Category Archives: Industry Talk

Seattle Area – How to Choose a “Best Place To Live”

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Everyone wants to live in “the best place”, but how does one determine which is the best place for them…that also fits their budget? As with most of my posts I try to include a tutorial on how to utilize the internet to assist you in choosing wisely…or at least with informed consent.

I’ve talked before about how to use the internet to determine value and offer price. Let’s take that a step further. You don’t want a Great Deal…because you live in a block with drive by shootings and a sex offender in every other house. THAT is NOT a “Great Deal”!

The chart below is based on a one mile radius of a given address in each area mentioned. The sources of the data are at the bottom of the chart. To make your own chart, just put in the address of the homes on your “short list”.

What you personally value or can live with is different for each person.

Some may choose a home where the school is a 4 ranking and has 59 sex offenders within a one mile radius, because they like the house. Others may settle for a split entry or a townhome in an area where there is an 8-10 ranked school and only a few sex offenders and less violent crime. Everyone is different.

I don’t think I’ve ever assisted someone in buying a home that wasn’t in the best area their money can buy, but that’s a client to client process and client decision.

If you are choosing to not use an agent at all, or to use a discounted service that does not assist with home selection, you need to fend for yourself in that regard. Using these tools and making your own chart is not infallible, but it should help to insure that if you do buy in an area of high crime…you are at least doing so with informed consent. Double check the facts…don’t take these as “verbatim”. But they should help point you in the right direction as to getting the additional facts needed.

111aaa

WalkScore is often hailed as a great site, and some RE websites even show the WalkScore next to the property data. I’m NOT a big fan of WalkScore UNLESS you look at it along with a few other available sites. I AM a big fan of choosing the most highly ranked Elementary School you can afford.

Often…though not always, the best elementary school ranking is an indicator of fewer sex offenders and lower crime. That is why you may find that homes in the best Elementary School boundary lines are more expensive. Not because of the school per se, but because of all that goes with. The reverse, lower ranked school, does not always follow the same pattern. So do your due diligence and check all the details.

Take a look at the chart above. Notice that two of the highest WalkScores also have the most sex offenders and highest Violent Crime score. (V = violent Crime / P = Property Crime) as shown on HomeFacts.com You will also see the reverse. Point being that “WalkScore” does not overlay crime statistics, as some think it does. You need to use a variety of sites and sources to get all of the information available, and not just one site.

HomeFacts will also show you the pictures and addresses of the “offenders” if you open the drop down menu. A handy site.

My “theory” has always been that the highest ranked elementary schools (that have a geographic admission boundary vs “choice” schools) will also have the lowest crime and sex offender stats. That does not mean the reverse is true. You need to pull the data as it applies to your area of interest.

The reason I use Elementary School, vs middle or high school, is it helps you grade the neighborhood on a smaller geographic base than middle or high schools that draw from a larger geographic area.

Another nifty site that I just found is NabeWise and it is no surprise to me that if I put in Seattle Metro and Safety, the two neighborhoods I choose to live in BOTH come up in the TOP EIGHT!

Using the Internet to Find a Home is not ONLY about looking at PRETTY PICTURES and then hiring a Discount Commission service to buy it. The most deeply discounted “Agent” services clearly indicated that HOME SELECTION is YOUR JOB and why you are paying a lower commission. That is not merely about “the house”.

If you are going to use the internet to save on real estate commissions…and I am all FOR that…please…use as many sites as possible to find as much information as you can, before “doing it yourself” to save on commission.

Money Talks; Bullshit Walks

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STREET SMARTSTWENTY ONE years in the Real Estate Biz today.

I’ve gotten quite a few calls from people this year who don’t seem to have any “Street Smarts” about the value of money. Odd but true.

1) Had a buyer from out of state call me to complain that he made an offer on a house and a few days later he called the seller who told him he took an offer from someone else. The buyer was furious! I asked him how much Earnest Money he put down. He said NONE. He didn’t see why he should have to put up any money until closing.

Do you HAVE TO put down Earnest Money UP FRONT? No…no law says you “have to”.

BUT…Money Talks; Bullshit walks. An offer with NO EARNEST MONEY is…well, pretty darned easy to BEAT, don’t you think???

2) Was talking to an agent whining about POOR SERVICE from an escrow company. Asked him if it was the BUYER’S CHOICE of escrow. He said no, it was the bank-seller’s choice of escrow.

Did it close? YES! Was the service poor? YES! Why do you think the bank insisted on THAT escrow company? You don’ think they are paying the same as the average buyer or seller pays for escrow, do you?

Discounted Fee = “We will close it.”and they DID close it. They did what they were paid to do.

Money Talks; Bullshit Walks – WHY would you EXPECT to get the same service you “normally” get, if you agreed to the discounted service??? Pay less; get less. It CLOSED! You agreed to the discounted service and then what??? Wanted the better one? Get REAL!

3) Other people’s buyer clients are calling me. Had at least a dozen buyers call me in the middle of Real Estate Transactions this year.

ALL of them were having second thoughts about the value of the house they were buying. Worse…several others called me about a house they just bought!

a) They wanted my opinion of the price and value.

b) They ALSO wanted to know if I thought they were making a mistake buying that particular house.

c) They wanted advice regarding how to proceed in a negotiation of the home inspection. This relates to a) as they were trying to recoup at inspection mostly due to their 2nd thoughts about paying too much up front.

These are reasonable questions that my clients don’t even need to ask me. Why are OTHER PEOPLE’s clients calling to ask me these questions???

THERE IS SUCH A THING AS PAYING TOO LITTLE FOR A SERVICE!

NOTHING…IS TOO LITTLE. Seriously, having no one to second guess you is too little. You want someone who is going to say “Are you out of your freaking MIND? Do you know there are 75 sex offenders living within a mile of that house you “chose” to buy?”

I know how much is TOO LITTLE…because their clients are calling ME! Often when it is pretty much too late to do anything about it.

Saving Money is GREAT! I will often cut my price to the bone, because saving money is fabulous! But what I will not do is cut it to the point where you are going to get less than you need.

Lots of experiments with fees out there, and there is a LOT of room for lower fees. especially when the home price is over $500,000. But TOO LITTLE is usually not a good thing.

If you wake up in a cold sweat after your contract is accepted and want an opinion from someone you trust…and that person is NOT the person you hired. Well, then you paid too little.

Do I help the people who call me after hiring the wrong person? I think that’s against some rule or some law for me to do that…so I’m not telling. 🙂

Anyway…21 years in the biz. Didn’t want it to pass without saying a few words about some of the bullshit.

A special thank you to all of the many people who have hired me over the last 21 years. I appreciate the fact that you picked me, when there were so very many to choose from.

Real Estate – Delusional Sellers or Delusional Buyers?

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New on Market! Do you jump on it…or let it pass?

That’s really the biggest question in Real Estate today in the Seattle Area. You hate everything that is for sale, but when a house comes on that you like (and so does everyone else) how do you know whether or not you would be overpaying to be the one that buys it in less than 7 days?

Everyone’s talking about the crazy market of no one wants it or everyone wants it. C’est la vie! Knowing when to jump and when to pass is an artform in its fine points. But since everyone can’t be an artist, I try to come up with some “rules of thumb” to help you with the “pass or play” dilemma.

A few weeks back we talked about the main three steps of finding the right house using the internet. In this segment we will expand on Step 3 which helps you determine what to offer and whether or not to offer at all.

I started using a color coded system for valuation models early this year. Not necessarily to help me value property, but as a way to show others how and why an agent will walk up to one house and say “they are asking too much” and the next one “hurry and get this one before someone else does”. It’s near impossible to define that because agents tend to learn these things by osmosis vs actual data. But if you don’t know the client well, you have to find some way of conveying the “why” of that, and this is the best I could come up with for the moment.

Works fairly well if you don’t leave your common sense at home.

A for instance…I coincidentally just got an email from an agent while typing this about a “massive” 10% price reduction…and it is still WAY overpriced! How does an agent or a buyer know this instead of thinking WOW…big price drop? How do you know that it is still 20% overpriced after a 10% price drop? Well, maybe one that obvious is a secret to no one. 🙂

Back to color coding…
value color codes

Red is the universal STOP! Brown is the universal “This might be a load of crap”. Yellow is the Universal “CAUTION!”. Everything else is where most property should fall from light green to dark blue being “the norm” depending on the area and the house. Purple is reserved for Royalty, meaning the house AND the location better be pretty darned “special”.

Now you chart out your area of interest noting not only the Market Value to Assessed Value Factor, but also how much of the value is represented in the DIRT of it, vs the HOUSE of it. Bring your common sense with you…the tax assessor is not always correct. Well, he/she is “correct”, but the market may not agree. So you have to adjust for market influence as to home styles, condition and changing influences on land value. Don’t make them up though…make sure you find the evidence to support your adjustments in the current data.

Your charts should look something like this for In City and most View Areas:

Lakeview 600-650

OR like this for a more typical “suburban” housing development:

98052 2011

More charts with explanations here and here and here, as you want to lay the correct ground work before working on Who is DELUSIONAL, you or the seller?

SELLER IS DELUSIONAL EXAMPLES:

I’m pulling up real examples as I type this. I can’t tell you which houses they are, because it’s against mls rules for me to shine a flashlight on delusional sellers by name and address.

1) Seller lives in the 1.1 or less area and has priced their house at FIVE TIMES the Assessed Value. Yes folks…it’s a new listing too. Lots of oddities here…let’s move on to less delusional.

2) Seller prices the house at 1.4 in the Brown Zone in an area that normally sells in the light blue zone. This is one where the Tax Assessor may be off. If you can get it into the dark blue zone, you may have to be happy with that. There’s a strong chance it will sell in the purple zone, and it should have been listed in the mid range of the purple zone at no more than 1.35 X assessed value. For my clients I’d say if you can’t get it for 1.25 X AV or less…let it pass. Why is the seller “delusional”? Because he spent a ton of money remodeling the kitchen. BUT that was 25 years ago. It needs to be done again.

3) OMG this house has been on market SO long…it must have a pile of dog poop in the living room when you walk in. How can a house be on market for almost 3 years! OK…listed at 1.28 x AV in a neighborhood that sells for 1.06. No dog poop…just overpriced. They have reduced the price over 3 years to the current 1.10 X AV…too little too late and close but no cigar. The stigma of more than 2 years on market is going to push this down into the green zone. On the bright side everyone else in the neighborhood is selling their house in 2 to 7 days, because by comparison, even though they are only priced fairly, they look like screaming deals. LOL!

4) Oh Jeez. This one is just sad. Nice house. Great house even. On market almost a year. Great area, well “good” area anyway. The problem isn’t so much that it is priced at the wrong MV to AV factor. It is priced at FIVE TIMES THE VALUE OF THE LAND! Holy Crap, Batman. a BROWN price in a GREEN neighborhood. Sad really. The only way it can ever sell is as a short sale, and that won’t likely be anytime soon. Watch for this one to go off market or be on market for 2 plus years.

5) This is a nice house on market for almost 2 years. What’s wrong with it? Switching to “Bird’s Eye View”. What the heck is that? Built between a huge condo complex and an industrial park within a stone’s throw of the freeway. The assessor knows that’s a no no, but the seller is ignoring the assessor and priced it at…wait for it…1.36 x AV and the house is in the parking lot of an industrial property! Let’s try .96 x AV on that one.

OK…enough on delusional sellers.

Let’s look at the houses that sold in less than 7 days.

1) Nice house in a 1.15 to 1.2 neighborhood but a smallish house with only one bathroom. Listed at 1.06 x AV sold the first week at full price. Maybe a little underpriced, but with only one bathroom…worked out for everyone. No surprises here.

2) A nice clean house that needs remodeling in a great neighborhood that normally sells at 1.2 x AV. Listed at 1.06 x AV. Sold in less than a week.

3) This one looks like it went too high. Obsolete home style, great staging but needs remodeling. 1.1 area. Listed at oh no…1.57 x AV RED ZONE and sold in 5 days. That should have been a pass. That’s what we call “hope you plan to die there” cause no one else is going to pay 1.57 x AV for that!

4) Here’s one in a primo Seattle neighborhood that usually sells for 1.25 x AV. Sold in 5 days at 1.23 x AV even though it was listed at 1.15 x AV. People are more likely to make the mistake of overpaying in Maple Leaf than Green Lake or in Ballard than Queen Anne, if you no what I mean. The fine nuances of value become most important in areas that border high prices, but don’t command them, like example #3 above.

I’m not going to go look for a 5th example here, but I will say that looking at all of the houses sold in even less than 7 days, hard to find any that sold over asking, and those that did were not over by a significant amount. Example #4 was likely the largest sold to asking price example.

Now let’s not forget about the Delusional Buyers.

1) Walk into the nicest remodeled house in a neighborhood that sells easily at 1.2 x AV on a bad day and want to get the house for .80 x AV. Then they complain there are no good houses for sale “at a good price”. Do your homework. Check every sold property in the last 3-6 months and chart everything. IF the areas sells for .80, like parts of Duvall, well…I have it labled yellow for “caution”. You probably want a 1.2 for 1.1 or a 1.1 for 1 or even a 1.1 for .95 if you can get it. I did a 1.1 for .85, but we did proceed with caution…and a structural engineer as well, and that was Winter. Learn to “look a gift horse in the mouth” when appropriate.

2) Wants to pay the same price per square foot of all of the sales he didn’t want to buy…for the house he does want to buy. If you didn’t like them, you already know they were worth less. Don’t complain that you lost the house you finally found. Make sure you highlight on your charts the bad houses and the good houses and offer the good house factor when you find a good house. Don’t hate all the 1.1 houses and then expect to get a great house at 1.1.

Don’t leave your common sense at home. 2011 is the Battle of the Delusionals and the survival of the fittest.

JUST RELEASED: Two Proposed Good Faith Estimates

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2011-05-18_0936Consumers and industry professionals can vote on two options for the new Good Faith Estimate that was just released by the Consumer Finance Protection Bureau via their Know Before You Owe campaign.

The CFPB is segregating the “vote” (perhaps “survey” is a better term) between consumers and professionals opinions on the two versions of the proposed mortgage disclosure.

I recommend printing the examples to really get a good look at them.   They both appear to contain the same information, disclosed in different manners.  For example, one features terms at the top of the page and the other has projected payments over 30 years at the top.

GFEoptions

I’m noticing three improvements right off the bat over our current Good Faith Estimate (HUD’s attempt) which has been in effect since 2010:

  • total mortgage payment:  PITI vs PIMI.  The new GFE will actually include proposed taxes and home owners insurance.  HUDs 2010 GFE only discloses principle, interest and mortgage insurance (if any)
  • funds for closing.  Yes, it’s true…the proposed forms actually help borrowers know what funds they should be bringing in at closing.  And it even factors…
  • credits from lender or seller!   The new form may want to just have this be “credits” since sometimes real estate agents contribute towards closing costs as well.

All three of these items have been sorely missed from HUD’s creation that we’ve been mandated to use since 2010.

Mind you, I’ve only had these forms in my hot little hands for about a half hour…it looks like they’re missing any place for rebate pricing (aka ysp as disclosed as a credit in Box 1, Line 2 of HUD’s GFE).  This is a huge oversight in light of the Fed’s Rule on Loan Originator Compensation.   I would also like to see a signature line added (this would eliminate documents that borrowers currently have to sign to state they have received the GFE).

And, if the CFPB is reading this post, I’d be a happy camper if they discontinued having the owners title policy (typically paid for by the seller in Washington state) being quoted on the GFE only to be credited back on the HUD.   This has been confusing for our local consumers and mortgage originators should NOT be held liable for a cost that is not associated with their borrower.  The owners title policy should be treated more like the excise tax: disclosed in areas when it is common practice the buyer pays that cost.

So what are you waiting for? Go check ’em out and let your opinion be known.

High Balance Conforming and FHA Loan Limits to be Reduced after Summer

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As of October 1, 2011, high balance loan limits in greater Seattle are set to be reduced from $567,500 to $506,000 for a single family dwelling for both conventional and FHA mortgages.   That’s a loss of $61,500.   This roll back is taking place across the country and will impact all counties in Washington.

Currently, someone buying a home priced at $700,000 in King County could put 20% down and not have a jumbo/non-conforming mortgage.  After September 30, 2011, the same home buyer will need to have 28% down payment (an additional $61,500) for the same scenario.   A home buyer not wanting to put more than 20% down and have a loan amount of the new limit of $506,000 will be able to purchase a home priced around $632,000.

With FHA financing, a home buyer in the tri-county area can buy a home priced at $585,000 with 3.5% down payment with the present loan limits.  After September 30, 2011, the same FHA home buyer who wants to use the allowed minimum down payment of 3.5% will be reduced to a sales price of $524,000.

This could have a dramatic effect on homes priced between $524,000 and $700,000 in our area as potential buyers will be forced to either come up with more down payment and/or use jumbo financing (which has tighter underwriting guidelines and higher rates than conforming or FHA).

If you’re a current home owner who has been considering refinancing and your mortgage balance is $500,000 to $567,500, I recommend taking action now.  Not only will your borrowing power be reduced but local home values may take a hit with the reduced financing options should Congress not extend the limits…I wouldn’t count on Congress (ever).

I wouldn’t wait until September 30, 2011 either.  The last time we phased into new loan limits, lenders were very unorganized…it really was a mess.   Some may adopt the new loan limits much earlier in order to avoid being stuck with a loan that exceeds the new limit (having a jumbo loan at a conforming rate) on their books.

I feel like Debbie Downer! 🙁

Tips for Seattle International Film Festival First Time Attendees

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I’ve been attending the Seattle International Film Festival for several years and was introduced to the event by two of my Realtor friends, Kyoko Matsumoto Wright (who worked on the original festival when she was a UW School of Drama student many years ago) and Ron Crider. Instead of telling you all the cool things about the festival this year, like Ewan McGregor coming to town, a better idea for curious first timers is to spend time reading the SIFF Guide. After that, you’ll be ready for some first timer festival attendees tips on how to jump in and have fun. For 2011, SIFF runs from May 19-June 12.

1) Some people harbor a secret fantasy of cancelling all business appointments and watching as many films as possible from morning to midnight during the festival.  Unless your name is Tom Tangney, you’re independently wealthy, or you are an uber film nerd, most of us have other obligations during festival time. Lucky for us, many of the movies are shown more than once, at different times of the day, and in different locations beyond just Seattle.  So my first tip is to go through the SIFF guide and make a list of the movies you want to see by day/time option as it fits with your calendar.

2) Second step is to compare your “must see” films with your film buddy.  I’ve been attending films with my nephews and daughters and sometimes what we want to see matches up perfectly and other times, not so much.  Josh really wanted to see Robo Geisha last year but I passed so he went by himself and he said the place was absolutely packed and the movie was a riot.  Together we saw Ticked off Trannies with Knives which was hilarious. Josh and I place high priority on all zombie movies followed closely by anything in the horror genre.  Miranda and I lean toward the kewl teen films (e.g.; Let the Right One In.) When my girls were  younger we saw the family-friendly films.  Ron Crider and I typically go for the psychological thrillers followed closesly by the gratuitous sex and violence genre and Kyoko and I might end up seeing an intense drama. There are plenty of people who are by themselves so don’t let a lack of a movie buddy stop you from going. 

2) Arrive early. Arrive early. Arrive early.  If you have a buddy, one person can save a place in line while the other person is parking.  Lines form fast and they’re long.  Bring a book to read while you’re in line and an umbrella and dress in layers just in case. There will be separate lines for pass holders and ticket holders.  If you’re not an overfunctioning planner, which is a personality trait that tends to run in my family, you might do just fine with spur of the moment decisions but then be prepared to be let down if your first choice is sold out.

3) I highly recommend buying your tickets online at home ahead of time.  You exchange your paid receipt for a ticket when you arrive at the theater. Find the SIFF volunteers right inside the theater. If you’ve purchased, say, tickets for 7 shows online and head out to see the first one, the SIFF volunteer will print out your tickets for all 7 shows at that first show. 

4) Be open to seeing films with subtitles. Last year, the very best film of the festival, IMO was Cell 211, which won Spain’s version of their Oscar awards for “Best Picture.” I love films with moral dilemmas and this film asked us to ponder the question, “Is it ever okay to lie and under what circumstances?”  This film has not yet been released in the U.S. in a format that would play on our DVD players and as soon as it does make it to the U.S., I’ll definitely be buying several copies. Aside from Inception, Cell 211 was the best film I saw last year.

5) Watch your budget and remember costs can add up. Parking, coffee or a meal before/after the film, snacks, gas money, can destroy a tight budget so do what you usually do to save money at the movies.

6) Many filmmakers are at the festival promoting their films and/or looking for a distributor so people from the film will sometimes be in attendance. Actors, producers, directors, have all been known to be there to introduce their film and even stay after the film is over to answer audience questions.  I’ll never forget seeing Josh collect an autograph from Rachel Dratch. He levitated for the rest of the day. We’ve been in the audience with Paul Giammatti, Edward Norton, Gus Van Sant in recent years.

7)  Plan ahead for 2012 and buy ticket packages in advance, right around Dec or Jan, at a discount.

What’s on my list this year?  

The First Grader looks fantastic.
Miranda July’s The Future
John Carpenter’s The Ward
Josh and I will definitely take in The Intruder and The Darkest Matter.
and I think Miran will want to see Beginners w/Ewan McGregor and Detention.
I’ll probably see at least 10 more in addition to these.

All the SIFF volunteers are typically identifiable by their tshirts or badges. Have fun and I’ll see you at SIFF!

Real Estate – What’s Hot; What’s Not

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Style Trends in Kitchen Cabinetry, Exterior Paint Colors, Interior Paint Colors and other choices for your home, based on recent sold homes in The Seattle Area.

Kitchen Cabinets Shaker Style with recessed flat center panel and hidden hinges.
shaker

Definitely one of the most popular styles in various colors and NO hinges showing.

What’s not Hot? Hinges showing and/or a heavy OAK grain pattern in the wood.

Paint Colors While true neturals like Manchester Tan continue to be the best if the home has one overall color, I am seeing quite a few green and green/gray tones in homes sold recently. White ceilings with the Hillside Green paint seems to be the most popular right now.

Two good choices from Sherman Williams Pottery Barn Spring colors are Hillside Green and Urban Nature.
Pottery Barn

What’s NOT hot in paint colors? The deep red and blue colors that were popular a few years back, with every room a different brash color.

Counter Tops Still no real consensus on what color of granite..but granite is still the best choice vs tile countertops. Though for some unknown reason people don’t seem to care much if it is slab granite or granite tile squares, if it is a quality job. Having a granite bullnose edge vs a wood frame edge seems to be the deciding factor. granite

One of the reasons I’m reviewing Style Choices today is I am meeting a client at the Show Room tomorrow to select granite and tile. Will be interesting to see what she chooses. The lighter color on the right is usually the safer choice. but it depends on the cabinet color.

Tile Size, Color and Shapes Often tile is the hardest choice as there are so many different options and uses for floors, back splashes and tub surround accents. While granite is definitely the counter top of choice and hardwood is the definite preference for flooring in the kitchen and the entire main floor, tile is still used abundantly. Except for the main floor 1/2 bath “powder room”, hardwood is rarely used in other bathrooms. Tile still the #1 choice for bathrooms and laundry rooms. Tile is also the #1 choice for showers (vs one piece fiberglass units) and for tub surrounds.

I’m still seeing some subway tile, but it’s a very limited choice that I don’t think is going to withstand the test of time well. That could be from my many years standing in real subways, which are generally not the most happy and attractive places to be.

Glass tile still popular, but only when mixed in with stone tile. Oblong textured tile is awesome, but also limited use given it’s contemporary feel. Solid, neutral 12″ stone tile still a favorite for tub surrounds and flooring. Below are some of the most popular current choices as seen in both new homes and remodeled older homes sold recently.

tile

What’s NOT hot in tile in The Seattle Area? Travertine, Terra Cotta and other ornate styles that work elsewhere, but not here.

How To Better Use the Internet to Find a Home

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1) Make a “value grid” of the area you are interested in.

2) Overlay an Elementary School ranking grid (whether or not you care about schools).

3) Use steps 1 and 2 to define your “target area” and make a new chart highlighting Market Value’s relationship to Assessed Value in that smaller, defined area.

Before I demonstrate how to apply these techniques, some insight on why I am writing this post today. It is in response to a few comments I read in The Wall Street Journal’s article on Buyer frustration, namely:

“The mood among buyers was ‘nasty’…customers just keep getting outbid on the houses they want.” Glenn Kelman, CEO Redfin

“What’s selling is the Cream of the Crop, and they sell fast. What isn’t The Cream of the Crop is getting hammered.” Real Estate Agent in Florida

“It’s a false buyers market. If you think prices are cheap, wait until you start making offers.” 32 year old home buyer

The main reason you want to start your home search on the internet, is to formulate some strong opinions about what you DON’T want, especially with regard to over-paying for a home, before you step into the arena.

The tug of war in the Internet Home Game is that agents want you to just come OUT and SEE the house, hoping you will fall in love with the house, and not care so much about it being a “good value”. The homebuyer is refusing to GO SEE the houses that indeed might create this scenario, which will work out better and best for the agents and sellers than for the home buyer.

The Mexican Standoff is created by sellers pricing based on their house being somplace where it is NOT, and buyers making offers based on some overall market statistic that may or may not apply to the WHERE they want to live.

To demonstrate this technique I am using the City of Kirkland in the example, because it is one of the easiest to break down into its value segments.

VIP! EVERY area has these VALUE TIERS with sellers in the dark pink area trying to price like the light pink area and sellers in the light blue area trying to price in the dark blue area.

That is what “over-priced” means, to a large degree.

WARNING: Some severe Real Estate Transparency ahead. Agents generally do not convey this information publicly because it can be offensive to buyers and sellers in the lesser value tiers. While all good agents use these methods with their clients, there is good reason why they do not speak of these things publicly.

If you are a homeseller or agent who wants to pretend that the only factors are school DISTRICT and those that relate to the home itself, this is not a good post for you to be reading.

1) A “VALUE GRID” example
kirkland value grid

TO UNDERSTAND AND CREATE A VALUE GRID, YOU HAVE TO UNDERSTAND WHAT THOSE VALUES ARE PULLING TOWARD AND AWAY FROM.

This is likely the main argument for why you need “a good agent” unless you can use these techniques to represent yourself. This is why having “any” agent is not necessarily better than representing yourself. When I ask an agent what “his service area is” and he says “ANYWHERE!”, I know he is not a “good” agent.

It is great to keep up on general market conditions, using sites like Seattle Bubble that tend to speak in terms of COUNTY stats. I read it all the time. BUT if you don’t take all that a step further into your area of interest, you will be the poor schnook who bought the house in the green section at a medium blue price and ended up selling it at a light pink price.

That is something that you need to understand about FORECLOSURES and why agents pay less attention to them being a “market value” setter. Sure, if someone buys a house in the green section and prices it at time of sale in the green range of value and it ends up in foreclosure, we all sit up and take notice! BUT, but, BUT when we see the house that sold for a medium blue price in the green section come back as a foreclosure…we say…”poor schnook, who the heck represented him when he purchased THAT!”

That’s how an agent can sometimes tell that a house is overpriced before seeing the house. That is why you need to know that too…so that you don’t fall in love with it and start ignoring “the obvious” from an emotional standpoint. The same holds true for the opposite, however. MANY BUYERS ARE FRUSTRATED because they keep making pink offers in the blue area…unsuccessfully. To go back on the quotes from The Wall Street Journal article, the “Cream of the Crop” is BLUE in all of its 3 shades and then Green. Getting “hammered” are the greens who bought at blue prices or the pinks who bought at green prices.

This applies to New Construction Foreclosures as well, and the builders who got the land in the green sections, but penciled their profit numbers out on the blue ones, or who bought in medium blue thinking they could get dark blue prices.

A few notes on the Sample Value Grid. I don’t want to get bogged down in the detail of “Kirkland”, but to help you use this principle elsewhere, worth a little more comment. The dark blue section is basically a condensed form of West of Market. Once you know this, you will understand why a lot of the bargains are up at 18th Ave to 20th Ave, especially on the West side of Market Street. The Medium Blue section to the right of the dark blue section is the other side of Market Street known as “The View Corridor” of East of Market which runs from 1st STREET to 3rd STREET (but not ON 3rd) and from Central to 13th Ave. The lighter blue section to the right of The View Corridor is East of Market up to 6th Street (but not ON 6th Street). The green section to the right of that is called “the wrong side of 6th” and can turn pink and green alternately depending on which street. Lots of “bad” decisions on highest priced homes “on the wrong side of 6th”. Same holds true in the lower sections where 6th Street turns into 108th Ave NE. You have to balance the COLOR grids (and school grid) with the “freeway noise” in some of these areas on the southern portion of the grid in the blue and green areas.

The lines are not hard and fast, but understanding some basic valuation principles will help you understand “value” better and well enough to “bend” the lines when appropriate.

AGAIN…EVERY AREA HAS THESE COLOR GRID FACTORS!. They just differ as to where and why in each area.

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2) Overlay the ELEMENTARY SCHOOL GRID

This is a newer value increaser/inhibitor somewhat created by sites like GreatSchools.org and sites like Redfin using those rankings on its property detail pages down near the bottom. People always had a word of mouth “best schools” impact on home values and rankings of School District and High Schools. But the valuation demarcations based on ELEMENTARY school and the exact “borders” of those schools, is a relatively new phenomenon created by more information being available on the internet.

Knowing the school boundaries is great! But are we giving too much credence to sites like GreatSchools.org and SchoolDigger.com? Most real estate industry personnel say yes, and do not lend their seal of approval to these sites as readily as some newcomers to the industry. That said…there is some overlap between the school rankings and the traditional value segments. Most BLUE areas happen to have good schools. Some pink areas do as well. So to do our overlay, we don’t have to decide whether or not the school rankings are 100% accurate any more than we have to decide if green is better than blue.

Remember, if you can’t afford blue…green may be your best option and if you can’t afford green, pink in the best school may be your best option. OR pink with a great school might be better than green with a lesser school. OR…as pink gets darker toward another school district…a better school in the OTHER school district may be a better choice. These are the kind of things you need to consider when choosing an agent or choosing to represent yourself. Recognize these factors as “real” and learn from where the foreclosures exist and why those foreclosures happened.

That’s why you have to know why these areas are “colored” as such, and what they draw their value from. The upper pink section on the left is pulling from Bothell and Northshore School District vs Lake Washington (the lake itself) and Downtown Kirkland, as example. You might want to step over that line…or not.

If you take The School Boundary Map and overlay it on the VALUE GRID you will not be surprised to see the Dark Blue area serviced by a highest ranked school and the lowest ranked school planted firmly in Pink.

Life is not quite that simple and I’m not going to go there with you in this public forum. I give you the tools, you being a “reader” vs “my client”. There are limits to how much credibility I will lend to these ranking sites as a professional, and those limits are only shared with my clients. But hopefully, no matter where you are looking to buy, this shows why EVEN IF YOU DON’T CARE ABOUT SCHOOLS, you should not overlook the secondary value pressure of which elementary school is servicing the home you choose.

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3) Market Value’s Relationship to Assessed Value in the “target market”

This is a little harder as you have to balance some other factors like land value, main floor footprint and home style. It looks something like the chart in the link just below this sentence, that I have used in posts before:

Market Value vs Tax Assessed Value

For a “target area” we will be blending steps 1 and 2 with this 3rd step, using the same color key as in the link above from green to red, which is different from Step #1 and it’s color codings. In this final step, lighter green is best (vs blue), but red is almost always a “stop sign” of some kind. 🙂

I’m going to lose a few more people here, but for those who are seriously needing to understand value of homes in order to pick one and make an offer…try to stay with me here. Be sure to click on that blue link just above marked “Market Value vs Tax Assessed Value” before moving on to the charts below.

COLOR AV CHART

The BLUE background chart relates to point #1 and is a “Blue Value Grid Area”. In a Blue Value Grid Area, your best hope may be a Blue Price as noted in the KEY to the right, that being 1.2ish times Assessed Value. A few may even sell at the RED “bubble prices” if they are near water, have water views AND have been fully remodeled. You might find a green or two, but they will likely be “tear downs” selling at lot value.

If you are making Green offers in the Blue Zone….you may never achieve success UNLESS when you draw YOUR target MV vs TA map, there are some green sales.

The PINK background chart at the bottom also relates to point #1, but most of the sales ARE green and none are red. In this area you DO NOT want to buy in the purple or above zone without VERY good reason.

I’ll try to simplify this. Let’s say most houses assessed at $800,000 sell for $950,000 in the Blue Zone. NONE have sold for less than assessed value except for the tear downs, or busy road, or malfunction of floorplan issues. That means if you keep looking for a GREAT house with no negatives and making offers of less than Assessed Value, then you are going to get frustrated.

BUT if you are in the Pink Zone where homes sell fairly regularly at assessed value or less (you need to do the actual stats to know if that is the case, this is just an example of HOW to do that) then you don’t want to be paying 1.2 or more times assessed value or $470,000 for a home assessed at $390,000.

EACH AREA will have it’s own relationship to Tax Assessed Value. This has ALWAYS been true in the Seattle Area and is a much better valuation tool than Price Per Square Foot, especially in areas with basements.

You need to calculate if your area of interest is a .97 of assessed value area, a 1.13 times assessed value area or a 1.25 times assessed value area. NO “area” will be a 1.5 times assessed value area right now…but a given house may be.

I’m going to stop here as I’m sure I’ve lost quite a few people by now. But THIS is roughly how good agents “work”. They don’t necessarily make little maps that look like alien solar systems as I have here. But this is an attempt to convey to you the process of how an agent generally values homes and the property they sit on.

Feel free to expound on the topic by asking specific questions in the comments. I’ll do the best I can to explain further in direct answer to those questions.

Seattle Real Estate Signs – Pending is spelled SOLD

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The purpose of this post is twofold:

1) To the Homebuying Public: When a Property is truly SOLD the sign is gone!

2) To “The Industry Insiders”: For those saying transparency is yesterday’s “buzzword”, until we attain full transparency by saying In Escrow or Pending vs. “SOLD” before the property is actually sold, we are not even at square one when it comes to true “transparency”.

When a property is actually SOLD…there is no sign. The sign is usually “ordered down” the day it closes, and is removed the following day or the next day by the company that installed the sign.

So when you see a “Sold Strip” stapled to the post of a home, that means it is In Escrow Pending the actual closing. When it closes…is SOLD…the sign comes down.

The industry struggles to meet the public’s request for “transparency”, and yet doesn’t really know what transparency actually means.

They think transparency means we explain what we do, when in fact transparency means” “Please Just Speak the Truth in the first place, so you don’t have to explain why you didn’t!”

Of course we are not the only ones who do this. After all, how many times does Starbucks have to explain that “Tall” = Small and “GRANDE!” = Medium?

Personally I only use these Sold Strips when it benefits my client for me to do so. I don’t think there will ever come a time when everything we do in this industry is only client oriented.

If we only considered the “parties in interest”, from the seller’s perspective we would not leave the sign up at all once the transaction was solidly heading toward closing with no contingencies remaining. From the buyer’s perspective we would never put up a Sold Strip until and unless it is of benefit to the buyer for us to do so.

How much of what we do is about US vs THEM? Worth thinking about…worth changing.

Barney’s Letter to Ben on Loan Originator Compensation

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barneyIt appears that Barney Frank penned a letter to Ben Bernanke a week before the Fed rule on Loan Originator Compensation was originally scheduled to go into effect.  Poor Barney was worried that the Fed had perhaps gone a little too far with their rule and that they should perhaps reconsider a few items (they have not as of yet) stating “I believe it was a mistake for this rule to go beyond what was required in the Financial Reform Act…”

Barney is requesting two changes to the Fed’s rule on LO Comp:

1) allow mortgage broker companies to pay their employees on consumer/borrower paid compensation.  Barney Frank writes regarding the Fed’s rule “…differs from Section 1043 of the Financial Reform Act, which merely states that if a loan originator receives compensation from the consumer, that originator cannot receive compensation from another source…while the more restrictive Fed rule prevents the sharing of the consumer-paid compensation by the firm with an employee for that employee’s work on the loan…”

2) allow mortgage brokers to make small fee reductions at closing to cover shortfalls which sometimes result because of last minute third party fee changes, extensions, etc.

Frank adds that he’s aware that some loan originators will use this tactic (helping with closing cost) “with the intent of circumventing the rule’s consumer protections.  Therefore, it would be appropriate to limit the frequency of such use and to limit either the dollar or percentage of the reduction, and to monitor a loan originators’ use of this flexibility to ensure that such flexibility is not abused.”

Is it just me or does that last paragraph seem whacky?   How is a mortgage originator who helps pay an extension fee abusive to the consumer?  I seriously don’t get it.

In my opinion, if the Fed wants LO Comp to not be a factor in the transaction, then they should probably ignore Barney’s second request.  I’m picturing NAR contacting Mr. Frank insisting that this be corrected so that their members are in a situation at closing where they might have to cough up some of their commission.

Now that we’re a few weeks into the new LO Comp rule, I do like having my pay taken out of the equation.  Can’t wait to see all the other changes coming this summer with Dodd-Frank <sarcasm> and all the back peddling that will probably happen (just like this) from all of the unintended circumstances it will cause.

You can read the entire letter to the Honorable Ben Bernanke from Ranking Member Barney Frank here.

Hat tip to NAMB.