Category Archives: Investing

Seattle Real Estate Signs – Pending is spelled SOLD

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The purpose of this post is twofold:

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

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

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

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

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

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

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

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

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

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

Curbed and Eater come to Seattle

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curbed seattle

Today I excitedly Welcome Curbed and Eater to Seattle.

Curbed.com and Eater.com are well known for their fast and furious blog postings in NYC, Chicago, DC and their National Site.

I highly recommend that you bookmark both Seattle Curbed and Seattle Eater and make them part of your daily reading. Unlike other local blogs, Curbed generally has a paid staff of blog posters, so you can expect a quick flurry of relevant postings that will continue on a daily basis.

Curbed, always fun and always something new, a welcome addition to the Seattle Blogosphere!

Home Prices Recover in Kirkland 98033

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Many around the Country are asking what a Home Price “Recovery” will look like and what will create it. If you have been home shopping on The Eastside close to the 520 Bridge, you are likely amazed at the strength of that market in recent weeks.

Kirkland 98033 is not the only market experiencing this phenomenon, as I first noticed the activity and price increase in the Cherry Crest neighborhood of Bellevue 98005. But since I recently represented a buyer client who closed on a home in Kirkland 98033 near Downtown in the Lakeview Elementary School area about a block from Google, I am focusing on this area first.

While back in October and for the 4th Quarter of 2010 we were talking about whether home prices in King County overall were running in late 2004 levels or early 2005 levels,

Kirkland 98033 has bounced up to February 2006 levels!

Before you jump to the conclusion that this segment simply had a lower % of Short Sales and Bank Owned Property…not so. A full 42% were “distressed” properties. Even with that drag of an additional 5% to 6% down created by the “distressed property sales”, the prices are running at February 2006 levels.
kirkland 2011

None of us are holding our breath for prices to reach peak levels, and I don’t anticipate that happening for many years. But if you chop off the extreme peak of 2007, home prices in 98033 are clearly recovering nicely.

WHY?

There are several contributing factors.

1) Google – opening in 98033 in late 2009 and hiring a significant number of people in recent times.

2) High Elementary School Rankings – While all of the schools in 98033 don’t enjoy the highest ranking status, those closest to Google and Downtown Kirkland do. Peter Kirk Elementary, Lakeview Elementary and Ben Franklin Elementary, all in 98033, help support and boost home values in these areas. To be fair and balanced, I did not segregate these schools in the stats and included all school areas of 98033, at least one of which ranks fairly low.

3) Anticpated 520 Bridge Toll – The soon to be imposed Toll to cross the 520 Bridge has had an impact on home prices closest to that Bridge. Some have moved from Seattle over to the Eastside to avoid the Toll. Some who work on the Seattle side, but prefer Eastside Schools to Seattle Schools, have moved as close to the Bridge as possible to cut down on fuel costs and time delays to compensate for the negatives of the toll.

Kirkland is clearly one of the best places to live in the Seattle Area, and always has been, especially the area closest to it’s Downtown on the Lake. The reasons for that are many, and the subject of another post.

So yes, the Recovery is clearly “Cherry-Picking”.

A few other amazing facts. Of the 44 homes sold in the First Quarter of 2011 in 98033 that were NOT short sales or bank-owned properties, 18% sold in ONE WEEK or less with 23% selling in two weeks or less and a full 50% selling within 90 days. Clearly though the distressed properties were very high at 42%, they were not creating a huge drag on the non-distressed properties. The median for non-distressed properties was a whopping $646,000. Very close to the full median price of 2006 overall.

This is what a “Recovery” looks like. It doesn’t reach peak…but…it looks pretty darned good to homeowners in 98033.

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(Required disclosure: Stats in this post are not compiled, verified or published by The Northwest Multiple Listing Service.)

Springtime in Seattle — Its Beautiful! Its Magical! :-)

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I’ve recently become enamored with Realty Times, a rank booster site for the real estate market. I love it because, every once in a while, the enthusiastic cheerleading leads them to pull back the curtain a little more than they intend. The resulting insight can be delicious.

Naturally I assumed that the Seattle Times, while sharing the same moniker, did not share the same approach to “news.” I mean, they’re journalists, right? Devoted to an impartial uncovering of the “truth,” right?

Maybe not. Yesterday’s Seattle Times had some good insight into the local housing market, but the title of the piece was a little, er, disingenuous: “More spring in local home sales, but too soon to call it a trend“. That headline paints a pretty bright picture, all things considered. But the body of the article strongly suggests otherwise.

Here are my cherry-picked excerpts from the article:

Buyers closed on 1,525 houses last month, according to statistics released Wednesday by the Northwest Multiple Listing Service. As expected, that number was lower than in March 2010. But the decline — 4.5 percent — was “less than you might have otherwise expected,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

[T]he relatively small year-over-year sales decline is “a little bit surprising, considering we don’t have that deadline hanging over buyers’ heads,” said Tim Ellis, editor of the usually bearish Seattlebubble.com real-estate blog.

But both Ellis and Crellin said a steeper, 11 percent year-over-year drop in pending sales — offers that were accepted by sellers in March, but haven’t yet closed — could bode ill for the market as spring turns into summer. Fewer pending sales now should mean fewer closed sales later, they said.

So the decline was less than expected, and forward-looking data suggests further, steeper declines. I’m no meteorologist, but that doesn’t sound like any sort of “Spring” to me. Moreover, I was pretty adept at the ol’ pogo stick when I was a kid, so I know a “spring” when I see it — and this simply doesn’t qualify.

My “Huh?” moment was only heightened when I pointed my browser to my third favorite blog (until he adds me as a contributor, anyway), Seattle Bubble, the primary vehicle for Mr. Ellis’s insights. Given that he’s quoted in the article — an article noting that “spring” in the market — I assumed his post for the day would have a similar tone. The title of his post? “NWMLS: Sales start to tumble, inventory still sucks.”

That’s when it suddenly all made sense. Sure, its “Spring” in the housing market — just like in Seattle, where its cloudy, drippy, and about 50 degrees. Ah, the joys of Spring…..

Loan Originators Who Argue That Predatory Lending was Bad Should Welcome the New FRB Rule on LO Compensation Prohibitions

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funny pictures-Bad Idea: Agreeing to play a game of Monopoly with Basement Cat for your eternal soul.Under the final Federal Reserve Board’s loan originator (LO) compensation rule, effective April 1, 2011, an LO may not receive compensation based on the interest rate or loan terms. This will prevent LOs from increasing their own compensation by raising the consumers’ rate. LOs can continue to receive compensation based on a percentage of the loan amount and consumers can continue to select a loan where loan costs are paid for via a higher rate. The final rule prohibits an LO who receives compensation directly from the consumer from also receiving compensation from the lender or another party.

The final rule also prohibits LOs from steering a consumer to accept a mortgage loan that is not in the consumer’s interest in order to increase the LO’s compensation.

Though a lawsuit has been filed to stop the changes from going into effect, there has been legal research conducted by the FRB over the course of many years.

The FRB’s research found that consumers do not understand the various ways LOs can be compensated such as yield spread premiums (YSPs), overages, and so forth, so they cannot effectively negotiate their fees. Yes, some LOs spend many hours educating their borrowers but this is not true for all LOs.

YSPs and overages create a conflict of interest between the loan originator and consumer. For consumers to be able to make an educated choice, they would have to know the lowest rate the creditor would have accepted, and determine that the offered rate is higher than the lowest rate available. The consumer also would need to understand the dollar amount of the YSP to figure out what portion will be applied as a credit against their loan fees and what portion is being kept by the LO as additional compensation. Currently, mortgage broker LOs must do this, but LOs who work for non-depository lenders or depository banks are not required to disclose their overage.

LOs argue that consumers ought to read their loan docs and take personal responsibility for negotiating a good deal on their mortgage yet facts related to LO compensation are hidden from consumers when working with depository banks and non-depository lenders.

The FRB’s experience with consumer testing showed that mortgage disclosures are inadequate for the average random consumer to be able to understand the complex mechanisms of YSPs when working with mortgage broker LOs. Consumers in these tests did not understand YSPs and how they create an incentive for loan originators to increase their compensation.

For example, an LO may charge the consumer an LO fee but this may lead the consumer to believe that the LO will act in the best interest of the consumer. The FRB says: 

“This may lead reasonable consumers erroneously to believe that loan originators are working on their behalf, and are under a legal or ethical obligation to help them obtain the most favorable loan terms and conditions.”

Consumers may regard loan originators as ‘‘trusted advisors’’ or ‘‘hired experts,’’ and consequently rely on originator’s advice. Consumers who regard loan originators in this manner are far less likely to shop or negotiate to assure themselves that they are being offered competitive mortgage terms. Even for consumers who shop, the lack of transparency in originator compensation arrangements makes it unlikely that consumers will avoid yield spread premiums that unnecessarily increase the cost of their loan.

Consumers generally lack expertise in complex mortgage transactions because they engage in such mortgage transactions infrequently. Their reliance on loan originators is reasonable in light of originators’ greater experience and professional training in the area, the belief that originators are working on their behalf, and the apparent ineffectiveness of disclosures to dispel that belief.

The FRB believes that where loan originators have the capacity to control their own compensation based on the terms or conditions offered to consumers, the incentive to provide consumers with a higher interest rate or other less favorable terms exists. When this unfair practice occurs, it results in direct economic harm to consumers whether the loan originator is a mortgage broker or employed as a loan officer for a bank, credit union, or community bank.

Real Estate – The #1 Question

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The #1 Question in Real Estate is “How Much is THIS Home Worth?”

Every single person who is buying a home or selling a home is going to ask that question. Most people doing a refinance need the answer to that question as well.

1) A home seller needs to know the highest possible price they can sell for.

2) A home buyer needs to know the lowest possible number than can “get it” for…BUT they also need to know the maximum amount they SHOULD pay for it. The answer is often not one in the same.

3) A person planning to refinance, needs to know how much an appraisal will say it is worth, which isn’t necessarily the same method of valuation used by home buyers and home sellers.

Why do you need to know that Home Prices in King County are at early 2005 levels? Because that fact should lead you to some generally true conclusions.

1) If you are a seller thinking about selling your home, and you bought it between 6/2005 and 12/2008, you would be starting from the assumption that you CAN’T GET WHAT YOU PAID FOR IT”. If you bought it in 2001 and never refinanced it, then you should be able to sell it and walk away with positive net proceeds.

2) If you are a buyer wondering what to offer against the seller’s asking price, and he is asking more than he paid for it in 2007…well…you probably need to walk away. Maybe not see that home in the first place.

3) If you are thinking about refinancing and you bought the home in 2007 with zero down, you likely can’t. So save yourself the cost of trying.

Are there exceptions? Well, only a fool says never or always. But if you think you ARE the exception, you better have a really, really good reason why.

I know…your house is different. Your neighborhood is better. REALLY? Usually not as much as you think.

A good example of the dangers of applying Home Sale Statistics improperly, is in Redmond.

The Median Home Price in Redmond is up 66% from 2001 to Present, but not THAT house. That’s why you need to know when an area is running much higher or lower than the overall County market stats, and WHY.

Overall median price in Redmond is up 66% from 2001. Based on that true fact”:

1) A seller (erroneously) lists his home at 66% more than he paid for it in 2001. The house was built in 1985. He paid $350,000 + 66% + “negotiating room” = $599,950. He lists it at the highest possible price he can “reasonably” get for it. And he wants at least $575,000. This based on an article he reads saying Median Home Price in Redmond is up 66%, which is true…but not for HIM.

2) A buyer who reads my blog sees that 66% only applies if you include homes built in or after 1990. He sees that the % increase for homes built in Redmond prior to 1990 carry a median price of 42% more than 2001, vs 66% more. So while the “lowest price” the seller will accept is $575,000, the highest price he might be willing to pay is $500,000. We’d need to test homes built in the 80’s vs ALL homes built prior to 1990 to know for sure what a “reasonable” price for that home would be.

3) A person refinancing may expect it to appraise at $580,000, using the same logic as the seller in 1) BUT the appraiser may come up with $550,000 based on “3 comps”. This assuming the “average buyer” will pay closer to what the seller wants, than what the property is actually “worth”. An appraiser only looks at what people paid recently, not whether or not those few buyers were correct in determining “price to pay”.

There’s Good Reason why The #1 Question in Real Estate is what is THIS home WORTH?”

It’s one of the hardest questions to answer correctly. Keeping up on where home prices are generally (early 2005 levels) gives you a leg up on simply “What is the seller willing to take?”. But local stats can be misleading, if you don’t take the time to take it down to Apples to Apples.

Information is of Great Value! Knowing how to apply that information…is PRICELESS.

How to find your “Dream Home”

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Finding your Dream Home starts with determining if you can afford your Dream Home. Let’s say you have decided that you want a two story house, one with at least 3 bedrooms on the 2nd floor. Now add that you work at the main Microsoft Campus and want a home within a reasonable distance to work.

Start by taking out a map and drawing the area within which you would like to live. For the purpose of this example, I drew the map based on where most of my clients who want to live near Microsoft draw these lines. For example, most wouldn’t live on Finn Hill, so Finn Hill is not in this sampling. Most would not live in Bothell. So Bothell is not in this sampling. I can’t use a “radius” of the campus, as most don’t consider the other side of Lake Sammamish to be better than a little “further” in pure distance into Kirkland vs “around” the Lake. So I’m using a polygon, many sided, map area.

Your “mapped area” may vary, but use this as a guide, and apply to your own mapped area.

I’m using a “12 month rolling basis” here to include the most recent data and exclude the oldest data, and yet still have enough sales in the sampling to produce enough relevant data. For the most part it is 2010, but includes the most recent data available in Jan. 2011 to date, and excludes the oldest info from Jan of 2010.

Before you go out looking at houses, you want to begin with some reasonable expectations.

graph (26)

The Data above tells us that the majority of two story homes in the mapped area sold over the last 12 months existed in zip codes 98052, 98033 and 98004. Now let’s look at price.
graph (28)

I only used some of the data to produce this post. You can see the rest of the raw data HERE.

By using these simple techniques, you can easily see that you likely need to spend about $650,000 give or take and look in 98052 and 98033 primarily. But what if you want to spend $500,000 and want a home that is not older than 5 years.

Simple…just test that parameter.

98052 2-story built in 2006 or later sold in the last 365 days for $500,000 or less = one house.

98033 there was also only one house sold fitting those parameters, but it was far from being finished new construction. There is also one in pending. Both required cash buyers as the property was not in a condition that could be financed.

So now you have to ask yourself, is “The Dream” a “house” or a “home”? Do you change the “what” and look for an older home of a different style in a great neighborhood with a great school? Or do you up the price in order to get everything you want, if you can afford it, but didn’t “want” to spend more than $500,000?

Point is, you don’t have to go out to “look” for your Dream House before testing your Dream against Reality. Setting a realistic objective saves you time and maybe money as well. By staying home and making this decision, you may opt to keep the price low and change your expectations as to house. If you get too vested in the outcome of “newer 2 story house of not more than 5 years old”, you may start pushing on price to get “it”.

Consider all of the factors of “dream home” including neighborhood and schools, before getting your heart set on one particular style or age of home.

Well, at least our market isn’t on the verge of collapsing…

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On this gray, dreary January Monday — where the weather isn’t even cold enough for snow in the mountains, at least not those elevations reachable by chair lift — I thought I’d pass along this “glass is half full” insight. First the bad news — which is no surprise at all: home values here in King County are now at 2005 levels, plus sales volume remains significantly depressed (by historical standards, putting aside the risk of a “new normal”). Not good. Sorta like the weather.

On the plus side, though, it could be worse. Much worse. Apparently, the hardest hit markets in the nation (Michigan, Nevada, perhaps others) appear to be heading towards total collapse. Yep, that’s right, values continue to depreciate until they reach… zero (or something in that neighborhood). OUCH! That’s neither a buyer’s nor a seller’s market. Rather, its a market from which everyone should extricate themselves as soon as possible. Run for the exits!

Obviously, this is just an opinion, and undoubtedly there are some rosier viewpoints. But I think this article makes a pretty compelling argument that some parts of the national housing market really will never, ever recover — at least not in the lifetime of a potential buyer or seller.

Will Our State’s Regulations Kill Mortgage Blogs?

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The Dodo - Didus ineptus Raphus cucullatusI recently had a local mortgage originator contact me because his company is requiring that he takes his mortgage blogs off-line.  His employer told the MLO that it was due to recent Washington State regulations.   In my opinion, his employer probably wants one less thing to worry about in this day and age of trying to operate a mortgage company so telling mortgage originators they cannot blog is much easier than making sure their blogs and outside websites are compliant.

Washington State mortgage originators, are you aware of these rules?  WAC 208-660-446 went into effect November 5, 2010.

When I advertise using the internet or any electronic form (including, but not limited to, text messages), is there specific content advertisements must contain?

Yes.  You must provide the following language, in addition to any another, on your web page or any medium where you hold yourself out as being able to provide the services…

(3) Loan originator web page.  If a loan originator maintains a separate home or main page, the URL address to the site must be a DBA of the licensee and the licensee’s name must appear on the web page.  The page must also contain the loan originators NMLS number and a link to the NMLS consumer access web page for the company….

(5) Oversight.  The company is responsible for the web site content displayed on all web pages used to solicit Washington consumers, including main, branch, and loan originator web pages.

I’m fortunate that my employer does allow me to blog.  Back in the Spring of 2010, during a scheduled audit with DFI declared my blog to be an unregistered trade name.   We did register my mortgage blog with the NMLS, which included paying additional licensing fees.

There is so much for consumers to be aware of and I find that blogging actually helps me to be a better mortgage originator.   When you write about various mortgage scenarios as a mortgage blogger, it causes you to research your underwriting guidelines and to stay current.  I’m constantly looking for “the latest” information for new content to share with my readers.  I seriously cannot imagine not being able to blog about mortgages.

I don’t blame this mortgage originators employer for not wanting to manage the content of their employee’s blogs.   However it’s a sad day when a good mortgage blog is removed from the internet.   I can’t tell you how many consumers thank me for writing and sharing reliable information about mortgages.  A quality mortgage blog provide current guidelines and trends to consumers and real estate professionals. 

If mortgage blogs in our state cease to exist, I suppose people will need to rely on what banks want them to think about mortgages, which I’ve found to be misleading on several occasions.