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.

Buyers: Write Your OWN "Seller Disclosure Form"

Posted on by
26

It amazes me that buyers and buyer’s agents don’t sit down and write their own addendum to the Seller Disclosure Form.  In the hot market it likely would have scared the seller, and lost you the house in mulitple offers.  But this is a Buyer’s Market!  Where are the changes as we shift from seller’s market to buyer’s market?

My number one piece of advice for buyers and buyer’s agents today would be to supplement the Seller Disclosure Forms with some REAL questions you would like answered by the seller.

You know the forms at best run up the middle between seller’s interests and buyer’s interests.  You know the forms are geared to “a smooth transaction” and closing for the agents and all parties.  So why do you accept their questions on the form as being all you need to ask and know?

I’ve written a skazillion posts over the last three years on what buyers need to know that no one tells them.  Not the seller.  Not the agent.  Not the home inspector.  Why not put these questions in as an addendum to the things you want the seller to tell you?

Recent comments from Jerry the Seller who wants to keep the buyer’s Earnest Money, are the impetus for this post this morning.  Read the comments of Jerry the Seller and weigh in…should the buyer get their Earnest Money back…or should Jerry get to keep it?

Be smart buyers!!!  Write down the questions YOU want answered, and make the offer contingent on your getting and reviewing those answers.  Don’t merely rely on the questions someone else deemed “enough” for you to know.

Are you making your client homeless?

Posted on by
20

I’ve been wanting to warn sellers and seller’s agents about this for the last 10 days or so.  Courtney’s new post is a great lead in to this added consideration for sellers and listing agents.

CAN YOU BUY THAT HOUSE, WHEN YOUR HOUSE SELLS?

Having had the benefit of working in a market exactly like this one, back in NJ/PA in 1992 or so, I think this warning will be timely advice for many.

When an agent is called to sell a house, they touch on the subject of “Where are you going to go when this house sells?” But most often the antennae of the agent is focusing on whether you will also be buying a house with them, or if they can get a referral fee by referring you to an out of area agent (usually 25% of the commission.)

WARNING TO SELLERS: IT IS VERY HARD TO GET A MORTGAGE.  In the last market like this, many sellers assumed that since they had a HUGE downpayment, they didn’t have to worry about qualifying for a mortgage on the house that they were planning to buy.  NOT SO!

Having 50% down and little income could leave you homeless, as NWMLS does not permit “provisional” listings.  There’s no turning back.

Here’s how it usually “plays out”:

1) Seller doesn’t want to look at homes until their house has a contract. With houses sometimes sitting on market for well over 100 days, looking at what you will buy when your house sells is often put off until you have an actual buyer for the home.

2) Once the contract is signed around, the seller goes out and makes an offer on a house they are buying with 30% to 50% down.

3) Often the seller and the agent for the seller of the home they are buying are so impressed with the big downpayment, everyone all the way around assumes that someone with that large of a downpayment can get a mortgage.

REMEMBER:  The buyer of a home has a legal out phase lasting about 10 days, but the seller does not have a legal out phase if they can’t get a house to go TO.

Often you can’t just go to the buyer and say, “Sorry.  I can’t buy a house so you can’t have mine.”

So to listing agents, I know you want that listing, and your are primarily interested in getting the seller to sign that listing contract.  But be careful that you are not making your clients homeless. If they are people living on a fixed income, saying they are planning to buy, part loan, your ears should perk up.  Make sure they check with a lender as to getting that loan…before you sell their house out from under them.

We are often in the business of “GETTING PEOPLE FROM HERE TO THERE” moreso than simply “selling houses”.  Don’t leave your seller’s homeless, as you walk off to the bank to cash your commission check for “selling their house”.

Don't buy a house that you like

Posted on by
28

One of the most important questions people are asking themselves these days when buying a house is, “Will I lose money if I have to sell it?”  Fair question for sure.  The most likely answer is yes, if you are going to need to sell it in the not too distant future.  Stay in it for a decade, is more the order of the day these days.

Of course some people will still be buying houses, regardless.  For those people who are buying a house, I say “Don’t buy a house that YOU like!”  I know that seems like an odd statement, but it is very important that you buy a house that MOST people will like. 

1) Spend hours in a house before you buy it; not minutes.

Don’t you think it’s odd that some people spend less time in a house before they buy it, than I spend picking out a pair of earrings or stockings at Nordstrom’s Rack?

2) Write down what you like and what you don’t like.

If there is nothing on the list that you don’t like, you probably aren’t looking hard enough.  There is no such thing as a house without pros and cons.  Bring some people with you, including your buyer’s agent.  Have everyone quietly write down the pros and cons.  Don’t discuss with each other until everyone is finished.  If your buyer’s agent has no cons on their list, fire them.  Now compare everyone’s lists while still inside the house.  One at a time, each can explain why they do or don’t like various aspects of the house.  It is more likely that you won’t miss something if you take the time to do this.

3) Ask your buyer’s agent what things they might ask you to do to this house, if you called them back to sell it.

Make a list, before you make an offer, of all of the cons and note which can be corrected and which can not.  Traffic noise is not something you can correct when the windows are open in summer.  Seeing cars go by, might be something you can correct with landscaping.  Bright gold switchplates changed out is simple, cheap and takes little time.  Take the time to go through all of the cons to determine if there are any that cannot be corrected. Then try to like something without things that cannot be corrected.

4) Be careful of homes that are just over a price break point 

Everyone knows that an asking price of $599,950 is better than one priced at $609,950.  In these times when people view property on the internet they put in a “cap price” such as $600,000. Consequently, you have a better chance of “breaking even” if you have to sell the house, if you buy it at $580,000 than if you pay $610,000.  Just is.  Don’t argue that point.  Just is.

5) Let the majority rule

Don’t buy a house if you are the only one who likes it.  If it is a vacant house, it’s easier to get a lot of people to come over and spend a bit of time in it.  If 2 people like it, including you, and 10 people hate it…keep looking.  The more you overlook what other people think about the house…the harder it will be to sell it if and when you have to sell it.

Agents often say Price will fix any Problem…but that is NOT true!  In a market in which only 3 of every 10 homes readily sell, you don’t want to be one of the 3 that no one wants at any price.  10 houses for sale = 3 sell because everyone likes them…4 sell because they are a good value…3 get passed over repeatedly.  You don’t want to own one of those last 3 houses. 

Test what you like against what MOST people like.  Better to pay a few dollars more for a house that is generally appealing, then to get a great buy on the house with the most negatives.

Paradigm Shift: Changing the Human Experience

Posted on by
144

What will be the tipping point that creates the paradigm shift that is needed in the Real Estate Industry? 

To begin, I would like to quote a small portion of “Productive Workplaces Revisited” noted in the second link above.  “He put into…context, the age old struggle between authority and dependency”…In so doing he found an audience hungry to find alternatives to bureaucracy, authoritarianism, alienation…not simple ideology…an expression of life’s purpose – affirming diginity in every person, finding meaning in valued work, achieving community through mutual support and accomplishment.”

The above is from a book titled “PRODUCTIVE WORKPLACES REVISITED” – Dignity, Meaning and Community in the 21st Century” by Marvin Weisbord in 1987.  That link provides information regarding Mr. Weisbord’s many books.  For the purpose of this blog post, I am simply borrowing the above excerpt which I have modified to fit most any Real Estate Office in the Country, and a movement that is afoot.

The Paradigm Shift is also referred to as “A Mental Revolution” elsewhere in that publication, (use the search feature and put in paradigm shift for more info on that.)

The problem as I see it, in the structure of the Real Estate Industry, may simply be the old “Too many chiefs and not enough Indians”.  What the Real Estate Industry, and every Real Estate Company in the Industry, and every Real Estate Office in every Real Estate Company, has not answered correctly is quite simply this:

WHO IS THE CUSTOMER?

In most realities, the customer of the Brokerage is the Agent.  That is something that most buyers and sellers of real estate do not get to see.  The inside of a real estate office is about the customer…the customer being the Agent.  The Agent is paying the Broker.  The Broker cannot survive unless it adequately serves its customers…the agents, not the buyers and sellers of homes.

Take a look at the photo below:

Meeting of Professionals

Meeting of Professionals

If the people gathered around that table were Doctors, you might hear talk such as: “I have a patient…I have tried this and that…has anyone had a similar… Yes, I have found X to work for many of my patients, here is a study on X I found the other day…”  The talk around that table, would be about better treatment for the patient.

If the people gathered around that table were lawyers and paralegals, you might hear talk such as “I have a case where the defendent is…I haven’t found adequate support for this client’s…. Try X vs. X, I’ll go get it for you.  Is there any other way we might tackle this in Court to show that our client…”  The talk around that table, would be about helping this client win this case.”

*

Rarely, if ever, do you find a room full of real estate agents discussing ways to find a better answer for a particular buyer or seller. 

*

The reality is that most times a Broker will set up meetings that help agents sell more houses.  Rarely is the discussion about the buyers and sellers of homes.  If an agent has a problem selling a home, then agents will filter ideas that ultimately do help the seller.  But when the client/customer is a buyer, the conversation all too often revolves around helping the agent “sell a house TO” that buyer.

There are many discussions with regard to “Real Estate ProfessIonals“.  Some of us equate ourselves to doctors and lawyers.  Many more view themselves as (merely) salespeople, and then complain when “real estate agent” comes up on a list next to “used car salesman” on consumer confidence and trust lists.

*

The Tipping Point that will create the needed Paradigm Shift is A Mental Revolution with this Call to Arms:

*

TO BROKERS:

1) TAKE DOWN ALL OF THE “SALES” BOARDS AND STOP HAVING SALES CONTESTS.

2) STOP TALKING ABOUT “MORE LEADS” AND INSTEAD ASK YOUR AGENTS IF THEY NEED ANY HELP MEETING THE NEEDS OF THEIR EXISTING CLIENTS.

3) HAVE AT LEAST ONE MEETING A WEEK WHERE THE AGENTS MEET TO DISCUSS THE NEEDS OF THEIR BUYER AND SELLER CLIENTS, AND NEVER TALK ABOUT THEIR NEED TO “CLOSE” A PERSON IN THAT MEETING.  CONSUMER-CENTRIC VS. AGENT-CENTRIC MEETING.

*

TO AGENTS:

1) TRY NOT USING THE WORD “I” FOR 21 DAYS. 

2) WHEN YOU APPROACH SOMEONE FOR ASSISTANCE, MAKE SURE THAT ASSISTANCE IS FOR YOUR CLIENT AND NOT YOURSELF

3) FIGHT FOR ANYTHING YOU “NEED” TO HELP “THEM” AND NOT YOU.

*

TO THE GOVERNOR OF THE STATE OF WASHINGTON (& possibly other States, as well)

RECOGNIZE THE DISCONNECT BETWEEN YOUR AGENCY LAW THAT HOLDS REAL ESTATE LICENSEES TO THE STANDARD OF “REPRESENTATION OF PEOPLE”…AND THEN GIVES THEM A “SALESPERSON” LICENSE.

There are many, many real estate agents who aspire to assist their clients well.  There are many, many real estate agents who “hung(er for) alternatives to bureaucracy, authoritarianism, alienation…not simple ideology…an expression of life’s purpose – affirming diginity in every person, finding meaning in valued work, achieving community through mutual support and accomplishment.

Is it a buyer's market? If so…where?

Posted on by
30

I recently received an email from Christoper Hain of Terra Firma L.A., which caused me to view the chart below.  Often people try to take general median percentages and apply them in the wrong place.

The current median 12 month change in King County is down 12%.  But if you get a house for 12% less where it is down 30%, that’s not a great buy.  If you get a house for 12% less where it is only down 7%, that’s a good (not great) buy.

Chris’ article drives home the point that in one agent’s “service area”, which is not really very big, there are areas down 7% vs. 42%…HUGE SPREAD!!!

Plus he asks the question that is not discussed often enough:

“You could read either end of this chart in completely opposite ways. Perhaps, the ones that have fallen furthest are the ones you want to buy in 2009. Or perhaps, the ones that have held their value best are the ones to bet on long-term.”

I’ll be doing some neighborhood breakdowns for Seattle and Eastside today, and finding our highs and lows in my service areas.  I’ll post a graph similar to the one for L.A. below, as related to our immediate area.

Look at Beverly Hills, as example. Even in that small area (which due to the TV show most think of as 90210) there is a variance in % down for the three different Beverly Hills Zip Codes of 90210, 90211 and 90212.  Big difference between 24% down and 42% down…in one small area.

I’m going to try to do the neighborhoods accurately, vs. Zip Code.  i.e. Wallingford, Green Lake, East of Market, West of Market, etc…  I have to use a polygon search feature for that.  It’s time consuming, but given this is still “the holidays”, now would be a good time for me to expend the excess effort, and the results will be of value in tracking changes during 2009.

7% down to 42% down…it boggle’s the mind. Here’s Chris’ chart:

Housing prices down 7%? or 42?

Housing prices down 7%? or 42?

Real Estate Agents, Seth Godin and Tribes

Posted on by
5

Everyone who is going to buy or sell a house in 2009, should answer this question before choosing an agent:

Are you looking for a Leader-Agent, or are you looking for a Follower-Agent?

For those who have never heard of Seth Godin and/or Tribes, the hyperlinked words in this sentence are links to valuable resources, in that regard.  Now…forget Seth.  This is not a post about Seth Godin and Seth Godin is not in my tribe. 

This is a post about how people CHOOSE a real estate agent, and how agents decide whether or not they should work with a given potential client.

If you are looking to hire an agent, but you want to give the agent a list of things to do,.   Or you want the agent to have a list of things that the agent will do, in sequence, regardless of whether or not that step is appropriate at that time. Then you are looking for a Follower-Agent.  That’s OK! 

What’s not OK is for you to pay a LeaderAgent-Price for a Follower-Agent, or expect a Leader-Agent at a Follower-Price.

What’s not OK is for you to hire a Follower-Agent, lead him, and then blame him when the results are less than satisfactory.

The “picture” below is my integration of Godin’s Tribe Concept, with the age old Probe, Evaluate, Close Concept.  The more quickly you can Probe, Evaluate and Close in each moment, the less time you will waste dealing with people who are just Not In Your Tribe. 

“CLOSE” = Determining if someone is right for any of your Tribes, quickly putting them in the “right” Tribe, or putting them on the outside of the Cycle Chart altogether.  The more quickly and accurately you can “close”, the happier you will be in 2009.  That’s true of all business and personal “choices”.

“Outsiders” are not bad people.  Well, a few are.  In the photo below, you will see dots outside of the circle.  Those are people you choose not to deal with, for whatever reason.  The one’s with the X over them are the bad ones 🙂 

Truth is, we all have many Tribes.

Tribe 3 is the Real Estate Transaction for a couple without children who want to hire a few followers to “assist” them. 

Tribe 1 is more reflective of my typical real estate transactions:  4 equally important forces all doing their part well.

Tribe 4 is indicative of the networks used by each of those 4 people in Tribe 1, to accomplish their part of the transaction.  Each Leader-Participant has a Tribe of followers.

For Agents:  If you are a single practitioner, then you likely will have 24 to 36 people in your Tribe in a year’s time.  Stop trying to be all things to all people.  Recognize that 24 – 36 fabulous “Tribal Relationships” is all you need, and learn how to quickly “Probe, Evaluate and Close”, to select the best mutual relationships.

For Buyers: The most important thing for you to understand is that most often, a buyer will not know that they need a Leader vs. a Follower, until it is too late to go get one.  That’s just a weakness of the system.  Knowing that up front may help you…maybe not.  It is what it is.

For Sellers: Be honest with yourself about your ability to be objective.  Don’t hire an agent; and then act like a For Sale By Owner.  You just complicate things to the point where no one is successful.  If you want to run the show…GREAT!  Just make sure you hire a Follower-Agent and pay a Follower-Price.  Don’t hire a Leader-Agent and spend all of your time butting heads with the agent.  That tension will lead to failure somewhere along the line.  Knowing that up front may help you…maybe not.  It is what it is.

Tribes and Choosing

Tribes and Choosing

4.5% Interest Rate's Affect on Home Values

Posted on by
184

When interest rates are up, home values go down.  When interest rates go down, home values go up.  That’s a basic principle, but I do agree with those who expect this market to perform counterintuitively to stablize prices vs. causing them to go up.  Basically that means they go up to where they are, counteracting the continued pressure for them to decrease. (see 5th paragraph below)

In 1990 when I started in real estate, the common walk-in client said “I want to buy a 4 bedroom, 2.5 bath colonial, with a basement and a monthly payment of $1,200”.  Let’s set the bogey at double that and toss out the basement 🙂  The number I hear most often for the neighborhood below is a rental payment of $2,500 a month or a mortgage payment of $3,000 or so with 20% down. (talking SFH Redmond here)

I like using Abbey Road in Redmond as the bogey house.  Kind of like Goldilocks and the Three Bears selection process.  Not too big, not below desirable…just right.  Good schools.  Popular neighborhood;  3 car garage most times. Current median price around $700,000.  Range of pricing from $630,000 to $830,000.  Not too new to be affordable, not too old to be acceptable.

Let’s test the theory with a monthly payment of $2,800 a month not including taxes and insurance which would add about $500 a month to the payment, and using 20% down (see next post for ratio of value to total mortgages of the neighborhood). Let me test that against $3,000 net after tax payment.  The after tax benefit should be about $700 minimum, so $2,800 plus $500 = PITI of $3,300 less $700 gives plenty of breathing room for price to go up to $750,000 or for people to stick at $650,000 if their household income is $100,000 vs, $150,000.  Depends on whether you use 28% or 33% for housing payment.  At 33% of $100,000 you would need about $200,000 down on the $650,000 purchase price.  Fits the basic buyer profile for that area anyway you slice it.

Rates of 6.25% and 20% down and a payment of $2,800 P & I,  would equal a sale price of $570,000.  Current prices would continue to be drawn down toward $570,000 at rates of 6.25% even in a seller’s market (which this neighborhood still is) due to financing qualification changes. Someone asked me from Sunday Night Stats why prices are continuing to go down in Seller’s Market neighborhoods.  That’s your answer.  Qualifying guidelines & interest rates reducing the ability to purchase and pressuring prices downward.

Now let’s change the rate from 6.25% to 4.5% and see what happens to sale price.  Keeping the same monthly at $2,800 and 20% down at 4.5% the sale price would be $690,000. 

So, my gut was right.  As rates go down to 4.5%, it does not increase the price from the $700,000 bogey we started with, but it does stablizes home prices and keeps them from slipping further down.  I always work through these things in my head in real time, testing my perception against reality.  I’m always happy when I prove myself right, and admittedly sometimes scratch the post if I prove myself wrong by the end of the post :).

I test the same theory on Rivertrail Townhomes with a bogey of $1,800 a month P & I.  High end I won’t calculate…and clearly not at 20% down.  I can’t realistically do townhome scenarios until FHA rates get lower.  But the $700,000 give or take single family home market will clearly be supported in value by interest rates of 4.5% preventing prices from slipping further back.

So to answer Jillayne’s question on my Sunday Night Stats post (sorry for the delay, Jillayne; had to test my answer) the 2nd wave of Alt-A’s will not affect pricing in this scenario IF 4.5% interest rates take hold, counter-acting the negative impact.

Sorry for the long drawn out answer to Jillayne’s question, but I don’t answer off the top of my head, even when I think I know the answer in two seconds.  I test my answer first…and this one tests out in this example.  FHA won’t test out, I’m not even going to try to test it out.  Unless FHA rates get much lower, the middle value market is going to win on all fronts.  High end will continue to suffer from Jumbo Loan issues.  Low end will continue to suffer from cash to close issues unless FHA rates come down substantially and toward at least 5% or less.  FHA and VA rates were conspicuously missing from Rhonda’s Friday rate post…  Maybe she can pop her head up from her busy day and catch us up on where those rates are, or at miniumum include them in this week’s Friday Rate Post.

Bottom line…4.5% interest rates will stop property values from declining…at least in my service area of North Seattle and Eastside.  Someone else will have to test the theory in the South End of Seattle and beyond, and for the rest of the Country.

Is the housing market performing "as expected"?

Posted on by
208

To some people, that question will seem ludicrous.  If you are buying or selling a house every 7 years or so, you may not care about this somewhat complex answer to the question raised.  I am writing this post for real estate professionals, rather than the individual who may be buying or selling a home every 7 years or so.  My hope is that if more real estate professionals understood the housing market, more consumers would be better served by those professionals.

For those that want to hear that the market is doing much worse than expected, I give you Detroit.  I heard on the news yesterday that home prices in Detroit have rolled back 8.5 years.  That is much worse than “expected”.  For those that want to hear that the market is doing much better than expected, I have to say “jury’s still out” on that one, as the down market has not yet completed its “expected” cycle. 

Yes, real estate prices always go up.  But when did real estate professionals en masse start thinking that meant it looked like the chart below?  It DOES NOT!

Housing Prices do not go up in a straight line

 
Housing Prices do not go up in a straight line!.  I can honestly say that 20 years ago the only agents I met who thought this way were the salesmen vs. the professionals…and they were few. The first time I overheard an agent at an Open House talking to a first time home buyer explaining the real estate market in terms of “AWAYS GOING UP!” and drawing a chart like the one above for them, I thought “What an Idiot!” 

It is only in the last couple of years that I have seen MOST of the professionals, and consequently the general public, setting the unrealistic expectations noted in the chart above.  Many of those professionals have left the business, and more will follow.  For the benefit of those who will continue in the industry, and for the public at large, lets get back to basics and set our expectations properly. First you set realistic expectations based on an Annual Cycle of Real Estate markets.  The one below is primarily for single family residential housing.  Not condos, not multi-family, not commercial – Single Family Residential Housing Market.

Annual Cycle of Home Prices

Annual Cycle of Home Prices

When home prices increase from year to year, most of that appreciation happens from March through July.  Even when home prices decrease from year to year, prices are still expected to be up from March through July vs. January and November.  THAT is the expectation.
Think of it this way, retail sales are expected to be higher in November and December than in February.  They may not go up as much as expected, and that is not good.  But if sales in November are lower than in February, that’s really bad.  So up vs. down is NOT the barometer…it is up when expected to be up, down when expected to be down…and then it is all a matter of degree.

If you heard a store owner who only sells Christmas Ornaments complaining that his April sales were lower than his Nov/Dec sales, what would you think?  That’s how I scratch my head when I hear someone saying “I’m waiting for the lowest possible prices, so I’m going to buy a house in May or June.  Does not compute!  I’m not saying it could never happen, I’m just saying that is not an appropriate expectation.  As long as you are willing to wait until 4th Quarter of 2009 or even 2010…fine.  But if you are determined to buy within 12 months, wanting the lowest price and wanting to buy in June is not a match.  You will likely get a better house if you wait until May…but not a better price.  Again, not impossible…just not likely.  Go back and study the graph above before we move to broader market descriptions.

For this next part, different people will have different market theories.  Mine are primarily based on a “7 steps forward, 3-5 steps back” theory, that I attribute to having entered my head via Alan Greenspan many years ago.  Nationally the market started moving up past it’s previous peak in 1998.  Consequently the expectation would be for it to go down in 2005.  When it did, people freaked out while I said “DUH”. 

The market performed as expected.  But when professionals don’t know what to expect, they react inappropriately, which creates an unexpected market condition.  It’s like playing a sport where half of your team is not performing their role “as expected”…it throws the whole game off.  When your quarterback starts throwing to the guy in the wrong colored Jersey…all hell breaks loose.  As a real estate agent, you are the quarterback, time to learn the plays.  The people in the stands have a harder time betting on the game, when the quarterback is messing up the plays to the degree that we as professionals have been screwing up.  STOP sending GOOD NEWS! C-R-A-P.  This is NOT an industry based on consistent and continual “Good News”!  STOP wishing ONLY for Good News, and blaming market conditions on the purveyors of “bad news”.  Get Real – Real Fast…or suffer the consequence.

Another analogy.  The market went down when the Dow hit 14,000.  If most people said “DUH”, there wouldn’t have been panic selling.  Yes the market still would have gone down, but the market loses all semblance of sanity when expectations are set at unrealistic levels.  Momentum created by panic forces markets out of their natural cycle.  That is true both on the up side and on the down side.  The Dow was supposed to go down when it hit 14,000…in fact it should have gone down when it hit 12,000.

This is my expectation of the housing market.  Yours may differ.  Lacking an informed and valuable opinion from the professionals, the public will start imposing their own opinions like “markets should only increase at the same level as median income.”  That is not correct BUT professionals have no one to blame but themselves for all of the Bubble Blogs.  When professionals started lying both to themselves and to the public, the public had to move in a different direction.  You hate Bubble Blogs, you say?  Well then stop acting like you don’t have a freakin’ crystal ball!  If you don’t like the public not relying on your opinion…well then go get yourself an opinion!  OK, here’s mine.  Beyond the Annual Cycle above for single family homes, there is the YOY expectation in a long term cycle.

Home prices up for 7 years; down for 3-5

Home prices up for 7 years; down for 3-5

Now let’s define what a Housing BUBBLE is.  A housing bubble is when the market outperforms expectations…not when it goes UP.  A housing slump is when the market underperforms expectations…not when it goes DOWN.  Bubbles ALWAYS burst.  That is why you need to know the degree to which the market should go up (like Christmas Ornament sales in November and December) so that you know when you are entering a bubble zone.

I learned this many years ago…so long ago I don’t know where.  A market will ALWAYS reach and surpass a  level it has previously achieved.  It’s not a matter of IF…it’s a matter of WHEN.  If it happens too quickly, the downside of the cycle will hit harder.  If it happens as expected, the people betting on that expectation will do well.  We want to be a Country that always does WELL…not that always goes UP beyond normal market expectations and never, ever goes down.

Once you set a realistic expectation, you can predict markets.  When the market moves outside of predictable levels, you know you are in a bubble or a slump.  If you think every batter is supposed to hit a home run…you will spend your life in misery and disappointment.  If you expect the batter to always hit a home run…one day he will hit you instead of the ball.

Real Estate Prices are supposed to stop going down, nationally that is, somewhere between 2009 and 2011.  They were supposed to go up from 1998 to 2005 and down from 2006 through 2009 – 2011.  The degree they went up was “bubbled” by the loose lending practices in the latter part of the up cycle.  First that bubble must pop, as it did, and now we’re looking for the end of the down cycle.  If the government wants to make sure the down cycle is only 3 years and not five, then they have to do something to cause interest rates to stay at or below 5.75%, even if that is an artificial stimulus level.

No one can, nor should anyone try to, force the market to be always up.  That kind of talk is for salesmen, not professionals.  If you don’t want to hear ANY bad news, ever.  If you don’t understand that there should be at least 3 years of “bad news” following a consistent 7 year trend of “good news”, please go do something else for a living.  That’s like a lawyer who tells everyone they can win a case, cause they get paid whether the client wins or loses.  That’s like a doctor ordering MRI’s every week for a hypochondriac, because he makes money whether the patient is sick or not. 
Don’t want to be compared to a Used Car Salesman?  Then stop acting like one.

A buyer's right to do "an additional inspection"

Posted on by
23

This is a “real estate is local” post, as it refers to an option generally afforded to buyers in our local standard inspection clause (Form 35 item 1) b. on page 1).  Here in the Seattle Area, a buyer usually has the right to do “additional inspections”, IF the original Home Inspector recommends in writing that there be an additional inspection by a “specialist”.

When I am at an inspection I am listening very carefully to the inspector and waiting for him to red flag an item that needs an additional inspection.  It is the ONLY time I tell an inspector that I need him to say that, in writing, in the report.  They usually get mad when I do that and I try not to interfere with the inspector and his written report.  But if he says the buyer should get an additional inspection, but does not include the wording I need to invoke the “additional inspection” clause in the Inspection Addendum, we have a problem.

The buyer usually has X additional days to do the additional inspection (buyer pays for it), and the inspection response in its entirety is extended.  BUT the buyer must respond, in writing, by the end of the 1st inspection timeframe that they are doing a 2nd inspection, in order to gain the extended timeframe.  That request must include the portion of the 1st inspection that indicated the need for an additional inspection by a specialist.  There is a response form where you check a box noting that you are invoking your right under the original addendum section 1) b. to do an additional inspection, and you attach the 1st inspector’s recommendation regarding the need for a specialist inspection.

Everyone’s Inspection Addendum will be different as to the number of days you have for the 1st inspection and for additional inspections, so read your Addendum carefully.  The default in the forms I use show 10 days for the 1st inspection and an additional 5 days for additional inspections, but your contract may have a different amount of days written in the blank spaces.   The additional days are not automatic.  You must respond within the timeframe of the 1st inspection, and indicate your intention to do an additional inspection, in order to gain the additional days.  I can’t say this enough and so apologize if I have repeated it.

I don’t want to get bogged down in the forms here.  I want this to be a practical guide that focuses on how these situations actually play out.  The items that I have seen that required an additional inspection are:

Heater (“recommend the heater be checked by a qualified HVAC contractor)”

Roof (“recommend that the roof be inspected by a qualified…”

Septic System, Drainage Expert (evidence of water in crawl space or basement, either current or old water line mark), Structural Engineer for foundation cracks, fixes and shifting evidences, electrical, etc…

Generally speaking, an additional inspection involves a very costly item that is not obviously, currently, defective.  When a hot water tank is past its life expectancy, an inspector usually calls for it to be replaced, and not that it be inspected by a specialist.  When a heater or roof is nearing the end of its life expectancy, even if it is currently functioning adequately, the inspector usually calls for an additional inspection by a specialist.

The heater is often easier to deal with than a roof, in my experience.  The inspection cost in most cases is under $100.  I usually call for the specialist to service AND inspect it, as the service cost is about the same as an inspection cost, and includes an inspection.  I need the seller’s permission to service his heater, but I have yet to have a seller object.  If there is nothing wrong with it except that it is old, then a general home warranty that covers many items including the heater, is often part of the resolution to the heater being old.  The specialist will install new filters and note any parts that should be replaced.  Pretty simple stuff.

A roof is harder to deal with for many reasons.  Replacing the roof is not usually part of a home warranty like a heater is.  Some home warranties include leak patch work, some don’t deal with a roof at all, and I have yet to see one cover roof replacement.  Even if a roof is not currently leaking, the first inspector is often calling for a second inspection based primarily on the age factor.  Roof Math = Life Expectancy of that particular roof minus it’s current age.  A 20 year shingle that is 18 year’s old is often worse than a 35 year shingle that is 18 years old.  So age alone is not the issue, nor is currently defective or not defective  the only parameter that needs addressing.

Even if a roof is not leaking, if the 1st inspector says that the buyer should “plan for roof replacement” within 3-5 years, often the buyer wants the seller to address the issue.  Sometimes the buyer wants to STOP after the 1st inspection, and just ask for a new roof or a new heater or generally ask for all items to be replaced or fixed, when they should be moving to the “additional inspection” phase.

How you handle the matter is between you and your agent and the seller and the seller’s agent.  If the roof or the heater is 30 years old, often everyone agrees it needs a new one, even though it is not currently “defective”, without the need for an additional inspection.  But it often takes time to negotiate these things, and having a 2nd inspection gives you additional time and also pinpoints the actual cost involved.  The original inspector may give you a ballpark replacement cost, but a specialist will give you an actual “work order” and a cost the seller is more likely to consider valid.  The seller can then get his own estimate during his response timeframe to counter your request and estimate.

Jumping to asking for a repair based on the original inspector calling for an additional inspection by a specialist, is usually the wrong way to proceed, unless you know the seller is aware of the issue and has already anticipated it.  Sometimes the buyer wants the seller to pay for the additional inspection.  The contract indicates that the buyer pays for the additional inspection.  The seller should pay for any subsequent inspections that are needed for his counter proposal.  Say you submit a request for $17,000 for a new roof.  The seller would pay the cost for an additional inspection to counter with a different amount, attaching the work order from a different specialist.  He has a timeframe to respond in the original inpsection addendum as well.

There is no one right answer except TIME IS OF THE ESSENCE.  If you don’t want the house even if the seller fixed the problem, then you can cancel without calling for an additional inspection.  But if you still want the house as long as the seller adequately address a specific item, buy yourself that extra time to negotiate, by calling for and doing an additional inspection.