Author Archives: ARDELL

About ARDELL

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

Buyer Beware – “great deals” may come with other “issues”

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big new houseWhen you get the opportunity to buy a house “worth” over a million dollars, for fifty to seventy cents on the dollar, you have to ask yourself if you can “afford” it before you say WooHoo!

#1 –  Real Estate Taxes may be too high

Often people ask why so many pending sales don’t close.  There are many reasons, one of which is that lender pre-approvals show a purchase price vs. a monthly payment.  Reality is that your lender is NOT qualifying you for a purchase price, but for some reason they think it is easier for you to understand a price vs. a monthly payment. They then make assumptions as to other costs, and convert their communication to you, the agents and the seller, to a Purchase Price. (This was not so when I started in real estate, and someone should change that.)

So you have a pre-approval to buy a house for $650,000 with a 20% downpayment.  What that really means is the lender “assumed” taxes of approximately $6,500 a year and homeowner’s insurance of $650 a year. Now you go out and find an amazing, super-great deal! You have the opportunity to buy a house assessed at $1.2 million for “only” $650,000! WooHoo? Maybe not.  The annual real estate taxes are $11,000 a year vs. $6,500 a year and the homeowner’s insurance is $1,100 vs. $650. That means your monthly payment is $412.50 more each month for that particular “$650,000 house”, than your lender assumed when you were pre-approved.

Your income needs to be $15,000 to $18,000 more per year, for you to be able to afford that particular $650,000 house.

There are two possible consequences. One is that the loan will “kick out” early enough for you to get your Earnest Money returned, assuming you have a good Finance Contingency. The other is that you planned to buy with a payment of  $3,400 a month, but end up being approved for a payment of $3,800 a month, with no recourse.

It’s possible that you could appeal the assessed value with the County, but I’m not hopeful that will work this year. I clearly wouldn’t recommend anyone promising you can have the taxes reduced to a level commensurate with the lower Purchase Price,  unless you are buying in California. In King County Washington this is NOT a good year to bet that you can prove that the purchase price of $650,000 is a good reason for the County to lower your assessed value of record. Nor is it a good year to think that lower assessed value will equal lower taxes. The County has already notified owners that they are dramatically reducing assessed values (not taxes). 2010 is a particularly bad year to rely on being able to get that tax bill dramatically reduced, in my opinion.

The only sure course is if the bank-owner would have the assessment and taxes reduced prior to sale, in order to obtain a buyer for that home. But I strongly doubt that will happen. Anyone who can’t afford the $11,000 tax bill that comes with that “great deal”, should not be buying that house.

 

#2 – The “carrying costs” may be too high

When a lender pre-approves you for a Purchase Price of $650,000, they do not consider annual use and maintenance costs. Unlike real estate taxes and homeowner’s/hazard insurance, the lender makes no assumptions as to utility bills and other maintenance and repair/replacement costs. In King County a $650,000 house is generally about 2,900 square feet. A house for $1.2M is usually about 4,400 square feet, and often on a much larger lot.

Before you buy that 4,400 sf home on an acre+ lot for $650,000, instead of a 2,900 sf home on 1/4 acre, be mindful of the extra cost to heat and maintain that larger home on that larger lot, in good condition, over a period of years.

 

#3 – Cheaper, bank-owned, new construction may not be “complete”

Most recently we are seeing builders losing their construction projects to the bank. The bank then puts the house on market “as-is”.  Yes, the prices can be awesome! But will your lender finance the “new home” without it being completed? There are programs available to provide funds for purchase and rehab or completion, but are you ready to be your own “general contractor”? Even if you think you can handle it, will the new lender allow you to be your own “general contractor”?

Again, two possible consequences. One is you don’t qualify for the new financing, including cost to complete the home. Again, hopefully that consequence “kicks in” early enough for you to get your Earnest Money back under the Finance Contingency. Another possibility is that the things that need to be completed do not cause the sale to fail, but you end up with a house like the one pictured above. No landscaping, temporary construction fences or barriers, no garage doors…and no money to comply with the neighborhood rules to get your new home in good order in the timeframe required by the CC&Rs.

Once you enter into a Contract to Purchase, you may not be protected against “biting off more than you can chew”. Before you enter into a contract to purchase that “screaming deal”, make sure you can handle all the “issues” that come with.

Short Sales & Bank-Owned pulling prices up?

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King County Home Prices, and what is causing them to go up or down, is dramatically different from one area to the next. I often think about the many who track short sales and bank owned sales, and the growing number of them, who think that these distressed property sales pull the median home price down. That is not always or even often the case in many areas.

North Seattle and Bellevue School District median price per square foot numbers would actually be LOWER if there were no short sales or bank owned properties in the mix. In Bellevue School District, the current median price per square foot would be $330 vs. $338 if there were no short sales or bank owned properties selling. The median price per square foot of a home not in distress is $230, bank-owned $298 and a short sale $268. Given the median asking price of homes for sale there is $899,000 vs. the median sold price of $563,500, the distressed properties of today and for some time into the future are more likely to be the most expensive homes that fewer people can afford to buy.

Now to Seattle North of Downtown.

NSMPPSF

 

 

 

 

 

 

 

 

 

 

 

 

 

Again, short sales and bank owned property sales in North Seattle are pulling the median price up from $244 to $248 in the 3rd quarter. Not necessarily for the same reason as Bellevue School District. More likely due to their being bid up or banks pricing them high and people thinking they are “a bargain” because they are “distressed properties”.

This is NOT the case with sales in Seattle SOUTH of Downtown where the median short sale sells for 15% less and the median bank-owned property sells for 25% less.

I’m working on volume and price stats to determine if the $8,000 Homebuyer Credit expiring will pull prices below “bottom” and for Seattle South of Downtown…no question that is a big yes. But for North Seattle and Bellevue School District (not finished with the rest of the Eastside School Districts) we just might see the bottom holding “post credit”.  I’m still speculating on where volume of sales would have been in North King County, if there never were a homebuyer credit. And while I expect a 4th quarter price drop, I don’t expect prices to fall below the 1st quarther “bottom” of $233 median price per square foot.

Not finished with all of my predictions and stats yet. But thought it was very interesting that in some areas Short Sales and Bank Owned property sales are actually pulling median price per square foot UP…vs. DOWN.

(Required disclosure: Statistics not compiled, verified or posted by the Northwest Multiple Listing Service.)

President Obama Wins Nobel Peace Prize

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Hope - ObamaI am stunned to wake up to the news that President Barack Obama has won The Nobel Peace Prize, while I slept.  The range of emotions and thoughts running through my mind are hard to pin down to a reaction to this.

It makes me want to be a better person…it makes me want to be “greeener” and more frugal and a postive influence on any life I may touch. It fills me with a huge responsibility to “have his back” and do anything I can to support him and do my part to make the World a better place.

It doesnt fill me with “Hope”…the main reason he won…it makes me want to be part OF that Hope.

Congratulations, Mr. President. You do certainly do us proud…

Truliaboy gets his house…and a puppy

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truliaboyBack in June, a young man posted a question on Trulia Voices. The question no longer appears, though the answers to his question do. I had him remove the question once he became my client, because if you find a great house that you want to buy, you don’t want to highlight it on social media sites for other buyers to see and possibly make an offer on.

This post has SO many messages, it’s hard to stick to one subject…that being the young man did get the house (and a new puppy).

1) Trulia Voices is a great place for home buyers and sellers to ask questions anonymously, and get the opinions of area (and out of area) real estate professionals.

2) If an agent is NOT willing to do a short sale, that should be a disclosure up front to potential buyers who have not yet chosen a home to buy. Truliaboy found the home himself…it was a short sale. His question, which was removed, indicated that his agent ignored 3 of his requests to see the house and make an offer on it.

3) St. Joseph played a huge role in the Truliaboy story. While my answer to his question (“…If you have the time and the energy to get what you want…don’t give up!…”) prompted him to “look me up”, it was actually my connection with St. Joseph that caused him to hire me. You never know 🙂

I usually do not post the real estate stories of my current clients, but he and I have been talking about posting his story since it started. He’s a fabulous young man who found a house he wanted to buy. He had two previous agents who did not think he could buy the home of his dreams, at the price he could afford to pay. As you can see from the few answers that were posted before I had him remove the question, some agreed. For those who suggested that he could not possibly get the house for less than current market value…he got the house for 15% less than current market value (his lender’s appraised value). The sold price was 17% less than summer of 2004 pricing and 32% under the face amount of what the bank lent to the previous owner, at market peak.

Most importantly…he got the house of his dreams…and a new puppy. I give a special thanks to Trulia Voices for making this forum available to buyers who have questions that need an answer. Truliaboy asked me to include his special thanks to St. Joseph.

Carnival of Real Estate

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Oddly the winners of the Zillow sponsored Carnival of Real Estate, did not win for the posts submitted. In fact even though I had two week’s worth of posts, there was almost NO winner of “The Carnival of Real Estate”. Did you ever watch The Oscars and wonder why there has to be an award for “Best Picture”, when none were actually worthy of the title of that category? Has there ever been an announcement “Sorry, no ‘Best Picture’ this year”?

Technically I should have TWO winners, since I am judging posts from both the week of August 28th and October 5th…and I do have two “winners”…but no”winning posts”.

“Winner” #1 is:

YG&B of “Foreclosed to Fabulous: A Journey Into Home Rehab”  I LOVE this writer, who is apparently a woman who possibly lives in Atlanta. Clearly not tooting her own horn, she says “I work for a non-profit that endeavors to take these houses from foreclosed to fabulous.” Her journey is well written, with fabulous details into the thought process on selecting which homes to buy and how to renovate them, and even some frustrations as to why no one may want them when they are finished in this post titled: “Crappy Old, Crap Crap Market. Crap” Her endless journey to find “a place to pee” in “4 Facts of Life of Low to No Margin Real Estate Work” is both funny and TRUE!

So Ms. YG&B, the post you entered did not win…but YOU clearly did.

Winner #2 is :

Bill Zoller, who submitted what appears to be his first and only post on US Inspect – Federal Pacific Panels and Are They a Danger?

Bill ends his post with: “I encourage each person reading this document to go to the links I’ve included and do further research. And, please communicate to your business community, as a realtor, home inspector, electrician, handyman, etc., the presence of these types of panels must be removed/replaced. No other remedy is satisfactory.”

I especially liked that Bill highlighted the point that an inspector FINDING a problem is not good enough! The remedy is hugely important! How many times do we as agents see the exact same problem when the  homebuyer later sells the house?  Does a roof leak need a patch or a new roof? Does a hazardous electric panel need a few tweaks or full replacement? A home inspector points out problems. But it takes all of the people in the room to take that red flag and provide the appropriate and “satisfactory” remedy to the problem at hand. “It was that way when I bought it” is NOT a satisfactory response by a seller to a home inspection problem. So make sure the remedy fits the problem…or you may end up paying for that oversight as a buyer, when it is time for you to sell.

Honorable Mention #1:

Patrick of cashmoneylife –  Entry: Are Money Merge Accounts a Great Way to Pay Your Mortgage Quickly, or Are They a Scam?

There are many interesting posts on cashmoneylife, and so I give this post “honorable mention” to highlight the blog itself (if anyone can find a last name for Patrick, please let me know). Be sure to read the comments on this post, as many are of equal value to the post itself.

Honorable Mention #2

Jay Thompson of The Phoenix Real Estate Guy – Entry Home Buyer Tax Credit Extension: Yet Another Bill Introduced

When I want to know what is happening with the First Time Homebuyer Tax Credit, I go to Jay Thompson’s blog. There is no answer to the question, but Jay has been keeping us up to date on what exactly is not happening since back in June. To find out what is and isn’t happening…you have to read Jay’s post. I was especially impressed that Jay called Senator Isakson’s office, further proving that if you want to know what’s happening with the Homebuyer Tax Credit…stay with Jay on this one.

A few words about the other entries and entrants:

Reminder: You are supposed to submit your BEST (one) post written within the last two weeks.

NOT a DOZEN posts, written by someone else, that you hope to take credit for…

Not 5 posts, all of which amazingly warrant the name of your town in the post title, and first sentence, and repeatedly throughout most every blog post you “write”! That may make the Search Engines notice you…or not…but it clearly is “bad” blog writing.

A good rant is often noteworthy. But whining, whining, whining about smelly houses, or buyers who are “too reluctant to pull the trigger”, or why people think they can buy a house without “consulting a REALTOR”…is just getting old.

I understand the need to monetize a blog. But when there are FIVE ads between EVERY sentence of the post…well, I just give up on trying to find the post amid the sea of advertisements.

The winner is a gem of a writer, with so many excellent posts and observations that I couldn’t possibly highlight all of them. If she ever writes a book I’ll be the first one in line to buy it, and the first one in line to meet her and have it autographed. Mucho Kudos to Ms. YG&B!

New Rule on Home Blogging & Zillow

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There’s a lot of talk going on about the new mls rules regarding blogging about homes for sale. The same new rule can prevent agents from posting their listings on Zillow, or any site that has Zillow or another “AVM” feature as a complement to the information available on the same site as the home listing. Basically sellers will now opt in or opt out of these categories separately, when they list their home for sale with an mls member.

Below are links to conversations already happening regarding the new rule that will shortly go into effect.  No one has answered my one question yet in any of these conversations. Does the “new” rule pre-empt the old rule 190? In other words, if a seller clicks “yes” to allow his home to be blogged about, does that “yes” apply to ALL bloggers OR only the listing agent. If I see in the mls a “yes” as to blogging allowed by the seller…do I still need the listing agent’s permission per rule 190, in addition to the seller’s permission?

Seems to me the rule should have more options like “yes MY agent CAN, but no other agents cannot”.

None of these changes impact me or the way I currently blog, but given there is so much being said on the topic, a simple re-direct to these online discussions via the links below, should give you the complete picture. My guess is large brokerages will choose FOR their sellers by company policy, and the actual seller making the opt in and opt out decision will not really come to pass. So much ado about nothing.

What is NOT included in the home inspection?

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The other day I presented a request to the seller’s agent after a home inspection. The agent said “My home inspector never includes the deficiencies of outbuildings”  It reminded me that many home buyers rely on the home inspection, and yet there are many “area norms” that dictate what home inspectors do and do not do. All home inspectors are not the same, and cost of inspection should not be the main criteria when selecting a home inspector. The cost difference from one to another is often within $100…but the manner in which they inspect a home varies greatly.

Common sense does apply, to some degree. Most often the cost of the inspection is determined by the square footage of “the home”. One would think this might be a signal that an inspector who prices on that basis is looking ONLY at “the home”. Often that is appropriate, but sometimes it is not.

There is no hard and fast rule here. A good rule of thumb is “is it an item that adds or decreases value in an appraisal?” A fenced property most often will not appraise higher than a similar home without a fence. A small shed will not likely be noted in an appraisal. But the property in question for me the other day included a HUGE shop building with a roof, heater and electricity. I haven’t seen the appraisal yet, but seems to me that “the outbuiding” in this case was appropriately inspected as to deficiencies. In fact, there have been a couple of times over the last 20 years when my buyer client bought a property where “the outbuilding” was equally important to the decision to purchase as the home itself…sometimes moreso.

My personal opinion is that we should look at the inspection process from the standpoint of future buyer cost, vs. components in and of themselves. What every home buyer wants to and needs to know, is how much might it cost them to maintain this property after they become the owner of “it”. A new fence costs a lot more than a polarized socket or a GFCI, many thousands more. Yet most every home inspection will ignore a rotted fence and include a $15 GFCI.

This is a large topic, and I am on vacation in Florida at the moment, so we will revisit it from time to time. My hope in writing this post is to convey to home buyers that merely relying on “a system in place” to protect you, is just not appropriate. The system values “what you are buying” differently than you, as you should be looking at what costs you may have overall…because the system in place does not do that. There are many large cost items that are not included in the inspection or the seller disclosure.

All too often a buyer chooses a home based on interior features and then relies on the system to do the rest. Rarely does a buyer do a thorough inspection of the home and property (as much as they can) before making an offer. There are two remedies to this problem:

1) We can improve the system to incorporate all that a homebuyer really needs from it

2) Buyers should conduct a thorough inspection themselves either before they make an offer or during the home inspection timeframe (in addition to the home inspection).

Waiting for #1 to happen in the timeframe you need it to, is not likely going to service your immediate needs as well as performing both inspections via #2. Since a buyer is not as well versed on what a home inspector will be looking at, Kim and I often help the buyer look at those things that the inspector will not, prior to offer and continually through “the due diligence timeframe”. It is also possible to expand the scope of the inspection to include things normally not included, but to do that you need to know what is included and what is NOT included…before the home inspection and home inspection timeframe is over.

The system does protect you to a large degree, but area norms and customs limit your protections (vs. contract provisions) and you should be aware of which inspectors will only perform the minimum required, and which will go the extra mile.

Is that an Open House or a Flea Market?

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A couple of weeks ago  a friend of ours called howling about an Open House she popped into in Kirkland.  It was a new construction condo.

When she walked in the condo was packed with “vendors” hawking their wares, including an “Avon Lady” blocking the doors to the balcony.

The people there, who actually came to see the condo, were all hiding in the bedroom from people trying to sell them lipstick.

When she stopped by, I had her lay out her lipstick samples and various leaflets handed to her by the people inside. Not ONE was about the condo for sale.

Have a great holiday weekend everyone! Maybe you can pop by an Open House and grab a new shade of lipstick.

Open House

Sunday Night Stats – King County, Seattle and Eastside

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Ardell_aug-kcWhile I am not seeing any huge surprises in the market overall in King County, there were some jaw-dropping results in individual neighborhoods.

Amazingly great results from Downtown through 85th in both the first and second price tiers.

Amazingly poor results in Kirkland’s 98033 vs 98034 zip codes.  Those areas are usually reversed in terms of performance.

Redmond did not perform as well as they did last year. Bellevue only doing well in the lowest price tier.

All of King County still struggling in the over $1M market, with no exceptions.

The clear winner by far shown in the 2nd graph here, as compared to other parts of Seattle and the Eastside. Those figures of only 133 for sale in the lowest price tier, with 455 sold YTD, is beyond anyone’s wildest dreams for this market. My guess as to the dismal results for 98033 is that most of the cheapest homes used to be sold for lot value…and there are few takers for building lots and tear downs these days. The remainder of the problem is likely that homes are just overpriced, and buyers are getting much better at finding true value, vs negoatiating off of list price. This is sending the 98033 buyers into 98034 for better values and larger and nicer homes for the money.

I will be doing some in depth studies of the neighborhoods from Downtown through 85th to see if Queen Anne is outperforming Capitol Hill or if Fremont is outperforming Green Lake. Overall…as a group…clearly the best neighborhoods in terms of consistent performance which could be the hedge one is looking for against further price declines.

(Required Disclosure – The data used in this post is not compiled, verified or posted by The Northwest Multiple Listing Service. Hand calculated by ARDELL.)

Ardell_aug_dt_-_85

Inspection = Yay or Nay

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thumbs-downAn alternate title for this post might be “The seller doesn’t ‘have to’…anything”.

I am writing two offers today and the one MOST IMPORTANT thing to keep in mind when making an offer on a house is, the seller does not have to do anything during escrow except pack and move out!

In this market, if you have successfully achieved the lowest possible price at time of contract negotiations, there is often NO MORE ROOM for the seller to give at time of inspection negotiation.  This is not always the case, but is clearly more often the case IF you have achieved a hard bargain at time of contract. The better you were at getting lowest possible price in the beginning…the less likely you will get anything at all at time of home inspection “negotiations”.

There is a misconception that the seller has to compensate, or even give a RA, about the negative items in the home inspection report. Not so! You have a Yay or Nay vote, that is true. You can say, “I don’t want this house because of that $50 defect”, in fact you don’t have to give a reason at all. You have the right (in the Seattle area under our standard Home Inspection Contingency, assuming you attached one) to “cancel on inspection”.

BUT there is absolutely nothing in the contract negotiations to compel a seller to fix or compensate the buyer for defects found during the home inspection timeframe. “Timeframe” the key word(s) there. IF you are going to cancel, there is a drop dead date for your having the right to do that. Every contract is different. Most often it is in the first 10 days from when you originally achieved a “signed around” contract. Could be 5 days…could be 7 days…pay attention to the blank as filled in on your Inspection Contingency.

When you make an offer, inspect the home as carefully as you can and make sure your initial offer “compensates you” for clearly obvious negatives. Inspection negotiation is no time for you to start wanting money for something you could easily have seen without the help of a home inspector. To be clear, you CAN do that. But do you want to lose the house because you didn’t take that into consideration at time of offer?

Look at the date on the hot water tank, look at the date on the heater (sometimes harder to find), try to determine the age of the roof. Turn on all the lights, the appliances, flush the toilets. There are many things you can check before you are “in contract”. Often with short sales and bank-owned property, you are pretty much buying “as is”. Even with a regular sale, often the seller simply has no money to give in a 2nd round of negotiations.

Understand that your contractual rights are “yay or nay”, and NOT that the seller “has to”…anything.