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 34+ 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

You can't tear them ALL down

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[photopress:tdf.jpg,thumb,alignright]When we were talking about Popcorn Ceilings, Redmondjp asked, “if new houses two blocks away are selling for $1M, at what point does my 28-year-old rambler 2 mi from MS become a teardown? Somebody could buy my property,build a McMansion and put it on the market for $1M….[photopress:td.jpg,thumb,alignleft]

at what point do you decide just to keep the roof from leaking and nothing else? This would be an excellent topic for a separate post, and I’d be really interested in your thoughts on this. There are hundreds if not thousands of older houses just on the Eastside where this same issue comes to bear…”

Excellent question Redmondjp.  The simple answer is: When the price a buyer will pay for the house to live in it, is less than the price a builder will pay for the lot to build something new on it, it reaches “tear down” value.

Take the Redmond house shown here. It went on market in November of 2002 for $467,000 and sold in June of 2003 for $380,000.  Today it is on market for $650,000, Zillow values it at $820,652 and the tax assessor puts it at $557,000.  When it sells, we will know the rate of appreciation for land cost in Redmond :-).  If the cost of $380,000 represented the value of the lot back in June of 2003, the land will have appreciated at a rate of 18% consistently since that time, to be worth $650,000 today.

The question isn’t, how does the value of the house decrease to the same degree that the value of the lot increases, until the two meet and we tear them all down.  The question is, if all of the splits and ramblers reached lot value and builders did put them all “on the market for $1M”, at what point do you saturate the market with too many houses that cost $1M or more?  Contrary to poplular belief, not everyone who works for Microsoft can easily afford to run out and buy houses close to work if they all, all of a sudden, became new houses priced at over a million dollars.

From the minute I hit this crazy town, besides wondering why everyone was giving full price per square foot value to finished below grade basements,  I started tracking the high end.  This market is not going to fall because of the $390,000 ramblers or the $475,000 median priced homes.  This market is going to fall from the top down.  It is my premise, that the market will topple based on an oversupply of $1M+ premises.

As of last night”

1) There were 28 homes for sale in King County priced at $6M or more, NONE in escrow and only 10 sold in the last 12 months.  That equals a 2.8 year supply on market IF no others come on market in the next 2.8 years.

2) There were 49 homes priced at $3.5 to $6M, 7 in escrow and 34 sold in the last 12 months, a little over a one year supply.

3) $3M to $3.5M – 40 for sale, 2 in escrow, 27 sold in the last 12 months, a 1.38 year supply.

4) In the $1M to $2M and the $2M to $3M, over a year’s supply on market.

Hundreds and hundreds of homes on the market priced at over $1M.  At what point do we have more houses priced there than we have people to buy them?  And when do the builders stop building them?

Some people say, “Who cares what is happening at the top?  Why is ARDELL always running stats in the million plus range?”  Because lots of these properties are new or vacant, which means they MUST sell at a lower price some day.  And when you can get a $2M house for $1.5 and a $1M house for $900, the $900 houses drop because who is going to pay $900,000 for the house now that they can get a house that used to be $1.1 for $900?  No one.  The pressure will come from the top down, so stop talking about the bottom up crowd.  When you have a glut of homes priced at $1M and up, and the builders keep building them…something’s got to give and the effects will trickle down. 

Until then, I’m not going to “get my head out of the clouds”.  It’s the nosebleed section way up there that will determine where this market is utimately headed.   Ms. $1.4 who should have priced and sold her house for $1.1 a long time ago, may just pull up her for sale sign and decide to stay.  But the builders can’t run away from their finished products.  The vacant houses can’t cash flow by renting them out.  The high end has to move OUT or DOWN, and if down is the answer, the rest of the market will get pushed down by them and with them.

Tear Downs

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One of the commenters, Redmondjp, asked about tear downs. Kirkland is famous for new homes being put where old ones used to be. But our conversation stemmed around whether or not Bellevue and Redmond ramblers built in the 50s and 60s will go the way of these Kirkland teardowns. I know of a few in Bellevue. I don’t know any in Redmond.

Here are a few recent tear downs, before and after, from Kirkand. What do you think?

Should the old ones have stayed?

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Buying wisely in any market

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[photopress:seg.gif,thumb,alignright]I find that most people who track countywide stats, looking for bubbles and market trends, are not people who are buying and selling property. Anyone who is actually buying or selling property knows, that countywide stats tell you both everything and nothing. It is in the small subsections of any given market that you will find the information you need to make wiser choices.

For instance, can you really compare ramblers built in the 60s to newer housing choices? Can you compare “too small for anyone” condos of 400 square feet, to the saleability of 2 bedroom 2 bath condos? Lumping everything together tells you nothing. Houses on busy roads, for example, will not sell as well, and will sell worse at times like this when buyers are being more cautious. I think of houses on busy roads when I hear comments like, “The market is getting weak! I see more and more for sale signs every day while driving to work!” Well let’s assume that most people do not drive on quiet 25 mi. per hour residential streets when driving to work. So what they are seeing is the weakness of properties situated on busy roads, not the market in general.

A good example is tracking newer townhomes, in the $300,000 to $500,000 range, within 3 miles of Microsoft. This is a market segment that is driven by its own forces and outperforms the market in general. In the last six months there were only 21 townhomes sold, built since 1990 and within 3 miles of Microsoft, between $300,000 and $500,000. Of these 21, 16 sold AT or better than full price in less than 30 days. Several in less than 10 days and most in less than 20 days. At the moment there are only 3 available, all on market less than 15 days and two at less than 5 days on market and there are 3 in escrow.

So of the total six month inventory, you can expect four to sell per month and there are only 3 on market, two of which have only been on for two days and three days, respectively. Those are some pretty strong market stats. What are the odds that these will start dwindling on market for excessive periods of time or go down in price? Slim to none. Making offers on this product, based on what you are reading about the King County market in general, would make no sense whatsoever.

So Chicken Little, maybe the sky IS falling for older ramblers built on busy roads with only one bathroom. But conversely the sky is still the limit in newer townhomes for sale within close proximity to Microsoft. There’s a whole lot of varied stats in between. Make sure you are making your choices based on the product and market segment that YOU are considering buying. Buying the biggest “bargain” on market, could lead you into buying in that segment of the market that will not appreciate, and will be difficult to sell later for at or more than what you paid.

Popcorn ceiling removal

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popcornI really would like as much info as anyone may have about removing popcorn ceilings. Whomever invented those things should be drawn and quartered. Also called “cottage cheese” ceilings. I think they look more like large curd cottage cheese than popcorn.

1) How have you tested for asbestos before removing?

2) Any step by steps of the process appreciated

3) If anyone in the Seattle area has had them professionally removed, who did it and can you break down the cost per square foot? I assume without asbestos is cheaper to remove than with asbestos. Is there a cost per square foot?

Anyone know why they were popular? Anyone still like them, and if so, why?

Night shots

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[photopress:15.jpg,full,alignright] Night photos have become very popular here in the Seattle Area.  Used mostly for high end homes, rather than this price range of $599,900. 

I’m thinking a digital camera is likely not the best way to take these, though this one didn’t come out badly for an “extra” shot.  Looks fairly appropriate for Halloween. If anyone has any tips on how to best take a photo in the dark with all of the lights on, please post them here. 

And before Galen asks, yes.  I broke my own price tier rule on this one because I already market tested it at $600,000 to $650,000.

What to write about on your blog?

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[photopress:wr.jpg,thumb,alignright]One of the common questions newer Bloggers ask is “What do I write ABOUT?”

In the real estate business, nothing is more timely than the questions asked by your clients in the last few days. If your client asked the question, likely lots of people in the marketplace have the same question.

Here are a few questions asked of me in the last few days:

1) Should I buy THAT house?

2) Why does it matter HOW I got the money for the downpayment?

3) Is that house for sale or not? (rant of the week)

4) What does 60 days have to do with anything?

5) Why should I think about accepting a price that is less than the asking price NOW?

No matter what business you are in, on Monday morning you should always review what questions your customers have asked in the week prior. Keep a notepad or taperecorder handy at all times and jot down these great questions. After all, being a blogger IS being a writer, and all good journalists and writers jot down real life events as they happen, just in case they might be worth writing about.

New Construction Tip

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Blue_TapeWhen buying new construction, you should try to do at least two walk through inspections before signing your closing papers. Do one early, maybe two weeks ahead of time. Go back BEFORE you sign your closing papers and check to see if everything from the first walk through was done. You can’t really hold up closing for minor items, so more walk through inspections are better than just one. As many as you can get away with.

But here’s the TIP of the DAY! I love this one and so do my clients. We bring our own blue tape. The new construction person will usually have blue tape, and when you point out a problem, they usually put a piece of blue tape on it. But sometimes if they think it is a picky item, they don’t, and you have to bug them to put a piece of blue tape on it. So bring your own blue tape. Give everyone blue tape. Then you don’t have to call the new construction person for every piddly little item.

Then everywhere there is blue tape at the end, you make a list of the items, and where you don’t expect the builder to be able to fix an item, you put a credit amount if they can’t fix it. Example, there was a little scratch on the stainless steel refrigerator. It’s a large all new condo complex. You put down that you want a $250 credit (whatever) if they can’t buff it out. The builder can just switch it out if he wants, and give you the one in the unit next door and hope they don’t see it, if he doesn’t want to give you the credit. You’d probably be happier with the one with no scratch, but at least you won’t have to suck up the one with the scratch without a credit. Another example. A little piece of slab granite in the back of the shower, where the two pieces meet, was chipped. You could only feel it, you couldn’t see it. The builder isn’t going to fix that. He’s not going to rip that whole shower apart and bring in a whole new piece of slab granite for a little chip you can’t even see. But you should get a credit for imperfections that can’t be fixed.

When the workers come to fix things, they can’t tell the builder reps tape from everyone else’s tape, so they just fix it all. That’s why it must be BLUE tape. Actually it has to be the same color they use. If you have green and they have blue, they can pull all of your piddly items off. But if it’s all blue, it will be next to impossible for them to sort out whose blue tape was whose.

Works great. And buyers love running around with their own blue tape, and not having to ask the person to PLEASE put a piece of blue tape on this and that. You are more likely to catch everything, if you have your own blue tape.

Woohoo!! Merv's got it DOWN!!

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[photopress:sc.jpg,thumb,alignright]At first glance it might appear that Greg Swan and I are like-minded when it comes to commission issues. but not so. Greg and I do agree that the buyer should not be led around thinking they are getting a free ride compliments of the seller, and we are both part of a growing minority in that regard. We do in many ways lead the cause of buyers controlling their side of the fence, though sometimes Greg goes a little over the net on that one.

But Merv has got it DOWN!!! Agents like Merv and I are running the test cases that will prove to be the real answer to all of this. No One Size Fits All commissions. A range of prices for various scenarios. A range of prices based on a collaborative effort of determining the client’s needs…a collaboration between the agent and the consumer.

Merv, I am totally with you on this one, and I too have case studies, though by and large, and specifically as to commission negotiations, I was not planning to unveil mine until Jaunary 2007. You GO BOY! Woohoo! The agent and the client TOGETHER determine the services and advices that the client both wants and needs. The agent cannot participate in the consumer cutting themselves short of what they need, to be successful in the client’s goals. Nor should the agent build everything around a total package of high fee services, that always leads to a win for the agent, by including more than the client needs.

For instance, just closed one where the buyer represented himself, after first trying a “full service”/full fee agent. The seller and I gave the buyer the FULL 3% buyer agent fee. Buyer just moved into his new home and is thrilled! Seller is happy and has moved on, after unsuccessfully trying a full stripped down mls only version, before hiring me. Total fees paid in that transaction – 2%. In another instance, on a different property, a buyer called and said she was going to represent herself. I asked her a few questions and she knew absolutely nothing about what I was talking about and was missing several key details needed to represent herself. Seller and I said NO, you can’t represent yourself, you just don’t have the background of knowledge needed, in this particular case, on this particular property. Total fees paid in that transaction (different fully represented first time buyer) – 6% split 3% to me and 3% to buyer’s agent. Portion of my fee used to make repairs to property. I made more on the one where the seller paid 2%, than I did on the one where the seller paid 6%. So much for percentages…they are truly irrelevant.

The agent needs to be involved in determining whether or not the buyer or seller’s wants and choices, fits the consumer’s objectives AND abilities. The consumer in turn has to be realistic about what they can do themselves, and what they can’t do themselves. It’s a collaboration with neither party “dictating” to the other.

THIS is the model of the future. Just as you can hire an attorney to fully represent you, or to partially represent you to save some money, you should also be able to hire a real estate agent to fully represent you or to partially represent you. But no attorney is going to get into the middle of partial representation unless he makes the judgment call that the client is fully capable of handling a portion of the duties. No agent should hand over responsibility to someone without making the judgment call that they know what they are doing, with regard to the services selected and not selected.

A buyer who assumes responsibility for selection of property, via the internet or other means, should not pay the same fee as one who needs agent advices. A buyer who just can’t assume full responsibility for all lender issues, should not pay the same fee as one who needs no assistance with the lending issues whatsoever. A seller who has everything ready when you walk in the door, should not pay the same as someone who needs the agent to help with getting the property ready for market. A seller who can’t read the contract, should not be able to purchase a service that says “all offers to be submitted to the seller direct”, nor should an attorney/owner pay a real estate agent to explain a contract.

No one size fits all commission! No trading in one “one size fits all” for another “one size fits all”! That’s where Greg and I part ways. I love that Merv…and Pam. Get Merv’s blog on your MUST READ list today!

Exotic Loan Programs and Potential Foreclosures

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[photopress:Dollar_20Squeezed.jpg,thumb,alignright]Every “exotic” loan program has a potential appropriate user of that program. What we are seeing more and more today, is the industry using these perfectly good programs inappropriately, to “get the deal done”. Before I go into my take on the situation, let me point out two relevant sites worth reading. One is on “Non-traditional mortgage product risks and the other is HUD’s warning regarding Predatory Lending.

None of the programs being used today are new. What IS new, is the fact that they are being used by the wrong people for the wrong reasons, with the assistance of the real estate professional and the lendng reps. The Feds in their statement, acknowledge that these products have been around for a very long time, and have been used appropriately until recently. On the HUD site, the main point that ties into the “exotic loan” problem, is when lenders are “Making loans without ample consideration to the borrower’s ability to repay”.

Client A has $100,000 in a 30 year bond he purchased 28 years ago with an interest rate of 14%. He has $1,200,000 in various retirement investments. He has $50,000 in a savings account for emergencies. He is 57 years old and is buying a view condo for $750,000 that he plans to live in forever. He earns $200,000 a year and plans to work for at least 8 more years, possibly longer. He decides to buy the condo with zero down and an interest only loan.

That example may sound ludicrous, but 12 years ago they were the ONLY guys I saw using interest only loans. Their investments were earning well over the interest rate on the mortgage. They weren’t going to take money from an investment earning 12% to put down on a property where the mortgage was only costing 7%. Until recently, interest only loans were an investment decision, not a means to qualify for the home purchase.

Basically what the Feds are saying is that the exotic loans are, and have always been, very good programs used sparingly in the past by very savvy and knowledeable people. These lower payments were not meant to be used as a means to qualify for more house than you can afford. They were meant to be used by people who more than qualified at a higher payment, but chose the interest only option for reasons other than to qualify for the home purchase.

The key phrase in the Fed paper is “consideration of a borrower’s repayment capacity”. The key phrase in the HUD warning is “ample consideration to the borrower’s ability to repay”.

Zero down loans replaced VA and FHA for the most part. High rates on the second mortgages replaced PMI. Ten years ago a person might put 5% down and take out a 95% first mortgage and a lower rate, but they had to pay “Private Mortgage Inurance” on the top 15% of the LTV. The PMI amount was not tax deductible. The payment on the second at the higher rate was lower than the loan plus PMI payment and fully tax deductible. A conventional loan with a high rate second may “look” bad, but actually the numbers usually work better than a regular loan with PMI (the old fashioned way) or a 3% down FHA with an up front plus monthly MIP (Mortgage Insurance Premium).

Bottom line is that ALL of the “exotic” loan programs have valid and good uses. Let’s include “stated income”. Stated Income loans have long been used appropriately by people who more than qualified for the loan. Stated Income was often used by someone who had income they didn’t or couldn’t report on their tax return. There was no question but that they could afford the monthly payment, problem was they couldn’t PROVE it, or were not willing to prove it. Maybe it was some limo driver earning $23,000 a year and getting $1,000 in tips he wasn’t reporting. Maybe it was someone with a cash business that was showing $65,000 a year on his tax return and stuffing the rest in his mattress. Maybe it was a prostitute or a mob member…whatever. It was someone who could make the payment, it was just somebody who didn’t want to prove that they were able to make the payment, and so used a “stated income” loan. Stated Income loans are not supposed to be used as a means to “pretend” that you make more than you DO earn.

Zero down loans are NOT for investors! Yes I will yell that one from the tallest building. I heard that lenders “start to question” a guy who has SEVEN zero down loans in a short period of time. DUH! Why’d you let him get to seven, when he shouldn’t have had ONE! Zero down loans are only for people buying a home to LIVE in it.

So, bottom line. When you start seeing foreclosures, don’t assume the market is headed south. Understand that lenders are not following the Fed and HUD guidelines to give “ample consideration to the borrower’s ability to repay” before approving the loan. Maybe the guy who bought at $450,000 only qualified at $400,000 and was stretched beyond his limit. Maybe the guy who bought 6 homes zero down, stacked costs and stated income in 18 months time, got caught in the web he weaved when first he to practiced to deceive, the underlying lender with full knowledge of the real estate agent and the loan broker. Maybe all the guys who took the $6,000 seminar on how to buy lots of property with no money and no job, are all going down…but that doesn’t mean they are going to take the whole market down with them.

I went to a closing with someone else’s client as a “favor”. I got to the table and asked them if they knew that the payment including taxes and insurance was 60% of their gross income! The lender said, “the lender isn’t impounding taxes and insurance”. The buyer said, “We thought the payment was going to be $300 less than that AND included the taxes and insurance. They asked me if they could sell the house in six months if it was impossible to make the payment. I said not with the costs stacked into the price and the prepayment penalty stacked on top of that. I stood up from the table and said, no one is signing today. How many foreclosures will come about because no one stood up and said, “No one is signing today”.

If someone readily qualifies for the payment at say 33% of their gross income (not 60%!) and has a reasonable “back end” when you add their other debt payments to say 40% (not 73%) and isn’t using stated income, no impounds, interest only and subprime loans to get around the high back end, all is fine.

The “Exotic” programs have their place in the lending industry. We just have to stop agents and lenders from using these programs inappropiately as loopholes to “Get the Deal Done”. If the buyer doesn’t like any of the homes he can afford, send him home. Don’t send him to a lender who can figure out how he can qualify to buy a more expensive house, that he will like better, but can’t really afford.

Do the Banks Own Seattle?

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[photopress:bank.jpg,full,alignright] The photo is of the Bank I worked in for twenty years. Lots of memories in there and lots of pranks pulled up on that balcony 🙂

I was perusing The Tim’s blog while writing something on my blog earlier today, and ran into the comments regarding King County median income and median home prices, again. I never seem to draw the same conclusions as other people. So I tested my thinking on the subject. From my way of thinking, at least SOME of the people have SOME money to put down when they purchase a house. So the median income is relative to the median mortgage used in the purchase, not the sale price. Isn’t it? So I calculated some random stats you might find interesting to prove that the Banks and Mortgage Companies don’t TOTALLY finance EVERY home purchase.

First I went to the high end and found that Seattle high end homes were financed at only 36% of value. That includes 40% of the randomly chosen properties sold in the last 3 or 4 months that were bought with cash and no mortgage at all. Mercer Island and high end Eastside, like Clyde Hill and Medina, financed at a higher rate of 49.5%. Both represented about $28 million dollars worth of homes purchased. Seattle financed $9,750,000 of their $28,000,000 purchase prices while Mercer Island, Clyde Hill and Medina financed $13,500,000 of their $28,000,000. Still plenty of equity though, so NO, the banks do not own the McMansions 🙂

One thing I found that was surprising to me up in the high end is that one of the most expensive homes sold was sold all cash…not surprising. The occupant at the time of sale was a tenant! That cracked me up. Why would someone rent a Six Million Dollar house? Oh, well…just a random observation.

Then a went down to the $475,000 to $500,000 price range, more in the median range and pulled through separate market segments. South Seattle was 90% financed. North Seattle was 85% financed and Eastside was only 70% financed. Why would the Eastside have more people with more money to put down on their homes? Easy. Cheap condos. The condo market was really cheap two to three years ago, and is still relatively cheap by Seattle standards. So people who bought those instead of renting 3 to 5 years ago had built up enough equity to put an average of 30% down on their single family home purchases.

Just random stats that I found interesting. The banks own 90% of South Seattle, 85% of North Seattle, 70% of Eastside and only 35%-50% of the most expensive homes. At least the ones that everyone who is reading King County median income/median home price stats are talking about, those bought recently.