Category Archives: Agent Advice

Rain City Guide has been covering Zillow since before they launched… Some of our more popular articles include a story about the accuracy of a Zillow Zestimate and as well of some ideas around how you can interpret a Zestimate.

I Don’t Need No Stinking “Database”

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The Christmas Season is here, and I have had a chat or two with some of my colleagues around the Country regarding why we in the Real Estate Industry should strike the word LEAD from our vocablulary. Wrap the word “LEAD” up in a box with the word “DEAL” and set the box on fire before the New Decade begins.

I had a very startling conversation with an agent who not only had no friends who were past clients, but referred ALL family and friends OUT, and refused to work with family and friends. That is such an opposite experience to mine. I still get calls from past clients and family around the Country, who will not buy or sell a house without consulting with me first.

Seriously. If you are not “good enough” for your own friends and family, if you are not the “go to person” for your friends and family with real estate needs, why should anyone else hire you to help them and their friends and family? Why would you have on your business card “Call Me For ALL Of Your Real Estate Needs” and then tell friends and family to call someone else??? Maybe I just don’t “get it”.

client friends
Twenty years ago when I started in this business, someone said to me “make a friend, and then help your friend buy/sell a house”. I have always tried to apply that, and clearly never forgot it. A real estate broker should apply the top level of care when assisting a friend or relative in the purchase or sale of a house, and then apply that same level of care to all clients. It’s what keeps you “on top of your game”.

Many articles have been written on “How To Choose a Real Estate Agent”. Truth is your real estate agent will likely know (and need to know) MUCH more about you to assist you well, than your family and friends know about you.

If you can’t envision your agent as someone you might call over the years AFTER you buy a house to ask about most anything home related, you likely should not have chosen that agent in the first place.

What causes “a client” to move to the right of the Venn Diagram, vs someone bounced back to the left, to only be spoken with if and when they need to buy or sell a house again? What would cause a Past Client, or even a Vendor, to not pass through to the “friend” side of the diagram, and become merely a name and address in a DATABASE to “drip” on?

Back to Christmas. Each morning I wake up to new emails from past clients, wishing Kim and I the best in the New Year. Emails asking how we are doing, and sending warm holiday greetings. Yesterday a gift box arrived from a “past client” who bought a house in 2009, thanking me for helping them with something home related in 2010. Something I did as his friend and “real estate agent for life”, vs something that ended up in a commission for me.

So no…I Don’t Need No Stinking Database”…unless you want to call my Christmas Card List “a database”.

Merry Christmas and Happy New Decade to you and yours!

Real Estate – “Proceeding in Good Faith”

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contract
Real Estate Transactions have long depended on the underlying principle of “Proceeding in Good Faith”. It’s not something that we talk about much, as it is something we pretty much take for granted.

I raise this issue today as Craig has mentioned it a few times this year in his posts and comments, and most recently the other day in his post regarding “Good Faith Home Inspection Negotiations”.

Before we can discuss how “Proceeding in Good Faith” applies to the Home Inspection specifically, we need to discuss how “Proceeding in Good Faith” applies to all real estate transactions, generally. When we are talking about this principle in real estate, we are talking about the Buyer and the Seller who are the “Parties To” the transaction. It is not about agents except to the extent that they represent someone who is acting and proceeding in good faith. Consequently the presence or absence of real estate agents in the transaction neither heightens nor diminishes the importance of the good faith process.

Good Faith BEGINS with a seller who wants to sell and a buyer who wants to buy. One would think this is always the case, but it is not. NO ONE can PROCEED “in good faith” if these two things are not present from the getgo.

While it may be hard for some to believe, not everyone who has their home listed for sale has the intent of actually selling it (at the price at which it will actually sell), and not everyone who makes a written offer actually has the intent of buying (that particular house). Who is and who is not Proceeding in Good Faith…well, that gets a little complicated.

Buyer Says: “What’s wrong with this seller? Is he REALLY going to Let This Sale Fall Apart over a $150 fix to a leak under the sink?”

Seller Says: “Well it’s a good thing that buyer DIDN”T buy my house, He oviously did NOT want it, if he was willing to walk away from it over a $150 fix to a leak under a sink! Anyone who is not willing to fix a leak under a sink shouldn’t be a Home OWNER Period!”

Craig, in his post linked in this one says: ” As a general rule, I think “good faith

“Good faith” negotiations and the Inspection Contingency

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One of my great challenges as I build my RE broker practice is learning how to develop positive working relationships with other brokers. I’ll admit, a broker is a different animal than a lawyer. I think the difference flows from the fact that brokers to a certain extent are on the “same team” while lawyers are not. Brokers need each other to keep their clients on track towards closing, or neither broker gets paid. Lawyers, in contrast, get paid whether the deal closes or not. Transactional attorneys are not adversarial per se — at least not the good ones — but they retain their own self interest independent of opposing counsel. I think an absence of this “mutual interest” can foster a degree of conflict between brokers.

Since I don’t have that mutual interest with the opposing broker, I’ve tried to come up with a “work around,” some style that is consistent with what is expected of a broker. In that vein, it has been my understanding and experience to date that everybody expects the parties to negotiate in “good faith.” That term is of course extremely slippery and not susceptible to an easy definition. Its sorta like porn — hard to describe, but you know it when you see it. As a general rule, I think “good faith” requires the parties to negotiate realistically with the understanding that each side is genuinely interested in consumating the transaction on terms that are fair to all. If one side fails to live up to this standard, then the other side will perceive that they are not negotiating in good faith.

To date I’ve operated under the assumption that if I can faciliate good faith negotiations, then I’ll keep to a minimum any conflict between me and the other broker. What does that require in the context of the inspection contingency? Once the inspection has been performed and the defects noted, is that an opportunity to essentially renegotiate the price? Or should the negotiations focus strictly on the specific defects, their respective importance (e.g. safety issue vs. cosmetic), and the costs to repair? Or is even that too aggressive?

Any insight would be greatly appreciated. I just love “RCG University”…

You should NOT be buying a house if you don’t “get” this.

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Why did so many people buy houses they couldn’t afford? I’m not talking about people who bought 5 houses to “FLIP”, or the cash out refinance issues. I’m talking about the basic Buy A House to Live In IT bunch who never did a cash out refinance.

Well…on 2nd thought…let’s leave those cash out refinance people in, as this “study” may explain WHY so many NEEDED to do a cash out refinance, and use their home as an ATM machine.

Let’s start with the basic MODEL and examine where everything started to go sideways.

Qualifying for Mortgage Chart

Qualifying Ratios ONLY WORK well when THE MIDDLE COLUMN is in sync.

Now that the dust has settled and we are not looking for some ONE to BLAME, let’s look at the REALITY of what, exactly, is broken…so YOU can fix it. This is about you, as a buyer of a home, as you are the only one who can proceed on the RIGHT basis. No agent or lender can sort out that middle column for you. You must make the extra effort to QUALIFY YOURSELF!

Here’s what happened, in a nutshell. EVERYONE’S BACK END WAS OUT!!!

Used to be, looking at my Chart inserted in this post, that IF YOUR DEBT PAYMENTS caused your TOTAL of housing payment + Debt to exceed the “back end allowance”, your housing allowance was REDUCED accordingly.

EXAMPLE: Housing payment $2,800 (column one) Debt + Housing $4,000 (vs the allowable $3,600 in the Chart’s middle column) equalled a REDUCTION in allowable housing payment from $2,800 to $2,400. 28% of Gross Income was ONLY the allowable amount IF your housing payment plus monthly recurring debt payments did not exceed 36% on a combined basis.

If you do not understand this up to this point, PLEASE, PLEASE ask questions as you should NOT be buying a house if you do not understand this. If you are not capable of understanding the basic accounting framework of home buying and home ownership, then do not buy a house. It really is THAT simple.

The Middle Column went out of whack when people started using their Credit Cards for Column Three items. Before ATM cards, people did not do that. Credit was for buying a home and LARGE purchases and MONEY was for buying everything else. Front End + Back End assumed that no one would buy a carton of milk or a loaf of bread on a credit card. Front End and Back End assumed that no one would use a credit card to go to a movie theater.

That said, what YOU need to do is look at your Total Credit Card debt and separate the balance into “used for LARGE purchases” vs “used for column three expenses”.

The Lenders and the Real Estate Agents really can not do that for you. So what they DID (which proved to be disastrous) was EXPAND the back end ratio to include the usage of credit cards for column three expenses. This started when people LEASED cars vs buying them. Given you did not OWN the car at the end…this shifted the car payment from a column two expense to a column three expense.

Column Two is for large PURCHASES! Leasing a car is NOT a “purchase”. Seriously…that was the EVENT that created a huge disconnect for Qualifying Ratios, combined with people not making a distinction between when they were using a Credit Card vs an ATM card for minor purchases. Going to the movies is not a LARGE PURCHASE worthy of using a Credit Card vs a Debit Card.

There’s an old saying: “One Step Forward; Two Steps Back”. What I am suggesting here is that we have taken Two Steps Forward, and need to take One Step Back. Reconstruct your Credit Card debt to LARGE purchases only. Do not buy a house until your small purchases and living expenses of Column Three are NEVER “financed”.

If you NEED to buy your food with a credit card…you should not be buying a house. It’s THAT simple.

********

Column Three went out of whack for a number of reasons, mostly related to Column Two events as noted above. The MAIN Column Three disrupt, not associated with Column Two, is about EARMARKED savings.

Used to be people had a “Christmas Club” savings account and a “Vacation Club” savings account and an Emergency Fund Savings account that was never touched except for dire emergency (and then repaid BACK into the Emergency Fund), and a Short Term savings account for “luxury items” and a Long Term Savings Account for retirement.

Buying a boat was a “luxury item” vs a “Large Purchase”. “Large Purchase was a refrigerator, a washer and dryer, a bedroom set, etc. Things you needed long term, not things you WANTED long term. You saved for a Luxury Purchase – a large item that you WANTED and you charged a NEEDED large item to spread out the payments.

Two things largely contributed to the demise of Americans saving money and saving it in an earmarked way. One was the change from the standard 5% interest bearing passbook savings account. The other was the expansion of bank charges per account, that caused people to lump their savings into one account vs earmarking it by spreading it out among several designated purpose accounts. There was never a charge for a “christmas club” or a “vacation club”, and with 5% interest, people saved for those things vs charging those things.

A third thing that changed was the ability for a homeowner to convert their non-deductible charge card interest to deductible “mortgage” interest via a “cash out” refinance to “consolidate” debt. Seemed like a financially “smart” thing to do…until your house was “upside down” and you needed to do a short sale. Ask yourself how many short sales are done to “forgive” the car loan and the student loans that were combined into their Mortgage Amount? That is a frightening thought, and not about a HOUSING Crisis at all!

Is there any hope for a true FIX? The answer is likely HIGH INTEREST RATES are needed. When interest rates are high, people save more. When interest rates are high, people put the right amount of forethought into buying a home.

For that reason I have to say that keeping interest rates low and fixing the economy all at the same time is an oxymoron. I don’t want to see interest rates go to double digits, but until interest rates are back in the 7% to 8% range, I don’t see much hope for an overall “fix”. BUT, hopefully, if you “get” what I am saying here, you can at least fix it for YOU.

Also, an up front Tax Credit to REPLACE the Mortgage Interest Deduction would go a long way to preventing homeowners from creating an Umbrella Loan for their Car and Education and other non housing related debt, in order to qualify the interest paid as a “mortgage interest” deduction.

If you understand the chart above, and keep your “back end from falling out”, you will clearly be a Giant Step ahead of most of your Peers. It’s a NEW Decade. 2011 is the year of One Step Back to Sound Principals and reliable fundamentals. Good Luck with that. If you don’t understand any part of this, please ASK!

Happy New Year!

The 2009 Version of the “same” principals

Can you modify the ratios from those in the Chart?

Half the battle is “won” when you know WHEN you are STRETCHING, and by how much.

How To Begin the Home Buying Process

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Unfortunately most agents are trained to have a buyer make a list of everything they want in a home as the first step in the home buying process. Left to their own devices without this “push” in the wrong direction, RARELY does a future home buyer start by making a long list like that. It is a “sales” tool to lock you into a close-able position. Don’t buy into that logic by handing a “salesperson” a big list of what you “want”.

Three of the most common “first steps” to buying a home in my 20 years in this business have been:

#1 – Highly Ranked Schools

There is always a lot of controversy surrounding the topic of “best schools” as determined by a ranking system or online school ranking site. Still, many parents use these sites when determining where they are going to be buying a home. My clients tend to use a combination of these two sites:

GreatSchools.org ranks the schools on a scale from 1 to 10. Yes, I have actually seen a school on The Eastside ranked as “1” on a scale of 1 to 10. Makes you want to go peek in the windows and see what the heck is going on in that school. There is also a “star” system, but that seems to be generated by parents whose children already go to school there, so take that with a grain of salt and read the full comments of the parents vs the “3 star” or “5 star” ranking.

There may not be much difference between a 10 ranked school and a 9 ranked school…but clearly there must be a difference between a 10 ranked school and a 4 ranked one. If you love a house in an area serviced by a school ranked from 1 to 4, at least go to that school to try to determine why it has such a low ranking. You WILL get more home for your money if the school is ranked lower but each buyer has to decide where their priorities lie. For many…it is best school their money can buy vs best home regardless of quality of school, and the price per square foot of the home will often reflect that difference.

Another site my clients use, and they usually use both sites for comparison purposes, is:

SchoolDigger.com I like the 1 to 10 ranking system of GreatSchools.org better than the 1 to 5 ranking system of SchoolDigger.com, but I LOVE the display on a map of the schools with “balloons” showing the school ranking. Gives you a better visual of where that you can then match up to a home search map tool. I wouldn’t use these sites to look for homes though. The best real estate search tool for many, many reasons is Redfin.com, but my guess is if you are reading a real estate blog like this one…you already know that.

Even if you do not have children in school, you need to be aware of the impact of school rankings on home values so that you are using the correct “comps” when determining a fair price for a home. You don’t want to use a 10 ranked school as a comp for an offer to be made on a home in a 2 ranked school! Unfortunately, even appraisers haven’t learned that one yet. Be ahead of the curve. Do not be fooled into thinking that “School District” is the ONLY criteria to be used. There are often major variances within a school district.

Some School Districts like Lake Washington School District have a great online map of each school’s boundaries. Boundaries do change from time to time, so be sure to check with the district once you have found a home. Give them the exact address and know that if you are on the border between two schools vs dead center in the middle of the defined area…well, change happens and likely more near the edge lines. This is most important for people planning to have children or who have very young children who are not yet in school.

#2 – “Close-in”…or not “close-in”.

Wanting to buy a house that is “close-in” is more often a “move up buyer” request than a 1st Time Homebuyer request. Sometimes it is the opposite. They bought “close-in” and now want to be far away from “it all”. Unfortunately some learn the hard way how important it is for them to be close to or far away from…something. Everyone’s something is different. First Time Homebuyers tend to look at the WHAT vs the WHERE, and often end up someplace they hate being, causing them to rethink that where and move “out” if not “up”. In fact going from a bad “where” to a good “where” often means moving UP in Price but DOWN in home quality, size and amenities. The wrong where often results in more home for the money, which is why First Time Homebuyers tend to choose them more than experienced homebuyers.

You will often see “Great ‘close-in’ location!” in a real estate ad. What “close-in” means is different in each area. On the Eastside it could mean close to Microsoft, close to Redmond Town Center, close to Downtown Kirkland. On the Seattle Side it usually means you can walk to a coffee shop (and other shops). For those who don’t expect to walk to work, “close-in” could mean a reasonable bus or drive commute time. NOT “close-in” is a little easier to describe than “close-in”. If you have to drive for a half hour to get some milk…you are NOT “close-in”.

There are many variances on this “close-in” theme, and they are as different as people can be different. It’s a personal decision that you REALLY need to spend a lot of time thinking about. Some people hate the noise level of being too “close in” to shops that can also have very noisy restaurants and bars with drunk patrons very late into the night. Some people like to walk to enjoyable amenities, but be as far away from work as reasonably possible. Some people like to be very close to work, but in a private and quiet location when they get home and NOT close in to noisy businesses.

If there is ONE HUGE MAJOR MISTAKE of homebuyers that stands far and above beyond the rest of the mistakes you can make, it is to look at “a house” and make an offer on it, without adequately discovering what is around it. The MINUTE you think you may want to make an offer on a house, spend as much time as possible around that house before negotiations are complete and the home inspection “out” phase is passed. Park your car in front of the house and take long walks in every direction. Say hello to the neighbors. Don’t be afraid to do that! You don’t need to 3rd degree them with a list of questions, nor should you do that. But you should knock on the door and meet the neighbors to see if there is anything alarming to you about them. Why don’t people do that? No one wants to be “close in” to a problem neighbor…no one.

It’s very simple to get “drive times” now without having to leave your computer. Just put in the address of the home and various destination points into a service like Bing Maps and it will give you the estimated drive time. Be sure to double check that during rush hours IF you plan to be driving to and from during rush hour.

#3 Style of Home

Once you determine your suitable where(s), it is time to study the potential whats of that where that are IN YOUR PRICE RANGE.

IMPORTANT NOTE: Many homebuyers are afraid of Future Home Values. Take note that IF you buy a split entry home for too close to the max price for that style of home, you will not likely be able to get paid back for those improvements when you sell.

Yesterday I posted some rather harsh realities for people who want to be “close to Microsoft Redmond Campus” as in within a 2.5 mile radius of 148th Ave NE and 36th. Of great significance is the age of home possibilities.
microsoft age

As you can see in the chart above, a large majority of the homes available and sold in that area were built more than 20 years ago. So wanting a house not more than 10 years old within a mile or two from work at an affordable price may look great on your “WANT” list…but easier said than done. That is why it is important to study the makeup of the area you choose, before going out to look at homes.

Besides the age of home, the style of home is also an important factor. You may “like” granite counters and stainless steel appliances…but that is NOT “real estate”. Way too many people choose a home by its “finishes”. A newer 2-story home that has laminate counters and ugly carpet MAY be better than a less favorable home style with hardwood floors and granite counters, depending on your needs and price range.

BIG NOTE: IF YOUR BEDROOMS (AT LEAST 3 OF THEM) ARE NOT A FULL FLIGHT OF STAIRS ABOVE YOUR KITCHEN AND LIVING AREAS…IT IS NOT, NOT, NOT A 2-STORY HOME! I have met many a seller in a Split Entry or 1 story with basement who said “we have always called it a 2-story home”. Reverse floor plans, and I have seen several on market recently, are a little harder to define. If the view from the main level on a reverse floor plan is knock your socks off awesome…well, let’s just say it better be.

Here are 3 examples of how to look at the general range of possibilities before going out to look at homes to buy.
microsoft type

In the pie chart above you can see that the majority of homes in that area (within 2 miles of Microsoft) regardless of price, may be a home style that you simply do not care for. It is important to know that before going out to look for your “ideal home” in an area that may not have it in your price range. Do you go further out to find “it”…or do you stick to living near work? A personal decision you should make before going out to look at homes. Have a backup plan!

Besides availability, there is a matter of cost. Below I charted all of 98052 using the current YTD median home price of $540,000 as a guide. This first pie chart below breaks down the style of homes sold so far in 2010 costing $540,000 or less in Redmond 98052. Often 2 story also equals “newer home”. Not always…but often…on the Eastside vs in Seattle proper.

graph (8)

Once I go over the median home price, the breakdown of home style changes dramatically, as shown in the pie chart below. This is VERY important to home buyers in the first group. IF you bought the highest priced Split Entry home UNDER the median home price…note that NO Split Entry Homes were sold above that median price YTD 2010. Future home appreciation is not simply about “the market” as a whole. There is a point at which there simply is no room for upward movement given you simply cannot compete with newer homes and newer home styles regardless of how you may improve that home.

graph (9)

It is pretty simple to graph out your potential and likely choices in your price range in the area you hope to live. It’s OK to look for a needle in a haystack…you just have to know that before you begin the process. What has NEVER happened in the past, is not likely to happen in the near future. If 1% of the people were able to do what you are trying to do, that is important to know the same as it is important to know if 60% of the people were able to do that in recent history.

You clearly will be able to change what you “WANT” a lot easier than you can change the makeup of homes built in a given area. If it never was built, you likely can’t buy it. So do your homework before you step out the door and get caught up in making quick on the fly changes in your overall home buying plan. Be prepared and you will make a wiser choice.

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(required disclosure: The stats in this post and its graphs are not compiled, verified or posted by The Northwest Multiple Listing Service.) They are hand calculated by ARDELL.

Are you ready for BuzzRE???

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Next week, I’m helping to organize an internet marketing educational event and I encourage everyone interested to set aside next Thursday to join us!  For the BuzzRE event, we’ve lined up some of my favorite educators in real estate marketing including:

edgefieldIn addition to the great lineup of speakers, there’s going to be ample opportunities to learn from and network with hundreds of agents from the Pacific Northwest, many of whom are leaders in internet marketing.

It doesn’t matter if you’re want to learn about SEO, SEM, blogging, conversations, tools, or any other online marketing topic, the experts will be there and you just need to join us to take part!

Details for location and much more are on the BuzzRE website, but here’s a few key stats:

Cost: $25

When: June 2nd: 6pm – kickoff party
June 3rd: 9am – 5pm (with after party till 11pm)

Where: McMenamin’s Edgefield
2126 S.W. Halsey St.  Troutdale, OR 97060
(Just 10 minutes east of PDX)

More info: http://buzzre.com/

Registration: http://ticketsoregon.com/event.php?event_id=537/

We ran another BuzzRE event in Orange County a few weeks ago and it was so much fun. So many great people and so much great feedback, which has really helped guide this event in Portland!

Are you going to be there???  Let us know!

Let us know if you’re going to be there!  Either here or on Twitter!  (The hashtag to connect on twitter is: #BuzzRE).  And just a few of the Seattle folks I’ve noticed mention they’re going to be there include: Linda Aaron, Galen Ward, Darin Persinger and Scott Thomas…

So much fun and let me know if I can add your twitter handle to the list!

[For those interested in a trip down memory lane… I had conversations with another real estate old-timer not too long ago, and we look back at the Las Vegas NAR event in ’07 as the kick-off point for real estate conversations on Twitter…  Back then, we were all trying to figure out if there was anything behind the hype of Twitter, and it seemed to me that the best place to figure out if it made sense was at a conference where we could use the tool to better connect.  With that in mind, I posted a list of real estate folks with Twitter accounts who would be attending NAR so others could follow along and connect with us. While the list started off small (I published the list with only 5 twitter profiles: Jeff, Joel, Jessica, Keith and Myself), I remember that by the end of the week, I was connected to over 50 people on Twitter who I’d met at the conference…  and I like to think that the background real estate conversation on Twitter that was sparked at NAR ’07 has never really died down!

Anyway, I was reminded of this story as I posted this list of a few folks from Seattle joining us at BuzzRE and realizing how these small lists of people sometimes blossom into unpredictable and amazing conversations!]

I hope to see you in Portland next week!

Don’t blame the Agent…if you are impatient.

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There are a million articles written on the Top 10 Mistakes that Home Buyers make. Today…the biggest mistake one can make is to set a rigid time frame as to WHEN you WANT to buy. Let me re-phrase that in light of the email I just received below from someone who is not my client.

“Ardell, I am seeing many sellers hanging on to those 2007 prices. I mean wouldn’t being 12% below a 2007 purchase price be considered a little high? Properties are closer than ever now to late 2004 pricing aren’t they? Many houses we look at have asking prices higher than what sellers purchased them for in 2005 or later. I’m really getting tired of this.”

First let’s review the data again.
graph (43)

King County median home price is/was at $375,000 a week or so ago, up from $362,700 as of the end of March 2009, and WELL above “late 2004 pricing” of $337,500.

I’m not saying prices won’t get to late 2004 levels. In fact I think they will get there or pretty darned close in some, though not all, areas. But to go out EVERY weekend…looking at homes and hoping they would now be at 2004 pricing when they are not, will result in your “getting tired of this”. It would be like my getting tired of my diet for not having lost 20 lbs this week. I know that’s going to take some time, and getting “tired of this” is NOT an option if I am to achieve my goal by my daughter Tina’s wedding date in October 🙂

Now let’s see how the numbers fall in different areas vs. “King County” median prices:

98052
Late 2004 median home price = $409,995 – April 2010 = $610,000

98006
Late 2004 median home price = $507,000 – April 2010 = $591,500

98033
Late 2004 median home price = $469,000 – April 2010 = $479,000

98103
Late 2004 median home price = $400,500 – April 2010 = $435,000

98038
Late 2004 median home price = $281,950 – April 2010 = $299,950

98023
Late 2004 median home price = $244,975 – April 2010 = $249,225

98109
Late 2004 median home price = $598,500 – April 2010 = $460,500

98125
Late 2004 median home price = $319,750 – April 2010 = $360,000

Some surprising results there, and in many cases those numbers come up VERY differently than what I have been seeing touted in recent news articles as to which neighborhoods are “stronger” than others these days.

There are different reasons for these results in the different zip codes. For example, if you are hoping for 2004 pricing, but are buying a house that did not EXIST in 2004…well, in some areas new construction is not likely to fall into the level of a home built prior to 2004.

One thing “the comps” don’t tell you, is how FAR the MAJORITY of home buyers has shifted from 2004 to present. How many are buying more reasonably priced homes where they can afford to put 20% down and get a 30 year fixed mortgage based on conservation ratios, as example.

It’s not ALL about “the market”…nor is it ALL about “this house”. First step is to know exactly where the area you are looking in falls…and if NO SELLER “wants” to price there…you may just have to stop looking for awhile. Looking for “best price” in May of any year, is not particularly realistic. It is what I call “The Season of Hope” and “Hope Springs Eternal”. Best prices often don’t happen until around October 15th in any given year.

Start with a realistic objective and DO NOT WEAR YOURSELF OUT looking and looking. Take your time. Pace yourself. If lowest possible price is your objective…”Spring Bump” period may not be the time you want to choose for being in your new home. Buying in August – September – October may be a better bet if you want “better pricing”, especially if no new housing stimulus packages are forthcoming.

Remember…”Patience is a Virtue” and one often has to fight their initial gut instincts, in order to become “virtuous”.

(required disclosure – Stats in this Post are not compiled, posted or verified by The Northwest Multiple Listing Service) They are hand calculated by me, and April medians may include the first few days of May before we switched to a new mls system. I used 4/1/10 as the start point…but no end date, since the system stopped updating data around May 4th and converted to the new system that does not provide similar statistic gathering capabilities.

The End of The World…as I know it.

A “new” bottom call…King County Home Prices 2010

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Earlier today I posted my thoughts on the King County Housing Market for 2010 and received this question on twitter:

@VAF_Investments asks @ARDELLd – This downward price expectation kind of goes against your view late last year… What’s changed?

graph (35)

Generally speaking, my clients are making a short term decision to buy a home to live in based on a compelling reason in their life, vs a long term market timed decision. Consequently, in my world, the question becomes “If I am going to buy a home in the near future, when is the best time to do that? What is the best strategy?

In February of 2009 there was no question in my mind that March closings would likely be the lowest point of 2009. When I “called that bottom” I was greatly surprised that it made front page news, because it seemed like a great big “duh” to me at the time. The graph above shows you how that prediction played out through to present day.

New Year…New Clients…New Bottom Call. Last year I had a few clients purchase homes who I told to wait in 2008 and late 2007. In 2009, I didn’t tell anyone to “wait” but I did tell a few people not to buy at all, and am still doing so. The minute someone says “I’m planning to sell it in 3 years” I do a big “Excuse Me?” One client wanted me to graph “appreciation” for each year over the next three years…I asked him to save me the time by sticking a big fat zero on that for me in each of the three columns on a net basis.

What’s different this year? LOTS! Many people bought in anticipation of the Homebuyer Credit ending. I was at the gym yesterday and a young agent on the next treadmill was telling his friend that buyers had to hurry up before the credit expires. If every agent is telling every buyer to buy before the credit expires, how can they possibly NOT think that the market will go down after it expires? Boggles my mind that the same people saying “you must buy before April 30” are the same people saying the market will not go down AFTER that point.

There are many other factors, of course. But the Homebuyer Credit is not a small one in the big picture. The title of the PI Article last year was “Agent Predicts Housing Slump’s Demise”. In 2010 the “training wheels” will come off. The oxygen supply will be removed, and we will see what the market will do when caused to “stand on its own two feet”.

I don’t think the market will fall dramatically without further government intervention, because I think if it DOES fall dramatically there WILL be continued government intervention. So yes, I do expect Homes Prices will be lower than the median price of $362,700 from March of 2009, at least at some point in the 4th Quarter of 2010, and possibly before. I don’t think we will see another 20% – 25% decline in prices, not because the fundamentals are stronger, but because I believe the government will come up with another plan if needed, to prevent that from happening.

Remember, most of the market decline transpired under the previous Administration. This new regime has proven its desire and ability to stabilize, if not grow, the market. I do think they will let this credit expire, and I do think they will decide what to do next…after they see how the market reacts to “pulling the plug”.

Before they decide what to do next…don’t be surprised to see a “new bottom” where median home prices in King County fall below $362,700. At this moment, without all of the March closings counted, the median for the first Quarter is $370,999 (maybe a little higher if I take out the houseboats) and at $372,475 for the month of March to date (this down from the $375,000 it was a few days ago). If I take out the houseboats and mobile homes…it is $375,000.

(The stats in this post are not compiled, posted or verified by The Northwest Multiple Listing Service)

Paying a fair price for the home you buy.

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One of the problems with today’s real estate inventory of homes for sale, is that it is difficult to determine if the asking price is a fair price. Today I received an email noting that the price of a home was reduced by $200,000. It is today $300,000 less than the day it went on market about three months ago.

Think about how scary that is to a would be home buyer! Someone could have paid $300,000 more for it than the asking price today, and who knows? That “new reduced price” could still be $300,000 more than someone will end up paying for it. This is particularly true of the home I am referring to in this post. (as an agent I cannot mention the address, and will have to delete it from the comments if someone else guesses it correctly. Let’s stick to the general point of the post and assume many homes fit this broad description.)

I want to talk to you today about a totally out of the box approach to buying real estate. It isn’t necessarily a new concept, it is simply the same strategy used in the hot market. In the hot market when there were 3 offers “in” when you wrote your offer, you automatically attached an “escalation clause” saying “I will pay X$ more than the highest offer up to X$ cap price”.

There are two homes on market, one each for two of my clients that my clients like, but we are agreeing that the asking price is too high for that home, and higher than any buyer will be willing to pay. In the meantime the seller is not ready to take an offer at what we consider to be a “fair” price for the homes in our “saved homes” watch list. We, the buyers and I, have attached a price to the homes that the buyer would pay, that is substantially less than the current asking price.

The way the market works generally, is buyers save these homes and wait for the price to come down. On the one hand they are afraid someone else will buy it at the price they are willing to pay. On the other hand they don’t want to get into a negotiation stance that might draw them above what they are willing to pay.

Let’s use a hypothetical. Let’s say the asking price is $999,950 and your price is $875,000. It would be fairly simple to put in an offer of $850,000 or X$ more than any other offer received with a cap of $875,000 in the next 30 days. Offer may be withdrawn anytime prior to acceptance or extended at the end of this 30 day period.

Many years ago during the last market like the one we are in now, I did something like this for a client. Slightly different. It was an abandoned very nice home. The owner did not have it on market as a short sale, they simply moved out when they stopped making their payments and moved out of State. The Bank had not foreclosed, and so the Bank could not sell the home or even consider offers to purchase. There were many people who wanted to buy the house. In fact one of the agents whose clients wanted the home, sent that client to me (which is how I got the client in the first place) as they could not determine how the buyer could get the house, it not being for sale. In fact half my business that year came from local agents who sent me situations they could not figure out in the weak market. Odd, but true 🙂

I wrote an offer at a ridiculously low price, which was also the highest price my client could afford to pay. The buyer was willing to give it his best shot, realizing that his best shot might not be good enough. I wrote the offer and sent it to the bank, who did not own it. I wrote a response time of 30 days. Every 30 days I had the buyer and his wife come into my office and rethink whether or not they still wanted that house at that price. If they said yes, I had them sign a short 30 day extension to the offer. This went on for nine months.

One day the Bank was within the time range when they could foreclose on the house. That’s one thing people don’t understand about short sales. The bank can’t always foreclose when they want to foreclose, and the person who put the offers into that file is not the person who opened the file to start the foreclosure proceedings. Banks can’t always answer your short sale offer when you want them to. The day the bank was ready to start the foreclosure process, they opened the file and found an offer inside with nine 30 day extensions. Rather than begin the foreclosure process, they called me and accepted my client’s offer.

There was never a for sale sign on the property as it was technically never for sale. My buyer client asked me to put a sold sign on the property so that would be buyers would stop going inside it while we were “in escrow”. I went over and put a sold sign up. Within two hours 21 people called screaming that they wanted to buy that house, but their agent or attorney told them they had to wait until after it was foreclosed on. One even told me he had already purchased new kitchen cabinets for it, and they were sitting in his basement.

I know there is an old saying that “the early bird gets the worm”, but in a market like this one we need to fall back on a completely different idiom. “patience makes perfect”. If you do the right things while being patient, you just might end up with a perfect result for you and your family.