Category Archives: Industry Talk

Renovations – Return on Investment

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Over the years I have had many people ask me the question, “Should I renovate the house that I have, or should I move?”. We have all seen the numerous charts that show the return on investment of various renovations. I just checked a few of those charts and found the following results: Remodel your kitchen anywhere from 70% to 103% return, depending on who wrote the article. Add a bedroom, 80% vs. adding a master suite: 73%.

Every time I see these charts showing the percentage of return, I put them down thinking that none of them actually answer the question and none of them are the least bit accurate. One house might achieve a 200% return on investment, while another might return 25% with the exact same renovations.

The first consideration is the location of the house. Let’s take two identical houses. In one of them you can see cars going by at a steady pace and you are considering in your list of renovations new, triple pane, sound proof windows to block out the traffic noise. The other is an “interior lot” in a quiet neighborhood. Clearly the return on investment in renovating the house in the quiet location will be much greater than the return in the noisy traffic location, even if the two homes are identical both before and after the renovations.

The second consideration is the functional obsolescence of the style or “flow” of the house. I don’t like to disparage a certain style of home, so let’s let the builders do that for me. If you currently own a style of home that is no longer built. If no or very, very few homes are being built in the exact style of your current home anywhere in the country, then you likely live in a functionally obsolescent style that will be discounted below the value of other styles in your neighborhood. You can spend thousands and thousands of dollars renovating that home and return only $.25 on every dollar that you put into it. This would be particularly true if the style and flow are not in tune to the needs and desires of today’s home buyers and it is also in a noisy location.

The highest return will involve correcting a specific type of functional obsolescence. The charts may tell you that adding a bedroom may return 70% and adding a bathroom may return 85%. In truth, adding a 6th bedroom to a 5 bedroom house and a 4th bathroom to a 3 bath house, may return you next to nothing, especially if that extra bedroom and bath is in the underground basement. But adding a 3rd bedroom and a bath in the form of a master suite to a 2 bedroom, 1 bath rambler on a great lot in a great location, can easily return double your investment dollars.

Worth mentioning is the question, “Should I add a second story?”. Not if the footprint of the main level is too small. Again we are back to the issue of functional obsolescence. If the footprint of the home is 790 square feet, adding a second story would not irradicate the functional obsolescence of the small size of the main living areas. My opinion is that the main floor should be about 1,200 square feet for one to consider adding a second story, unless you can expand the square footage of the main level at the same time.

So back to the question. Should I stay (and renovate) or should I go (sell and buy a different house).

If your current house is not a style that you would build today, and if your lot is not located in a place where you would build a new house today, then you should sell it. Limit your investment dollars only to those things that will produce the highest return, like painting it inside and out and beefing up the curb appeal and making what you have better. My limit for this type of improvement is no more than 1% of the current value of the home. If you could sell it today for $450,000, then only put $4,500 into it and put all of that $4,500 into material and do the labor yourself. Same as getting a house ready for market, even if you are staying.

If you have a perfect location but an obsolete style, then you should consider building a new home on your existing lot. If you have a great house on a great lot that just needs to be updated, then by all means you should stay and renovate the house.

If you and your husband or wife don’t agree on what you should or shouldn’t do to your existing home, invite me to dinner and I’ll make you a list 🙂

Linkation, Linkation, Linkation

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(I enjoyed writing my previous article on the reasons that real estate agents should blog, and it got me thinking about all the other bits of advice I’d like to share with real estate agents… I have a bunch of ideas, many of which are still only half-baked, so I’m looking toward your comments and suggestions to see where I should take this mini-series on blogging basics for real estate agents.)

What are the three most important factors in determining the value of real estate?

  1. Location
  2. Location
  3. Location

grow-a-brainWhile this well worn mantra forms a fundamental building block of real estate value, the concept of location is nearly irrelevant in the on-line world. I’m located in Seattle, WA, the servers hosting this site are in Santa Monica, CA, and you could be reading this from anywhere in the world.

If you’re an agent thinking of moving on-line, there are a bunch of real estate fundamentals that you’re going to want to relearn if you are going to be successful. I’ll start be revising the well-worn mantra to make it relevant on-line…

What are the three most important factors in determining the value of your real estate site?

  1. Links
  2. Links
  3. Links

And just as all locations are not created equal, not all links are created equal.

If you’re looking to build up a website that ranks well with search engines, then you’re number one focus should be on getting high quality inbound links (i.e. other sites linking to your site!). In particular, you want to build up as many inbound links from popular blogs and websites as you can. It’s common knowledge that 3 high-quality inbound links are more valuable than 1000 links from lame link farms… You want links into your site, but more importantly, you want quality links into your site!

Note that you do not get any search engine benefits from outbound links (links from your site to other sites). At best, outbound links won’t affect your ranking and at worst, they can seriously damage your ranking should you link to spam sites. In other words, if you’re linking to quality sites, you’re fine… If you’re linking to spam sites, you can expect the search engines to label you as spam.

Since there’s no benefit to outbound links, does this mean that you should not link to other sites?

No Way! Quite the contrary! Linking to other sites is critical to building up your site’s credibility with other bloggers. Join in some of the wonderful conversations that makes up the web and you’ll likely find that more and more people begin to link to your site. Find a blog you really like and then write articles about their articles! Link back to them and you’ll be surprised how quickly they start linking back to you! It’s actually a lot of fun to be part of this process.

There are very few sites that can build up credibility without linking to other sites and if you’re reading this blog looking for advice, you are probably not one of them. My advice to new bloggers: link… link… link… and link some more. Link to a blog saying something nice about their site, and there’s a pretty good chance they’ll link back to you!

So why are links so important

Links are the lifeblood of the web. The search engines rely heavily on links to determine how to rank your site. And more than any other factor, the rank of your site on search engines determines the value of your site. Granted, if you’re writing a blog for personal reasons, then you might not care how many people reach your site via search engines, but if you’re blogging to get clients, then you’re sites success depends on your how you are ranked by Google. Ranking high on Google searches generates web-traffic which generates leads which generate sales.

There are other ways to generate web-traffic, but none of them are as cheap and/or effective as generating leads through searches. (This site has a nice overview of how of how search engines work!)

So, all of this leads to an obvious question… How do you generate inbound links? Check back in a few days. I’ve got a bunch of ideas/thoughts on this subject. I’ll try to gather my thoughts and turn them into a post!

On a related note, I get asked by other bloggers on a regular basis if it is okay if they link to Rain City Guide. My answer is always “Yes”. I love links! Any business blogger who refused a link would be nuts.

How far is too far to commute?

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[photopress:round_and_round.jpg,thumb,alignright] The most common question I get from people moving to Seattle regards their potential commute… The question typically follows this format:

“How far away from my work can I live and still have a reasonable commute?”

It doesn’t really matter whether the person is planning to work in Downtown Seattle, Downtown Bellevue, the Amazon Campus, or the Microsoft Campus, because a “reasonable commute” is different for each person.

Some people are willing to drive an hour to save money on a home (or be able to afford a home for that matter), while others want a commute that is less than 20 minutes. Across the country (and especially in the Seattle area), the farther you are willing to drive every day, the less you have to pay for a home.

Interestingly, my work as a transportation planning consultant has put me in contact with some very interesting resources. For example, I recently came across these five maps that were put together by the regional government (PSRC) that give a great indication of the average commute:

These maps are great if you know the area you are going to be working (say Downtown Bellevue) AND you know that you are willing to commute a specific distance (say 40 minutes) because then they can help you put a definitive boundary on your home search!

NOTE: These maps are created “topographical-style”. If you are new to this, imagine that the graphic is displaying a huge mountain centered on the point of interest (like Downtown Seattle). If you move anywhere within the first circle (the top of the mountain!), then your commute to Downtown Seattle would be less than 20 minutes. However, the farther out you live, the large the hill you have to climb to get to work. For example, if you were to move to Issaquah, then you could expect about a 40 minute commute to Downtown Seattle.

By the way, the maps are a little dated (they are based on 1997 data), but the commute patterns have not changed much in the last 8 years, so the trends are still pretty accurate.

The same regional model that was used to create this data also spits out data for future years! Wouldn’t it be great to have the same maps for future years (2010, 2020, etc.) so you could gauge how your commute might change? This can be done! And if there is sufficient interest, I’ll put something like this together!

Short-term Rentals in Seattle

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When moving to Seattle with the intent to buy a home, don’t overlook the option to do a temporary rental. The main benefit of a short-term lease is that it buys you time so that you can check out the neighborhoods, and ensure that you don’t make a hasty home purchase decision. The main disadvantage is that short-term leases is that you pay for the privilege of being able to break out of a lease quickly.


Short-term Rentals
In the past, I’ve worked with Dale Hicklin of Short-term Suites and he does a decent job of providing for people looking to move to Seattle. His places won’t shock you in their upkeep (expect thrift and pawn-shop “finds” for your appliances), but on the plus side, he tends to fix things fast and he’s always only a phone call away. Another great option is to browse the sublet and temporary rentals on craigslist. The Stranger (an excellent local weekly magazine) lists a bunch of rentals, but I doubt that there are going to be a lot (if any) short-term rentals in a given week. Finally, you can always try the local newspaper listings, but I would use those as a last resort.

How can you learn about the neighborhoods in Seattle?
One way is to find an agent who knows all the areas in Seattle and won’t pigeonhole you into the neighborhood they know best. Also, I highly recommend wondering over to the “housing” forum on craigslist. (Have you noticed that I like craigslist? I find the community at craigslist extremely helpful!). As always, feel free to contact me and I’d be happy to give you a local’s perspective on Seattle!

Books About Seattle

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Are you thinking of visiting Seattle? Below are three visitor guide books to Seattle. The first is from “The Stranger“. A Seattle-only weekly that definitely gives the best inside scoop on Seattle. However, the book is not for the faint of heart as it focuses mostly on the alternative scene. The Rough Guide books are some of the most informative guide books around with info on history, entertainment, food, etc. Albeit they are geared toward the backpacker crowd. The Frommer’s Guide is one of the best all-around guidebooks.

Seattle City Walks has some fun urban hikes that will give you a pretty good idea of the various neighborhoods. I’ve got this book and have especially enjoyed the historical tit-bits they throw in.

This is a wildly popular book (Relocating to Seattle) among the people relocating to the area. I’ve not read it, but I’ve heard people say that it has given them a real insider’s perspective on the region:

10 Questions for Sellers to ask a Real Estate Agent

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What follows are ten good questions that sellers should ask their agent before they sign a listing agreement.

1. Are you a full-time professional Realtor®? How long have you worked full time in real estate? What professional designations do you have?

  • Knowing whether or not your Realtor® practices real estate on a full-time basis can give you a piece of the puzzle in foreseeing scheduling conflicts and, overall, his or her commitment to your transaction. As with any profession, the number of years a person has been in the business does not necessarily reflect the level of service you can expect, but it is a good starting point for your discussion. The same issue can apply to professional designations.

2. Do you have a personal assistant, team, or staff to handle different parts of the sales transaction? What are their names and how will each of them help me in my transaction? How do I communicate with them?

  • It is not uncommon for high real estate sales producers to hire people to work for them or with them. They typically work on a referral basis, and, as their businesses grow, they must be able to deliver the same or higher quality service to more clients.
  • You may want to be clear about who on the team will take part in your transaction, and what role each person will play. You may even want to meet the other team members before you decide to work with the team overall. If you needed help with a certain part of your home sale, who should you talk to and how would you communicate? If you have a question about fees on your closing statement, who would handle that? Who will show up to your closing? These are just a few of the many important considerations in working with a team.

3. Do you and/or your company each have a website that will provide me with useful information for research, services, and how you work with buyers? Can I have those Web addresses now?

  • Many homebuyers prefer to search online for homes and home buying information. There are certain privacy and comfort levels that you might appreciate in starting a preliminary search this way, and often it is just a matter of convenience, having 24-hour access to information. By searching the Realtor®’s and the company’s Web sites, you will get a clear picture of how much work you would be able to accomplish online, and whether or not that suits your preferences.

4. How will you keep in contact with me during the buying process, and how often?

  • It’s a good idea for you to set your expectations reasonably in accordance with how your Realtor® conducts business. You may be looking for an agent to call, fax, or email you every days to tell you about prospective buyers who have seen your home. On the other hand, your Realtor® may have access to systems that will notify you automatically each time a new visitor tours your home (which could happen several times a day or several times a week). Asking this extra question can help you to reconcile your needs with your Realtor®’s systems, which makes for a far more satisfying relationship.

5. Can you explain one thing that you do that other agents don’t do that ensures I’m getting top dollar for my property? What is your average market time versus other agents’ average market time?

  • Marketing skills are learned, and sometimes a real estate professional’s unique method of research and delivery make the difference between whether or not a property sells quickly. For example, an agent might research the demographics of your neighborhood and present to you a target market list for direct marketing purposes.

6. Will you give me names of past clients who will give references for you?

  • Interviewing a Realtor® to help you buy a home can be very similar to interviewing someone to work in your office. Contacting a Realtor®’s references can be a reliable way for you to understand how he or she works, and whether or not this style is compatible with your own.

7. Do you have a performance guarantee? If I am not satisfied with your performance, can I terminate our listing agreement?

  • Understand that, especially in the heavily regulated world of real estate, it can be increasingly difficult for a Realtor® to offer a performance guarantee. Sometimes you may find a Realtor® who is willing to guarantee that if you are dissatisfied in any way with their service they will terminate your listing agreement. If your Realtor® does not have a performance guarantee available in writing, it is not an indication that he or she is not committed to perform. Realtors® at Keller Williams® Realty understand the importance of win-win business relationships, and that the Realtor® does not benefit if the client does not also benefit.

8. How will you get paid? How are your fees structured? May I have that in writing?

  • This is an issue that can also be related to agency. In many areas, the seller still customarily pays all Realtor® commissions through the listing broker. Sometimes, Realtors® will have other small fees, such as administrative or special service fees, that are charged to clients, regardless of whether they are buying or selling. Be aware of the big picture before you sign any agreements. Ask for an estimate of costs from any agent you contemplate employing.

9. How would you develop pricing and marketing strategies for our home? Will you commit to the marketing strategy in writing?

  • Pricing a home correctly is the single most important factor in determining if a home sells quickly, or at all. Although location and condition also effect the selling process, price is a primary factor. Access to all current property information is essential, and sometimes a pre-appraisal will help. Ask your agent where he or she obtained the information to create the market analysis, and whether your agent included For Sale By Owner homes, foreclosed homes, and bank-owned sales in that list.

10. What will you do and what will you not do to sell my home? Who determines where and when my home is marketed/ promoted? Who pays for your advertising?

  • Ask your real estate agent to present to you a clear marketing and advertising budget, and how those dollars will be spent. Ask if there are other forms of advertisement/ marketing media that are also available but not mentioned in the budget/plan, and who pays for those. Request samples of the various media that your agent proposes (such as Internet Web sites, print magazines, and local publications).

10 Questions for Home Buyers to ask a Real Estate Agent

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I pulled these ten questions from a handout that the national Realtor organization published. There are good questions and, if used by a buyer, they should definitely give you a feel for the quality of the agent. So as not to be above the fray, I’m planning on adding my response to each of these questions as time permits.

1. Are you a full-time professional Realtor? How long have you worked full time in real estate? How long have you been representing buyers? What professional designations do you have?

  • Knowing whether or not your Realtor practices real estate on a full-time basis can give you a piece of the puzzle in foreseeing scheduling conflicts and, overall, his or her commitment to your transaction. As with any profession, the number of years a person has been in the business does not necessarily reflect the level of service you can expect, but it is a good starting point for your discussion. The same issue can apply to professional designations.

2. Do you have a personal assistant, team, or staff to handle different parts of the purchase transaction? What are their names and how will each of them help me in my transaction? How do I communicate with them?

  • It is not uncommon for high real estate sales producers to hire people to work for them or with them. They typically work on a referral basis, and, as their businesses grow, they must be able to deliver the same or higher quality service to more clients.
  • You may want to be clear about who on the team will take part in your transaction, and what role each person will play. You may even want to meet the other team members before you decide to work with the team overall. If you needed help with a certain part of your home purchase, who should you talk to and how would you communicate? If you have a question about fees on your closing statement, who would handle that? Who will show up to your closing? These are just a few of the many important considerations in working with a team.

3. Do you and/or your company each have a website that will provide me with useful information for research, services, and how you work with buyers? Can I have those Web addresses now? And who does the emails? Can I have the email address now?

  • Many homebuyers prefer to search online for homes and home buying information. There are certain privacy and comfort levels that you might appreciate in starting a preliminary search this way, and often it is just a matter of convenience, having 24-hour access to information. By searching the Realtor’s and the company’s Web sites, you will get a clear picture of how much work you would be able to accomplish online, and whether or not that suits your preferences. When I have a question, how quickly do you respond to emails?

4. Will you show me properties from other companies’ listings?

  • Some real estate companies do offer their buyers’ agents a higher commission if they are able to sell “in-house” listings. In such circumstances, there can be added incentive to show you a more limited range of homes than you might consider. If this is the case with your Realtor, you should be very clear on how this will impact your home search, if at all. You also should determine it this affects how much your buyer agents fee will be.

5. Will you represent me or will you represent the seller? May I have that in writing? How will you represent me, and what is the direct benefit of having you represent me?

  • The goal here is to ascertain to whom the Realtor has legal fiduciary obligation, which may vary from state to state or even locale to locale. In the past, Realtors always worked for sellers. Then the listing broker was responsible for paying the agent or sub-agent that brought a suitable buyer for the home. And even though the buyer worked ‘with’ an agent, the agent still represented and owed their fiduciary duty to the seller.
  • An additional situation in some states is dual agency. This is where the buyer decides to have the listing agent prepare the offer for him. A knowledgeable buyer may elect this situation which should be fully disclosed to all parties. In some states it also affects the broker’s/agent’s fiduciary responsibilities to the seller.
  • Although Realtors today almost always have a sense of moral obligation to buyers, this original type of seller agency still exists in certain areas. In other areas, a formal method of buyer representation called Buyer Agency exists to protect buyers. Find out what is available in your area and make yourself comfortable with the extent to which you will be represented.

6. How will you get paid? How are your fees structured? May I have that in writing?

  • This is an issue that can also be related to agency. In many areas, the seller still customarily pays all Realtor commissions through the listing broker. Sometimes, Realtors will have other small fees, such as administrative or special service fees, that are charged to clients, regardless of whether they are buying or selling. Be aware of the big picture before you sign any agreements. Ask for an estimate of buyer costs from any agent you contemplate employing.

7. What distinguishes you from other Realtors? What is your negotiating style and how does it differ from those of other Realtors? What geographic areas to you specialize in?

  • It should be important to know that your Realtor has unique methods of overcoming obstacles and is an effective negotiator on your behalf, but most importantly that your Realtor can advocate for you in the most effective ways.

8. Will you give me names of past clients who will give references for you?

  • Interviewing a Realtor to help you buy a home can be very similar to interviewing someone to work in your office. Contacting a Realtor’s references can be a reliable way for you to understand how he or she works, and whether or not this style is compatible with your own.

9. Do you have a performance guarantee? If I am not satisfied with your performance, can I terminate our Buyer Agency Agreement?

  • Understand that, especially in the heavily regulated world of real estate, it can be increasingly difficult for a Realtor to offer a performance guarantee. Sometimes you may find a Realtor who is willing to guarantee that if you are dissatisfied in any way with their service they will terminate your Buyer Agency Agreement. If your Realtor does not have a performance guarantee available in writing, it is not an indication that he or she is not committed to perform, but rather that he or she is willing to verbally promise some kind of performance standard. In fact, Realtors at Keller Williams Realty understand the importance of win-win business relationships, and that the Realtor does not benefit if the client does not also benefit.

10. How will you keep in contact with me during the buying process, and how often?

  • It’s a good idea for you to set your expectations reasonably in accordance with how your Realtor conducts business. You may be looking for an agent to call, fax, or email you every evening to tell you about properties that meet your criteria which are new on the market. On the other hand, your Realtor may have access to systems that will notify clients of new properties as they come on the market (which could happen several times a day or several times a week). Asking this extra question can help you to reconcile your needs with your Realtor’s systems, which makes for a far more satisfying relationship.