[photopress:cards.jpg,thumb,alignright]The other day when I wrote this article regarding “THE” Valuation Tool, I was talking about the one in my head.

When training new agents I give these instructions.  Go to Broker’s Open Houses and Sunday Open Houses and vacant properties.  Keep a three ring binder and put a printout of each property you visit in the binder.  As you go through each property DON’T write down how you “feel” about the house and it’s asthetics (it takes a while to break that habit, BTW).

Answer these three questions at each house and write your answers on the printout in your binder:

Will it sell? 

When will it sell?

Will they need to have a price reduction before it sells?

You don’t have to be an agent to practice the art of valuing homes or to perfect the “Valuation Tool” in your head.  You just have to remember to step away from the computer at least 30% of the time.  Data only goes so far.  You have to stand on the land and walk through the house to truly establish the basis for valuation.

I chose “a house of cards” for the photo here, and this particular mish-mash of card formations, in the hopes that “a picture speaks a thousand words”.  The big tower of cards, when valuing real estate, is somewhat interdepending on the smaller tower, and the ones scattered around the table are also somewhat dependent on the cards as a whole.  If you can buy this house with a view in Kirkland for X than this house in Woodinville can’t be Y and this condo in Redmond can’t be T.  Everything values off everything else, until it doesn’t.  These are called market areas. 

Sultan’s values are not dependent on downtown Bellevue.  Shoreline’s values are not dependent on Federal Way.  King County, for valuation purposes, is not a “market segment”.  Market segments are created by buyer consumers and not sellers or agents.  If enough buyers are ready to pay X here vs. X there, than that becomes market value.  If no buyers consider Federal Way vs. Redmond, than those two areas are not interdependent as to value.

I tell the agents that when they look at their binder and their answers are 75% correct, they should throw a party.  I also tell them to NEVER, EVER give up the binder until they can do those calculations on “auto-pilot” in their head.

So why the big Herbal Essence YES!!!!!!!!!!!!!?

I took an agent out to do this exercise on Sunday.  I walked through one property listed at just under $1.6 million.  I said this will be gone by Friday.  Today is Friday.  SOLD STRIP IS UP!  The one I said wouldn’t sell is not sold.  The one I was iffy about…have to go check that one, but I don’t think it will be sold until after the 20th, if then, so I’ll go check it at month end.  I expect it to be sold by month end.  I gave the listing agent a couple of things to do so it would sell by month end, I’ll go back and see if it’s sold.  If it isn’t sold, I’ll go see if they did the few little things I told them to do.  Price was right.  Shouldn’t need a price reduction.  Just a couple of showing condition tweaks.  Without those tweaks it could sell for $150,000 less.  We’ll see what happens.

It is a fabulous exercise to predict and stay on top of home values.  Anyone can do it.  You don’t have to be an agent and it’s great fun.  I highly recommend it for anyone considering buying or selling property in the next three years.  Get started now.  It takes some longer than others, but it’s aways a fabulous undertaking for anyone interested in property valuations.

“I was told at work that if I see even ONE house with an agent, that agent becomes MY agent.”

It’s a scary thought that seeing one single house with an agent, locks you into some kind of long term unwritten contract with that agent. I have heard the quoted statement more than once from my clients, so to keep this article as short as possible, I’m going to answer it with examples. The underlying principles involved can be addressed by responding to questions in the comment portion.

Example #1:

Buyer Consumer passes by a house for sale, pulls out their cell phone and calls the number on the sign and asks to see the house. Agent who answers the phone says I’m two minutes away, if you wait there I’ll show it to you. Buyer sees house and decides to make an offer, but doesn’t like the agent who showed up and intends to leave and submit an offer through an agent who is NOT the agent who showed them the house. Can they do that?

Clearly a consumer cannot be forced to use an agent they don’t like or know. The question is not what the buyer can or cannot do as their next step. The question is can the agent who they choose to write the offer and represent them end up not getting paid? More to the point, can the agent who gets paid be required to give the money back months after it closes? That answer to both of those questions is yes.

Buyer can choose their agent always, buyer can’t guarantee that the agent will get paid for their efforts in most cases.

Example #2

Buyer Consumer calls phone number in an ad and asks to see the property in the ad. Agent shows up and shows them the house and they want to make an offer.

Example #3

Buyer consumer goes into an Open House, likes it, wants to make an offer.

Example #4

Buyer consumer looks at houses on several separate occasions with an agent. They find house they like and ask the agent several questions. Buyer not satisfied with answers regarding advices at this point and decides to find a different agent to make an offer.

Example #5

Buyer consumer sees that they can get a “rebate” if they use a certain agent to write the offer. They thank the agent, who they liked very much, but decide to use a different agent in order to get “cash back at closing”.

These are all real life every day examples of what happens out in the real world. So let’s get back to the original statement. “I was told at work that when I see a house with an agent…that agent becomes my agent.”

The people who quoted that statement seemed to think that the agent who showed that one house became “their” agent, even if they didn’t want to buy THAT house. So the simple answer to those people is NO. If you see a house with an agent, that agent does not become your agent long term when you decide to buy a different house. UNLESS you signed a Buyer Agency Agreement with that agent in order to see that house.

Never sign a Buyer Agency Agreement just to see one house (or make an offer on one house) with someone you are not choosing to be your agent long term. I would think that is obvious, but for what it’s worth I’ll say it again. NEVER sign a buyer agency agreement with someone you are not selecting to be your agent into the future.

Once you DO, IF you do, sign a Buyer Agency agreement in order to see a house or make an offer, understand that piece of paper could come back to bite you in the butt, when you least expect it, many months later.

If you do not sign a Buyer Agency Agreement you have the freedom to choose your agent at ANY time. What you can’t decide is whether or not that agent will be paid. But there is no rule for consumers that says they are not free to choose their own agent, as long as the agent is willing to risk not getting paid.

I spend a great deal of my time determining the value of real estate.  So much so, that sometimes I can’t turn off the valuation tool in my head.  Even when I take a “power walk”, I’m clicking off the value of property as I walk by each house.

I can clearly understand the confusion of homebuyers and homesellers and Zillow.  I took just a couple of blocks of homes this morning and found these values for “price per square foot” in the mls :

$470, $700, $330, $430, $530, $400, $365, $415, and $660. 

Doesn’t seem very likely that homes in the same block would have such a variance in the price per square foot, does it?

I then went to Zillow and hit comparables and found these values for price per square foot of LOT in Zillow:

$67, $87, $243, $24, $49, $15. – a little clue for Zillow there 🙂  

Doesn’t seem very likely that one lot is worth $243 per square foot and another nearby is only worth $15 a square foot, does it?

We do know that price per square foot CAN be the great equalizer, and yet no one has developed a tool for valuing property that is remotely reliable in certain neighborhoods.

So how do we in the business value homes?  I’m going to write a couple of articles today.  This one will focus on the area noted above, which happens to be in a view corrider.  You can use this method for valuing any neighborhood with view considerations.  First you have to find “the free house”.  If you see a house sell, and walk by later and see the house is gone, that house was FREE. 

In this example, I found “the free house” and determined the price per square foot of the lot was $130.  House sold for $700,000, lot was 5,385 square feet, house was torn down immediately after sale, so the price is the value of the lot. 

Now let’s go back and look at the house that sold for “$700 per square foot”.  If you go to the tax record, you will see that the property is 50% improved.  The tax record of “the free house” shows 4% improved, which we know to be 0%.  Now we take the lot of 9,500 square feet and multiply that by $130 per square foot as determined by “the free house”.  So now we know the value of the dirt UNDER the house is $1.2 million  Now we take the square footage of the house of 3,000 squre feet, we take the sale price of $2 million, we subtract the value of the dirt.  The house sold for $800,000 or $265 per square foot and not the mls price of $700 per square foot.

Now you can value all of the property in the aea with better accuracy than the tools at your disposal, that being the MLS and Zillow.  All you have to do is take the $130 times the square footage of the lot and $265 per square foot of the house.  You do need to adjust the square footage price of the house based on age and condition.  A better way to do this would be to keep the value of the lot a constant, and come up with the house per square foot as NEW, as REMODELED and as needs remodel but not a tear down.

I’m about to go on my “power walk”.  I’ll pass the house that didn’t sell at $1.4 mil.  I’ll click off the lot value at $1 mil. after subtracting from the $130 per square foot of lot for middle of block vs. corner and street frontage vs. depth of lot.  The $1.2 has more view frontage and less depth.  This lot has more depth and less view frontage.  This house has 4,000 sf with 3,000 of it above ground.  The other house is 3,000 sf with none of it underground.  At $1.3 mil, this house will sell for $75 a square foot vs. the other house which sold for $265 per square foot.  Let’s give the basement only $10 per square foot and the rest of the house $100 per square foot and do that again $1 mil for lot + $10,000 for basement + $290,000 for house equals $1.3 million.  Offer price should be $1.2 mil and then the buyer and seller can figure out where to agree between the asking price of $1.4 mil and the offer price of $1.2 mil.  If they meet in the middle, it will have sold at “fair market value”. 

Now look at the house that was 89% improved and lot only 3,900 sf that sold for $1.8 mil.  Lot was only worth $500,000. The house sold for almost $450 per square foot.  Ooops.  Don’t think that was such a great deal, even though the MLS price per square foot of $655 made it look like a better deal than the other at $700.  The dirt of the $700 per square foot in MLS being worth $1.2 mil vs. $500,000.

One you remove the value of the lot, and look at these homes as selling for $290,000 vs. $800,000 vs. $1.4 million, you can more readily see if you are getting a bargain, or if you are overpaying for the property as a whole.

As you may have heard, the NWMLS has decided to no longer license the display of its member’s listings on REALTOR.com® or to continue sending those listings on a broker’s behalf, effective June 1, 2007. You can read details about this here. Perhaps this is the beginning of the end for the old standby? The lumbering beast that is Move.com reminds of another lumbering beast that was once in a state of corporate old age. However, I don’t see Louis V. Gerstner, Jr. (IBM’s CEO alumnus) coming to Move’s rescue any time soon.

Anyway, because of this decision, if a broker wants to get their listings on Realtor.com it is now the IDX vendors responsibility to export or upload their client’s listings to Realtor.com. Of course you could use to just Move as your IDX vendor, but given the general lack of innovation they’ve had on their web properties, I wouldn’t want to go that route.

This is significant for many reasons. The first of which is the increased responsibility of IDX vendors now face. Historically, we just had to download MLS data and maintain web sites. Now, we have to do that and create & maintain feeds or mechanisms to other 3^rd party consumers of real estate content (Trulia, Propsmart, GoogleBase, etc). Sure there are vendors like vFlyer or Postlets that help with this dilemma, but I suspect many brokers with any significant inventory would rather have their IDX vendor just automate everything.

The second of which, is now Realtor.com has to compete for the mindshare (to paraphrase Microsoft CEO Steve Ballmer) of “IDX Vendors, IDX Vendors, IDX Vendors” and “Brokers, Brokers, Brokers”. If the happenings with NWMLS, become a nationwide movement and Realtor.com no longer has MLS support, then it will have to compete against Trulia, Zillow, and a cast of dozens for your listings.

I’m sure brokers and agents have many interesting things to say about Realtor.com, however as an IDX vendor I really don’t care about the industry politics. I just want to serve my clients in a cost effective manner, make them happy, and make a fair profit.

Unfortunately, whoever designed this specification really has no clue as to how things should be done in the 21^st century and didn’t read my Adventures in Digital Listing Land blog post. Sure, if this had happened in say 1992, the approach they took for listings data uploading would’ve been a reasonable approach. And although I liked 1992, I don’t use 486 66’s anymore!

For comparison’s sake, here’s what I had to do to support Trulia (BTW – Oodle and Propsmart were equally easy to support, I’m just using them as an example because they read my blog posts).

• Create an XML document that contains listing data, not unlike an RSS feed (OK, change some XML tags and tweak a few things, whatever)
• Make sure listing photos are accessible via http urls (I already have them on a web site, so this is easy enough to do)
• Tell Trulia what the url is for the feed, watch the listings appear on Trulia with no additional effort on my part
• Blog about the pleasant experience

And here’s what I’ll have in order to provide a feed for realtor.com

• Set up an FTP account with Realtor.com (great, one more username and password to lose)
• Realtor.com requires pipe delimited text for listing data (everybody else uses XML, grrrr)
• Realtor.com requires I upload the listing data to them via ftp (everybody but GoogleBase downloads it via http, yuck)
• Realtor.com requires I upload the images to them via ftp (everybody else downloads them via http, lame)
• Realtor.com requires I package said images up in a zip file (Nobody else has this requirement, Lame)
• Realtor.com requires I name/number the images a certain way (Nobody else has this requirement, LAME)
• Realtor.com prefers I resize the images to certain size (Nobody else has this requirement, LAME!!!)
• Realtor.com prefers I only do incremental photo uploads (Nobody else has this requirement, are you kidding me!?!?)
• Complain to Dustin (WTF dude!)
• Explain to customers why I have to bill them for 8 hours of engineering time, instead of 2 hours (It sucks, I’m sorry, it’s not my fault)
• Blog about the whole rotten experience while I write my image zip / ftp uploading code.

When Zillow, MS Live Expo, Realtor.com 2.0 or the next great startup wants to get into the digital listing importing game, I have 3 words of advice, Embrace and extend. Or to put it in terms more people would understand, Copy Trulia.

I’ve been working on my stats to see how 2007 is doing so far.  From my experiences of last week I know that there are multiple offers for decent homes close to Microsoft.  The two we were interested in both had more than one offer.

While I am updating my stats based on the same criteria I used on March 2nd, given my recent experiences, I decided to check the new stats against properties within two miles of Microsoft.  I used a two mile radius, so some of the properties are in Redmond and others in Bellevue.  In my experience, buyers who want to live close to Microsoft do not make a distinction regarding whether the house is in Redmond or Bellevue, as long as it is easy to get to work.

While you may not work at Microsoft, it is likely a good investment to buy near there anyway.  It’s a stronger market than most of King County.  I will test the appreciation levels along with my stats this month.

But while I was doing them I came across this interesting tidbid.  All properties within a two mile radius of Microsoft sell  better.  I can’t say they sell higher, as view property still sells a lot higher than non-view property, and is also a strong investment option.  But for property priced under $600,000 (all residential types including townhomes and condos), the rate of absorption says current inventory in Kirkland, Redmond and Bellevue equals a 20 day supply of listings.  Within two miles of Microsoft, there is only a 3.75 day supply of inventory.  So they are selling at over five times the rate of the area generally.

I’ll try to get my pie charts up this week, similar to those of March 2, but generally there is a 30 day supply of inventory under a million dollars and a 100 day supply over a million.  I didn’t do the Microsoft Zone inventory at all price levels,but will likely do that as a separate study, since I find it interesting to check the market at it’s highest and lowest levels of movement.

Age of property does not appear to be a factor, as people are choosing more by location than age of house.  So if a popular location has lots of older houses, then that is what sells.  Condition of house is very important and remodeling is definitely a plus and pushing prices up, but age of property alone does not appear to be a factor.

When you get over $1.6 million generally in the area (Redmond, Bellevue, Kirkland) the rate of absorption skyrockets.  Current inventory equalling a 127 day supply, using the average rate properties are selling, based on March and April sales.  So still a glut of high priced homes.  More property than people buying them.

The most popular price range, selling at a much higher rate than inventory is coming on is $400,000 to $600,000.  But no price range outside of the Microsoft Zone is selling at the same rate of those within a two mile radius of Microsoft.  Consequently, I would expect the appreciation rate to be higher there as well.  I’ll try to do some tests of appreciation rates for different neighborhoods.  Most “neighborhoods” follow the elementary school.  But radius of Microsoft is “a neighborhood” from a valuation standpoint.

For those wondering where those people come from, many are employees who lived further away until now, but want to move closer in after the troubles they had this winter.