Yield Spread is a novel written by Roger Rheinheimer, who in addition to being a full time lender in Port Angeles is the highly acclaimed author of Amish Snow, now in its Second Edition.
His new book, Yield Spread, is about “a man you’ll love to hate, JP Mallot, and the forces that enabled and even condoned his behavior and its bitter consequences.
Interest rates have been very volatile in June. This Poll Post on Seattle Bubble and the chart below are a good reminder that interest rates were at 5.5% in the Summer of 2009 and at or above 6% quite a few times in 2007 and 2008.
I thought you might find this chart of where interest rates have been for the last 40 years of interest. I borrowed it, with permission, from my friend Jay Thompson’s blog.
Personally I think they will run between 4.5% and 5.5%, but that’s a pretty big spread for people looking at homes to buy. A 1 point spread on a $417,000 conforming loan is $255 a month.
Of more concern to me is the variance in Real Estate Taxes from one property to the next.
When you get pre-approved, make sure you know what payment vs Purchase Price you are being approved for, and what assumptions are being made as to Taxes and Insurance.
I looked at the 30 homes sold in King County for $500,000 in the last 6 months, and the range of Annual Real Estate Tax went from $3,600 on the low side, to $8,000 on the high side. HUGE SPREAD. The Real Estate Taxes could easily turn your pre-approval into a Failed Pending Sale.
Be sure to know the underlying basis of your pre-approval, and make adjustments as needed from one house to the next. If it’s a super-deal, the taxes may be out of proportion to the sold price.
Median Home Prices get pulled on a monthly YOY basis by some interesting influences. About a week ago I did a post on King County non-distressed property being up 6% YOY.
In these stats, I am NOT excluding short sales and bank owned property from the mix.
Stands to reason if the better properties are selling quickly with multiple offers, that prices are NOT falling in the places where Supply and Demand factors are tipping toward more Demand than Supply. And if overall we are seeing 6% UP for non-distressed property, then some places must be UP OVER 6% for the net result to be 6%.
To find who went up more than the 6% average, I used Redmond 98052. It generally has a higher appreciation level than most of King County AND has little influence of short sales and bank owned property AND it has negligible influence of super inflated land values created by water view considerations. In other words, Redmond 98052 is “close in”, good “commute to” but no major snob factor or “value is in the land” considerations. In fact the lowest priced home sold in May of 2011 in Redmond 98052 was a great little house, and not a tear down at all.
The Median Home Price influence in Redmond 98052 is you need to separate NEW(er) homes from older homes, as the mix skews the median, as noted in the chart below.
The variance in the overall GREEN LINE median has more to do with the mix of new(er) construction vs homes built in 1999 or before. If you remove the undue influence of NEW HOME mix, you can see the true area appreciation and depreciation levels. Again, short sale and bank owned homes do not influence the median prices in Redmond. Even though they doubled from May 2010 to May 2011, they only went up from 3 of them to 6 of them.
Of MORE relevance is the New House/Old House mix than even overall volume changes.
Also, it’s my recollection that the big jump in 2005 may have had more to do with Microsoft hiring a lot of people all at once, vs the influence of the Credit Bubble.
That supports the flat pricing from May 2003 to May 2004 and the huge upswing in 2005. The upswing in the Green vs Blue line is about New Construction, mostly up on Education Hill, which continued to pull the blue line away from the green line for years thereafter, until 2010 when more people bought older homes than new ones. But NOT in 2005, as the older homes appreciated to the same degree as the new home premium. Same in 2006. Both older and new homes showed a price increase of 20% in 2005 and 25% in 2006. So the upswing was fairly uniform in those two years due to local hirings more than loose lending issues.
The swing in the peak on the Green Line in 2009 was because new(er) homes represented a full 63% of all homes sold that month. Likewise the dip in the Green Line in 2010 was the contrast of only 32% being new(er) homes in the sale mix. In 2011, new(er) homes were 28% of all sales, even less than 2010. So of no influence on the upswing reported.
Since homes built before 1999 did not change YOY as to type and size over the period from 2003 to 2011, the change in price is less influenced by things other than Supply and Demand.
I think the 12% increase is a bit insane and likely not sustainable, and may be a FLUKE of May 2011. BUT it does support my previous post that 6% UP for King County matches the story that decent homes in good places are hard to come by AND on the upswing price-wise.
Common sense tells us that the media reports that Supply is higher than Demand, creating bidding wars, BUT “prices are down”, makes no sense whatsoever. Much more credible that where these multiple offer situations are actually happening, prices are indeed up, and to a large degree.
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Required Disclosure: Stats in the graph and post are not published, verified or compiled by The Northwest Multiple Listing Service.
There is a rumor that they are all failing because the buyer cannot finance the purchase. The reality is that is RARELY the actual reason, but sellers and seller’s agents DO like to blame the buyer’s ability to finance, even when that is not the case. Always better for it to be “the other guy’s fault” when asked:
“Why did the sale fail?”
The reality is it may have been the way the OFFER was structured, that caused it to fail.
Some offers are doomed to fail from the getgo.
Relying entirely on the Home Inspection, without adequately addressing the likely outcome in advance at time of offer, often causes a sale to fail. Some like to think “writing an offer” is only about “filling in the blanks”. HOW you fill in those blanks requires some skills of prediction and anticipation of outcome.
It’s important to make your offer with a rough expectation as to major repairs needed, as rarely can a home inspection resolve items costing in excess of 1% to 2% of the value of the home.
IF you have already taken the max credit toward your closings costs in your offer…
the Home Inspection negotiation becomes near impossible.
The Roof is often the “deal breaker” in many home inspection negotiations, because it has a known life expectancy and is one of the most expensive “fixes” that might be needed at time of sale.
Notice I did not say “one of the most expensive fixes that might be needed”
AS A RESULT OF THE HOME INSPECTION.
A “good” offer anticipates outcome. RARELY is the fact that the home needs a new roof something that can’t be anticipated at time of offer. Whether or not you allow for a new roof to be part of the asking price, depends on a few things.
It’s pretty darned obvious that the house in the photo above needs a new roof. You shouldn’t need a Home Inspector to tell you that.
BEFORE making an offer on this house, you need to anticipate the cost of a new roof,
so you can prepare your offer with a known and reasonable outcome in mind.
As you can see from the Zoomed In photo above, the cost of the new roof needs to include some pretty hefty repairs. The support for the roof is splitting and the roof is sagging.
Just sticking on some new shingles is NOT the only remedy for this roof.
You can guesstimate the cost of the shingle job by knowing the largest floor footprint from the County Records. It may be a 2,500 sf house in the mls. But the main floor footprint usually determines the outer corners of the roof. Is it 980 or 1,200 or 1,750? Once you have the main floor footprint (unless you can see that there is a larger 2nd floor foot print, in which case you would use that) you can show these two photos along with the sf coverage area to most any roofer and get a rough bid. You can email that info to three roofers and ask for a “ballpark” cost. The roofer needs to see the “the pitch” of the roof to determine cost. A higher pitch will need more shingles. Almost NO pitch may mean a shingle roof replacement is not the recommended “fix”.
Before addressing how the offer may be structured,
let’s look at a 2nd example that might have the same cost,
but a completely different remedy and offer process.
Unless you have the hope of turning your home into A Redroof Inn
a buyer of the home above MAY want to put on a shingle roof,
even though the roof may NEVER need to be replaced.
That roof will probably last longer than the house!
BUT…is that a positive?
Given where this house sits, on a quaint tree-lined street In-City where NO other roofs look like this, it’s possible that this “upgrade” may be seen as a “sore-thumb” and a negative…vs a positive.
For House #1 above, let’s say the roof will cost $20,000 to repair and replace. That’s a bit on the high side, but we have to go with the high estimate because of the deferred maintenance issues and things we can’t see, but can reasonably predict with regard to repairs needed beyond the actual roof shingles.
Now let’s talk about SALE FAIL due to BAD OFFER STRATEGY.
IF the buyer has an extra $20,000 to put on a new roof after purchase, AND deducts that amount from the offer price with the intention of putting on a new roof after purchase, the sale can “Fail Due To Financing”. The buyer MAY in fact be willing to buy the house for $20,000 less, and put a 20% downpayment still having the $20,000 needed for the repairs. BUT how likely is it that the Buyer’s LENDER will lend 80% of the cost to purchase after seeing that roof?
So…back to “Sale Failed Due To Buyer Financing Problems”. Was the cause really the fact that the buyer’s lending failed? Or the roof failed to meet the lender’s standard? Was it the buyer…or the house?
The sale failed because the agents failed to anticipate the lender’s response. There are many ways to resolve this type of issue in a real estate transaction. But ignoring the problem or thinking the seller is going to cough up $20,000 to fix the roof at time of inspection, is not realistic.
If the seller HAD $20,000, he likely would have fixed the roof before it got that bad.
The lender usually won’t let you escrow money for repairs to be done after closing. Sometimes, but not often. The best known remedy is to leave the cost of the roof fix in the price at time of offer and calling for a new roof to be put on prior to closing. Usually you can get a roofer to agree to do that and get paid at closing. BUT if it is a bank-owned property or a short sale, it gets a little tricker. Not impossible. But trickier.
In the 2nd example, the roof is perfectly fine. But you would be surprised how many buyers want to discount for what they don’t like or what they want to change, whether there is something wrong with it or not. Leaving THAT to time of inspection is a SALE FAIL. Sometimes the buyer wants the house because of many things and wants the seller to resolve “the roof issue”. Of course the seller paid a pretty penny for that roof and would be furious. So you have to build the offer around the buyer’s desires without involving the seller in the reasoning.
Buyers and sellers do not always agree on what IS a “defect” or what the seller should be expected to do about it.
Setting up a good “end strategy” at the time the offer is written,
is often the best remedy,
and one that will result in a closed transaction vs a Pending Sale failing.
Sorry for the late announcement.
But if you happen to see this and are close enough to The Fremont Troll,
“The Fremont Arts Council is asking for volunteers to clean up the tagging at 7 p.m. Tuesday at the Troll.”
For those that didn’t see the sad story, the details are HERE.
One of the most notable minor difficulties when buying new construction, that is a piece of dirt at time of contract, is staying on top of when it will close.
Often the builder requires that the buyer close within X days of “CO”, Certificate of Occupancy. Basically 5 to 10 days from the house being completed is the norm.
BUT often it is hard to pinpoint that in advance without going over and checking where they are every few days. Can the appraiser and lender get their work done in a short time, if they are not notified that the house is almost done?
Working on one now where the lender scheduled the appraiser to go out yesterday. I just got back and the floorings aren’t done, the toilet’s not in on the main floor, can’t get up the steps as they are carpeting upstairs and have rolls of padding on the steps. The cement truck was ready to pour the driveway, but it looks like rain is coming any second. So not sure how they are going to call that in the next 30 minutes.
If you are a cash buyer…no problem. But when the buyer is financing the home, it’s a tight squeeze to meet the builder’s deadline when the house isn’t ready for the appraiser at the scheduled time.
A common rule of thumb is to start timing from “drywall” to close, as many of the local government inspections have to be done before the drywall covers the plumbing and electrical components.
The house doesn’t look ready for the appraiser and clearly not for the CO. The original completion estimate was “mid June” and we are still hoping to close by June 24.
Amazing how fast the project usually moves at the end. There were three different teams of workers there today.
The cement guys were there.
The “hard surfaces” team was there doing the wood floors with the tile work complete.
The carpet guys…a different team, were there.
When you see 8 to 10 guys all working on different things at the same time…you will be amazed at how much can be done in a day…if it doesn’t rain. That’s a big IF around here. Looking pretty just about to rain at the moment. But…that’s Seattle for you.
I still think the house will be done by the 24th…done in time for the appraisal to be done and the loan docs to be in escrow so as to close on the 24th? Still anybody’s guess. I’ll take a peek on Saturday to see if closing by the end of next week is looking possible. If the DID pour that driveway after I left today, even though it looks like rain, then there’s a strong chance it will close on time for the furniture deliveries. 🙂
[Editor’s Note: I get asked all the time if people from outside of Seattle can write for Rain City Guide and I always say no… I really like keeping RCG as a “Seattle” thing. However, recently Joe Salcedo of the Reno Real Estate Blog reached out to ask if he could publish a one-time post on RCG about his experiences with the Reno, Nevada market and the insights it might provide to the Seattle community… and I bit. I’ve published the article below. Enjoy! ~Dustin]
In August of 2005, our real estate market crashed. It’s been five years and we’re slowly trying to get back on our feet. I’m here to share some of the lessons I’ve learned along the way; the prodigal brother, if you will.
I started with a blank page. One weekend after, baffled and fascinated and my curiosity violently piqued, here’s what I found out about your market:
In Feb 2006, less than a year after the Reno real estate market crashed, I called an emergency meeting (coupled with other factors like plunging housing starts and declining home builder stocks) after being greeted by this chart:
Yes, all markets are local but we all came from our mother’s womb. Like a bearish stock market pulling down three out of four stocks with it – (both weak and strong companies) – majority of real estate markets fall with the general market. Follow the home builder sector group in the stock market (Investor’s Business Daily tracks it every Monday). Check housing starts and building permitsto see a glimpse of the future:
If you’re comfortable with your mortgage payment (you bought a house on or before June 2005) and moving is too painful, it’s ok to stay; just know that based on present real estate conditions, it may take a few years before your house will appreciate from the price you bought it.
(From SeattleBubble.com)
And like your resident queen, the author has made premature bottom calls by not taking into account the “black swan
An interesting question on Trulia today:
Q for realtors in Seattle. We have a signed purchase & sale agreement on a home. 48 hrs later, property is still listed as Active. Is this legal? How long does listing realtor have to change the status from Active to pending after delivering a signed P & S agreement? Our realtor and his broker has made repeated requeset for the status to be changed to no avail. What recourse do we have. When selling broker/realtor refuse to change status of property, what action should one take? what possible pitfalls have you seen when selling agent refuses to act as we have requested for status change? Anxious about your reply.
My long-winded response:
There is another way to look it this, especially when you bring up the issue of “legal” rights of the buyer and the seller. The seller more than likely has the right to continue to actively market the property all the way to the day of closing.
Remember, mls status changes and the internal “rules” governing those changes are often (depending on which rule) only agreements between its member agents, and may or may not be binding on the owner of the property. The status change is merely an “alert” to other member agents. Is it fair to the seller to stop the marketing of the home? Is it “legal” for the mls system to command that the seller be inhibited in any way from the marketing of their home during escrow and prior to closing?
Can the Seller continue to have Open Houses? Likely yes. Can the Seller continue to receive other offers during escrow? Likely yes. Whether or not they can accept those offers, is not an “mls rule” matter. For instance, if an owner received an offer that is $100,000 more than yours, it is not “the mls” that determines whether or not they can negate yours and accept that higher offer. There may be something in your contract, especially if it is a bank seller and bank addendum, that allows the seller to accept a higher offer. None of us here know that.
There may have been something during the negotiations that is alarming the seller as to whether or not you will actually close. Or they may think you will be unusually demanding at the time of the home inspection, based on what transpired during the contract negotiations. Or they may simply want the agent they are paying, to continue to market the property until after the Home Inspection contingency is satisfied or even all the way to closing. All likely within the “legal” rights of the owner of the home, and likely not in conflict with the legal contracts in place.
I know of nothing in any contract that gives the broker the right to STOP marketing the property or stop trying to get other offers at any time prior to closing. It is just “common practice” and not a matter of law, as far as I know.
Is there something in your legal contract with the seller that says he must show the property as “PENDING” and dilute the possibility of receiving more offers?
The broker MAY be faced with conflicting directives from the owner of the home and the mls “rule”. Does the mls have the legal authority to dilute the effectiveness of a seller’s wishes for the property to continue to be actively marketed?
So when you raise the question as to is it “legal”, the question may be is it legal for an mls system to remove the property from active marketing before the Home Inspection is complete? Seems the rights of the owner may be in conflict with the mls rule.
I recently had a situation where the seller was exceptionally concerned that the buyers would not close. This for their own reasons that had nothing to do with my buyer clients. The owner insisted (and the owner was an attorney) that their agent continue to have Open Houses during escrow and that the SOLD strip on the sign be removed. The mls response to the SOLD strip was YES we have a RULE that it should go up. But if the owner of the home wants it DOWN…the owner has the final say in the matter, regardless of the mls “rule” for “members of the mls”.
It is possible that the Seller’s Agent and the Seller’s Broker can not respond to your request, or even tell you why, as that may be the result of confidential discussions between the seller and their agents.
So my best guess is if you went to an attorney regarding your “legal rights”, the answer would be that the seller has the legal right to continue to actively market the property, and the mls rule may be in conflict with the seller’s rights in that regard.
In many mls systems around the Country a property moves to ACTIVE-BACKUP status and not to “Pending”. So it really may simply be “local custom” and not likely a matter of law that the property move to a “pending” status. In fact I believe it is only in recent times that our system shifted from “ACTIVE-Subject to Inspection” to “PENDING Inspection”. In today’s market environment that likely is a bad move, and not in the best interest of the seller.
Perhaps every owner of every home should be objecting to a “Pending” status prior to the end of the home inspection period. My best guess is the “legal rights” weigh in more heavily to the seller/owner side in this question, than the legal rights of a buyer prior to closing. How “binding” are “mls rules” on an owner of a home?
Perhaps every buyer should make their expectations as to continued marketing of the home part of the purchase contract, if they no longer want other potential buyers to enter the home during escrow?
Food for thought…and clearly blog-fodder.
Everyone wants to live in “the best place”, but how does one determine which is the best place for them…that also fits their budget? As with most of my posts I try to include a tutorial on how to utilize the internet to assist you in choosing wisely…or at least with informed consent.
I’ve talked before about how to use the internet to determine value and offer price. Let’s take that a step further. You don’t want a Great Deal…because you live in a block with drive by shootings and a sex offender in every other house. THAT is NOT a “Great Deal”!
The chart below is based on a one mile radius of a given address in each area mentioned. The sources of the data are at the bottom of the chart. To make your own chart, just put in the address of the homes on your “short list”.
What you personally value or can live with is different for each person.
Some may choose a home where the school is a 4 ranking and has 59 sex offenders within a one mile radius, because they like the house. Others may settle for a split entry or a townhome in an area where there is an 8-10 ranked school and only a few sex offenders and less violent crime. Everyone is different.
I don’t think I’ve ever assisted someone in buying a home that wasn’t in the best area their money can buy, but that’s a client to client process and client decision.
If you are choosing to not use an agent at all, or to use a discounted service that does not assist with home selection, you need to fend for yourself in that regard. Using these tools and making your own chart is not infallible, but it should help to insure that if you do buy in an area of high crime…you are at least doing so with informed consent. Double check the facts…don’t take these as “verbatim”. But they should help point you in the right direction as to getting the additional facts needed.
WalkScore is often hailed as a great site, and some RE websites even show the WalkScore next to the property data. I’m NOT a big fan of WalkScore UNLESS you look at it along with a few other available sites. I AM a big fan of choosing the most highly ranked Elementary School you can afford.
Often…though not always, the best elementary school ranking is an indicator of fewer sex offenders and lower crime. That is why you may find that homes in the best Elementary School boundary lines are more expensive. Not because of the school per se, but because of all that goes with. The reverse, lower ranked school, does not always follow the same pattern. So do your due diligence and check all the details.
Take a look at the chart above. Notice that two of the highest WalkScores also have the most sex offenders and highest Violent Crime score. (V = violent Crime / P = Property Crime) as shown on HomeFacts.com You will also see the reverse. Point being that “WalkScore” does not overlay crime statistics, as some think it does. You need to use a variety of sites and sources to get all of the information available, and not just one site.
HomeFacts will also show you the pictures and addresses of the “offenders” if you open the drop down menu. A handy site.
My “theory” has always been that the highest ranked elementary schools (that have a geographic admission boundary vs “choice” schools) will also have the lowest crime and sex offender stats. That does not mean the reverse is true. You need to pull the data as it applies to your area of interest.
The reason I use Elementary School, vs middle or high school, is it helps you grade the neighborhood on a smaller geographic base than middle or high schools that draw from a larger geographic area.
Another nifty site that I just found is NabeWise and it is no surprise to me that if I put in Seattle Metro and Safety, the two neighborhoods I choose to live in BOTH come up in the TOP EIGHT!
Using the Internet to Find a Home is not ONLY about looking at PRETTY PICTURES and then hiring a Discount Commission service to buy it. The most deeply discounted “Agent” services clearly indicated that HOME SELECTION is YOUR JOB and why you are paying a lower commission. That is not merely about “the house”.
If you are going to use the internet to save on real estate commissions…and I am all FOR that…please…use as many sites as possible to find as much information as you can, before “doing it yourself” to save on commission.
It’s “YAY DAY” over at Seattle Bubble today, as “The Tim” reveals to his readership that now was HIS “time to buy”, for his own good reasons.
In his post this morning titled “Guess What?”The Tim has a cute picture of him in “Domestic Mode” jokingly cooking up some “Top Ramen”.
His parting line?
“Sympathy cards may be mailed to 3601 Wetmore Avenue, Everett, WA”
I wanted to send The Spa Collection of bath towels vs a “sympathy card”, but opted to follow Tim of Legacy Escrow’s lead and just put the money in The Tim’s Tip Jar via Google Checkout and let him pick out his own House Warming gift.
Also of note, The Tim used our fellow RCG writer Craig’s firm to purchase the home, as noted by The Tim in the comments.
” We used attorneys Marc Holmes & Craig Blackmon with WaLaw Realty…”
The Tim will be following up in the days to come with the details of his home buying process, so be sure to tune in as he reveals all from a “1st Time Homebuyer” perspective.
Congratulations to The Tim and his lovely wife from RCG! May you enjoy your home for many years to come.
