Category Archives: Seattle Real Estate Guide

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Redfin adds “feedback” comments to site features

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Yesterday Redfin announced the launch of a new site feature that introduces the concept of “agent feedback” on a broader and more transparent scale.
AgentCommentRedfin

As with anything new, it will take a bit of time for things to “shake out” on this new feature, as we as an industry continue to balance the obligations to home sellers “IN” an mls system, and the wants and needs of home buyers who do not have any contractual rights within an mls system, the way that sellers do.

I will describe how this new feature appears to function at present, and as I understand it after having tested it.

When you search for property on Redfin and the little house icons appear on the map, some will have a yellow star to denote which properties have been “toured” by a Redfin agent AND the Redfin agent has noted their and/or their buyer client’s thoughts on the property.

If the house has no yellow star, it doesn’t mean it wasn’t EVER “toured” by a Redfin agent, only that the agent did not input a comment to the system after doing so.

RedfinAgentCommentsMap

If you click on the house icon with the yellow star, the address will appear in a link box. If you click on the link, you will get the property detail, but you will not yet SEE the comment made by the “field” agent. (“Field” agent is the term used by Redfin for agents who view property with prospective home buyers. (Agents “out in the field”.) Redfin “partner” agents also have access to posting comments, even though they are not employees of Redfin. Not sure if they can do that for all of the property they show, or only the property they show to a home buyer who was referred to them “by Redfin”. But I do know they have some access to this new feature as to leaving comments.

What you will see above the map of the parcel, and below the home detail specifics, is this: “Notes About (123 main street) from Redfin Agents Toured (X) Times” along with a Button you press that says “Email Notes to Me”.

Again, I don’t think it is accurate yet as to how many “Times” the home was toured by Redfin, but I’m confused on this issue. I have a listing toured by Redfin at least 2 times that does not have a yellow star, nor does it denote in the detail that it was ever toured by a Redfin “field” agent with a buyer (or Redfin “partner” agent). So I’m pretty sure ALL “tours” are not registering. I thought maybe “Toured 2 Times” meant there were 2 comments, but there is only 1 comment, so maybe that one agent toured it 2 times before making the comment.

Perhaps they should say “1 Comment” vs “Toured 2 Times” in the interest of “accuracy”, as “transparency” carries an obligation of a reasonable degree of accuracy as to factual content. As I said earlier, this is a minor point that will “shake out” vs “shake up” as time goes on.

When you click on the “Email Notes to Me” button, you will fairly instantaneously receive an email with the comment(s).

There is also a feature to receive new notes as they are added later on this property. That appears to be automatic, except if you click on the same property that sent you notes and hit that button again, it will give you an option to receive new notes. So not entirely sure on that one.

To receive these notes you DO NOT have to be a Redfin “CLIENT”. You simply have to be a “registered user” of the Redfin site, as I and most of my clients are.

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BENEFITS? PROBLEMS?

1) The most notable problem is that at least two of the comments shown publicly in blog posts contain what we call “inappropriate language”. For example the one in this post from Glenn’s post says “ideal for a family” and one of the two comments posted on 1000Watt Consulting Blog by Brian Boero says “not for families with small children”.

The guideline for agents is we must talk ONLY about property and not make broad statements about who should live IN them. Both of those comments mention people vs home attributes, long considered taboo under HUD guidelines.

There are massive writings on this topic, but a good rule of thumb is:

TALK ABOUT THE HOUSE AND NOT THE PEOPLE:
1) WHO LIVE IN IT
2) WHO “SHOULD” BUY IT
3) WHO LIVE IN THE NEIGHBORHOOD.

Talk about the home and it’s attributes, and not the people.

A long standing “rule” for real estate advertisements, or most any statements made by licensed agents, is talk about the house and not people.

HOWEVER I often will tell a specific client that a home is not right for them “and their small children” if the house has a master bedroom only on the 2nd floor, and the only other bedrooms are IN the basement, especially if we have already discussed that the master bedroom must on the same floor as their children’s bedrooms.

So I think if Redfin notes a specific “deficiency” of the property in that regard, without mentioning people, like “Master up; children’s bedrooms two floors below and in the basement”. That would be OK. But to simply say “not for families with small children”…well, that’s more about HOW you say it than what you say. Not a huge deal. Just another example of “shake out” of this new feature to come, IMO. What you can say TO a buyer client is different than what you can say “publicly”, and this new feature blurs the lines from a “Fair Housing Guidelines” standpoint.

2) That raises another issue. Let’s say Redfin Agents can say anything because they are speaking to Redfin site “registered users” only. Not saying that is the case, but let’s consider that as potentially the case.

Then the issue of Brian Boero, or any other “registered user”, POSTING those private email comments PUBLICLY becomes a problem.

Can he take a private email and display it publicly? I think Brian can, because I don’t think Brian is a licensed agent. I don’t think I can, unless I am linking to a public place (as I did) and it is not an email I personally received from the site.

If the rationale is ONLY “registered users” can see the comments, then shouldn’t there be an agreement with registered users that they will not publicly post those emailed comments? I think so.

3) The benefit generally is that Redfin continues to try to strike a good balance between the rights of buyers and sellers. But, the seller has a contract as to what their conditions are with regard to an mls being able to display their property information via the mls system. Buyers have no rights in that regard, as they have no written contract with “an mls system”.

I think most mls systems will allow the seller to block this feature, and will recommend that sellers do that, given the seller and the seller’s agent have very limited, if any, control or access to the function. That is generally against most any Listing Contract provision signed by a seller to gain access to the mls system. They are many and varied, but most require the Listing Agent and/or Listing Brokerage to have full control over information on “member” sites, which often limits the info to that available via an “mls” feed, with some and often many restrictions.

Time will tell, but that is my expectation. I think we will be seeing some NEW “mls rules” with regard to this new feature.

Single Family Home Reserve Study

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A Reserve Study tells you how much money to set aside monthly so that you won’t have to borrow money when something needs to be replaced in your home. While monies “in reserve” for replacement costs do not currently convey with a home, condos do. It was determined some time ago that that asking people for $10,000 all at once for a new roof did not make any sense for condos, and the time may have come to look at Single Family Homes in the same light.

Yesterday I posted a Reserve Study for a particular client’s home that will be closing next week. I also did a rough sample of a “quickie” Single Family Reserve Study that you can use to modify an offer price when purchasing a home.

In this post I will do a more generic version that you can use to prepare a Reserve Study for the home you currently own, and are not intending to buy or sell.

A Reserve Study is NOT about what you will SPEND ON your home each year, the same way that gas in your car is not counted when saving money toward buying a new car, or to repair your current car.

A Reserve Study is an EARMARKED savings plan to insure that the cost of REPLACEMENT (not repair or maintenance) is available when the item is ready for full replacement. A common rule of thumb for Reserve Studies is that you do not begin to reserve funds until and unless the item is within 35 years of needing to be replaced. Consequently if you have a 50 year item, as example, you may have to spend some money on maintenance during that 50 year period, but you will not begin saving toward it’s replacement until it is 35 years old. the remaining Useful Life is 35 years.

WARNING: DO NOT READ BELOW THIS LINE IF YOU HAVE HEART PROBLEMS.
Single Family Home Reserve Study

While I tend to be fairly analytical, I have to say that chart (which I created) scared the bejeebies out of me! $94,300 for Replacement Costs of ONLY the “MAJOR” Components that have a relatively short “Useful Life”! Holy Caboly!

This is one of the reasons buyers are more and more looking beyond “current defects” when doing a home inspection, and rightly so.

Let’s break this down a bit, as a Reserve Study has a lot of subjectivity vs objectivity. I will give you the benefit of my thinking, so that you can adjust accordingly, if needed.

1) ROOF I used 25 years and $12,000. This assumes a 25 to 30 year composite shingle. This Reserve Study is for a five year old home, but covers most any home with a composite shingle. For the most part 20 year shingles went the way of the dodo bird in the late 1980s or so. Any home with a 5 year old roof, whether the home is new or not, likely used at least a 25 to 30 year shingle. I also don’t expect “lifetime warranty shingle” roofs to last more than 25 years. In the last 5 years, 80% of all homes sold regardless of age had this type of roof and 87% of all homes built in the last 5 years had this type of roof.

Once in awhile you see a 50 year shingle and more often a 35 year shingle. But most are 25 to 30 year shingles. If you have a tile, flat, torch down or shake roof, you will have to adjust the numbers to that style.

I used $12,000 as I have recently seen a very good roof on a large home done for that price, even though the next door neighbor paid $18,000 for his roof. I have also seen an owner put one on using experienced relatives for $4,500. Much depends on the size of the home, the type of roof and the size and configuration of the roof. But $12,000 should be doable for the average home with room to spare as to price.

(NOTE: STOP POWER-WASHING YOUR ROOF EVERY SIX MONTHS! YOU ARE DAMAGING THE SHINGLES AND VOIDING YOUR WARRANTY! There are other and better ways to remove moss from your roof and keep it off.)

$12,000 divided by 25 years divided by 12 months = $40 a month.

2) SIDING Most newer homes use HardiePlank siding, or a reasonable facsimile. This is a cement based product that can last up to 50 years, and normally has a 30 year warranty. If you have a home built in the 90s, especially the early 90s, you may have an inferior pressed wood product that looks similar, but likely has been replaced or needs to be replaced. Wood siding has about the same life expectancy as HardiePlank.

I’ve heard the number of $20,000 used often for Siding replacement to HardiPlank, but that varies based on the size of the home. If you have HardiePlank you may not need new siding at the same time as a new roof, and the siding may even last twice as long as the roof. I’m using $55 a month due to the higher cost of re-siding vs putting on a new roof, but there is some leeway there given I expect HardiePlank to last longer than the 30 year warranty by as much as 10 to 20 years.

3) PAINT EXTERIOR – If you have real wood siding, you likely need to paint it at least every 15 years. If you have HardiePlank siding and like the color, you may not need to paint it at all. Paint usually bonds differently to HardiePlank than wood, and style colors may change every 15 years or so. If you have vinyl siding, you only have to save for replacement cost, and not for painting at all, given you really can’t or shouldn’t paint vinyl siding. Lot’s of subjectivity here. If I were doing a Reserve Study for a newer HardiePlank house, I likely would have ZERO in the monthly here. If you have a brick exterior, you don’t have to paint it, but you do have to “re-point” it, which can be quite costly for large and older brick tudors here in Seattle.

4) WINDOWS Most newer homes have vinyl windows with a life expectancy of 20 years. Often people replace the glass vs the window due to a broken window seal. Some windows are better than others and rarely does someone replace all of their windows at the same time. Wood windows can last indefinitely with repairs vs replacement. Lots of variables here including how many windows do you have? For that reason I’ve skimped on the total amount in reserve for windows to insure that you have enough to do a room or two at any given time, with room to spare. Quality of windows can vary greatly, even when windows “look” about the same. Most homes have a sliding glass door or two as well, so $7,500 cap on reserves is likely about right for most homes and most people who have “newer” windows today.

5)SEWER PIPE You don’t often hear much about Sewer Pipes unless you have an older home. I have no Reserve Amount here given the life expectancy or a sewer pipe, but wanted to mention it because of Root Problems. Tree roots can damage most any sewer pipe, especially on an older home.

Roots in the Sewer Pipe are a significant issue for older homes in Seattle, and sometimes in Bellevue and other Eastside cities as well.

So while I haven’t cautioned to reserve money for replacement cost, this item is worth mentioning because a Home Inspector generally does NOT inspect the sewer pipe, and if you are buying a home you need to have a separate inspection done of the Sewer Line. If there are a lot of trees on the property and the home is 50 years old or more…having a Sewer Scope is pretty much an imperative “additional” inspection.

6) Heater/Furnace/AC The cost I used is for a pretty good furnace without air conditioning. Life expectancy of a gas heater is usually longer. Life expectancy of an electric heatpump that is used for both heating and central air conditioning is usually shorter. Many people buy a house with a $2,500 heater, but spend up to $4,000 (or more) to replace it. That has more to do with air quality in the home than heating it or cooling it.

7) HOT WATER TANK I find there is a huge variance in life expectancy of a cheap electric hot water heater and a glass lined gas hot water heater. Also the cost has skyrocketed recently due to a bunch of added bells and whistles.

WHERE THE HOT WATER TANK SITS IS VERY IMPORTANT!

Consider “resultant damage” from the tank blowing. If the tank is IN the home or in any finished and heated living square footage, just replace it when its time is up. If it is in the garage in an area that would cause little to no damage if it blows, maybe you can push the age to and past its limit. The main issue is what will be damaged if it leaks.

Often if you have an electric tank one of the coils will go before the tank itself. You can’t “see” that, but you will know if you are getting less hot water. Personally I don’t believe in replacing the coil. Just get a new hot water tank if one of the coils goes out. I’d rather see someone skimp on some of the costly bells and whistles than stretch the time to replace the tank by replacing a coil.

8 & 9) FLOORING Lots of variables here. Many homes have lots of wood and little carpet. Others have almost all carpet except in the kitchen and bathrooms. Many people replace carpet with a wood or laminate product instead of carpet. In some homes you can replace the heavily trafficked area, like the steps, without replacing all of the carpet. More people using the home shortens the life expectancy of carpet and fewer people in the home lengthens the life expectancy of carpet.

My biggest concern here is “wood” floors. There was a time when wood floors pretty much NEVER needed to be “replaced” as you just sanded them down and refinished them. More and more even very expensive homes have newer “engineered” wood products, that can’t be sanded at all or can only be sanded lightly a couple of times.

Most people prefer big, thick, wood floors that rarely, if ever, need to be replaced. But many people who THINK they have that type…do not.

10) APPLIANCES I used a fairly low amount here as “appliances” break into two categories. Built-in appliances are part of the home. Usually that is a stove and a dishwasher and a range hood or microwave. Sometimes a cooktop and one or two wall ovens. Then there are appliances that are “personal property” such as your washer, dryer and your refrigerator. Those you can move from house to house…or not…your choice. I am only including the appliances considered to be part of the “real estate” vs “personal property”. Lately people have been paying some insane amounts for Washers and Dryers! Since washers, dryers and refrigerators are personal items, they can vary greatly as to cost. Those are not counted in this Reserve Study.

11) DECKS Another tough one. I’ve seen decks cost as much as $20,000 for a fairly modest sized deck near the ground. Many homes in the Pacific Northwest, even new ones, have extensive decking. Due to rot issues in this climate, we are seeing Trex decking used more and more, but usually only for the flooring and not some of the other components. Once in a while I see a deck that should just be thrown away when it goes, and not replaced at all. I saw a particularly troublesome cantilevered balcony deck like that…just get rid of it! Decks vary to personal taste and lifestyle, and can add considerable maintenance and replacement costs to a home.

12) HOME WARRANTY This is a big catch all that can help with a lot of items not mentioned like ELECTRICAL and PLUMBING. Rarely do you replace ALL of your electrical components or all of your plumbing. Even when you see a home advertised as “all new electrical” or “all new plumbing” that is rarely, if ever, the case. In a new home, you wouldn’t expect to replace either, but a home warranty is likely a good thing to have for both of these and also includes heater, hot water tank and built in appliances. I did not eliminate the other items from the Reserve Study as who knows if warranties will be around in 20 years and rarely does an owner renew that warranty for more than a year or two. Not sure why, but many who get them the year they purchase the home, do not renew them.

As you can see, the total cost to replace these items can often hit during the same 5 year period when the home is 17 to 22 years old!

Preparing in advance, is recommended and warranted. If you are buying a 14 or 15 year old home, knowing what if anything has been replaced since it was built is important, as you likely need to have a lot more in reserves after closing if you are running into that 15 to 25 year period. While buying a 30 year old home might have these things replaced, you may spend as much or more on updating the kitchen and baths. I recently saw a home that needed a new roof that was only 14 years old, but that is rare. But maybe rare in the past tense vs the future tense, depending on the quality of the builder.

If you have any questions, feel free to ask, regarding why I did or did not include certain items. There is really no “guide” for A Single Family Home Reserve Study, as I don’t know anyone else who has done one before.

I think this one is fairly comprehensive and accurate as to the monthly of $400 for a newer home and $700 for an older home with some things already replaced, but that needs more updating in the next 10 years or so.

Real Estate – The #2 Question

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The #2 Question in Real Estate is Why Can’t I Find a Good House at a Fair Price?

The #1 Question we covered was How Much is THIS Home Worth? For those who find a house they want to buy, or may want to buy, the question is how much is it worth or how much should I offer on it?

But there are a fair amount of people having trouble finding a house they may want to buy.

OR they find a house they may want to buy, but not at the price they want to pay.

For those people the main question is Why can’t I find a GOOD home at a FAIR price.

At any given time, in any market, if you are looking for a home to live in vs an investment property, you will be lucky to find THREE good choices no matter how many homes are on market.

Every SELLER needs to BE #1, #2 or #3 and every BUYER needs to FIND #1, #2 and #3.

It really is that simple. The only difference between a Buyer’s Market and a Seller’s Market in that regard is the amount of time you have to find those. In a Seller’s market you may only have hours before #1 hits the market and has offers. In a Buyer’s market you usually have up to a week, unless you are trying to beat out everyone else.

In a hot seller’s market, good houses at a fair price are usually about 1 in a 100. In a buyer’s or balanced market, good houses are more often 2 -5 per 100. The only thing this tells you is you have to kiss more than a few frogs to find “the one”. Luckily most people are able to do that using the internet to narrow down the choices.

If you are thinking you are going to narrow down to 20 good houses and choose from those, you are likely incorrect. The danger in that thinking is that you will continue to lose out on #1, #2 and #3 while you are sorting the 20.

Worth Mentioning Here: #1 may move up to #1 after 650 days on market via a massive price reduction. So we are not talking about grabbing “new on market” necessarily. Very few homes come out of the gate at the right price.

Knowing which ones do and which don’t is what separates the men from the boys, and is likely the hardest part of finding a home to buy.

Last but not least is knowing what you want, and what a “good” house is and is not, and what a “fair” price is and is not. Easier said than done, but not as hard as you might think either. Likely the #1 mistake people make is looking at County-wide stats. As you can see from the charts below, that will likely lead you to overpaying in South King County and missing the opportunities in North King County.

graph (29)

I haven’t been doing condo stats for a couple of years, but threw these in so you can see the variance between Homes and Condos.

Condo and Single Family Home prices are not always moving in the same direction, and clearly never to the same degree.

graph (30)

Back to the Question: Why Can’t I Find a Good House at a Fair Price? You might be pricing incorrectly or you may just be taking too long to make a decision. I’m not talking about taking too long to buy the right one, I’m talking about taking too long to sort the “wrong” ones into two piles. One pile is NO and the other pile is MAYBE, but not at this price.

It’s very, very difficult to find the one that is priced right out the gate. I can usually do that, but it is seriously very difficult, and most people don’t have the heart for that in a Buyer’s market.

If you have been LOOKING for the right house at the right price for a long time, you probably need to change the method of HOW you are doing the LOOKING.

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

Real Estate – From Contract to Close of Escrow

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What happens after the seller has accepted your offer? Often a buyer wants to relax and celebrate after their offer is accepted, especially if there were rounds of counter offers and acceptances. But some things need to happen pretty quickly after the contract is signed by all parties. This is a fairly good example of what actually happens most times. Not all contracts are the same. This is just a rough example of what usually happens in my transactions when I represent the buyer of a home, unless the contract requires us to do things differently than “the norm”.

1) SCHEDULE THE HOME INSPECTION

Usually the very first thing I have my buyer clients do once the contract is “signed around” by all parties, is schedule the home inspection. Often people read the contract to mean that they have 5 to 10 days (every contract is different) to DO the inspection. That is not the case.

During that very limited time frame:

a) You have to “DO” The Inspection
b) You have to review the results of The Inspection
c) You have to think about what you may or may not want to ask of the seller as a result of that Inspection
d) You have to cancel the contract, or accept the inspection, or submit any conditions of accepting the Inspection, in writing, so that it is RECEIVED by the seller or seller’s representative by the end of the time frame.

You don’t want to wait until the last minute to “DO” the inspection.

My recommendation is that you call the inspector ASAP after the contract is finalized and DO the inspection at the first available opportunity after the contract is signed around. By scheduling the inspection ASAP for the first available time, you should have sufficient time to digest what the inspector said at the inspection, and also to subsequently review the written inspection report after the inspector has left the property.

You should allow about 3 to 4 hours for the actual inspection in most cases for an average sized single family home.

2) OPEN ESCROW

By the time the contract is “signed around”, the Agent for the Buyer usually has the Earnest Money check in their possession (some exceptions). Opening Escrow can be as simple as bringing a copy of the contract and the Earnest Money check to escrow, and that is often done on the first business day after the contract is accepted. Sometimes I send the contract to escrow during the weekend, if the contract was accepted on a non-business day. This way escrow has everything they need to “open escrow” when they open for business on the first business day after the weekend. The check usually has to be delivered to escrow by the 2nd business day and this is another one of those ASAP situations. Get the check to escrow as soon as practically convenient vs waiting to the last minute. There is no official time frame as to when escrow must be OPENED, there is only a required time frame for when the EM check must be AT escrow. Most escrow holders will not accept a check for an escrow that has not been “opened”, so escrow is usually opened either in advance of that check needing to be delivered to escrow, or at the same time.

Generally this 2nd step is not done by the buyer or the seller, but by the agents in the transaction.

3) APPLY FOR YOUR MORTGAGE

This step is VERY IMPORTANT and often misunderstood.

Common “misconceptions”.

a) Some people think you don’t need to apply for your mortgage until after you complete the Home Inspection phase. Most contracts require that you apply for your mortgage in a shorter time frame than when the inspection needs to be completed.

b) Some people (usually agents) think that the buyer must apply to the same mortgage company who provided the pre-approval letter at time of offer. Usually a buyer has 5 business days or less to “apply” for their mortgage AFTER the contract is signed around and “chooses” which company to apply to during that time frame. It is near impossible in most cases to actually choose a lender prior to contract, because interest rates change during that time AND the interest rate often cannot be locked until there is a signed contract. So choosing lender by comparing rates and costs is usually best done at a point when that rate can be locked in.

b) Some people (usually buyers) think they already “applied for their mortgage” complying with the terms of their contract when they provided the information to a lender before making an offer so as to get a pre-approval letter.

c) Many people think that their rate is locked, or that their rate is locked indefinitely. Rate locks of 60 days are usually more expensive than rate locks for 30 days or 45 days.

In order to preserve your rights under the Finance Contingency you need to apply for your mortgage within the time frame stated in the addendum vs in the main contract.

To me the clear signal that you have “applied” for your mortgage happens when you give the lender a copy of a fully signed around contract to purchase a home, since that is the one thing you do AFTER the contract is fully signed around that you could not have done in advance.

You may have spoken with a few lenders and even gotten pre-approval letters from more than one, but in most cases you only send a copy of the contract to the lender you intend to use to complete the transaction.

Very important to note here that you may not have the ability to switch lenders once you have applied for your mortgage.

Interest rates change frequently, so calling a lender a day may only be telling you the difference in rates from day to day vs from lender to lender. I generally recommend that people set aside a day and time to compare lenders so they are all dealing with the same rate time frame, and be sure to compare all lender fees when comparing rates.

Should you lock the rate or “float” the rate? A combination of both where you can lock the rate but get at least one “float down” option as well, often works best. That way your rate can’t go up but it can go down.

Many other variables as to which type of loan, etc. But the main point here is no matter how long it is from contract to close, you usually have a very limited time frame to apply for your mortgage under the terms of the Finance Contingency, generally 5 days or less.

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Note: Computation of Time: Sometimes The Home Inspection is Step 3 vs Step 4. That mostly depends on the availability of the inspector you choose. Sometimes you are having the home inspection within a day or two of the contract being signed around. In that case you often do the inspection before you apply for your mortgage.

Every contract is slightly different because of “Computation of Time”. In our standard contracts 5 days or less usually does NOT include weekends and holidays…but 6 days or more does.

So if you have 6 days to do the inspection and 5 days to apply for your mortgage, 5 days can be more than 6 days since the 6 = calendar days and the 5 = business days.
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4) THE HOME INSPECTION

The inspection is paid for by the buyer, usually before the inspection begins. The buyer usually attends the Home Inspection because it is not a PASS/FAIL kind of thing in most cases. It is also not ONLY about what is wrong with the house. A good home inspection gives the buyer a lot of information that is not all about what the buyer may want the seller to do to correct defects.

Generally a Home Inspector will:

a) Inspect the outside of the home first. Roof, siding, gutters, etc. VERY IMPORTANT: Most inspectors are inspecting “the home” and not the fence or the shed and sometimes not even decks, especially if they are not connected to the house.

b) The inspector is usually not looking at cosmetic things that can be readily seen by the buyer prior to making the offer, such as a stain in the carpet.

c) An inspector cannot see through walls, so having an experienced inspector who likely knows what is behind those walls based on the age of the house is very important.

d) Since an inspector is not looking at cosmetic items, he will usually spend more time in bathrooms and kitchens, the attic and under the house, at the heater and electrical panel and hot water tank, than in a dining room or bedroom. In a bedroom he may check the outlets and the windows and make sure the door latches properly. In a kitchen or bathroom he will be checking appliances, looking for leaks under sinks, making sure the outlets in the rooms with water have appropriate and functioning GFCI (ground fault circuit interrupters) at the outlets. Often one GFCI will operate more than one outlet.

e) Generally you do not need to take notes at an inspection, as the inspector will be providing you with a written report. Hopefully the report will have a summary of major problems and a separate summary of minor problems. Today Inspection Reports can be 85 pages long with lots of tips on home maintenance and other topics. So a one page summary of actual defects is helpful.

IMPORTANT: If something is wrong with the property, you usually know it before you get the written report. If something comes up that causes you to not want the house at all, you may not want to complete the full inspection. In fact if you suspect that to be the case, you may ask the inspector to break from his normal routine and look at that item first.

HOUSES ALMOST NEVER “FAIL” ON INSPECTION. Contracts often fail “on inspection” due to other issues, BUT “HOUSES” RARELY “FAIL” ON INSPECTION.

Most often when a contract “fails on inspection” and “falls out of escrow” it is because of an erroneous or not reasonable expectation. The buyer isn’t doing what the seller expected the buyer to do, or the seller is not doing what the buyer expected the seller to do. Rarely does a real “deal-breaker” issue come up with the house, that the buyer and seller could not have known about in advance of the offer being made. Most often the contract fails because the buyer or the seller is not responding “appropriately” to an issue. That is usually an emotional problem, vs an actual “problem” with the house that can’t be rectified.

Good “Rule of Thumb” is no seller should expect the buyer to want absolutely nothing at inspection, and no buyer should expect a seller to address everything the inspector talks about as needing to be done to the house.

Instead of taking general notes during a home inspection, I find using a chart like this to be helpful during the inspection. The inspector says SO many things over a 3 to 4 hour period, so organizing them a bit while the inspector is there can help you raise questions at the end before the inspector leaves the premises.

Inspection Chart

Column One – OWNER SHOULD – There are no hard and fast rules here. Many items the Inspector notes as “needing to be done” are things any owner needs to do periodically. Is “The Owner” the Buyer of the Home? Or is “The Owner” the Seller of the home? While contracts often fail over these issues, they should not as they are things the buyer will need to do during their ownership of the home. These are not “once and done” items. If the gutters are so clogged and dirty because the owner never had them cleaned during their ownership, the buyer may ask the seller to have those professionally cleaned prior to closing. The buyer may put this in the “Seller SHOULD” column. Often this has to do with the number of trees dropping debris into the gutters.

Generally a buyer should not decide they do not want the house after all because the gutters are dirty and the seller won’t have them cleaned prior to closing, or because the seller won’t trim a small branch on a tree.

Just because the Inspector tells the buyer “the gutters need to be cleaned” does not mean the seller needs to DO something. The Inspector may simply be saying that at EVERY inspection so the buyer knows that this is a normal owner maintenance item. That statement alone does not mean there is something currently “wrong” with the gutters.

Column Two – OWNER MUST – These are usually things the seller would have fixed had he known they were not functioning properly. They are usually things that have no aesthetic selection element, so that it doesn’t matter if the buyer does them or the seller does them. They are usually things that can cause a problem or additional damage between inspection and closing.

As example, a leaking sink creates damage every day between the time you discover it and the time it is fixed, so having it fixed without delay is recommended. It is very rare that a seller would not want to fix that leak ASAP.

Column Three – SELLER SHOULD – Many items fall in here and are basically not major things. Often whether or not the seller “should” fix them has to do with the price of the home. If the buyer is paying a good and somewhat high “fair market value” then the buyer often expects these things to be done and the seller, happy with the price he got for the home, often does them. If the buyer is getting a screaming deal and the seller is walking away with nothing or less than nothing, the seller usually expects the buyer to accept the home with these issues not being addressed.

Often these are things the seller did not deem important enough to fix while he lived there, and not something the seller did not know about. A small crack in a window. A broken window seal (this is cosmetic in most cases). A bedroom door doesn’t “latch” properly, which is often fixed by tightening knob or hinge screws or adjusting the latch plate. Basically things that can be fixed with little or no cost and a screw driver.

Column Four – ????? – This is where many sales can fall apart. These are usually large items that are “in working order” and not currently defective, but near or past their “life expectancy”. Roof is not leaking but 23 years old. Hot water tank is working just fine, but is 18 years old. Heater is working just fine, but is 30 years old. Again these items usually hinge on the price negotiated. If the Seller got the better end of the deal at initial price negotiation, the buyer’s expectations may be different than if the buyer is getting the home at a “below market” price. Often the seller and the buyer do not agree on THAT, on whether the price was at, above, or below market price and THAT is why the sale fails over one of these items. Not because of the item itself, but because the parties think one or the other is not being reasonable given the home price.

Does a house need a new roof because it is “old” but is not leaking? Does a hot water tank need to be replaced because of it’s age when it is functioning well?

Often these things are viewed differently in a Seller’s Market vs a Buyer’s Market.

5) PROPERTY APPRAISED

This item usually happens “in due course” meaning the buyer and seller do not order or control the time frame of this item. The Lender orders the appraisal and unless there is a problem with the appraisal, the contract simply proceeds toward closing. The Buyer usually pays for the appraisal in advance OR is responsible to pay for the appraisal even if they do not close escrow for some reason.

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NOTE: MONEY the buyer needs to pay BEFORE closing. Earnest Money Deposit, Inspector Fees and Appraisal Fees. Depending on the size of the house, the inspector fees are usually $500 or so for one inspector/inspection and $450 or so for the appraisal. There could be more than one inspection needed, and if the home is unusually large or small the cost could vary. If you are only paying $199 for a Home Inspection, that is not a good sign. 🙂

6) HOMEOWNER’S/HAZARD INSURANCE

The buyer needs to purchase a full, one year, Hazard/Fire insurance policy AT closing. Once you are finished with the inspection and the lender has everything they need from you to process the loan, you should arrange for your Insurance Policy with your lender and escrow, who both need to coordinate with your insurance provider.

Most often the best rate is obtained by getting this insurance from the same company that does your car insurance, so be sure to get a quote from them.

Note: Title and Title Insurance Issues happen from before the property is listed through to closing. There are Title reviews and Title Insurance Policies and Supplemental updates of Title throughout the entire transaction. Sometimes these issues are critical, but most often they happen “in due course” and are not alarming. Both escrow and your lender are interacting with the Title Company throughout the transaction.

Title Insurance and Reports are usually pre-ordered by the seller before the home is listed for sale. The Buyer’s name is added when the buyer’s name is known. The Owner delivers “clear title” by paying for Owner’s Title and the buyer pays for Lender’s Title as a condition of their mortgage.

IN SUMMARY: MOST EVERYTHING THE BUYER NEEDS TO “DO” IS DONE IN THE FIRST 5 BUSINESS DAYS OR SO AFTER THE CONTRACT IS SIGNED. AT THE END OF THAT PERIOD THE BUYER EITHER CANCELS OR PROCEEDS TO CLOSING.

7) THE CLOSING Loan Documents arrive at escrow. Hopefully at least 3-5 days before the closing date noted in the contract. The buyer signs their closing papers which include the loan documents and the Final Estimated Numbers called the HUD 1 or Buyer’s Closing Statement and some other ancillary escrow forms. The Lender reviews the signed documents and “releases for recording”. Escrow Records the property in the new owner’s name with the County. Keys are available to the buyer after we have County Recording numbers OR on the date of possession noted in the contract.

Closing is a phone call saying “We have Recording Numbers”.

For the most part the buyer is VERY busy for the first 5 business days or so and then again near the end. In between everyone else is working hard. The seller is packing and moving out. Escrow is coordinating with the agents and the lender and the Title Company and the buyer’s insurance company and the County, and getting the seller’s payoffs so liens can be removed as to the seller’s mortgage and utility bills prior to closing.

THE BUYER SHOULD NOT BE PLANNING TO GO IN THE HOME THEY ARE BUYING AFTER THE HOME INSPECTION AND BEFORE CLOSING!

This often comes as a surprise to most home buyers. The seller is packing and usually does not want you IN the home while it is a mess of boxes! That is why you should do EVERYTHING during the inspection phase. Get estimates for new carpet or hardwoods, measure for curtains, measure for a refrigerator or washer and dryer if you plan on buying them before closing. If you don’t do it during inspection, you may have to wait until after closing.

No post like this is “all inclusive”. This one is written from the standpoint of a buyer purchasing a normal tract home on a normal lot with little problems and no HOA.

Here are a few others I wrote about 5 years ago. All good reading for a buyer or a seller after the initial inspection phase and before closing.

Anatomy of a Real Estate Transaction (Some good “extra” notes in the comments on that one.)

– Short Version for the Buyer

– Short Version for the Seller

– The Three Phases of a Real Estate Transaction form Contract to Close

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.

Seattle Area Home Prices Hit New Low

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King County Home Prices hit a new low in January of 2011. There’s definitely something a little odd going on, as median home prices do not usually fall by $32,000 in one month. But then November and December of 2010 should not likely have gone up as much as they did, unless the market is positioned to start ramping upward, which no one really expects to happen.

The only conclusion is the market is teetering on WTH to we do NOW! …or lot’s of people read my Oh NO! People are starting to overpay for houses again post.

No more tax credits, market should have gone down. But 2010 ended higher than it began. Totally unexpected and irrational.

Take a look for yourself. The blue $ is the King County Median Home Price in Thousands. The red blocks mark the bottom of the decline from PEAK Pricing in July of 2007 to March of 2009 and the second red block is where we are now at the end of January 2011. The first number in each 3 number sequence is number of homes closed. The middle number is the halfway point (median) as to units sold. Some are not exactly half as more than the perfect number sold at the same price to stop at exactly half sold for more and half sold for less.

Example: Jan 2011 824-413-$350 means 824 homes sold and 413 of them sold for $350,000+.

A NEW low!

bottom chart

The quarterly median graphs on the right above show you that in a flat market a year ends about where it started as to 1st and 4th quarter and the 2nd and 3rd quarters are usually higher. That is what they call “Spring Bump” and what a “normal” relatively flat year looks like.

Now let’s look at where King County Home Prices are BACK TO with this NEW LOW.

2004-2005 prices

NOT at 2004 pricing YET…but very close. A small $5,000 drop from here will put us at December 2004 level.

At the moment, as you can see in the above graph, we are at February 2005 pricing.

We had been running at or above April 2005 pricing for quite some time. For years…many years,and consistently for the last two years. So this new low is quite a “newsworthy” event.

I think we will “Spring” back up to $375,000ish pretty quickly…but for now, we have a new low. What will cause the rise up? Some people with really nice houses who are not upside down getting on market and listing their homes. There are more buyers today than there are nice homes, priced well, to buy. But I expect that to change, and for prices to get back up to the $375,000 level fairly quickly. If not in February, than by April at the latest.

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(Required Disclosure: Stats in this post and in the charts in this post are not compiled or published by The Northwest Multiple Listing Service.)

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.

Short Sales & the “new” Mortgage Fraud

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see-no-evilShort Sales continue to be problematic for all concerned. So much so that “right” seems to be the minority “opinion”. At least I think I’m “right”…but apparently so does everyone else with a completely opposite opinion.

So you tell me…Am I RIGHT or am I RIGHT?

The pretty simple short of it is: IF you sell your house short…you have to MOVE OUT! While many do not dispute this, I recently commented on this question of a Broker in Florida on this issue. I appear to be the ONLY person in almost 200 comments, most all from agents, who thinks the agent is supposed to check that the seller has moved out on the day of closing, or the day all parties agree that the seller was supposed to move out.

Crazy. Just Crazy!

As my friend in Philly once said to me,

“Ardell, everyone does “the right thing”. We just don’t all agree on what “the right thing” is.

In the post the question is “What is the Penalty for Breaking an Arm’s Length Transaction Notice?”BUT he seems to think his problem is that he drove by months later and the “former owners” waved at him from the front lawn. He thinks he just “found out” the sellers didn’t move out, when in fact he should have been “in charge” of knowing whether or not they DID move out in the first place! I mean…seriously…do agents not accept responsibility for ANYTHING anymore??? …and…wait for it…this guy TEACHES a class on Short Sales. Jillayne’s gonna LOVE that one.

The Buyer, Seller and BOTH AGENTS signed this:

arm's length

No ambiguity there. Seller is NOT to remain in the property…PERIOD! But apparently “see no evil” is the excuse! Didn’t bother to notice that the seller hadn’t moved out on the day of closing? It’s pretty obvious the agent DID know the seller wasn’t going to move out that day…but “thought” that was a short term thing. BUT didn’t write a short term occupancy agreement to cover that and send it to all parties to sign, and the lienholder, PRIOR to closing!

But…no one except me thinks the agent was supposed to check that the seller in fact…MOVED OUT! Crazy. Just Crazy.

Examples of other responses:

“Well you certainly did not do anything wrong and you have little to worry about. the buyer and seller have to worry unless they can prove that the idea of the sellers regain occupancy came AFTER close of escrow..and the longer after the close, the better.”

A general consensus is all is well as long as they did not “intend” to stay as tenants at the time they signed the Arms Length Agreement and LATER decided not to move out. Even the attorney who responded says it is about “intent” when they signed the Arms Length Agreement, and not whether or not the seller actually moved out!

My response was long and very clear that the agent needs to LOOK IN THE HOUSE on the day of closing and make sure the seller is GONE! If not…I list the steps that need to be followed BEFORE the property closes. YES…STOP the closing!

“You are likely at fault for not providing the necessary paperwork for all to sign at closing to address the property not being vacant on the day of closing. The standard is not what you did know. It is what you should have known. If the contract had no post occupancy terms for the lienholder to review and know about before closing, it is because you did not cause them to be there.

So it depends on whether or not they broke an agreement AFTER closing, that you wrote before or at closing. If the contract stated possession day as closing day, then you were aware, or should have been aware, that the possession was not transferring on day of closing in accordance with the contract terms. You should have seen/witnessed a vacant property before closing OR written up a post possession agreement if it were not vacant.

If on the day of closing you knew it was not empty (and you should have even if you didn’t) and the loose agreement between buyer and seller was an extra day or more of occupancy, then you should have written up that agreement with an end date. You should then have sent that agreement to all parties, including the lienholder and the buyer’s lender. If the buyer bought it as owner occupied vs an investor loan, there is potentially lender fraud on two counts, but you can probably get concurrent terms of sentence on that. 🙂

Was the insurance policy at closing for an owner, or a landlord policy? Did it have a vacant property rider? Or was the policy done as an occupied property with a tenant in place? Pretty easy for investigators to note if the buyer’s insurance policy did not note a landlord policy with a vacant property rider, meaning the buyer, buyer’s lender and buyer’s insurance company thought it would be vacant at closing vs occupied.

If the agreement had no post occupancy provision (and since you don’t mention one I’ll assume it did not), then it was your obligation to view the property as vacant prior to closing and prior to giving the buyer the keys to the house.

There is no excuse for your not knowing the property wasn’t vacant and writing up a post possession agreement once you knew it was not vacant immediately prior to closing.

Let’s say you DID write up a 3 day post possession or a 10 day post possession or even a 30 day post possession agreement, and that document was signed by buyer and seller as part of the contract and sent to all parties and lenders/lienholders. If the parties subsequently extended or ignored that agreement, then you “may” not be liable, depending on how that post posession was worded.

But if the property was not vacant prior to closing and you did not write that up in a post possession agreement, then you are liable for not having done so.

To which several replied:

“See no evil…hear no evil…speak no evil. i would leave well enough alone.”

Forget “crazy”…this answer is INSANE!:

“There is a legal way to get around these laws because this is the United States and people are free to do as they please.”

Lots of nails in this coffin…where are the agent’s brokers? Don’t they read this stuff?

“Shrewd buyer. Approach the sellers “AFTER” the short sale. Sellers are innocent, and you have an “Avoid Jail Free” card.”

“It appears that no one has done anything wrong…”

“Sounds like an issue for the two lenders involved, not the RE agents.”

“I’m sure the bank is too busy with all the other foreclosures and short sales to really be trying to document all the new tenants in homes that have closed. I’m sure you’ll be fine…”

And a direct response from the agent in the transaction who wrote the blog post:

“ARDELL. I completely disgree that I have an obligation to check whether or not the property is vacant at time of closing.”

Recently my friend Kevin Tomlinson said this about The “new” Mortgage Fraud:

“An example of a non-arms-length transaction would be where a seller “short sells

March Madness for Real Estate Events

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I’m a volunteer on the planning committee for the next Seattle Real Estate BarCamp and I’m amazed at how many events being planned for real estate professionals in March…it’s borderline madness!

Here are a couple that I’m aware of:

March 2, 2011 – Northwest Video Marketing Summit brought to you by Frank Garay and Brian Stevens of TBWS fame.   Cost is $100 and you’ll leave the day long event at the Seattle Center with your own video blog.  Follow on Twitter:  #vmssea

March 3, 2011 – Seattle RE BarCamp takes place at the Seattle Center Northwest Rooms (same location as last year).   RE BarCamp is a FREE event where the real estate industry can come together to learn from each other (social media, tech, trends, etc.).  It is NOT intended to be a “class room” with instructors.   It’s an “un-conference” where participation from attendees is required.  The agenda is determined the morning of the event based on what is suggested by the participants.  If you’re wanting to be taught and not comfortable with the BarCamp format, you might want to consider other events.  Twitter: #rebcsea

March 9, 2001 – Agent Reboot  at the Washington State Convention Center.  This is more of a sit down and learn type program with a set schedule of what will be taught.   Cost is $49 if  you pre-register.

March 15 -17, 2001 – Real Estate Coach Tom Ferry will be at the Meydenbauer Center.  Cost $197.

Am I missing anything?

December 2010 King County SFH

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There’s a big hoo-ha brewing over the December 2010 “increase” in home sales. Not to worry. It’s more of a “Lies, Damned Lies and Statistics” argument, than a true market change of any kind.
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As you can see in the chart above, prices are still trailing along the bottom from the price in the red block of March 2009.

Volume for the 4th Quarter is higher than 2008 and lower than 2009. The December up is simply a correction for November down. That correction could simply be a matter of reportings vs actual closings OR it could simply be longer loan processing times throwing some November closings into December.

Don’t worry about the noise, but do worry that more home buyers seem to be overpaying for homes these days than they have been for a couple of years. There is no market trend that will cover up those kinds of mistakes.
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Required Disclosure: The Stats in the above chart are compiled be ARDELL and are NOT compiled, verified or posted by The Northwest Multiple Listing Service.

Note: The primary variance in my numbers vs other reportings is that most count townhomes in Seattle but not elsewhere. I even that out by not counting townhomes at all.