Category Archives: Buying/Selling

Rain City Guide is loaded with information for home buyers and home sellers.

Mortgage Rates – A “volatile” market this month

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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.

30-year-fixed-mortgage-rate-historical-trend-chart

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.

Redmond – Home Prices UP 12% YOY?

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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.

graph (6)

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.




Why are so many Pending Sales failing?

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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.

Photo_5209ABAA-4E9F-5257-CD5D-AA7B15D000E7
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.

Photo_5209ABAA-4E9F-5257-CD5D-AA7B15D000E7

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.

Photo_E40BFBFC-DFBD-A848-339B-A4E3022FC818

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.

Buying New Construction

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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?

new construction

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. 🙂

New Construction Tip

Are sellers bound by “mls rules”?

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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.

Seattle Area – How to Choose a “Best Place To Live”

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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.

111aaa

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.

The Tim of Seattle Bubble Buys a House

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bath towelsIt’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.

Real Estate – Delusional Sellers or Delusional Buyers?

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New on Market! Do you jump on it…or let it pass?

That’s really the biggest question in Real Estate today in the Seattle Area. You hate everything that is for sale, but when a house comes on that you like (and so does everyone else) how do you know whether or not you would be overpaying to be the one that buys it in less than 7 days?

Everyone’s talking about the crazy market of no one wants it or everyone wants it. C’est la vie! Knowing when to jump and when to pass is an artform in its fine points. But since everyone can’t be an artist, I try to come up with some “rules of thumb” to help you with the “pass or play” dilemma.

A few weeks back we talked about the main three steps of finding the right house using the internet. In this segment we will expand on Step 3 which helps you determine what to offer and whether or not to offer at all.

I started using a color coded system for valuation models early this year. Not necessarily to help me value property, but as a way to show others how and why an agent will walk up to one house and say “they are asking too much” and the next one “hurry and get this one before someone else does”. It’s near impossible to define that because agents tend to learn these things by osmosis vs actual data. But if you don’t know the client well, you have to find some way of conveying the “why” of that, and this is the best I could come up with for the moment.

Works fairly well if you don’t leave your common sense at home.

A for instance…I coincidentally just got an email from an agent while typing this about a “massive” 10% price reduction…and it is still WAY overpriced! How does an agent or a buyer know this instead of thinking WOW…big price drop? How do you know that it is still 20% overpriced after a 10% price drop? Well, maybe one that obvious is a secret to no one. 🙂

Back to color coding…
value color codes

Red is the universal STOP! Brown is the universal “This might be a load of crap”. Yellow is the Universal “CAUTION!”. Everything else is where most property should fall from light green to dark blue being “the norm” depending on the area and the house. Purple is reserved for Royalty, meaning the house AND the location better be pretty darned “special”.

Now you chart out your area of interest noting not only the Market Value to Assessed Value Factor, but also how much of the value is represented in the DIRT of it, vs the HOUSE of it. Bring your common sense with you…the tax assessor is not always correct. Well, he/she is “correct”, but the market may not agree. So you have to adjust for market influence as to home styles, condition and changing influences on land value. Don’t make them up though…make sure you find the evidence to support your adjustments in the current data.

Your charts should look something like this for In City and most View Areas:

Lakeview 600-650

OR like this for a more typical “suburban” housing development:

98052 2011

More charts with explanations here and here and here, as you want to lay the correct ground work before working on Who is DELUSIONAL, you or the seller?

SELLER IS DELUSIONAL EXAMPLES:

I’m pulling up real examples as I type this. I can’t tell you which houses they are, because it’s against mls rules for me to shine a flashlight on delusional sellers by name and address.

1) Seller lives in the 1.1 or less area and has priced their house at FIVE TIMES the Assessed Value. Yes folks…it’s a new listing too. Lots of oddities here…let’s move on to less delusional.

2) Seller prices the house at 1.4 in the Brown Zone in an area that normally sells in the light blue zone. This is one where the Tax Assessor may be off. If you can get it into the dark blue zone, you may have to be happy with that. There’s a strong chance it will sell in the purple zone, and it should have been listed in the mid range of the purple zone at no more than 1.35 X assessed value. For my clients I’d say if you can’t get it for 1.25 X AV or less…let it pass. Why is the seller “delusional”? Because he spent a ton of money remodeling the kitchen. BUT that was 25 years ago. It needs to be done again.

3) OMG this house has been on market SO long…it must have a pile of dog poop in the living room when you walk in. How can a house be on market for almost 3 years! OK…listed at 1.28 x AV in a neighborhood that sells for 1.06. No dog poop…just overpriced. They have reduced the price over 3 years to the current 1.10 X AV…too little too late and close but no cigar. The stigma of more than 2 years on market is going to push this down into the green zone. On the bright side everyone else in the neighborhood is selling their house in 2 to 7 days, because by comparison, even though they are only priced fairly, they look like screaming deals. LOL!

4) Oh Jeez. This one is just sad. Nice house. Great house even. On market almost a year. Great area, well “good” area anyway. The problem isn’t so much that it is priced at the wrong MV to AV factor. It is priced at FIVE TIMES THE VALUE OF THE LAND! Holy Crap, Batman. a BROWN price in a GREEN neighborhood. Sad really. The only way it can ever sell is as a short sale, and that won’t likely be anytime soon. Watch for this one to go off market or be on market for 2 plus years.

5) This is a nice house on market for almost 2 years. What’s wrong with it? Switching to “Bird’s Eye View”. What the heck is that? Built between a huge condo complex and an industrial park within a stone’s throw of the freeway. The assessor knows that’s a no no, but the seller is ignoring the assessor and priced it at…wait for it…1.36 x AV and the house is in the parking lot of an industrial property! Let’s try .96 x AV on that one.

OK…enough on delusional sellers.

Let’s look at the houses that sold in less than 7 days.

1) Nice house in a 1.15 to 1.2 neighborhood but a smallish house with only one bathroom. Listed at 1.06 x AV sold the first week at full price. Maybe a little underpriced, but with only one bathroom…worked out for everyone. No surprises here.

2) A nice clean house that needs remodeling in a great neighborhood that normally sells at 1.2 x AV. Listed at 1.06 x AV. Sold in less than a week.

3) This one looks like it went too high. Obsolete home style, great staging but needs remodeling. 1.1 area. Listed at oh no…1.57 x AV RED ZONE and sold in 5 days. That should have been a pass. That’s what we call “hope you plan to die there” cause no one else is going to pay 1.57 x AV for that!

4) Here’s one in a primo Seattle neighborhood that usually sells for 1.25 x AV. Sold in 5 days at 1.23 x AV even though it was listed at 1.15 x AV. People are more likely to make the mistake of overpaying in Maple Leaf than Green Lake or in Ballard than Queen Anne, if you no what I mean. The fine nuances of value become most important in areas that border high prices, but don’t command them, like example #3 above.

I’m not going to go look for a 5th example here, but I will say that looking at all of the houses sold in even less than 7 days, hard to find any that sold over asking, and those that did were not over by a significant amount. Example #4 was likely the largest sold to asking price example.

Now let’s not forget about the Delusional Buyers.

1) Walk into the nicest remodeled house in a neighborhood that sells easily at 1.2 x AV on a bad day and want to get the house for .80 x AV. Then they complain there are no good houses for sale “at a good price”. Do your homework. Check every sold property in the last 3-6 months and chart everything. IF the areas sells for .80, like parts of Duvall, well…I have it labled yellow for “caution”. You probably want a 1.2 for 1.1 or a 1.1 for 1 or even a 1.1 for .95 if you can get it. I did a 1.1 for .85, but we did proceed with caution…and a structural engineer as well, and that was Winter. Learn to “look a gift horse in the mouth” when appropriate.

2) Wants to pay the same price per square foot of all of the sales he didn’t want to buy…for the house he does want to buy. If you didn’t like them, you already know they were worth less. Don’t complain that you lost the house you finally found. Make sure you highlight on your charts the bad houses and the good houses and offer the good house factor when you find a good house. Don’t hate all the 1.1 houses and then expect to get a great house at 1.1.

Don’t leave your common sense at home. 2011 is the Battle of the Delusionals and the survival of the fittest.

How To Better Use the Internet to Find a Home

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1) Make a “value grid” of the area you are interested in.

2) Overlay an Elementary School ranking grid (whether or not you care about schools).

3) Use steps 1 and 2 to define your “target area” and make a new chart highlighting Market Value’s relationship to Assessed Value in that smaller, defined area.

Before I demonstrate how to apply these techniques, some insight on why I am writing this post today. It is in response to a few comments I read in The Wall Street Journal’s article on Buyer frustration, namely:

“The mood among buyers was ‘nasty’…customers just keep getting outbid on the houses they want.” Glenn Kelman, CEO Redfin

“What’s selling is the Cream of the Crop, and they sell fast. What isn’t The Cream of the Crop is getting hammered.” Real Estate Agent in Florida

“It’s a false buyers market. If you think prices are cheap, wait until you start making offers.” 32 year old home buyer

The main reason you want to start your home search on the internet, is to formulate some strong opinions about what you DON’T want, especially with regard to over-paying for a home, before you step into the arena.

The tug of war in the Internet Home Game is that agents want you to just come OUT and SEE the house, hoping you will fall in love with the house, and not care so much about it being a “good value”. The homebuyer is refusing to GO SEE the houses that indeed might create this scenario, which will work out better and best for the agents and sellers than for the home buyer.

The Mexican Standoff is created by sellers pricing based on their house being somplace where it is NOT, and buyers making offers based on some overall market statistic that may or may not apply to the WHERE they want to live.

To demonstrate this technique I am using the City of Kirkland in the example, because it is one of the easiest to break down into its value segments.

VIP! EVERY area has these VALUE TIERS with sellers in the dark pink area trying to price like the light pink area and sellers in the light blue area trying to price in the dark blue area.

That is what “over-priced” means, to a large degree.

WARNING: Some severe Real Estate Transparency ahead. Agents generally do not convey this information publicly because it can be offensive to buyers and sellers in the lesser value tiers. While all good agents use these methods with their clients, there is good reason why they do not speak of these things publicly.

If you are a homeseller or agent who wants to pretend that the only factors are school DISTRICT and those that relate to the home itself, this is not a good post for you to be reading.

1) A “VALUE GRID” example
kirkland value grid

TO UNDERSTAND AND CREATE A VALUE GRID, YOU HAVE TO UNDERSTAND WHAT THOSE VALUES ARE PULLING TOWARD AND AWAY FROM.

This is likely the main argument for why you need “a good agent” unless you can use these techniques to represent yourself. This is why having “any” agent is not necessarily better than representing yourself. When I ask an agent what “his service area is” and he says “ANYWHERE!”, I know he is not a “good” agent.

It is great to keep up on general market conditions, using sites like Seattle Bubble that tend to speak in terms of COUNTY stats. I read it all the time. BUT if you don’t take all that a step further into your area of interest, you will be the poor schnook who bought the house in the green section at a medium blue price and ended up selling it at a light pink price.

That is something that you need to understand about FORECLOSURES and why agents pay less attention to them being a “market value” setter. Sure, if someone buys a house in the green section and prices it at time of sale in the green range of value and it ends up in foreclosure, we all sit up and take notice! BUT, but, BUT when we see the house that sold for a medium blue price in the green section come back as a foreclosure…we say…”poor schnook, who the heck represented him when he purchased THAT!”

That’s how an agent can sometimes tell that a house is overpriced before seeing the house. That is why you need to know that too…so that you don’t fall in love with it and start ignoring “the obvious” from an emotional standpoint. The same holds true for the opposite, however. MANY BUYERS ARE FRUSTRATED because they keep making pink offers in the blue area…unsuccessfully. To go back on the quotes from The Wall Street Journal article, the “Cream of the Crop” is BLUE in all of its 3 shades and then Green. Getting “hammered” are the greens who bought at blue prices or the pinks who bought at green prices.

This applies to New Construction Foreclosures as well, and the builders who got the land in the green sections, but penciled their profit numbers out on the blue ones, or who bought in medium blue thinking they could get dark blue prices.

A few notes on the Sample Value Grid. I don’t want to get bogged down in the detail of “Kirkland”, but to help you use this principle elsewhere, worth a little more comment. The dark blue section is basically a condensed form of West of Market. Once you know this, you will understand why a lot of the bargains are up at 18th Ave to 20th Ave, especially on the West side of Market Street. The Medium Blue section to the right of the dark blue section is the other side of Market Street known as “The View Corridor” of East of Market which runs from 1st STREET to 3rd STREET (but not ON 3rd) and from Central to 13th Ave. The lighter blue section to the right of The View Corridor is East of Market up to 6th Street (but not ON 6th Street). The green section to the right of that is called “the wrong side of 6th” and can turn pink and green alternately depending on which street. Lots of “bad” decisions on highest priced homes “on the wrong side of 6th”. Same holds true in the lower sections where 6th Street turns into 108th Ave NE. You have to balance the COLOR grids (and school grid) with the “freeway noise” in some of these areas on the southern portion of the grid in the blue and green areas.

The lines are not hard and fast, but understanding some basic valuation principles will help you understand “value” better and well enough to “bend” the lines when appropriate.

AGAIN…EVERY AREA HAS THESE COLOR GRID FACTORS!. They just differ as to where and why in each area.

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2) Overlay the ELEMENTARY SCHOOL GRID

This is a newer value increaser/inhibitor somewhat created by sites like GreatSchools.org and sites like Redfin using those rankings on its property detail pages down near the bottom. People always had a word of mouth “best schools” impact on home values and rankings of School District and High Schools. But the valuation demarcations based on ELEMENTARY school and the exact “borders” of those schools, is a relatively new phenomenon created by more information being available on the internet.

Knowing the school boundaries is great! But are we giving too much credence to sites like GreatSchools.org and SchoolDigger.com? Most real estate industry personnel say yes, and do not lend their seal of approval to these sites as readily as some newcomers to the industry. That said…there is some overlap between the school rankings and the traditional value segments. Most BLUE areas happen to have good schools. Some pink areas do as well. So to do our overlay, we don’t have to decide whether or not the school rankings are 100% accurate any more than we have to decide if green is better than blue.

Remember, if you can’t afford blue…green may be your best option and if you can’t afford green, pink in the best school may be your best option. OR pink with a great school might be better than green with a lesser school. OR…as pink gets darker toward another school district…a better school in the OTHER school district may be a better choice. These are the kind of things you need to consider when choosing an agent or choosing to represent yourself. Recognize these factors as “real” and learn from where the foreclosures exist and why those foreclosures happened.

That’s why you have to know why these areas are “colored” as such, and what they draw their value from. The upper pink section on the left is pulling from Bothell and Northshore School District vs Lake Washington (the lake itself) and Downtown Kirkland, as example. You might want to step over that line…or not.

If you take The School Boundary Map and overlay it on the VALUE GRID you will not be surprised to see the Dark Blue area serviced by a highest ranked school and the lowest ranked school planted firmly in Pink.

Life is not quite that simple and I’m not going to go there with you in this public forum. I give you the tools, you being a “reader” vs “my client”. There are limits to how much credibility I will lend to these ranking sites as a professional, and those limits are only shared with my clients. But hopefully, no matter where you are looking to buy, this shows why EVEN IF YOU DON’T CARE ABOUT SCHOOLS, you should not overlook the secondary value pressure of which elementary school is servicing the home you choose.

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3) Market Value’s Relationship to Assessed Value in the “target market”

This is a little harder as you have to balance some other factors like land value, main floor footprint and home style. It looks something like the chart in the link just below this sentence, that I have used in posts before:

Market Value vs Tax Assessed Value

For a “target area” we will be blending steps 1 and 2 with this 3rd step, using the same color key as in the link above from green to red, which is different from Step #1 and it’s color codings. In this final step, lighter green is best (vs blue), but red is almost always a “stop sign” of some kind. 🙂

I’m going to lose a few more people here, but for those who are seriously needing to understand value of homes in order to pick one and make an offer…try to stay with me here. Be sure to click on that blue link just above marked “Market Value vs Tax Assessed Value” before moving on to the charts below.

COLOR AV CHART

The BLUE background chart relates to point #1 and is a “Blue Value Grid Area”. In a Blue Value Grid Area, your best hope may be a Blue Price as noted in the KEY to the right, that being 1.2ish times Assessed Value. A few may even sell at the RED “bubble prices” if they are near water, have water views AND have been fully remodeled. You might find a green or two, but they will likely be “tear downs” selling at lot value.

If you are making Green offers in the Blue Zone….you may never achieve success UNLESS when you draw YOUR target MV vs TA map, there are some green sales.

The PINK background chart at the bottom also relates to point #1, but most of the sales ARE green and none are red. In this area you DO NOT want to buy in the purple or above zone without VERY good reason.

I’ll try to simplify this. Let’s say most houses assessed at $800,000 sell for $950,000 in the Blue Zone. NONE have sold for less than assessed value except for the tear downs, or busy road, or malfunction of floorplan issues. That means if you keep looking for a GREAT house with no negatives and making offers of less than Assessed Value, then you are going to get frustrated.

BUT if you are in the Pink Zone where homes sell fairly regularly at assessed value or less (you need to do the actual stats to know if that is the case, this is just an example of HOW to do that) then you don’t want to be paying 1.2 or more times assessed value or $470,000 for a home assessed at $390,000.

EACH AREA will have it’s own relationship to Tax Assessed Value. This has ALWAYS been true in the Seattle Area and is a much better valuation tool than Price Per Square Foot, especially in areas with basements.

You need to calculate if your area of interest is a .97 of assessed value area, a 1.13 times assessed value area or a 1.25 times assessed value area. NO “area” will be a 1.5 times assessed value area right now…but a given house may be.

I’m going to stop here as I’m sure I’ve lost quite a few people by now. But THIS is roughly how good agents “work”. They don’t necessarily make little maps that look like alien solar systems as I have here. But this is an attempt to convey to you the process of how an agent generally values homes and the property they sit on.

Feel free to expound on the topic by asking specific questions in the comments. I’ll do the best I can to explain further in direct answer to those questions.

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.)