Category Archives: General

Not showing a less-than-3% SOC commission? That's unethical and illegal

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This is not legal advice. For legal advice, consult an attorney directly, not a blog.

It’s common knowledge (based on those comments, at least) that some buyer’s agents will not show properties with an SOC of less than 3%. Is that a problem? In a word, Yes.

First, the ethics: The term “ethics” in this context refers to the code of conduct by which a professional is expected to perform his or her duties. “Ethics” in this sense usually — but not always — correlates with what a layperson would consider “right” and “wrong.” Generally speaking, “ethics” in the professional sense imposes an obligation to perform a professional duty in a fair and reasonable matter.

Admittedly, I am not up to speed on the rules of ethics that would apply to a real estate agent. Many agents are also Realtors, and I know that they are thus subject to a particular code of ethics. Attorneys are subject by law to the Rules of Professional Conduct, rules of ethics formulated by the State Supreme Court. I am unaware of any similar rules that apply to agents.

With that disclaimer, it certainly seems like this conduct SHOULD be considered unethical. Surely an agent has an ethical duty to diligently work for the client, including the identification and showing of any property that is or may be suitable for the client. From an ethical perspective, I would even argue that this applies to properties with no SOC whatsoever. Admittedly, in that circumstance, the agent has every right to and should discuss this with the client, as the agent need not work for free. Thus, the agent should, either at the initiation of the representation or when the issue arises, discuss with the client whether and how the agent will be compensated if the agent finds a house that does not offer an SOC. The parties may agree that, in that instance, the client does not expect and has no right to receive information from the agent about that property. Regardless, with this conversation, whatever its outcome, the client can knowingly consent to any limited scope of representation, and consent is the key when dealing with an ethical issue.

Now, the legality: This conduct is almost certainly illegal (at least where there is something more than a 0% SOC), but there is very little chance that it will give rise to liability. How is it illegal? RCW 18.86.050 is the relevant statute. It requires a buyer’s agent to “make a good faith and continuous effort to find a property for the buyer,” except that the agent need not “show properties as to which there is no written agreement to pay compensation to the buyer’s agent.” In addition, the agent is relieved of this obligation entirely IF the buyer agrees otherwise in writing after receiving the required “Laws of Agency” pamphlet. So, assuming the property offers a commission in some amount (i.e., greater than zero), I believe the agent has a legal duty to bring that property to the client’s attention.

So why no liability if the agent fails to do so? That turns on general legal principles applicable to wrongful conduct. Where such conduct causes an injury, the wrongdoer is liable for the harm caused. Here, assume an agent fails to show a “dream house” to the client because of a 2% SOC. The client subsequently buys another house for the same price. The client then finds out that he was denied an opportunity to buy his dream house because his agent did not tell him about it. What is the injury? Given that they are the same price, there is no way to quantify the client’s injury. Under those circumstances, it will be difficult to find the agent liable. Note, however, that if the house actually purchased cost MORE than the dream house, the client may be able to recover the difference.

From a practical perspective, too, there is little chance of the agent being held liable. The whole claim turns on what the client did not know. So, in order to even raise the claim, the client has to learn that his agent failed to inform him of his dream house. Needless to say, it is hard to even fathom a situation where the client would learn of this information after the fact.

So, it ends up being one of those unfortunate facts of life where — as of today, given the laws as they exist — there is no real remedy for the injured party. Unethical? Yes. Illegal? Probably? Any way to stop the behavior? Unfortunately, probably not.

Upcoming Changes with FHA Mortgages

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Update October 27, 2008: many of the changes mentioned below have all ready changed!  Please visit Rain City Guide’s Mortgage Info page for the most current information.

I was just reading Brian Montgomery’s speech from yesterday which reminded me of what’s on the horizon with FHA insured mortgages.   He points out that the increased loan limits are temporary–you only have until the end of this year to take advantage of the increased loan limits and then *poof* this coach turns back into a pumpkin!  Instead of doing 3% down with a loan amount up to $567,500, if you’re buying in King County, the maximum loan amount for a single family dwelling will be $362,790.   This is really a window of opportunity that is closing (this window includes conforming jumbo, too).   I suspect that Congress will pass an extension to the loan limits…and IF they do, they may reduce the loan limit to somewhere between what is offered now to what the real loan limit is…this is a big IF.   For now, we just know that FHA-Jumbo (and conforming jumbo) are here until December 31, 2008.

Next month, FHA will start their risk based pricing for mortgage insurance.    This from Ken Harney’s recent article:

On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5%. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually.

The difference in savings is not super significant for borrowers.   Using a loan amount of $360,000 and a rate of 6.5%, here’s how it pencils out for the credit scores above 680, 680-560 and 560 and below (who may have a tough time finding a lender regardless of FHA being willing to insure them.   Lenders have their own underwriting “over-lays”).

  • 680 plus with 10% down = upfront mi of 1.25% = $4,500.  $4500 plus $360,000 = $364,500.  Principal and interest = $2,303.89.  Monthly mortgage insurance @ 0.5% of the base loan amount = $1,800 divided by 12 months = $150.  $2,303.89 plus $150 = $2,453.90 (not including taxes and insurance) for the “preferred” FHA borrower.
  • Credit scores above 560 with less than 10% down (this is the current model) = upfront mi of 1.5% = $5,400.  $5400 plus $360k = $365,400.  Principal and interest = $2,309.58.  Mortgage insurance is the same rate as above, so the payment (not including taxes and insurance) is $2,459.58.   A difference of just over $5 based on this loan amount.
  • Credit score below 560 is going to have a different interest rate.  In fact, many lenders will not do FHA loans under 580.   Assuming a 559 credit score finds a lender, the upfront mi increases to 2.25% of the loan amount: $8,100 based on our example.   The rate would be significantly higher in addition to the increased mortgage insurance costs.

So, the moral of the story is that if you have credit scores 680 or better and 10% down, don’t wait until next month to take advantage of the improved mi pricing.  It’s not going to pencil out to the consumer as much as it will to FHA.   You’ll potentially lose any gain by the rising mortgage interest rates (which have gone up again today).

Watch out for Down Payment Assitance Programs which are on the endangered species list.   Even President Bush is on the bandwagon to do way with DAPS.  Quite frankly, I’ve never been a huge fan as I’ve witnessed sales prices being jacked up to absorb the cost the seller has to contribute to participate and structure the transaction…who does this impact?  The buyer.   The practice of increasing a sales price over the list price, like the do-do bird, probably wouldn’t fly in today’s market anyhow.   Home buyers utilizing FHA should count on investing 3% into the transaction (which can be a gift) and the seller can contribute up to 6%.   I do believe the down payment assistance programs days are numbered.   

I do hope that more people take advantage of the FHA Jumbo loans while they’re available for the remainder of this year.   As I’ve mentioned, they’re a great resource for people with less than 20% down and with Fannie Mae’s DU 7.0, I’m sure we’re going to be seeing more and more FHA financing.   Keep in mind that various lenders may have their own guidelines (3% vs 5% down w/FHA Jumbos, for example) in addition to those of FHA.

Sunday Night Stats – Regular Weekly Post

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In the post below this one I varied from the normal format.  Posting this one for readers who are keeping the weekly data on an excel spreadsheet.

King Couny Condos

Active Listings: 3,942 – UP 31 – median price $323,000 – MPPSF $318 – DOM 61

In Escrow: 938 – DOWN 6 – median price $299,900 – MPPSF $299 – DOM 52

Sold YTD : 2,287 – UP 146- median list price $289,950 – median sold price $285,000 – median PPSF $291 – DOM 48

King County Residential

In Escrow: 2,907 – UP 28 – median asking price $445,000 – DOM 46 – MPPSF $211

SOLD YTD: 6,806 –  UP 259 – median sold price $440,000 – DOM 49 – MPPSF $220

Actively for sale 11,753- UP 141 – MPPSF <$800,000 is $219.50 – MPPSF >$800,000 is $337.50

Stats not compiled or published by NWMLS. (Required disclosure)

 

Sunday Night Stats – Patience is a Virtue

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My focus tonight is on the expectation of sellers to have an offer quickly after listing their property for sale.  I must admit that I am still in a “30 days to offer” mindset as most sellers are.  Truth is, that is not a realistic stance, but I didn’t realize until tonight how unrealistic that is.

In the month of May, considered to be a fairly robust month compared to the previous 6 -9 months, only 16% of all condos sold in 98007 sold in 30 days or less.  Only 29% of all single family homes sold in Issaquah, sold in 30 days or less.  Outperformers such as Redmond had a 45% chance of selling in 30 days or less. 

King County has 7.8 months of inventory.  Not much distintion between condos and single family homes.  yet how many sellers have the patience to wait 7.8 months to sell their home?  At best a seller has less than a 50/50 chance of selling their home in less than 30 days.  Redmond only has 3.8 months of inventory on market as to single family homes. Issaquah is an outperformer as to condos with 61% selling in 30 days or less and only 3.3 months of inventory on market. 

Lots of variations around King County, but be ready to have your home on market for awhile.  No running off for the weekend and “looking at all offers on Monday” this year.  And those of you who did manage to do that, realize how very, very luck you are.

OK, let’s see if we can find a silver lining out there in the clouds.  Seriously, if the sun would come out…things might get a little better in the housing market.  It’s been one gray year…and NO ONE believes it is JUNE!  (Today is my 54/54 birthday BTW…Born in 54 and turning 54.)

May – King County Stats

516 condos sold compared to 959 last may – Down 46% as to volume

$298 median price per square foot – Down from $303 last May

1/1/08 to 5/31/08 – 2,220 condos sold compared to 3,906 for the same period in 2007

That’s down 43% as to volume, so May is not outpacing the year as a whole unless there are a lot of really late postings.  Median price per square foot for the same period is down from $298 to $291. 

Single Family Homes – King County

1,499 sold vs. 2,502 last May – Down 40% as to volume

Median price per square foot $220 – Down from $228 last May

1/1/08 to 5/31/08 – 6,634 sold vs. 10,001 in 07 – Down 33% as to volume

Surprises me that May would be underperforming the five month average here.  Not a good sign.  Lets hope that when we see some better weather around here, we will see some better stats as well.  Real Estate can be very weather driven and this year has really been bad. 

Median Price per Square foot of single family homes since January is the same as May stats at $220 – down from $226 for 1/1/07 to 05/01/07.

There are 11,753 homes for sale right now selling at a rate of 1,499 a month.  There are 3,942 condos for sale selling at a rate of 516 a month.  Basically it would take 7.5 months to sell off what is on market IF the rate of selling stayed the same and nothing new came on market.

So where’s that silver lining I promised you?  There are 2,907 single family homes in escrow today and 938 condos.  Those of you who are off to sign your papers to close escrow, realize how very lucky you are.  And those of you getting ready to put your homes on market, have a great big party if you are one of the lucky ones who gets an offer in less than 30 days.

Stats not compiled or published by NWMLS. (Required disclosure) 

Good agents and how they conduct their business

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I just received a call from John.  John is an excellent agent in that he is low key, no pressure, but very attentive to his client’s needs.  I met John at an Open House at 6806 27th Ave in Bryant.  John was out with his soon to be owner/seller, checking out the competition before pricing and listing his client’s home.

It is very considerate when an agent does this at an Open House, and does not make “an appointment” causing the owner to think it is a buyer coming.  Often owners get angry when an agent calls to “show” and then spend hours cleaning, only to find it is a “preview” by an agent using the property to gauge the pricing for another and competing seller.  Attending the Broker’s Open or a Sunday Open is the correct way to canvass an area to accurately price your next listing.

I just received a call from John.  He was giving me a “heads up” that his new listing at 3165 NE 82nd Street in Wedgwood would be coming on market tomorrow.  What a “good agent” to realize that someone listing a house in a similar price range might have potential buyers for his new listing.  What a “good agent” to take the extra step of remembering all of the agents he met at the Open Houses while canvassing the area to determine the price for his new listing.

We don’t talk about “good agents” enough, so if you happen to stop by the Sunday Open House or the Wednesday Broker’s Open of John’s new listing at 3165 NE 82nd Street, shake his hand for me and say “pleased to meet a good agent” 🙂   I’m doing my own Open House on Sunday, but I’m going to try to stop by on Wednesday.

Honestly, good agents are worth their weight in gold, and knowing who is who in this business is a huge part of what we do for our clients.

Is your offer "a secret" to be kept?

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Many buyers are under the erroneous perception that their offer is “a secret” and that in a multiple offer situation, their offer cannot be revealed to other participants.

While many agents may say “I would never…”, reality is that they DO in one form or another in some cases.  The real question is CAN they do it…and not WILL they do it.  Often the seller will counter the most qualified buyer with the higher price of another offer from a less qualified buyer.  Technically they didn’t “reveal” your “offer”, but they used your price as the counter price to a different buyer.  Same difference really, isn’t it?

“Hey, No Fair!” is something we hear often from the buyers caught in multiple offers.  Reality is that the seller does NOT have to be “fair” to all of the buyers, nor does the agent for the seller.  P.S.  If you are thinking that this post is not relevant as we are “in a buyer’s market”…think again.  At least half of my recent dealings in the last 60 days have been multiple offer situations.  The good houses are getting multiple offers,  “good” often translates into best floorplan, best condition, turnkey, move-in ready, needs little or no work…and not best “value” or a “bargain” in need of repairs or updates.

Here are a couple of ways that your offer is “revealed” in a multiple offer situation.  Often it’s more like a guessing game.  Buyer Agent says “If I bring you an offer of less than asking price, does it have a chance.”  Agent for Seller laughs and says, “Hey, I have FOUR OFFERS!, what do you think?”.  Even if all four offers WERE under the asking price (not likely), the agent may still respond in this manner.  Buyer Agent says, “If I cap at $950,000 will that put us “in the running?”  Agent answers “Yes, but more offers may come in, so no guarantees.”  Well at least you found it it was likely more than the ones in hand…maybe.  No guarantees.

The reason agents don’t reveal the other offers before the seller picks one is because they WANT you to go AS HIGH AS YOU WILL GO, and that is their job as the agent for the seller.  NOT because they CAN’T tell you.

When an agent reveals that there are multiple offers, that is also called a “Notice of FINAL and BEST”.  You bring your Final and Best Offer.  NO the seller does NOT have to counter you and rarely do multiple offer situations give you a “counter” or “second try at it”.  YES, the seller’s agent can pick up the phone while considering the multiple offers, call the Buyer Agent who has the buyer with the best credentials and give them a price at which their offer would be accepted and tell them to re-write, right now, and bring a new offer at a better price to the house.

Can the agent for the seller by-pass an offer merely because the buyer does not have an agent?  Yes.  The seller can take the offer price from an unrepresented buyer and counter a represented buyer with the same offer price.  If the seller and the seller’s agent prefer that the best and most competent agent be on the other side of the table during escrow, that is a considerable factor.  Often the seller and the seller’s agent will choose based on the competence of the Buyer’s Agent.  So everything the Buyer’s Agent has said to the Listing Agent WILL be part of the consideration, and having NO agent will also be a factor in determining which offer to select.

OK, now everyone say “NO FAIR!” in unison.  Quite right.  When the seller and seller’s agent are looking out for the seller’s best interest, they are often NOT fair to all or even any of the buyers who are submitting offers.  Don’t be lulled into the idea that you will get a second chance to make an offer.  Don’t be lulled into the idea that other buyers “CAN’T” be told what your offer is.  Don’t expect a seller to “be fair” to you while he is doing his best not to “leave any money on the table”.

Best offer wins.  Often the best offer is cultivated by “shopping” the offers on the table until the best offer is formed…and not the best offer “as submitted”.  If anyone thinks it is “illegal” for an agent for the seller to reveal your offer to another potential buyer…quote me the law that prevents that from happening. 

Rarely, if ever, do agents reveal another offer by physically showing it to another agent BEFORE the seller makes a decision.  Rarely do they reveal another offer in writing.  Rarely do they reveal it in a voice mail message.  Most often these things happen verbally and “off record”…like a whisper in an ear as most secrets are revealed.  So your agent being available by phone during the time the offers are being presented, could mean the difference between your getting the house and your not getting the house.  Often what we do to earn our commission is be available…at the right time…with little or no notice…just in case we are needed.

So when you decide not to have an agent, know that may hurt you in a multiple offer situation.  And when you are choosing an agent, understand that how your agent conducts themselves with and in front of the agent for the seller…can make or break your deal…and your heart.  So pick an agent that is trustworthy.  One that YOU trust…and one that the other agent will trust to help you close, rather than to “get out” of, the transaction.  If an agent makes it very clear to you “that they can help you get out of this”…they may be sending that signal to the other agent as well.  No seller wants a buyer who is looking for “an out”.

I have had agents bring offers, in mulitple offer situations, tell me “I hope this one works.  I’ve submitted 7 offers for these buyers and they cancelled on home inspection EVERY time!”.  When the Buyer Agent “vents” to the Agent for the Seller…what are they thinking?…but that’s another post.  For now, know that your offer CAN be revealed, used, shopped and utilized to the seller’s best advantage.

Sunday Night Stats

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Not a huge movement, but fewer condos for sale, meaning they are selling a bit faster than they are coming on market, for a change.  Fewer in escrow than last week, but that’s normal for the last week in the month as more escrows close out in that week.  Won’t be doing true month end stats until next week, as there will be end of month closings posting during this week.

King County Condos

Active Listings: 3,911 DOWN 42 – median price $324,999 – MPPSF $320 – DOM 59

In Escrow: 944 – DOWN 28 – median price $299,925 – MPPSF $300 – DOM 51

Sold YTD : 2141 – UP 127- median list price $289,950 – median sold price $285,000 – median PPSF $290 – DOM 47

I did a quick check on May closings.  While all are not posted, May sales prices were up both as to median price and MPPSF at $290,000 and $293.  Likely won’t take the YTD numbers up much, but one would expect “high season” sales to be a bit more as to price than 1st quarter sales…and they are.  I’m putting one on at $273 per square foot in Issaquah this week, hoping for shorter days on market than the King County median of 47.

King County Residential

Single family homes are not selling at a higher rate than they are coming on market as the condos are.  I would expect to see that change in June and July.  The number in escrow is down, but again that is because more move from in escrow to closed in the last week of a month, than in other weeks.

In Escrow: 2,879 – DOWN 54 – median asking price $448,950 – DOM 45 – MPPSF $212

SOLD YTD: 6,547 –  UP 380 – median sold price $440,000 – DOM 50 – MPPSF $221

May sale prices are up at $447,000, but no change for MPPSF

I do the Actives last for Residential, as I can’t run stats when volume is over 10,000 units

Actively for sale 11,612- UP 33 – MPPSF <$800,000 is $220 – MPPSF >$800,000 is $339

If distressed properties start selling more and more outside of the mls and less and less via the mls, we will have to check these numbers against the tax record data.  In fact it will be a good idea at the end of June to compare the first two quarters mls figures with County Stats.

I’m still seeing multiple offers on the best properties.  People expecting the best properties in the best areas to sell at bargain prices are disappointed.  It’s not that kind of buyer’s market.  It’s not really a buyer’s market at all…it’s just not a seller’s market. Distressed properties ARE a bargain, but not the best homes in the best areas.  The date for that to change is usually around October 15th.

Stats not compiled or published by NWMLS. (Required disclosure)

 

Strategies for selling your home when your neighbor is preventing it.

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This has been on my mind for a long time. I have never felt so bad for a homeowner than one in my neighborhood. In my opinion, they are being held hostage by an home that you have to drive by in order to see the subject home for sale. They share a common driveway. The subject home (a great property and excellent home) for sale is just beyond the eyesore with multiple cars parked in its driveway and yard, never mind the fact that the physical condition is very poor. If I was a buyer, I would not want to drive by this place to get to my new home.

I don’t have the answers, but maybe some creative agents can suggest some ideas. One idea I had was that the subject home for sale could possibly create a driveway that connects to the adjacent main street. This would be expensive, but the alternative is no sale.

Listing Square Footage — How hard can it be?

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Back in middle school, one of my favorite math classes was geometry.  Calculating the volume of cylinders, figuring out the angles of oblique triangles…now that was living!  Best of all, it seemed like math that maybe I might really use someday.

Fortunately in this business there’s lot of opportunity to practice.  Whether we’re helping a client to analyze a land development, or figuring out the volume of topsoil needed to resod a yard, or simply figuring the square footage of a house, we get to use some of that old fashioned geometry in the process.

It turns out that the square footage thing, though, just isn’t that simple.  It’s been talked about before (like here, and here), but today we were listing a new townhome, and as I evaluated the active comparables, I found that what should be a “standard,

Sunday Night Stats – King County.

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A special Shout Out to my Late Night Fans. I was over on my blog testing out some theories in specific areas. Comparing YTD 08 with same period 07 in King County, Kirkland and Bellevue. To my surprise, given it’s almost 1:00 a.m., I was seeing people reading them as I was posting them.

I almost didn’t post my Sunday Night Stats, given tomorrow is a holiday and I post them Sunday nights so that people have something to play with at work on Monday morning. But once you start a regular “show”, I guess you can’t miss a night. So I was pleased to see someone is watching and waiting and reading. Quite a few someones in fact. It gave me the energy to press forward, so thanks!

Before I continue with the normal weekly stats, I think I’ll go back over to my blog and do Redmond. The more time I spend in Redmond, the better I like it. I just sold a Rivertrail townhome, and have another coming on market next week. Have spent quite a bit of time in Abbey Road and English Hill recently as well. Redmond has a lot to offer and may be becoming the stronger choice than Bellevue or Kirkland. I’m going to be tracking that. As I suspected, Redmond’s doing pretty darned good relative to Kirkland and Bellevue at 30% down as to volume vs. 60% down as to volume. And the asking prices of property on market is also more in line with reality.

The market is not going up this year people! Stop adding 10% to last year’s comps to get your asking price. Unless you like sitting on market for 3 times the number of days, only to have to reduce your price and sell for less as “stale on market”. Condition and price are key! Inventory is up and volume is down and you have a lot of competion with many months of inventory in supply.

OK, let’s get to tonights weekly roundup:

King County Condos

Active Listings: 3,953 UP 36 – median price $324,950 – MPPSF $320 – DOM 58

In Escrow: 972 – UP 42 – median price $299,950 – MPPSF $302 – DOM 50

Sold YTD : 2014 – UP 128- median list price $289,950 – median sold price $285,000 – median PPSF $290 – DOM 47

(The numbers on solds on my blog tonight are different because I closed it as of 5/15/07 and 08 to do an accurate % regarding change in volume, giving enough time for all closings to be posted. Here I do the 7 day change from last Sunday.)

King County Residential

In Escrow: 2,933 – UP 229 – median asking price $449,000 – DOM 43 – MPPSF $212

(median asking price way up there on “in escrow” this week -MPPSF up too by $5)

SOLD YTD: 6,077- UP 341 – median sold price $439,990 – DOM 50 – MPPSF $221

Sold prices the same PSF. Houses are selling for about $10,000 under list price.

Actively for sale 11,579 – UP 126 – MPPSF <$800,000 is $220 – MPPSF >$800,000 is $338

No change to speak of in price per square foot. Inventory increasing by less than half as much as last week. Maybe it’s the holiday. Speaking of which…have a good one!

Stats not compiled or published by NWMLS. (Required disclosure)