Category Archives: Featured

How to Strengthen Your Offer when there are Multiple Potential Buyers

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This is not legal advice, and you should not rely upon it.  For legal advice, consult an attorney, not a blog.
'Finance' photo (c) 2012, Tax Credits - license: http://creativecommons.org/licenses/by/2.0/In today’s low-interest-rate, low-inventory, recovering-from-the-bubble housing market, there are more buyers than there are sellers.  This leads to routine instances of multiple offers, where only one buyer will get the home under contract and the rest will be disappointed.  So if  you’re looking to buy, you need to be thinking about how to handle this likely scenario when you find “the one.”  You want to be the sole winner, not one of the several losers.

There are many ways to enhance an offer, many of which are discussed in the link above.  However, these are generally “ham-fisted” attempts to strengthen the offer that are routinely employed by real estate agents and that really are not that effective.  For example, putting down a large amount of earnest money certainly doesn’t hurt, but (a) the seller wants to sell, not keep the earnest money, and (b) presumably your competitors will bump up their earnest money as well.  Accordingly, increasing the earnest money is not a particularly effective way of strengthening your offer.

In a recent post, Ardell discussed the relationship between the “must appraise” clause and the recent increase in housing values.  She suggests that buyers are now waiving the “must appraise” clause in order to strengthen their offer.  In reality, removing the “must appraise” clause from the financing contingency is an ineffectual way of strengthening the offer.  [That said, Ardell is absolutely correct in warning buyers about entering into a contract where they will have to make  up the difference between the sale price and appraised value, a caution that fully applies to this post as well.] If a buyer simply eliminates the “must appraise” clause of the financing contingency, the buyer really hasn’t strengthened the offer at all.  In fact, just the opposite.

Per the terms of the financing contingency, the buyer is relieved of the obligation to buy the home, and is entitled to a return of the earnest money, if the buyer’s lender is unable to fund the loan per the terms of the contingency (most commonly the lender will provide 80% of the sale price).  When the financing contingency includes the “must appraise” clause, the buyer does NOT automatically get an “out” if the home appraises for less than the sale price.  Rather, the seller has the contractual right to “massage” the issue and to keep the sale on track.  If there is no “must appraise” clause, the seller loses this contractual right.  So if the property doesn’t appraise, where the contract includes a financing contingency but no “must appraise” clause, the loan simply does not fund and buyer is at least arguably entitled to a return of the earnest money back.

Why “arguably”?  There would be a degree of ambiguity in the contract about whether the buyer “had sufficient funds to close” if there is no “must appraise” clause.  The buyer would argue that the “sufficient funds” refers to the buyer’s portion of the sale price as set by the contract (e.g., if the contract requires 20% down and the sale price is $500k, then buyer must have $100k on hand).  The fact that the property did not appraise does not change the buyer’s obligations.  Rather, it simply means that if the property doesn’t appraise, the loan will not fund, and thus buyer is entitled to the protections of the contingency.  The seller will of course argue otherwise.

But the goal here is to strengthen the offer, not set up a spitting match with the seller.  That being the goal, the best way to strengthen the offer?  Waive financing entirely.  Does this mean that the buyer is barred from financing the purchase?  Of course not.

Well, not “barred,” but not allowed either.  Absent a financing contingency, the buyer represents in the form contract that the buyer is not relying on any contingent source of funds, such as a loan, to complete the purchase.  So if the buyer simply excludes the Form 22A Financing Contingency from the offer, but is planning on getting a loan, the buyer will be in breach of contract as soon as the contract is signed.  This would allow the seller to retain the earnest money and sign a contract with a new buyer.  Unlikely, but very very possible.  So a prudent buyer should include an additional term in the offer noting that buyer will be financing the purchase.  Thus a pre-approval letter will be essential as well.

There is no prohibition in the contract on getting a loan.  But if the buyer can’t get a loan, then buyer will forfeit the earnest money. An offer without a financing contingency is considered a “cash offer” by sellers (and their agents).  This means that the appraisal is irrelevant in regards to buyer’s obligation to complete the purchase.  And Ardell is right, THAT is the seller’s goal, because bidding wars among buyers can elevate the price beyond “market value.”

Sellers don’t want the transaction to derail because of a low appraisal.  But you don’t get there simply by eliminating the “must appraise” clause.  You need to forgo the financing contingency entirely. Which of course increases the risk to the buyer’s earnest money.  If the buyer forgoes the financing contingency but must finance the purchase, and if the financing fails for ANY reason, the buyer loses the earnest money, period.  In other words, the risk of a failure of financing lies on the buyer, not the seller, where there is no financing contingency.

If the property does not appraise for the sale price, the buyer will either have to go out-of-pocket for the difference (as noted by Ardell) or buyer will forfeit the earnest money.  So if you’re thinking of going this route, make sure you understand and accept this risk.

Should you forego the financing contingency, but offer a small amount of earnest money?  This is a good option, in part because “CASH OFFER!” has such an appeal to sellers (and their agents).  There is a good chance that the seller will not even appreciate the need for a large amount of earnest money absent a financing contingency.  If seller does appreciate that issue, then at a minimum you have a good chance of getting a counteroffer from seller.  And if there are multiple buyers, that is about all you can ask for.

So good luck with the offers, and strengthen them in a focused and effective way, as long as you understand the resulting additional risk.

How and Why CASH Infusion Fuels a Housing Recovery

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housing recovery Removing the Must Appraise Clause.

BEFORE you as a buyer of a home agree to “remove the must appraise clause” you need to know that means more cash from you the buyer of an undetermined amount. You also need to know the Finance Contingency does not usually cover not having enough Cash to Close.

Cash bridges the gap between Appraised Value and Sold Price in a Housing Recovery. 2012 not so much. Early 2013 we are seeing “remove must appraise clause” as a condition of acceptance in multiple offers more so than last year. I did see a few last year. Mostly flip houses with a huge change in price from “bought at foreclosure” to 3 months later “sold as flipped house” at almost twice the price as the flipper just paid for it.

This year removing the “must appraise clause” in most all upwardly mobile neighborhoods has become a given.

Sellers are not necessarily choosing highest offer in multiple offers, unless that highest offer also is all cash with no must appraise clause OR the buyer is willing to fund the appreciation with cash.

Because this is so very common right now, and will continue to be so through at least this season into August, people need to know what that means.

LENDERS are not supposed to Fund a Housing Recovery.
THAT is WHY we had a Real Estate “Bubble”.

Lenders bridging the gap between Appraised Value based on “comps” and what a buyer is willing to pay for a house, is a lot of stale air…a bubble. Appreciation fueled by cash from the home buyer is a more stable and historically common form of funding home price appreciation.

Agents get mad when a house doesn’t appraise. That’s just crazy thinking. Let’s take a look at an example as to why that is. Let’s assume the homes are equal in all ways in the example below.

Asking Price – $500,000.00

Last home sold in neighborhood – $485,000
House before that sold – $470,000
House before that sold – $460,000

$500,000 Asking Price house goes into multiple offers and sells at $515,000.

Buyer is putting 20% down. 20% down of WHAT? Buyer thinks he is putting down 20% down of the Purchase Price. BUT the lender says they will fund 80% of Appraised Value or Purchase Price…whichever is LESS.

Very important to understand that your 20% down plus The Lender’s 80% does not equal 100% of the Purchase Price when the market is rising.

If the house appraises at $475,000 in the example above, and the Purchase Price is $515,000, then the lender will loan 80% of $475,000 or $380,000. The buyer’s 20% of the purchase price is $103,000.

$380,000 80% of Appraised Value + $103,000 20% of Purchase Price equals $483,000 and not $515,000. The GAP is $32,000. That means the buyer has to bring $135,000 downpayment to the table vs $103,000. He needs to bring 20% of the purchase price PLUS the difference between 80% of appraised value and his 20% of Purchase Price.

That $$$ difference between what the buyer intended to pay as “20% down of $515,000” and the 80% of Appraised Value that the Lender is willing to lend IS “The Housing Recovery”

That “Housing Recovery” needs to be fueled with an additional cash infusion by the buyer of the home, NOT additional loaned funds as part of the mortgage.

People are asking if this is another “Housing Bubble”. All Market Appreciation does not create a “bubble”. Appreciation fueled by lenders is a bubble. Appreciation fueled with hard cash dollars from the buyer is market appreciation. BOTH can be lost when the market goes down.

No one can tell you what prices will be in 5 years or 10 years or 15 years when it is time for you to move on and sell your house. The only issue is IF the market at the time you sell creates a negative result between what you paid and what you sell for, is that lost money your money or the bank’s money?

In the future, based on cash fueling the recovery vs lenders fueling the recovery, the negative result will not create short sales and foreclosures to the same degree that it did after “The Bubble Years”.

Appraisers can take the comps and deduct from the result if they want to cover the lenders better. They can STICK WITH the actual comps. They can be instructed to add x% for a rising market. In the Bubble Years they added x% for a rising market PER HOUSE vs PER YEAR! That is where they went terribly wrong. Instead of adding 5% for a year…they added 5% to every house! Consequently 6 sales in 4 months created appreciation of 6 times 5% or 30% increase in 4 months. THAT was “The Bubble”.

Yes buyers are ticked off when they have to pay more than Appraised Value with cash infusion. BUT historically that is the ONLY way for a market to appreciate…without creating a new Housing Bubble.

Lenders should not fund appreciation of the Housing Market. Lenders should not stretch to “The Sky’s the Limit” appraisals and loans. Hopefully that is a lesson learned in The Bubble Years that will not repeat itself moving forward.

BEFORE in the heat of multiple offers you say YES! to removing the must appraise clause or Bridging the GAP between 80% of Appraised Value and your 20% down, KNOW what that means. It means you need more money…or be willing to lose your Earnest Money if you don’t have enough to bridge that gap.

How much more money do you need? No one knows…until the appraisal comes in. You DON’T know that number on the day you decide to win in multiple offers, by pulling that “must appraise” clause.

BUYER BEWARE time.

Selling Your Home – 15 Good Photos

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Gone are the days when you can advertise “must see!” to sell your home, as if people have to come into your house as the first step in the home buying process. You can scream that from the roof top all you want, but unless you have a location that would cause anyone and everyone to come to and into your home, it’s all about the photos.

So where do your start? You start with The Three Basics – Paint -Floorings – Clean

Home For Sale

Once you have your walls and floors together (see post linked above) you move to taking your “test photos”. Once you know which angles will end up in the 15 Photo Display, then you stage those “photo areas”. because it’s all about the 15 mls photos!

rkit

The cost to stage the above townhome was $2,500 BUT I staged it myself within the cost of Listing the home. I used that $2,500 as follows. $1,500 to refinish those now gleaming, satin finish hardwood floors on the main floor and $1,000 to have the place painted. We also put in all new carpet and the $1,000 to paint was for the main pro painter and did not include the prep-tape-helper. I use a painter who let’s me bring the “helper” myself, to save on cost.

Of course there are whole HGTV shows devoted to ALL of the steps that lead to FIFTEEN GREAT MLS PHOTOS.

I just try to give you a snapshot of the process…one blog post at a time. Both of the above homes are recent. The top one closed in December of 2012. The lower photos are of a Pending townhome over in The U-District. The top one sold in 1 day, the lower one in 2 days. The top one took SEVEN WEEKS to get ready for market. The lower one about THREE WEEKS.

So “SOLD IN ONE DAY” took from September 7th to October 25, 2013 to get it ready to list…and sold on October 26th as to Offer and Acceptance. The lower one “SOLD IN TWO DAYS” took from January 6, 2013 to Jan. 26 to get it ready to list…and sold on Jan. 28 as to Offer and Acceptance.

A few recent real life examples…to give you an idea of what it takes to get your house from Day One to SOLD.

Teaching Realtor Clock Hour Classes in Washington State: Getting Started

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I’m writing this post because I am often asked how to get started teaching Realtor clock hour classes.  There are a million ways to answer this question.  Do you want to know what the state requirements are? I can easily point you in the direction of Washington State’s required forms but the form won’t tell you how to get up and running. This form will tell you how to get yourself approved as an instructor.  Getting up and running is a different question and that’s the question I will answer in this post.  I have found that the best way to help people is to start at the end.

What’s your end game? Do you want to teach Realtor clock hour classes because you want to make a lot of money? Maybe you don’t care about the money because you have some other job where you already make pretty good money but instead want to use the classes as a way to get in front of Realtors so you can show them how awesome you are…so they will refer business to you.  I have found the latter to be the most common reason why people want to begin teaching Realtor clock hour classes. But let’s talk about money first.

Money

There isn’t a whole lot of money in teaching live classes because…well…because there are so many vendors who are willing to teach low quality CE classes for free.  There are also many large companies willing to send one of their full time employees to teach classes and at conventions for free. These instructors have full time jobs in management, sales, law, tech, etc., and teach classes or at conventions as a public relations maneuver for free, or for a very, very low fee. There’s a word for it. I call it sales-ucation.  Big conventions only pull out big paychecks for the big name draw convention speakers.  I’m assuming you’re not a big name convention keynote speaker if you’re reading this article so I’m going to tell a secret to the rest of you who are not sales-ucation speakers.  There always IS a budget of some sort and they always WILL pay you something—if you ask.

Money, continued
Three Puzzle Pieces: Teaching, Writing, Warm Butts

If you are looking to teach Realtors as a career, AND you can write your own classes you’re on your way. The last piece of the puzzle will be—how are you going to get warm butts in chairs?  You need to be able to do all three: Teach a kick-ass awesome class, constantly write new material, and have a marketing machine that delivers students into the classroom.  Most people who want to teach….want to teach and that’s it.  They want to walk into a classroom filled with students and walk out with a paycheck.  If that’s all you want to do, your value to a real estate school is really, really low.  But that’s okay, and there are real estate schools out there who may hire you but don’t expect to be paid much per hour or per class.

Vendors and The Numbers Game

Maybe you’re a vendor and…well, now don’t be offended if I call you a vendor.  You might be thinking…..I’m a loan originator! I’m an appraiser! I’m an attorney! I’m an escrow officer!  I hate to be the one to break the news to you but to a Realtor you’re just another vendor. Check your ego over there on the edge of the computer screen and don’t get offended if I call you a vendor.  So vendors typically want to use the classroom as a way to grow their business.  It’s a numbers game.  You get in front of X number of Realtors each month will translate into X number of referrals which will translate into X number of leads which will translate into X number of deals which will translate into X number of closed transactions which, on average, will net you X number of before-tax dollars per month.

This is a great strategy and it is doomed to fail. I will hire no one to work at my company if all Realtors are to you is a dollar sign or a lead in a grand master plan. People aren’t objects.  Students aren’t there to be used and even if you (please don’t) teach your class for free, the Realtors are still paying with their time.  Their time is valuable and if all you are doing is a sales song and dance about how much you know and how awesome you are you will fail.  This is what gives Realtor clock hour classes a bad name.  Instructors are in the classroom to help people learn.  They are not there to sell.

Magic is Mystery

So here’s the magic. As a vendor, I know you want deals. Everybody knows you want deals but if you go in there with your deal-wanting pants on, everybody’s going to know it. Instead, you need to approach teaching like a good book.  Nobody goes right to the end of a good book to find out what happened. It’s a mystery. That’s what makes reading so enjoyable.  If you really want to find success in the classroom, and by success I mean meeting your math goals in the previous paragraph, you need to let go of the outcome and instead focus on teaching an awesome, kick-ass class.  A class better than any class they’ve ever had from your competitor.  If you teach an awesome class, they will call you. You get to pick and choose who you want to work with. That’s right. At the end of a 4 hour class, you will know which Realtors you want to work with and which Realtors you don’t want to work with.

The Good News

Title insurance, mortgage lending, home inspections, escrow, all of these vendors have reputations for delivering “free” classes that are god-awful boring. That’s the good news. The bar for free vendor classes has been set terribly low.  All you have to do is to teach even a marginally decent class and they’ll think it’s the best class they’ve ever taken.

So what’s the difference between a god-awful boring class and a kick-ass awesome class? A class where the instructor DOES NOT lecture.

It’s Hard But It’s Also Easy

The most difficult thing for most all clock hour instructors to get their heads wrapped around is that your mouth doesn’t have to be moving the entire time. Unless you attended a fancy prep school in your younger days, most of us attended school where the teacher did most of the talking and we think we have to do that to teach Realtors.  That “teacher knows everything” archetype is embedded in our psyche.  That’s not what adult learners want from their clock hour instructors. Adult learners want to get involved with their learning and that means you don’t have to be the one talking all the time.  This is hard but also easy.

Step 1

The first step is to get into the right Instructor Development Workshop.  Find out who is in charge of the workshop, who is teaching it, how long they’ve been teaching Realtor clock hour classes and how familiar they are with the facilitation model of adult learning.  There are many IDWs out there.  Some are cheaper than others, some are online. You do get what you pay for. Shop around and ask questions.  Will the instructor answer all your questions about getting up and running during the workshop? Will the instructor help you fill out your state-required paperwork? Will the instructor give you the opportunity to try out the facilitation style of learning so you can get a feel for how it really works?  Find the very, very best Realtor clock hour instructor you know who teaches a lot of interactive, fun classes and ask that person for a recommendation on where to take an IDW.

Step 2

The second step is to figure out if you’re a writer.  If you don’t know how to write classes, don’t want to write classes, or don’t have time to write, then you’ll need to hook up with a real estate school that already has classes written that you can use but remember, no school is going to let you teach their material for free. There will always be a fee involved but you can let the students pay that fee if you don’t want to pay it.  Real estate schools like mine can also help you write something completely unique and brand new.  The class must be written to allow the instructor to give the students lots of things to do. The old-style class just gives the instructor lots of things to SAY.  That is a recipe for a boring class.   Just mailing a set of powerpoint slides to the Dept of Licensing won’t cut it. They want specific learning objectives. Real estate schools know how to write classes that the Dept of Licensing will approve.

Step 3

The third step is to figure out how you’re going to get warm butts in chairs.  The easiest way vendors think they will meet this goal is to offer free classes.  Unfortunately when you teach for free you are telling the Realtors what you have to teach them has no value.  Unless YOU own the real estate school and you own your own courses, you OR the students will be paying another real estate school a fee to use their school and courses. Having your own school is also an option but you still haven’t solved the warm butts in chairs problem.  So until then, make a list of possible marketing partners such as a local Association of Realtors or other vendors that also sell to Realtors.  Whatever real estate school you’ll be working with can also help you with marketing ideas.  You can have a great class and know how to teach an interactive class and then end up with nobody showing up.  The marketing piece is crucial to meeting your goals. Marketing takes time and money.  Just sending out a flyer to your email database of 500 Realtors might net you 5 students. If all you have is emails, you need BIG numbers to net 10 students.  If you don’t even have a database of Realtors you’ll need to buy one or partner with someone who has one.

Other Options

In closing, teaching Realtor clock hour classes is a big time commitment.  Not everyone can meet that time commitment, but they still want to attempt to meet their goals. Another option, without actually taking the time commitment needed to be an instructor, is to just sponsor a clock hour class through your local Realtor association. You bring in some healthy food like fruit and protein bars (can we ditch the donuts and muffins and bagels? All those simple carbs are increasing the LDL cholesterol levels of Realtors as I write this.  Enough of that crap already) and then you have a few moments to address the audience.  This is an option for you to create some face time but that’s all it is. Most vendors don’t stay for the whole class.  Drop and go is the status quo and I’m sure the ROI is not very high.  But it DOES make you feel like you’re accomplishing something if a “feeling” is the goal.

Think about your endgame and if you’ve decided to become an instructor, go back and read Step 1.

 

Seattle Real Estate – Where does the TV go?

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I like this first picture of a TV placed in a main floor or lower level bedroom because honestly, here in Seattle, this is often the case. In fact this particular photo reminds me of the house I sold for Dustin Luther, the owner of Rain City Guide, a few years back.

The light streaming in from the left reminds me of the french doors he had leading out to the deck and yard. I sold a similar home with french doors out from the bedroom on the main level over in Phinney back in 2005 or so.

If you are buying a reasonably priced home in Seattle vs on The Eastside, the above photo likely represents what “a family room” will look like, given homes built in the early 1900’s didn’t have real “Family Rooms” or even Formal Living Rooms and Formal Dining Rooms to a large extent.

The next photo cracks me up as it reminds of the time when high ceilings, loads of windows and lots of natural light was first added to “The Family Room” and it was renamed “The GREAT Room”. I remember John Orobono saying to me, “Ardell, we love our new house, but I have to hide in the closet with a TV to watch the football game, because there is too much glare on the TV during the daytime”.

Of course they make “low or no glare” TV screens now to assist with this “problem”.

Over the Thanksgiving Holiday I was playing Just Dance 4 at my daughter Tina’s. This lower placement in the photo below is likely more common for today’s family that plays games on their TV and watches “TV” on their laptops. 🙂

The above picture reminds me of my friend Kevin Tomlinson of South Beach Florida as it has that monochrome austerity with a bold splash of color that he favors as to Interior Design.

So back to the original question “Where Does the TV Go?” Well…builders…NOT over the fireplace!

Home Prices in Redmond Washington

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I was running some stats the other day for Kirkland, Bellevue and Redmond home prices and the graph below came out a bit oddly, as if all prices are trending to 200 to 207 per square foot. I say “oddly” because some went UP to there while others went DOWN to there.

That is not to say that median home price within these various Elementary School boundaries of Rockwell, Mann, Einstein, Alcott and Audubon are all running together. In fact there is quite a variance as shown in the graph below.

As noted in my original post the numbers are graphed from low to high in this manner vs to start from zero…which would show the flatter market consequence, would not permit you to see the actual numbers one on top of the other, so I caused them to spread more dramatically only for the ease of reading the underlying data detail.

Rockwell Elementary…very consistent as would be expected given its “close in” location to Redmond Town Center and the general lack of new construction of single family homes within its borders.

Mann elementary still one of the best “bargain” areas relatively speaking and when lucky enough to find a good house there like the one my clients purchased between 2 and 3 years ago, within the timeframe of the charts, Mann continues to be one of the best places to get a home at a fair price that is not too far out.

Einstein…well the fluctuation there is greater for a few reasons some of which have to do with the school and some of which has to do with the decline from “new” to “used” and the turnover of homes too quickly back 2 or 3 years ago causing the dip. But looks like it is recovering nicely from all that.

Alcott and Audubon tell the story of people being willing to go a bit further out to get a newerish house, as in not built in the 60s or 70s, with a large yard at a reasonable price. Clearly 98053 and Sammamish have both been the surprise change in market conditions in 2012. Even though “close in” is still preferred, the willingness to go out further for good house and great school like this one my client’s purchased this year with more land than being closer in was definitely a game changer in 2012 for Redmond.
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Required Disclosure – Stats in the post and the charts and graphs herein are not compiled, verified or published by The Northwest Multiple Listing Service.

On a cumulative and median basis, prices are trending slightly up in the 3% to 6% range. But that is not to suggest that buyers need to panic, or sellers should be getting overly optimistic, as to potential sold prices.

2012 Real Estate Prices

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The basic Real Estate questions in 2012 have been:

1) Are prices UP or DOWN, going UP or DOWN…at bottom, in recovery, recovered?

2) Is Inventory low…will it get better…where is the shadow inventory?

To answer these questions I am using data from the Lake Washington School District, as it represents a good mix of all possible “home” types. It also gives you a framework of how to develop a similar snapshot in your area of interest.

First let’s look at the snapshot of what people chose to purchase YTD 2012.

Key: 1C Black is One Bedroom Condo, 2C Turquoise-Blue is 2 Bedroom Condo, 3C Purple-Blue is 3 bedroom condo/townhouse, 1S Yellow-Gold is a 1 story home, B/T Pink is a Bi-Tri level and 2S Green is a 2 story home with or without a basement.

Let’s add to that some historical perspective to see if those current choices represent a shift of any kind.

Now we add the impact of price changes on those volume graphs as to what people choose to buy…as prices change.

Back to the original questions…answered by Property Type in the order they are represented as to # of people choosing to buy them.

TWO STORY HOMES

First, let’s be clear as to what a “Two Story Home” is and is not. A two story home is where the children go UP to bed. It is not a 2 level home where the children stay on the same floor as the kitchen when they go to bed or when they go downstairs to bed. I say children as the Master Bedroom can be on the main floor in a two story home. A 2 story home can have a basement or not and in the graphs above these homes are represented in GREEN.

The 2 story home is by far the majority preference, if one can afford anything they want.

Prices have been pretty stable since 2009.

Prices are down roughly 19% from peak pricing.

Volume is pretty much fully recovered given we don’t expect volume to reach “zero down” levels.

Shadow Inventory is in 2 places for the 2 story homes.

First there are the homes ON market that are simply overpriced. Technically you have a 3.65 month supply currently “For Sale”, but only a one month to 1.5 month supply that is actually priced to sell based on current pricing. I’m being generous there allowing for homes to be 10% over where they need to be. A full 60% of 2 story homes for sale are priced at more than 10% of where they need to be…or above 110% of the price at which they will actually sell. These stay “in the shadows” and are basically invisible to those who are buying homes, until they have a price change.

Second are the homes that were bought in volume between 2002 and 2007 that are either underwater or just not yet offered for sale by the people who bought them. About half of those homes will come into the market in dribs and drabs over the next 3 to 5 years. Some will be short sales and foreclosures. Others will simply be homes bought from 2002 through 2006 or so that are not underwater. We don’t expect to see a huge surge of those coming on market all at once, so they should not impact the market by a large amount at any one given time.

Part of the reason for the decline in volume is that builders have shifted over to Northshore School District and Issaquah School District, due to the lack of available land. That probably won’t change in the near future.

TWO BEDROOM CONDOS, B/T SINGLE FAMILY HOMES & 1 Story Homes

Interesting that these three segments represent about the same market share as to real estate purchases overall.

The B/T Single Family Home is a Bi or Tri Level Home. It can be a one story with basement, a split entry or a tri level…sometimes a “multi level”. It is represented as bright PINK in the charts above.

Pretty much fully recovered as to volume, given they are not building more of these.

Prices have really leveled out well at 23% under peak pricing.

I don’t expect much MORE Shadow Inventory to come out of this class of housing that is not already ON market, but overpriced. A FULL 75% of these homes are on market…as overpriced…by a LOT.

The One Story Home has not yet settled into to a recovered position!

Still falling in both volume and price.

The Two Bedroom Condo is in the same boat.

Look at the 2nd graph and you will see these three housing segments, PINK, TURQUOISE & GOLD converging pretty much at the same point in 2009.

 

It’s important to note that there will be continual shift here for some time to come. When people can buy a B/T home for the same price as a 1 Story home…the 1 Story home suffers. Mostly due to the extra basement square footage in a B/T home. The 2 story condo taking the same place on stage is surprising…and being caused by the stability in price of the 3 bedroom condo-townhome.

LOTS of Shadow Inventory in the 2 Bedroom Condo and prices have much further to fall.

The 3 bedroom condos…mostly townhomes…are hard to call. They are running too close in price to the Single Family Home and way over the price of a 2 bedroom condo. I would have to say they are going to fall until they are closer to the 2 bedroom condo price than the Single Family Home price. But that’s a rough guess.

No Surprise…the One Bedroom Condo is dropping like a stone. They were pushed up in value and favor back when everything else was priced out of reach. For the most part people are just holding them as rental properties. LOTS of Shadow Inventory here, especially the underwater newer ones.

SUMMARY: The 2 story home and the Bi and Tri level homes have pretty much recovered and should stay relatively stable. Everything else has a long way to go before they have settled at a bottom as to both volume and price.

To determine where all that might be headed you might ask yourself these questions.

Looking at the price of a 2 bedroom condo at $170k and the price of a 3 bedroom condo at $315k…which would you buy? Is ONE additional bedroom worth an extra $145,000??? Probably not. That is what is holding up the pricing on the 2 bedroom condo, and why the 3 bedroom condo or townhome has further to fall.

Same goes for the 1 story home and the 3 bedroom condo-townhome. At some point the 3 bedroom newer townhome is winning over an old 1 story house without a basement…for other people not. These two have yet to come to an appropriate balance.

That’s it for now. The market should slow down a bit now that we are at 30 days to school starting. That is only as to new contracts and not August Closings. A good roundup of where we are…until we have the 4th Quarter results. in.

Everything should drop from here a bit and the big question is…Will the year END higher than it began?, and if so…in which market segments.

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Data in this Post and the Graphs is not Compiled, Verified or Published by The Northwest Multiple Listing Service. The dates used per year are from January 1 to August 1 in each respective year.

 

 

Outlook.com – The Journey Starts Today

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Lumia 900 Windows Phone

One of the exciting things about being a real estate agent is you can really integrate technology in a meaningful way on an every day basis. I don’t have all the gizmos and gadgets just to “have” them. I can’t imagine doing business without them.

I recently upgraded to the Lumia 900 which I think was new to AT&T when I got it, but not “new” generally speaking. I liked it so much that I bought matching nail polish and even matching outfits to go with it. 🙂 I do miss the Samsung Focus now and again, but my partner Kim still has it, so I can switch over if needed. So far I think the audio is better on the Focus as is the camera. The audio is a Nokia hardware problem…well, actually it’s as good as the iPhone I had before the Samsung Focus, but the Samsung product is superior to both the iPhone and the Nokia Lumia 900. Still…the Lumia is exciting for a lot of other reasons and I like both of my Windows Phones better than I did the iPhone…and that’s saying a lot.

I have not used Outlook for a long time having switched to gmail. One of the reasons is I deal with very large file attachments often and Outlook just couldn’t handle that well. Yes…maybe it was more secure, but thinking every home flyer or contract was “too large” to go into my inbox was a huge problem for my business. gmail never seems to block any of my emails with large attachments.

I switch back and forth from chrome to IE but generally only use IE when I “have to”, which is for contracts. That I “have to” kind of ticks me off, I have to say.

Well today we have a new “Outlook” experience, and I’m going to give it a whirl. Many of my clients work at Microsoft and I try to test out all the newest things and use them in my business. A fair amount of my clients work at Google as well, so I try both and use the best of each. The only product I have that is neither is my iPad, but I have to say the new Lumia 900 Windows Phone (coupled with some annoying NWMLS snafus in the newest upgrade) has all but made my iPad obsolete. But that’s another story.

Here’s what Microsoft has to say about their new Email Journey:

“An experience with no compromises
Outlook.com is the first step in creating one complete experience for the next generation of communications. Email should be connected to your friends – whether they like to use Facebook, Twitter, LinkedIn, Google, or a combination. Email should let you get more done, faster – with immediate access to your inbox and tools that can automatically categorize, move, or delete messages you don’t want. Email should be deeply integrated with other services – for Outlook.com, you’ll find that Office Web Apps, SkyDrive, and, soon, Skype come built right in. And we hope you have already noticed our fast, beautiful user experience.”
I loved Outlook for a very long time and some of the gmail features make it difficult at times, so I will be giving this new email product a try…but I’m far from abandoning my gmail. Will let you know if it ever comes to that.

 

 

Where Should I Live?

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Not every client asks me where they SHOULD live. But the question comes up from time to time, and often from family members who are considering jobs in more than one city.

I am answering a more complex one for a family member who hopes to purchase a home vs rent. Scenario is they are graduating with an RN and looking at:

Los Angeles $82,000 Salary
Seattle $74,000 Salary
Colorado $71,000 Salary

The issue when people ask me is usually whether or not the salary differential makes up for the difference in the cost of the housing in various places. The offered salary is $11,000 more in Los Angeles than in Colorado, but does that compensate sufficiently for the difference in housing cost? In the past the scenarios presented to me were about renting vs buying, and often the differential did make up for that difference in rental cost. But when someone is buying vs renting…not necessarily the case.

In this particular example I am looking at Entry Level housing, VA Loan with zero down and a family that already has two children and is planning to have more children. So I need at least 3 bedrooms on this entry level housing.

Starting with “Seattle”…I know that the person is interested in The Eastside Cities of Kirkland, Bellevue or Redmond. For this “entry level” example, I am going to use a home that closed on Wednesday for one of my buyer clients BUT putting in the loan scenario of the family member of mine who is asking the question.

141st House

Price SOLD is $355,000. Plenty of space and yard for a growing family. Cul de sac lot. Could use some updating, but no expensive fixes needed. Had one owner for 44 years since it was built, in 1967. A good indication that a family can live there indefinitely without needing to upgrade to a larger home.

Now we’re matching this home purchase up to the above RN Salary for “Seattle” of $74,000 for the person asking the question, vs the person who actually bought it the other day.

First we’ll use the “rule of thumb” of 3 to 4 times annual income for the loan amount. That would put the loan, based on $74,000 Annual Income, at $222,000 to $296,000. A little short based on Zero Down for this home.

I’m going to move this WA scenario over to a home I sold in Mt. Lake Terrace that is a similar home, big lot, with a one car vs two car garage, but that sold for $250,000 vs $355,000. Edmonds School District. A reasonable example for Mt. Lake Terrace or Brier.

$250,000

Now we go back to our 3X to 4X Gross Annual Income “rule of thumb”. and we can fit $250,000 into that $222,000 to $296,000 equation without approaching the upper limit. NEXT we go into the actual real detail of payments, which isn’t worth doing if the Rule of Thumb = No Way, Jose.

Conservative numbers put monthly housing payment, whether that be rent or mortgage payment, at 28% of MONTHLY GROSS income. VA guidelines are usually 40/40 ratios, allowing people with no debt to put the entire debt budget on home. This Family is a Zero Down…but also a Zero Debt, so they can go somewhere between 28% and 40% as the housing payment.

I am not a Lender…so you have to check the ratios with an actual lender before making offers, but since I don’t recommend going to 40% on housing payment even if you have no debt…as you may incur debt at a later point, let’s proceed.

This family would have ZERO Closing Costs on the above $250,000 scenario as they can be included in the price with a Seller and/or Agent Credit to cover the Closing Costs entirely. So we don’t have to factor in Closing Costs on the WA scenario. That will change for the other cities.

Rates are very low today…too low to use for this scenario, so I’m going to pump the rate up to 3.75%. We are going to stack the VA Funding Fee on top of the price for Loan Amount and Payment purposes. That amount is $5,375. It can be fully or partially paid as part of the Closing Costs, but let’s assume a stack on this one taking the Loan Amount up from $250,000 to $255,375 at 3.75% is . Property Taxes are $250 a month. Homeowner’s Insurance is $50 a month.

NOTE: There are different VA Funding Fee rates for different scenarios. Putting 5% vs ZERO down can reduce the Funding Fee by almost 2%. I have used a rough scenario based on the person who asked the question. These Funding Fee rules change from time to time, are different for Refinance vs Purchase Loans, whether you were in Regular Military or National Guard and whether it is a 1st time or subsequent use of the privelege. See your local lender for specifics.

OK…back to the payment on the $255,350 Loan Amount at 3.75%. $1,182.57 for the Principal and Interest plus $250 for RE Taxes plus $50 for Home Insurance (Fire, etc.) gives us a monthly payment of 1,482.57. That happens to be pretty close to what the home would rent for, probably less than rent for this style of home in other nearby places like North Seattle or Lake Washington vs Edmonds School District. Not sure about Northshore School District, which would also be in the mix as to Bothell homes. But all in all, a good basic scenario.

Back to $74,000 Salary in WA and $1,482.57 a month housing payment. $74,000 Annual Gross Income divided by 12 gives us $6,166.67 Gross Monthly Income which puts $1,482.57 a monthly PITA at 24% of gross. At 40% of Gross Income the monthly housing allowance would be substantially more at $2,466.67. $2000 a month PITA would be a loan amount of $430,000. hmmmm.

Let’s go back to the Rule of Thumb. $430,000 is 5.81 X Annual Income vs 3 to 4 times Annual Income. Low Interest Rates do impact this rule of thumb issue, but still…going over 4X Annual Income just doesn’t look right.

Let’s go back to the first house at $350,000. That payment would be $1,679.41 plus taxes of $330 a month plus insurance of $75 a month would be $2,084.41 a month or 34% of monthly gross income. That’s really enough to spend on housing, and likely appropriate in this case as we are only using one income at an entry level salary. So the payment will become more affordable with some supplemental income from the other spouse and future raises.

So let’s say either of the above examples will work…as well as something in between.

That’s the hard part. Now let’s throw up a $250,000 home and a $350,000 home in Colorado in the Cities of preference as noted by the person asking the question.

Most Every Home in Parker Colorado fits the bill. No problem there. So Parker Colorado, even at a few thousand less in Salary down from $74,000 in WA to $71,000 in Colorado…very easy to get a house for $300,000 give or take.

This big 5 bedroom, 3,200 sf home in Parker is listed at $314,900 and there are plenty of others to choose from. Easy to see why Parker Colorado made the list of options.

Parker

Castle Rock, another choice in Colorado, is even lower priced. This new 3,530 sf new home is listed at $288,000. But Parker doesn’t seem so far out of the way, and is plenty affordable.

Castle Rock

That’s all I can say about Parker and Castle Rock Colorado, as I don’t know the area at all. It works, so it would depend on the salary offers in the various locations. WA works. Colorado works. Now to L.A.

We have a bit more room here, as the salaries are higher by $10,000 or so as the average. Using the same 34% of Gross I used above vs the 40% allowance, and using $82,000 as Gross income is $2,325 for housing payment. Let’s use $1,900 after taxes and insurance. That gives us a home price of $400,000 allowing the extra $10,000 for VA Funding fee on top of the mortgage.

What does that buy in L.A. in the specific areas of interest?

It doesn’t buy us anything in Walteria, one of my favorite not too Ritzy places. 🙁

It doesn’t buy us anything in Redondo Beach, even when I throw in 3 bedroom condo-townhomes.

There are a few in NW Torrance that would work, but they are short sales, so not sure if that price is reflective of “the going rate” for the area.

This 3 bedroom 2 bath, 1,468 sf home at $365,000

This house looks nice, but you can see a huge electrical tower behind the house.

Obviously L.A. is not as doable as WA or CO, so the salary difference would have to be higher. If the salary offer in L.A. was double that of WA and CO…well we can revisit this. But for a small difference…may not be worth it.

Let’s find an L.A. house and work the salary backward.

Well…I can’t find any for sale BUT the GOOD NEWS is I did find a few in Redondo Beach that SOLD. So the answer is there are a few…but the sell very quickly.

This one sold for $419,000. It’s only 914 sf though. 3 bedroom, 1 bath, but small. Nice sized lot and yard though…and it is warm and sunny enough to be outside most of the time year-round, unlike WA and CO.

Redondo Beach

This 3 on a lot sold for $410,000. Nice Street. 1,612 sf with 3 bedrooms and 2.5 baths.

BOTTOM LINE: All three are potentially doable…enough so to put out resumes in all three areas and see what kind of offers come in. WA is probably the best option for several reasons. L.A. is doable IF the salary offered is high enough…OR…if you rent for a bit until the salary improves by raises. Parker vs Castle Rock is probably an excellent option. Depends on how close to the actual work site they would be.

The purpose of answering the question “Where Should I Live?” is not to really answer the question, but to give some food for thought. There are some other considerations like schools and safety, but I already know the not Colorado options well enough to factor that in and the Colorado Cities seem to have pretty much ALL good schools. There are a couple of exceptions in Castle Rock, and I still prefer Parker for several reasons, but most Castle Rock Schools are pretty darned good except for one or two.

Shooting this link to the person who asked the question. Hope it helped someone else with the general “thought process” and work through format. No matter where your thoughts travel as to “Where Should I Live?”, it’s not to hard to do a comparison based on Salary Differences and Home Price differences. The cheapest homes are not always the best choice…nor is the highest salary.

Of course I’d have to say WA vs CO, but to compete, I’d have to throw in a nice looking house for $350,000 in Duvall. 🙂

duvall

Buying New Construction – Choosing the Lot

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The first step in buying a new construction home, unless it is an already built “spec” home, is to choose the lot. However, not all lots can hold all homes. So to some extent you have to choose both the home to be built and the lot at the same time.

Let’s look at a small subsection of a fairly standard looking new construction development as to variations of lots available.

ncsp-001

Choosing the lot is likely the most critical phase of buying a new construction home that is not a spec home. It used to be a lot easier to pick the best lot…or at least a good one. A standard lot was built into the price of the home and there was a “lot premium” for the other lots. Let’s say the lot premiums ranged from $2,000 to $15,000. That gave you a gauge as to how much better than a standard lot, the lot you were selecting was.

Unfortunately those days are gone and most salespeople will tell you they are all “best” lots.

Looking at lots 1,2,3 and 4, lot 4 would usually have a premium as it sides to an “open space”. You might say the same for the corner Lot 1. But if the street to the left of Lot 1 is a very busy road…now it is a lesser lot without benefit of no neighbor to the left. In essence your “neighbor to the left” is a bunch of dirty, noisy traffic. Some people feel the same way about the drainage basin to the right if it is ugly and attracts mosquitos. Sometimes people think the drainage area is going to look like a “pond” the way it states on the site plan…and sometimes it does. But more often it looks like an unkempt ugly drainage pool.

Trees? Good Drainage Issues? Can you see a green, yellow, red blinking street light from your master bedroom window? All too often someone picks the lot without standing on the lot…bring a ladder. Stand higher. 🙂

Choose the best lot and the worst lot and assign values from there. Don’t do this from a site plan like the one above without walking the entire area to see what is on the outside of those perimeters. Will there be more new homes to the North or are there existing run down homes with a few junkyard dogs.

You have to get very close to picturing the home on this lot the same way you would if you were buying an existing home on that lot. This is VERY difficult for most people.

Generally speaking only people who buy the BEST lots choose the lot and build from scratch. It makes little or no sense to build a home on a substandard lot vs waiting to see what the home looks like on that lot.

So if all of the best lots are gone…you are often better off buying a spec home or a newer resale home, than building on a substandard lot with no recourse to not “like” it once the home is put on it.

New Construction is not for everyone. If you can get the biggest and best lot in the neighborhood…go for it! The end result can be very rewarding.