lock out competition.

    I’m opposed to bundling of services and people trying to offering everything as a “one stop shop” (like someone who offers to be a real estate agent AND the loan officer) instead of specializing in one field.

  16. A noble charge if I ever read one Ardell.

    I agree Rhonda. I don’t double-dip and I don’t generally promote my broker’s title and escrow partners. I don’t like the conflict of interest that can exist, either in reality or perception.

  17. I wasn’t referring to a ‘fixed’ bundle of services for the client. I was referring to a bundle of services from which an AGENT can choose in an area where they might be weak, i.e. building a personal web site or developing a personal data base marketing program, etc. An agent MUST know how to work effectively through a real estate transaction and they needs lots of training for that. An agent should be putting the bulk of their time into face to face client meetings to build an effective referral base. But knowing how to build a web site, run an email campaign, decide on pay per click ads, etc, those do not help the client at all and I believe they take away from the agents ability to spend time doing the things that help the clients the most.
    We generate thousands of leads/mo also.If an agent needs these leads at the beginning then the split should be lower. But if an agent is simply getting help with a Buffini type program and something a virtual assistant can do, then they should be on a very generous split or preferably desk fee. I just spent so many years developing programs that I wish had already been available to me, i.e., after closing programs, writing newsletters, which I did once a quarter. Building web sites, learning techniques that I needed and that added an extra 4 hours everty day that I didnt’ really have to give. I was exhausted doing both and think an agent should have a ‘bundle of services’ according to my definition to chose from to help them live a balanced life and concentrate on the client.

  18. Were WAMUs appraisals done in-house, or was it just that they were putting pressure on appraisers to get certain results? I’ve heard of the latter happening with mortgage brokers not at all related to WAMU.

  19. I’m just fine, Ardell, thank you. I am naturally quite the optimist, but the excesses, fraud, greed, and rank stupidity shown in the RE bubble has ground me down. Now all the REALTOR® shills are calling market bottoms! LOL! So, I now work hard to protect my family and those dear to me from the coming collapse.

    Re your husband, I already know that your judgment is suspect, since you signed up for your stated-income IO ARM. I chose wisely and am set for life.

    Here, I have nice story that will warm your heart.

    I had a good friend approach me last week and give me the most sincere, heartfelt thanks. This past summer I spoke to him about RE at my daughter’s 1st birthday party, where, on the backyard lawn of our rented Crown Hill SFH, I explained my views to him re RE and the credit bubble. He was looking for a place in Seattle to buy with his GF.

    Since then, he reconsidered, and decided not to buy, but to rent instead. He made a real point to thank me for this, he was relieved and deeply grateful, like he had narrowly avoided a serious accident. He and his GF are close friends of ours and I feel real joy that they did not commit a financial tragedy by buying now in this market. They continue to rent, save, and sleep well at night.

    He works at WaMu, too! Imagine the Kool-Aid they can drink, I’m very proud I was able to save him from a terrible mistake.

    Merry Christmas! Friends don’t let friends buy houses (near the top of an IO mortgage speculative frenzy).

  20. Kary, it was WaMu with eAppraiseIT–it had NOTHING to do with mortgage brokers and everything to do with WaMu’s retail mortgage division. I honestly do not know if WaMu has any ownership interest in Encompass. (This is what’s making the news currently). Many large banks, like WaMu and Countrywide, have in-house appraisals.




  21. I really like your idea of a “lower cost option”, whereby an agent’s compensation, in short their commission level, is largely dictated by experience. A model that allows agents to provide discounts to their commission to win business is needed at a time when buyers are hard to come by and sellers are often in a tough position. I agree that real estate agents needs to be able to negotiate freely with the public. This is a free market after all, isn’t it? Agents must be free to create their own business models. The less constraints that brokerage houses put on the acceptable pricing models an agent can employ, the greater the level of innovation the industry will experience. This in turn will strengthen the market itself through efficiency and productivity gains, as well as increased liquidity.

  22. Re: “I’m trying to think of another career where you get so personally involved with your client and are so obligated to be intelligent, driven, but emotionally available.”

    Social Work?
    Rehabilitation/Physical & Occupational Therapy?
    Therapy of pretty much any kind, in fact?

  23. Re: Christiangustafson’s wonderful Xmas story, I have had the opposite experience, unfortunately. Friends moved here in 05 for a planned two-year only stint. They insisted on buying instead of renting because RE was such a sure thing and could only go up. I could not convince them otherwise. Their place in one of the most desirable Seattle neighborhoods has now been on the market since last spring without a single offer and what now amounts to a 20% price drop and counting. They are well below the break-even point, have left town and are paying two mortgages. This will be a big financial hit for them when all is said and done, without even mentioning the emotional toll. I wish they had gone to Christiangustafson’s daughter’s party. Imagine how much better things would’ve worked out if they’d just rented.

  24. Thanks for your comments on Christmas Day guys. I’m working on stats.

    Just pointing out that czb’s quote is from Eileen’s comment and not from my post. Personally I’ve had a guy selling me a camera get as emotionally involved as many agents. He really cared about how I was going to use it, and that it would be the best for my skill level and needs. I think anyone can give of themselves to others, in almost any career.

  25. Thanks for the comment czb. Leaves me scratching my head though, as I was just doing stats on a condo I sold in Bellevue Manor in 2005 and the prices are way, way up over what my client (and anyone who bought in 2005) paid. I’ll be posting the stats soon, mostly for my own client’s needs.

    I’ve been bugging him to sell it for six months or so, since I expect he will not be needing to live there when he graduates from the University this Summer. He bought it for $100,000 plus costs and I told him to sell it when the market hit $175,000 once he was there for two years, so no capital gain taxes. There’s one in escrow now for over $200,000, but I don’t think it will appraise with no comps above $176,000. Will be interesting to follow that one.

    I think we, or at least I, get a bad rap. I’m very cautious and investment oriented when advising people to buy and sell property. If they really want to buy, I try to help them find a property that will suit their needs and also do well for them financially. In fact I talked this buyer out of a different unit that was priced higher and in a different complex that wouldn’t appreciate as much as the one he bought.

    If you email me your friend’s address, I’d be curious to do a comparison. Was it perfectly staged when they bought it, causing them to overlook things and get into a multiple bid when they bought it? Noisy location? No off street parking? A 20% drop since 2005, especially early 2005, doesn’t seem right for our market.

  26. Ardell,
    I meant that they dropped their asking price by 20%, not that they are asking 20% less than what they paid (yet). They probably overpriced it at first, but were pricing based on comps at the time (peak of bubble?) without doing the smart thing and underpricing relative to other similar properties to avoid chasing the market down, which is exactly what they have been doing ever since. Obviously there are alot of issues. Since they were staying for a short time and were so convinced their place was going to increase considerably in value, they took out an I/0 ARM to boot, which I think has adjusted by now. Not a good scene. In response to your questions, they live(d) in a highly desirable part of town with a view of the space needle, not particularly noisy and with plenty of off street parking and fairly new construction with no structural or moisture issue (ie there’s nothing wrong with the place and it’s in a great part of the city). I don’t think they overpaid relative to the market at the time (@June of 2005), don’t recall there being a bidding war and I doubt they are suckers for staging. In general they are quite savvy but are a little younger and bought into the “real estate always goes up” myth since in their professional lifetimes that has largely been true. They are simply the victims of a market that has suddenly softened tremendously, your stats notwithstanding. I wouldn’t feel comfortable providing their address, for obvious reasons.

  27. Ardell,
    Camera sales would be one of many, many etcs. I can see why you’d want to make it crystal clear that such a self-aggrandizing comment did not come from you and I certainly did not mean to imply that it did.

  28. czb,

    I found a few relatively new vacant condos, of the 81 on market with “space needle” noted in the remarks, that were bought in 2005. All are asking substantially over what they paid. Tell them to forget the comps and look at supply and demand in their price range.

    They will get in even deeper if they dont sell by end of February. Their long time on market effects will get even worse when we start the new 28 series of mls numbers. By March, few will look at the mls #s starting with 27, and there is a fine for trading the old number in for a new one via cancelling. I think they have to let it expire and/or switch agents to get a new number.

    Ten of the 24 currently in escrow are new construction making it harder, especially for those in the $500,000 and up price range.

    Check their mls photos. Would you buy it? Tip, get into the condo on the second shot and save the common area and additional outside shots for after all inside shots.

    Can you tell me if it’s a condo vs. a SFH or Townhome and the relationship of asking price to assessed value? If supply is high in their price range, they have to try to get properly possitioned as in $350,000 vs. $360,000.

    Starting too high can be a killer. Leaves you almost nowhere to go as if you drop the price, people will come in low due to the long days on market and if you don’t, you get no offers. It’s one of those “Pigs Get Slaughtered” scenarios.

    You’re a good friend to be worried for them. Not sure what you mean by “almost at break-even”. Is that based on purchase price alone?

  29. czb, based on the other things you said about your friends in one of your first posts it was my guess that they’d over priced the place, pricing it on what they wanted rather than comps (or pricing it off of the highest priced active comps rather than sold comps).

    But remember, with excise tax, commissions and other closing costs a seller has to net almost 9% more than what they paid to break even. That can make short term purchases problematic, and I’d call 2 years short term.

  30. Still Kary, the properties I sold in late 2004 to mid 2005 are showing excessive gains. Two sold just after two years of ownership. One closed at the end of July of 07 with a 47% gain. Another at a 59% gain. The one I mention that I think should sell now, can do so at a 66% gain or more.

    So the 9% cost of sale would not be and were not a deterrent to these owners who sold after just two years. I think it goes back to the choices made at time of purchase rather than at time of sale.

  31. christiangustafson,

    Wow, small world alert, I just put two and two together and figured out who you are based on your little happy christmas story. My name’s Jesse and I used to work with Heather and Karen at Onvia.

    I’m glad you convinced John not to buy, I had been working on him for over a year with no success. Now I know why his mind changed. I was very relieved when he broke the news out of the blue after really heating up on his search.

  32. Well, Jesse, there’s no need to name names here. I choose to post under my own name because I’m right about the RE bubble and want it to go on record. Who’s afraid of a bunch of ramen-eating REALTOR®s?

    If I was able to help our friend not buy a house in this market, thereby saving his financial future, and, very likely, his lovely girl, then I am pleased and quite proud. Financial woe is one of the greatest stresses on relationships, and I would have hated for a $4000 adjusting mortgage payment on some moss-covered Seattle dump to wreck them. I am very, very fond of the two of them and wish them the very best. He is first-rate in my book, a true mensch, and I can be pretty rough on people.

    I subscribe to Albert Jay Nock’s idea of “the Remnant”, that there are a select few truly intelligent and worthy people out there, and that it’s valuable and important to reach them.

    If I were still a single man, starting in about 2006 you would have seen me standing in Westlake Center after work and on weekends handing out leaflets and holding a sign that says “DO NOT BUY A HOUSE” / “BEWARE THE HOUSING BUBBLE”. The leaflets would contain a primer on the core argument re the housing bubble and a list of blog links like Ben Jones’s blog for follow-up.

    I seriously would have done this, at the time I felt a missionary-like zeal to save those few souls who could be saved.

    Now I feel much less generous, and I want the greedy and irresponsible house gamblers to suffer and shoulder as much of the damage as possible. Is this cruel? NO, because what they skirt gets passed on to responsible, level-headed citizens like you and me, Jesse. We didn’t participate in the madness, but, boy, will we feel its effects. If I want to speculate, it’s with standardized options on the CBOE, not with Other People’s Money. A deflationary depression is coming now, it can’t be stopped, and it will be brutal.

    Keep working on people, save those who can be saved. The tide is turning now and it’s becoming more and more obvious just what lies ahead.

    Currently, only the stock market and Seattle, WA, are in denial. They’ll get theirs soon enough.

  33. christiangustafson-where do you live? I mean, is it in a house? If so and if you are renting, do you wish your landlord to suffer and go into foreclosure? Gee…what would happen to you and others who are renting?

    I have a hard time wishing evil or harm on anyone. I don’t have a soft spot in my heart for those who have committed fraud or who knowingly overstated their income and those who provided those types of mortgages.

    I’m reading your comments and just wondering how you can be so invincible.

  34. My landlord is a great guy, a Norwegian Seattle native, and this is actually his third house, so he’s experienced at this. If you do the math, my rent actually pays his 1996 mortgage, which is one reason I expect RE prices to return to pre-2000 levels. It’s the P/E ratio!

    He raised two kids in this 1000 sq ft Crown Hill bungalow and so can I, at least until the smoke from the crash clears. I have a garden, a large yard which I enjoy maintaining, and a garage for my old red convertible. We are ideal tenants.

    I do not wish harm on anyone. I wish for those who took stupid bets, with IO ARMs or liar loans, or for God’s sake pay-option mortgages, to bear the results of their actions instead of *me*. Get it? This bubble will destroy many *trillions* of dollars of wealth, you understand, and I reject all bailouts, 1099 exemptions, off-balance sheet SIV magic with the banks, etc. We must allow the markets to clear, too bad if you bought at the top.

    I do not think WaMu will exist in 2010. They are insolvent now.

    Nor am I invincible, no one is. I am a bit more agile in that I have no mortgage, no debt whatsoever other than a 3-year loan we just signed on a 2008 car. As much as I don’t like debt, we really needed the car, I want my kids to be safe. We survive on one income, and I max out my 401K. We’re prudent like that.

    But no one is safe from what is headed our way. Thanks, REALTOR®s, for doing your part!

    How can you not be ashamed at how Americans have wasted their “home equity” on consumer spending these last few years? How can you not already grieve for our nation, that we could be so greedy and foolish in such great numbers?

    You know that HELOCs can be called, right? Here’s a hint about the kind of hardball that is coming. Uh oh …

  35. WaMu will not be the only bank to reduce HELOC lines. Consumers need to be very careful because not only do they not have access to equity like they assumed. This is happening with credit cards too and is damaging to credit scores when all of a sudden, you thought your balance was at 30% or below the line limit (providing you with a better credit score) but woops, the bank just lowered your limit and you’re now above 50% of the line limit.

    I’m happy for you, christiangufstafson, that you have a solid landlord. There will be many others who did not buy a home (who are renting), who may not be so fortunate.

  36. It is true, Rhonda, that flippers and specuvestors can make terrible landlords. They don’t know what they are doing, how to manage a property, and of course their financial situation is so precarious. You can rent from these people as long as you are ready to move out at a moment’s notice.

    Having understood the bubble for several years now, I have positioned myself accordingly. We lived in an apartment in Pike Place Market before we had our first kid and opted for a SFH. It’s not perfect, but we’ll live.

  37. christiangustafson, you’re a bit premature patting yourself on the back. The only people seeing a bubble in the Seattle market are those who want to see it, because it hasn’t happened–yet. That’s not to say that it won’t happen.

    And it doesn’t take a lot of foresight to see that someone with a two year time-frame might get into trouble if they do end up selling within that period. Personally I think three years is about the limit for buying and planning to sell.

  38. This is probably the wrong area to post this question, but I am hoping to find an answer: My friend who just bought a home in the summer was asked by her neighbor if she wanted to share the cost of the fence between their properties. She said it was a good idea, but told them she probably would hold off on the fence to make other improvements to her home (remodel floor, lights, sit out area in yard, retaining wall ….big list !etc). The neighbor responded saying she was ok, and would wait until the next summer at which point she will not want to put it off any futher. Now, my friend responds saying will try, dont want to promise given our priorities & expenses, please go ahead and install it if you feel its a priority for you. Now her neighbor quoted the following to her and indicated its required by law to for her to pay when she installs the fence.

    Quoting Partition Fences in Washington

    16.60.020 Partition fence — Reimbursement.
    When any fence has been, or shall hereafter be, erected by any person on the boundary line of his land and the person owning land adjoining thereto shall make, or cause to be made, an inclosure, so that such fence may also answer the purpose of inclosing his ground, he shall pay the owner of such fence already erected one-half of the value of so much thereof as serves for a partition fence between them: PROVIDED, That in case such fence has woven wire or other material known as hog fencing, then the adjoining owner shall not be required to pay the extra cost of such hog fencing over and above the cost of erecting a lawful fence, as by law defined, unless such adjoining owner has his land fenced with hog fencing and uses the partition fence to make a hog enclosure of his land, then he shall pay to the one who owns said hog fence one-half of the value thereof.
    [1907 c 13 § 1; Code 1881 § 2491; 1873 p 448 § 4; 1871 p 65 § 4; 1869 p 324 § 4; RRS § 5444.]

    16.60.030 Partition fence — Erection — Notice.
    When two or more persons own land adjoining which is inclosed by one fence, and it becomes necessary for the protection of the interest of one party said partition fence should be made between them, the other or others, when notified thereof, shall erect or cause to be erected one-half of such partition fence, said fence to be erected on, or as near as practicable, the line of said land.
    [Code 1881 § 2492; 1873 p 448 § 5; 1871 p 65 § 5; 1869 p 325 § 5; RRS § 5445.]

    16.60.040 Partition fence — Failure to build — Recovery of half of cost.
    If, after notice has been given by either party and a reasonable length of time has elapsed, the other party neglect or refuse to erect or cause to be erected, the one-half of such fence, the party giving notice may proceed to erect or cause to be erected the entire partition fence, and collect by law one-half of the cost thereof from the other party.
    [Code 1881 § 2493; 1873 p 448 § 6; 1871 p 65 § 6; 1869 p 325 § 6; RRS § 5446.]

    She also indicated that she wanted to install it now, and was being nice by waiting 4 to 6 months. In an earlier conversation, the neighbor and my friend couldnt agree on where the fence should end (how far along it should go from back to front), but my friend waved it away saying they would cross that bridge when they came to it. My friend who received this note just before xmas was rather miffed with the unneighborly gesture.

    My friend and her neighbor are in redmond, king county. My questions for you are 1) Per our research this law should apply to folks who have cattle on their property and not urban residents. Is this correct? 2) Is it actually required by law for residents in king county to share fences built on the property line? what is ur best advice for my friend?

  39. Kary, I think you and Elizabeth Rhodes will be the last two bubble deniers left in Seattle. We’re San Diego with about an 18 month lag, with urban core condoland and everything. We are not special.

    Look again at Ardell’s original post, she is spot on. She’s looking ahead at the glut of REALTOR®s versus a declining number of sales, and the necessity to provide more options and more value to the consumer. I give her a hard time, but an ardent believer in market economics, I say she’s absolutely correct here.

    Didn’t California have some 500K REALTOR®s at some point in the last few years. Well, next year they get to share about 20 closings among them, what fun. The herd will be culled, and the strong and smart will survive.

    Ardell’s looking ahead to similar events here, and suggesting that she’s going to be one of the survivors. The fact that she understands this already means that she’s got an edge on the ignorant and the indifferent.

    I would say that she should add that it will be a critical to know how to navigate short sales and REOs as well, to serve the customer and be a part of a transaction, however it may settle.

    RE will still be bought and sold, just in far lesser amounts, and on much more strict terms. Who will close in this environment?

  40. Ardell and Kary –
    You are both correct. Two years is a very short time frame for a house purchase and I’m sure my friends now realize that renting would’ve been much smarter (Kary, would 3 yrs have made that much of a difference? Do you expect the market to be that much better, if at all in six months?). At the time, I guess it was easy to be sucked in by the hype.They probably bought at the peak, so by definition they overpaid even though in line with prices at the time. In any case, it appears their place has come off the market, likely to reappear in 2008 with a new MLS # as suggested by Ardell. They will certainly lose a considerable amount of $$ when all the expenses/carrying costs have been factored in, but their financial situation is such that they will not be ruined. I’m sure there are others in this situation who are not so lucky. Besides the financial issues, the hassle factor is yet another reason why renting would’ve been the way to go.

  41. Kary,
    I’m not sure that Christiangustafson is really all that premature, based on most current indicators. If you are on a plane and all fuel is lost so that the engines suddenly fail at 40,000 feet and power is completely lost (hydraulics, flaps, electrical, etc), all indicators would suggest that the plane will plummet and you probably won’t survive even if the plane hasn’t dropped more than few feet yet. The rest is simply a foregone conclusion other than for those in extreme denial. It doesn’t mean that survival is completely impossible, as evidenced by this link:

    but this would represent a highly unlikely result when considering the previously mentioned indicators.

    Perhaps, much like in the example in the link above, the clowns in DC that screwed up and got us into this mess will be able to miraculously bail us out with (literally) a soft landing, but I wouldn’t count on it.
    It’s not a matter of what outcome is *possible* – anything’s possible. Again, the issue is which outcome is far more likely, and I wouldn’t bet on the Seattle housing jumbo jet to glide to safety with no power from 40,000 feet.

  42. Sometimes a two year hold is great and sometimes a three year hold sucks. It’s not really about time at all. You can hold for five years and have a loss, and hold for 10 months and have a substantial gain. The time from purchase to sale does not create the result.

    Many are in trouble because they bought new or “perfect condition” and then sold too soon. Better to buy “ugly” but in good condition as to roof and systems, if there is a chance you may have to move.

  43. Many are in trouble because….they were buying stuff that forces refinancing over and over again or forces a sale. LO’s out there know what I’m talking about. It’s pretty creepy when Nordstrom, Visa or GM or Toyota or BMW Finance own 1/10th or more of your house.

    Here a classic example that may have taken place in escrow offices scattered all across the country: It’s sad when a borrower is hounding escrow for their proceeds of $8K cash back because they are on their way to the airport to you know where in Nevada. And today they owe significantly more than what they purchased for just 18 mos. ago. And the cost to pay off all the revolving debt, loan fees etc.. to get that cash back far exceeded the proceeds.

    Do you think scenarios like this play out in our Puget Sound area market? I’ll leave that up to your imagination. Title company escrow dept’s that close probably 90% of all transactions across the country know the answer but have been so quiet during this market it’s deafening.

  44. Czb wrote: “You are both correct. Two years is a very short time frame for a house purchase and I’m sure my friends now realize that renting would’ve been much smarter (Kary, would 3 yrs have made that much of a difference? Do you expect the market to be that much better, if at all in six months?).”

    I’m looking back. It’s not that the next six months will necessarily make that much of a difference (I don’t predict the future). It’s that if they’d bought a year earlier they’d have bought at a lower price.

    And ChristianG isn’t right–in fact to date he’s been wrong. He indicated that he’s held his position for several years. Assuming that means more than two, if he’d bought when he first held his position he could almost certainly sell for a profit at this time. He’s in the hole on his bet, but he’s crowing about how right he is and how right he’s going to be. I’ll give him the latter as being possible, but that’s all it is–a possibility. Anything is possible when you’re talking about furture real estate prices.

  45. Tim, using your house as an ATM machine (what I call what you describe) does happen here in the Puget Sound region. It’s happened for years, and tightening credit and flat prices isn’t going to allow that to continue, at least to the same extent. And that’s not going to be a good thing for the entire economy, because it will reduce spending, and reduced spending can lead to lower employment levels, which can lead to all sorts of bad things. The only bright side is that the tax implications are not as bad for those people as they were maybe 5 years ago, or even 2 weeks ago.

  46. Ardell wrote: “Sometimes a two year hold is great and sometimes a three year hold sucks. It’s not really about time at all.”

    I’ll agree you can have different outcomes at different time frames, but to say time doesn’t matter at all goes too far. To be able to sell in 2 years and break even you’d need something just under 4.5% appreciation each of the two years. To be able to sell in 3 years you’d need something under 3% appreciation each year (I’m too lazy to do the compounding, and I’m not accounting for the difference in payments or tax treatment–I’m just looking at being able to sell without bringing money to the table).

    Expecting just under 4.5% is being more optimistic than expecting just under 3%. Getting 3% is more likely than getting 4.5% (because every year there’s been 4.5% growth there’s also been 3% growth by definition). Of course, that’s not to say you can’t have a situation with 10%+ the first year, making even a very short term hold profitable.

  47. Ardell or Kary- What are December PENDING sales right now for King Co. SFH (not condos)?

    Last I learned (last week) in Sno. Co. we were at about 300 units vs. 763 for same period last year for SFH’s.

  48. Kary,

    A few times in my career I have had to go back and sell a property that I just sold to somoene (within six months) and have been able to do so without “appreication” and without the sellers having to bring money to the table or sell short.

    When I suspect that someone will move away, like someone who is relocating in (all were) I am much more cautious about what they purchase. In fact I flat out tell them which properties I can turn anround and sell at break even in a short period of time, and which I can’t.

    It really burns my butt when people think making money on their real estate purchases is about appreciation. Appreciation should be the icing on the cake and not the expectation. When buying a house, one should look for the things they could improve upon within 72 hours, building in a cushion of “equity”. Better to buy a house you KNOW you can increase the value of by 5%, than hope the market will go up to save your butt.

  49. Tim, re: “Title company escrow dept’s that close probably 90% of all transactions across the country know the answer but have been so quiet during this market it’s deafening.”

    Local title companies would probably not allow their employees to be real vocal about what’s going on…same as LOs who work for the big banks. They gotta keep their big mouths shut.

    I’m sure it drives them crazy too! 🙂

  50. Well that would be another factor in the mix. I’ve seen $100 of paint make a ton of difference. It’s sort of the flip side of what I’ve been saying about inventory–a lot of it isn’t in the type of condition it needs to be in to sell in this market. That does create some opportunities for those willing to do a bit on their own, assuming the seller is willing to move on price.

  51. Rhonda, I know, I know. Just saying. Up to Bellingham I go for a signing…bringing my skis for a quick run to Mt Baker. Don’t tell Lynlee why I’ll be tardy getting back to the office—unless the Ski Patrol has to call her saying, “um, your husband is here with a broken leg..and what’s all this paperwork from his backpack scattered all across the slopes. He was in an area he wasn’t supposed to be. He’ll be at St. Joe’s in about an hour for further evaluation.”

    Bye. 🙂

  52. Tim, that’s a calculation I don’t usually do (compare active pendings to historical reports) so I’m not sure I’m doing it right, but I’m showing Snohomish county being about 50% of last year (about 450 to about 950–your number apparently excludes new construction and I think the 300 is probably just wrong).

    I’m showing King at about the same percentage (approx 950/1950).

    BTW, for the active pending I’m cutting off anything pending prior to 11/1/07, figuring there’s something wrong with those. I’m not sure the NWMLS does that in the historical data (and again, I’m not even certain I’m comparing apples to apples).

  53. Tim,

    Sorry I missed that question before heading out to see a house in Woodinville.

    King County Single Family

    8,402 For Sale

    1,909 In Escrow
    114 of those contingent on sale of another house

    971 closed so far in December
    1,372 closed in November
    1,532 closed in October

  54. tj,

    In escrow usually closes over a longer period of time when you factor in those that are not 30 day escrows, especially new construction. so yes, I would call that somewhat normal. I have several graphs of In Escrow vs. Sold in a month over at my blog under “Tracking the Market” category. You can check that for yourself. I’m off to another appointment.

    I’m not sure I understand your second question. Seems that number of over 8,000 is down from over 10,000 due to people coming off market for the holidays. So it seems somewhat low vs. high from my perspective and isn’t “a month” supply, it accumulated over more than a month for sure and absorption-wise is about a six month supply unless the first quarter goes better than expected.

  55. BTW, my numbers might be off. In the historical reports I’m not certain whether new construction residential is a subset of residential, or in addition to residential. I treated it as the latter, which means that my numbers would give a lower percentage.

    We’ll know in just over a week the real numbers, which is why I don’t usually do this exercise.

  56. Thanks Ardell, I just divided inventory with closed sales to see the months of supply at this point. It’s above eight? And that seems higher than what is normal for Seattle, no?

  57. tj,

    If you used December closings, it’s generally the lowest month and also all December closings are not posted yet. So not really fair to do it that way.

    Based on last year’s sales, it’s a 5-6 month inventory as it took until May 14, 2007 for the annual sales to reach 8402. Lets remember to come back here and see if 8,402 have sold within 5-6 months from now. January of last year was 1,357. Even if the average per month for the next six months is only 1,350, that would make it a six month supply.

  58. Ardell, I think that would probably be an even more unfair analysis. The reasons being that:
    1. Homes are likely to be added to the MLS from now to May and thereby impact months of supply on an ongoing basis.
    2. December’s historically low sales volume should be offset by that I suspect the same can be said for inventory. It should offset each other pretty well.

  59. If we start the year with six months of inventory, and in six months 8,402 have sold and 8,402 are for sale, we would still have an absorption rate of 6 months or more. How many are for sale in March doesn’t change the calculation for knowing how many months of inventory we are starting out with on 1/1/07. I think we are starting the year with 6 months of inventory or more, if the expectation is fewer sales in 07 than 08.

    How long it will take 8,402 to sell depends on the sales for the first months of 2008, not December of 2007. But you can call it 8 months and I’ll call it 6 months and we’ll see if 8,402 have sold at the end of six.

    I’ll be running the 2007 stats soon and comparing to 2006 and 2005. Then we can see if the first half of the year sales traditionally outsell the last half. Here’s a small sampling from one of my posts last year:

    This is only the $400,000 to $600,000 range.  But gives you an expectation of the growth of sales from January through June.

  60. I think I agree if the inventory in six months is 8,402 which I kind of doubt looking at historical inventory diff between Dec and June.

  61. Actually I don’t agree, to me months of supply is a snapshot of how long it will take to absorb the current inventory at current sales pace.

  62. True, but “current sales pace” is one month if the inventory is a month supply. “Current Sales Pace” is that of a quarter if it is a three month supply and “current sales pace” is that of the average of the last six months if you have a six month supply.

    Rate of Absorption says it will take x months for the current inventory to sell. If December is consistently the lowest month and April is always double December, then calling it 8 months based on December alone would be a false prediction.

    Before we pin this down, let me calculate and post 2005, 2006 and 2007. I lost my voice last night. It’s going in and out. So it’s a good day to calculate and post stats.

  63. P.S. I just realized the inventory is lower than I expected because I normally do not exclude condos and only did so because you asked me to. So I will do graphs as SFH, Condo and then combined for all three years.

    I don’t like to separate condos because townhomes on the Eastside are condos, but in Seattle they are SFH for the most part. Keep that in mind. Eastside tends to build townhomes on one lot, without subdividing the lot into separate parcels, making them condo townhomes. Seattle will shortplat the parcel so that each townhome owner owns the land under their townhome as fee simple SFH. Eastside also has SFH townhomes that operate like a condo as to maintenance and fees, but for the most part townhomes are condos on the Eastside. Not sure about South King County.

  64. “Thanks Ardell, I just divided inventory with closed sales to see the months of supply at this point. It’s above eight? And that seems higher than what is normal for Seattle, no? ”

    Back to your original question, since you can’t decide whether or not to agree with me about using December as the month to determine x months to sell off inventory. If you had the same inventory in July and divided by only July, you would have a false low. If you use only December, you have a false high. So if December is always the lowest month, then 8 might be “higher than normal” for the year simply because December is the lowest month. Unless you are expecting the first 8 months to have sales equal to December on average, than 8 months of inventory would not be correct.

  65. tj,

    To give you a rough idea, I just finished 2005 and December sales were higher than Jan and Feb in all categories, but lower than every other month in the year. I’ll post the stats in separate entries on my blog and then draw the conclusions with links in a wrap up post here on RCG.

    2005 may be a false result given interest rates were the lowest beginning in June of 2005 and then came back up again. So I’d hold off on making broad conclusions until 2006 and 2007 results are posted. I would expect 2nd half, especially the month of August, to be artificially abnormally high in 2005.

  66. Hmm…I think I know where the difference if interpretation comes from. You are looking for an accurate prediction of the absorption rate for the coming months, I on the other hand is looking for an indicator of the current market. I.e an indicator of the competition for a buyer or seller entering the market at this point in time. If a buyer is to expect a bidding war or good opportunities for lowball offers. The indicator that is called months of supply is up to date and will change in a months time to show the conditions at that time. I think this is the real value of the months of supply measure, not the prediction of the actual future absorption. In that context isn’t eight a bit higher than normal taken into account that six is usually used as threshold to indicate a buyers market?

  67. This is another area where simply waiting a few days for the December numbers to come out would probably be a good idea. Then you can compare sales to inventory for Dec 05, 06 and 07 and be reasonably certain you’re comparing apples to apples.

  68. I’d agree. The problem I was addressing is not having comparable figures. You don’t get those until early in the subsequent month.

    There’s also the problem of month to month not necessarily being the best indicator. If you looked at only the median prices month to month for February through July, 2007 you’d think the market was going up at something like 20%+ a year. Looking at those same months year to year would give you a more realistic under 10% figure. Looking at both sets of data might show you a problem was developing (because prices were rising too fast month to month).

    So what I would suggest doing (but not volunteering to do at this time) is pick some measure of inventory, and determine what that was for October 05, 06, 07, November 05, 06, 07 and December 05, 06 and when available 07. That would give you a better idea what the December numbers mean when they come out. Oh, and you might want to look at Jan 05 and 06 too.

  69. tj,

    “I on the other hand am looking for an indicator of the current market. I.e an indicator of the competition for a buyer or seller entering the market at this point in time.”

    Well that won’t help you then. You need to do it for market segment and not all of King County. For instance, I am simultaneously working on stats for one bedroom condos near Microsoft. In my small sub-segment (Bellevue Manor) there is ZERO inventory and the one in escrow (next door at The Highlands) is pending at 30% higher than the last sale in the Manor. So if one of those comes on market and you think you can lowball it because “King County” has 8 months of inventory, when it is the ONLY one bedroom condo for sale in that complex of 240 or so condos, you would be incorrect.

    A buyer and or seller cannot use King County stats to make decisions regarding their specific property purchase or sale. Nor can sellers of $500,000 to $600,000 homes in downtown Kirkland only look at Single Family Homes. If 98% of the buyers in that price range and in that area are choosing condos, then condos are the competition for the single family home, and not simply other single family homes in the price range.

    To both tj and Kary I’m finished the data for 2005, 2006 and 2007. Kary is correct regarding my needing to wait for the December numbers. But since I am breaking it down into many graphs, I can keep posting the 2005 and 2006 data so that all of it is up by the time I get the final numbers.

    The way that I compile stats, I can’t do inventory except current. I can’t go back to see how many were active at previous points in time. The current status of those is no longer active, and so not able to get those stats.

    Once I’m finished with King County, I’m going to break down some Zip Codes, as I am more interested in market segments than overall King County. If I am selling a property in 98007, I don’t really care what is happening in Kent and I don’t want the average to dilute the results. If prices are up 8% overall meaning down 5% somewhere and up 20% somewhere else, you don’t want to use the average appreciation numbers.

    My thinking is that parts of Issaquah, Monroe and Pierce County and Kent are acting like the rest of the Country and “Seattle” is only “special” in pocket areas.

  70. I wish I could do 2004 to show the upswing in 2005 created by lower interest rates, but I can’t. The data in the mls doesn’t search the same way in the “archives”.

    Where Christmas and New Year’s fall effects December’s closings. Some years more carry into January than others. So best not to look at December as a separate entity or at least don’t draw broad conclusions from one December only to the next December only. Same with January. This year if December 07 looks artificially low and January looks artificially high, it could simply be that the last business day of 07 is 4 days from the end of the month, and more are carrying into January than usual. Don’t consider January 08 an upswing until you see where February and March go or at least use the average of December plus January for all years as “a month”.


    Remember that the December closing does not reflect until someone actively records the sale. It’s not an automatic posting. So an agent can enter a 12/31/07 closing on 1/15/08. So if you see the December numbers going up after I post them on say the 5th, that will be why.

  71. Curious facts day:

    1 bath $322,000
    1.5 bath $365,000
    1.75 bath $386,000
    2 bath $397,000
    2.5 bath $475,000
    3 bath $510,000

    Square footage increases account for more than the bath size as larger homes have more baths.

    1 bath 1,080 sf
    1.5 bath 1,413 sf
    1.75 bath 1,630 sf
    2 bath 1,665 sf
    2.5 bath 2,250 sf
    3 bath 2,576 sf

    Used 2007 medians from Shoreline where many 1 bath homes are still found.

  72. Sorry for the gender blunder Kary.
    The county wide months of supply is actually valuable for me since I’m not stuck on a certain area or property. If the county average is say 8 months it will tell someone like me to move on to the next object if one seller does not negotiate. In a buyer’s market someone likely will…Anyway I’m not planning to make any offers until about a year from now.

  73. It’s good to not be stuck on an area. It gives you the most latitude, and allows you to find not only a bargain, but a good property at a bargain price. But when it comes time to make an offer it helps to know the specifics.

    For example, currently IMHO, there’s a lot more inventory for condos in south Snohomish than there is right across the border in north King County. Only a very few miles makes a world of difference.

  74. Kary, Re your comment in post #48: ” It’s not that the next six months will necessarily make that much of a difference (I don’t predict the future). It’s that if they’d bought a year earlier they’d have bought at a lower price”

    I think you have made my point for me. People who are looking to buy at a specific time don’t have the option of going back in time after the fact and buying one year earlier. My friends bought in Summer of 2005 b/c that is when they moved here. They obviously were not looking for a house in Seattle, where they did not know they would be living, one year earlier. Therefore, a three-year time frame for them would mean purchase in Summer 2005 and sale in Summer 2008, which so far has the makings of a very difficult financial situation and would not support the idea that 3 yrs of anticipated ownership is a wise decision. To say that they would have done well if they had bought a year earlier is akin to stating that this type of short-term RE ownership is a good idea if you know exactly where the market is going and can time it so that you buy low and sell high in the short term, and can avoid the opposite. Seems like a tough sell to me.

    Re: ChristianGustafson’s prediction, we will have to agree to disagree on that point. Had he bought in Fall of 2005, if you take into account interest, insurance, taxes, maintenance and 6% RE agent fee when he sells his house, the chances are pretty good that he wouldn’t be selling for a profit at this point. If you add the opportunity cost that from the money he tied up in the down payment (ie the 7-9% in interest after taxes that his down payment would have collected in a two-year CD) then his Fall 2005 house purchase would seem like an even worse deal if he were selling today.
    I agree with your comment that anything is possible with future RE prices. That was my point in posting the link to the Air Transat story in post #45. That is also the reason why the question should not be what is possible, but what is probable. If I’m on that RE jet at 40,000 feet that has lost the low lending standards fuel to its engines, I might be hoping for that miracle landing but will bet that the guy predicting doom and gloom is unfortunately more likely to be on target (although granted I’d rather he not keep reminding me as we spiral downward) .

  75. Ardell,
    Of course that is the case.
    To be brutally accurate and make it as credible as can be, we also need to consider the effect of inflation. Depending on what inflation numbers you believe, in general terms that would mean that after subtracting all the costs I mentioned in the post above and adding what would have been paid in rent, my friends would still need to come out about 5-10% ahead just to break even in real terms. Again, I think that this is simply a matter in which we (at least Kary and I and possibly you) can cordially agree to disagree.

  76. LOL, making it look like they get to live somewhere for free if they don’t buy is no small overlook I’d say. But sure. I’ll agree to disagree on that one.

  77. Ardell,
    As you can read from the above exchange with Kary, I am not saying that we disagree that money spent on rent needs to be calculated into the equation. That much is obvious, as I acknowledged in my last post.
    What we ‘agree to disagree’ on is that if someone purchased a house in the Fall of 2005 they would now be selling for profit. Making a profit doesn’t just mean selling for a little more than you bought – there are many factors in the equation, which are often overlooked.

  78. Will you agree that my client who paid $104,500 in July of 2005 across from Microsoft, and can now sell it for $175,000 or more, is way ahead of the game? You seem to think no one did well or could have done well. How about my client that bought for $580,000 in December of 04 and sold in July of this year for $855,000? Maybe the one that bought in Spring of 04 for $130,000 including closing costs and sold in August of 06 for $207,500 not including closing costs.

    You don’t seem to want to acknowlege those who have gained. Of course you are not the only one. I have only two people who I have helped purchase in Seattle who have since sold the properties. The rest still live in them. Pretty substantial gains there anyway you slice it, or can you say those people didn’t make any money either due to “other factors”?

    You seem to want to justify away any and all gains by any means.

  79. P.S. None of those were flips or improved properties. In fact the $855,000 one was a tear down and I think is now torn down making way for townhomes in Seattle.

  80. Ardell,
    Of course people have done very well in this inflated market in the past. I wouldn’t deny that and have myself benefited from the run-up in prices. The market appreciated dramatically up to last year so it would’ve been practically impossible to not do well. However, times have changed. The time frame Kary and I are discussing (per his post) is specifically the last two years. Recall that he claimed that Christiangustafson would undoubtedly be selling for a profit if he had purchased a house a couple of years ago, which is the point that I find contentious. The situation is quite different for those who purchased well below the peak (eg especially your Spring 2004 and even December 2004 examples) rather than closer to the peak. Your example of the Microsoft condo that “can sell now for $175K” is meaningless unless the place actually does sell for that much, which does not appear to be a sure thing these days. And as I have acknowledged several times now, I realize anything is possible so there will certainly be *some* success stories, but I do not think the odds are that great. You have not really refuted my argument that those who bought in late 2005 would not likely profit, in real terms, if they were trying to sell their property today – a point upon which we will apparently continue to disagree.

  81. The rent factor is another one that favors holding property longer term.

    Back when I bought my first condo a friend couldn’t believe how much I was paying per month. But I said something to her that stuck–I’d be paying that basically forever, without it going up. I think the P&I was about $500 at the time–downtown Seattle. At the time that was outrageous–it didn’t take that long before it wasn’t, but it was longer than 3 years.

  82. I don’t have any people who bought in late 2005 who have sold, but I’ve been running the numbers on the complex with the $104,500. One is in escrow for $230,000 or so, but I can’t believe that is going to close and they just bought it for $202,000 earlier this year. So I was being conservative at the $175,000 figure.

    Didn’t mean to give you a hard time. Just seems with such great gains for many that there’s always a reason to suggest the gains aren’t real and can be explained away with inflation, etc. Did we really have 5% to 10% inflation in 2006 and 2007 not including housing increases?

  83. Ardell,
    Since I was referring to a two-year time frame, the 5-10% inflation numbers I quoted were for the two year period (ie 2.5 to 5%/year). I think the range is appropriate, depending on who’s numbers you use/what you wish to include in the calculation. Many would argue that actual inflation is higher since certain entities such as energy, for instance, do not get included in the calulcations but that’s beside the point. Similarly, the opportunity cost numbers I stated for what the downpayment would have accumulated in interest if it were invested in a CD was also for a two year period (ie 7-9% total over two years after tax = @5.5%/yr before tax (compounded), which is about what rates would’ve been at the time – lower now).

  84. czb, I think there is a measure of inflation that includes energy and such, it’s just that it’s too volatile to be much use (especially to people who set fiscal policy). It’s sort of like month to month comparisions of real estate medians for them. But for the rest of us, over longer periods of time, it is relevant.

  85. I haven’t been feeling well, have that flu that’s going around, and I just woke up. But still seems like you are stacking the deck against the guy who bought vs. the guy who rented. Wouldn’t both have the same inflationary costs outside of housing payment? Why would you erode the buyer’s gain on his house due to inflation on say buying gas for his car or a loaf of bread? Wouldn’t they both have those costs?

    Just saying that if Realtors shouldn’t stack the deck on the favorable side, likewise “the other side” shouldn’t stack the deck on the unfavorable side. Let’s keep both sides of that fence on an even keel so we we are not cheerleaders and bubble trackers aren’t naysayers.

    I’m trying to pinpoint a peak time, as I think we did have it. Probably July of 07 in markets I’m familiar with. What I’m seeing is the best locations and properties sustained the upswing longer and at a more rapid pace. I’ve seen this before. In some markets, those properties never do go down depending on the length of the lull, as those are the last to start down and the first to rise up. So if the lull is not sustained, that segment never takes the hit. Not saying they won’t, but we won’t know until March or April of 2008. That’s why I’m running all the stats back as far as I can in the next week or so.

    Seems to me that the number of units sold is the key, and not “medians” of any kind. Without the December figures in, I’m at 44,278 for 05, 39,544 for 06 and 33,644 for 07 through the 28th or so of December. We’ll pick up some more as the final postings for December get entered. But I don’t think it will change the number by more than 1,000 given the holidays and weekend. Probably not even that much.

    Condo sales down by 10% in 07 (9,026) compared to 05 (10,021), without the final December numbers. Single Family accounts for a 28% drop from 31,928 sales in 05 to 23,000 plus in 07. Is it a shift to condo living? Or a priced out of single family housing? Or some of both? Some of that drop was in 06, buy largely it is in 07.

    As to “month to month” calculations. I am posting month to month for 05, 06 and 07 so we can see the trend out the gate on 08 compared to those three years as to all sales, condos and single family homes. I am doing King County for now, but will be breaking out the numbers into smaller segments as we go.

    It will be very interesting in early 2008 for sure.

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  88. Very useful post. I’ve actually seen many agents operating as a company within a company if you will. The most successful ones have their own team of people working for them. As in any business, if you want to be successful, it is definitely important to set goals and to aim high. Not unrealistically high but at least something to keep you going. Selling 10 homes a year seems like a good goal.

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