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.

Did you feed your Rhododendron?

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The Rhododendron is The Washington State Flower. To a large degree that means we Preserve and Protect it as a State Symbol. When I see a “sick” Rhododendron it makes me sad…to me it feels like someone is wiping their feet on an American Flag. I tend to be oddly “loyal” that way to “symbols” of honor.

The flower below is a picture I took last year and posted on May 20th, so that should give you a rough I idea of when to expect rhododendron to be in full bloom, though I have seen a few in full bloom recently, but not mine.

I have nursed more than a few “sick” rhododendron back to full health in my time, and have a few tips. If you have not already done so, now is a good time to feed your rhododendron before they bloom.

Think of it like a preganant woman taking more vitamins before they give birth. A budding plant is like a pregnant woman…it needs some extra care at that stage of it’s development.

The Washington State University recommends that you feed the plant when the buds swell and start to get “sticky” in Spring (which is about where mine are today) and again after the plant has flowered. Lots of other tips on rhododendron in that link.

DSCN0022

You may have noticed that Rhododendron tend to “burn up” if the location is too sunny, and seem to thrive best when they are planted near pine trees. You see that a lot in Bridle Trails in Bellevue. Lots of tall pine trees and healthy rhododendron thriving nearby. That is because rhododendron LOVE acid soil, and lots of pine needles falling to the ground seem to provide many of the nutrients these plants thrive on.

Not all rhododendron need to be fed. Those planted in soil with insufficient acid content need an acid based fertilizer. I like to use the Miracle Grow product designated for use with acid loving plants, but there are many ways to provide these nutrients, and frankly for new plants there are some better ways.

I like to do a “foliar feeding” by mixing a light solution and spraying the leaves. After a good but not OVER feeding early in Spring, I still spray the plant with a very light feeding during the flowering season. But you have to be careful to follow package directions and not over feed your plants.

For today…feed your rhododendron! It’s kind of a patriotic “duty”. 🙂 One of my favorite things to do is “deadhead” them when appropriate…but that’s a topic for later in the season.

Word of Warning…NEVER feed into and after July. Wait until you get to late winter early spring. Feed them now and again when they flower…but don’t keep feeding them past June.

If anyone has other tips, please feel free to post them in the comments. I’m far from an expert on rhododedron…I just happen to love them.

Seattle Real Estate Signs – Pending is spelled SOLD

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Photo_4D5E2935-39BB-0D45-E958-A7CEE6069D22

The purpose of this post is twofold:

1) To the Homebuying Public: When a Property is truly SOLD the sign is gone!

2) To “The Industry Insiders”: For those saying transparency is yesterday’s “buzzword”, until we attain full transparency by saying In Escrow or Pending vs. “SOLD” before the property is actually sold, we are not even at square one when it comes to true “transparency”.

When a property is actually SOLD…there is no sign. The sign is usually “ordered down” the day it closes, and is removed the following day or the next day by the company that installed the sign.

So when you see a “Sold Strip” stapled to the post of a home, that means it is In Escrow Pending the actual closing. When it closes…is SOLD…the sign comes down.

The industry struggles to meet the public’s request for “transparency”, and yet doesn’t really know what transparency actually means.

They think transparency means we explain what we do, when in fact transparency means” “Please Just Speak the Truth in the first place, so you don’t have to explain why you didn’t!”

Of course we are not the only ones who do this. After all, how many times does Starbucks have to explain that “Tall” = Small and “GRANDE!” = Medium?

Personally I only use these Sold Strips when it benefits my client for me to do so. I don’t think there will ever come a time when everything we do in this industry is only client oriented.

If we only considered the “parties in interest”, from the seller’s perspective we would not leave the sign up at all once the transaction was solidly heading toward closing with no contingencies remaining. From the buyer’s perspective we would never put up a Sold Strip until and unless it is of benefit to the buyer for us to do so.

How much of what we do is about US vs THEM? Worth thinking about…worth changing.

Barney’s Letter to Ben on Loan Originator Compensation

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barneyIt appears that Barney Frank penned a letter to Ben Bernanke a week before the Fed rule on Loan Originator Compensation was originally scheduled to go into effect.  Poor Barney was worried that the Fed had perhaps gone a little too far with their rule and that they should perhaps reconsider a few items (they have not as of yet) stating “I believe it was a mistake for this rule to go beyond what was required in the Financial Reform Act…”

Barney is requesting two changes to the Fed’s rule on LO Comp:

1) allow mortgage broker companies to pay their employees on consumer/borrower paid compensation.  Barney Frank writes regarding the Fed’s rule “…differs from Section 1043 of the Financial Reform Act, which merely states that if a loan originator receives compensation from the consumer, that originator cannot receive compensation from another source…while the more restrictive Fed rule prevents the sharing of the consumer-paid compensation by the firm with an employee for that employee’s work on the loan…”

2) allow mortgage brokers to make small fee reductions at closing to cover shortfalls which sometimes result because of last minute third party fee changes, extensions, etc.

Frank adds that he’s aware that some loan originators will use this tactic (helping with closing cost) “with the intent of circumventing the rule’s consumer protections.  Therefore, it would be appropriate to limit the frequency of such use and to limit either the dollar or percentage of the reduction, and to monitor a loan originators’ use of this flexibility to ensure that such flexibility is not abused.”

Is it just me or does that last paragraph seem whacky?   How is a mortgage originator who helps pay an extension fee abusive to the consumer?  I seriously don’t get it.

In my opinion, if the Fed wants LO Comp to not be a factor in the transaction, then they should probably ignore Barney’s second request.  I’m picturing NAR contacting Mr. Frank insisting that this be corrected so that their members are in a situation at closing where they might have to cough up some of their commission.

Now that we’re a few weeks into the new LO Comp rule, I do like having my pay taken out of the equation.  Can’t wait to see all the other changes coming this summer with Dodd-Frank <sarcasm> and all the back peddling that will probably happen (just like this) from all of the unintended circumstances it will cause.

You can read the entire letter to the Honorable Ben Bernanke from Ranking Member Barney Frank here.

Hat tip to NAMB.

Curbed and Eater come to Seattle

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curbed seattle

Today I excitedly Welcome Curbed and Eater to Seattle.

Curbed.com and Eater.com are well known for their fast and furious blog postings in NYC, Chicago, DC and their National Site.

I highly recommend that you bookmark both Seattle Curbed and Seattle Eater and make them part of your daily reading. Unlike other local blogs, Curbed generally has a paid staff of blog posters, so you can expect a quick flurry of relevant postings that will continue on a daily basis.

Curbed, always fun and always something new, a welcome addition to the Seattle Blogosphere!

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.)

FHA Annual Mortgage Insurance Increasing Next Week

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FHA’s annual mortgage insurance premium is increasing effective on case numbers issued Monday, April 18, 2011 and later.  If you have an FHA transaction in process (or are considering an FHA refinance) you need to contact your mortgage professional ASAP to make sure they  have your FHA Case # no later than Friday.

On a sales price of $400,000 with the current minimum down payment of 3.5%, the monthly difference in payment between a case number by Friday and one on Monday is $80.42 per month!

And if your a mortgage originator, hopefully you don’t issue a Good Faith Estimate without your case number or your employer won’t be too happy with you.   Here’s a memo I just received from a wholesale lender:

Please note that increasing the annual (monthly) MIP is not considered a valid changed circumstance under RESPA to increase “Our Origination Charge” in Block 1 / HUD Line 801. Any unapproved changed circumstances will result in restitution to cure being charged to the originator.

This is a perfect example of why mortgage originators are sometimes hesitant to issue a Good Faith Estimate.  How do you cure a fee that is paid for a minimum of 60 months and 78% loan to value based on the original sales price?   And now that mortgage originators cannot pay to cure (correct) a Good Faith Estimate, their employers must…and this, my friends, is part of the reason why employers of mortgage originators (banks, mortgage companies, credit unions, etc.) are having to slightly pad the rates you have access to due to the Fed’s Loan Originator compensation rule.

Here’s HUD’s FAQ’s on RESPA regarding what happens if there are GSE, FHA or Mortgage Insurance program changes:

This could constitute a changed circumstance if the loan originator did not have notice of the GSE, FHA or other mortgage insurance program change prior to the issuance of the GFE. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ―changed circumstance‖.

There has been plenty of notice about this change…I’m just wondering how many LO’s (or their employers) might be caught by having to issue a Good Faith Estimate during this past week due to having all six pieces of information constituting an application, only to have the borrower “float” or not commit to proceeding…and then deciding to lock or commit Monday or later.

It’s not pretty.

GSE, FHA or Mortgage Insurance program changes.
A: This could constitute a changed circumstance if the loan originator did not have notice of the GSE, FHA or other mortgage insurance program change prior to the issuance of the GFE. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ―changed circumstance‖.

Don’t Let the Fed’s Rule on LO Compensation Lull You Into Believing Rates are the Same

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Last week the Fed’s rule on mortgage originator compensation went effect divorcing a mortgage originators compensation from the interest rate and the borrower.   Regardless of how high or low an interest rate is, I am going to be paid the same.  This is a good thing.

What I’m finding is that many consumers and real estate professionals are assuming that this means all mortgage rates are the same.  This is not true.   Mortgage rates still vary from lender to lender.   The Fed does not control mortgage interest rates and I hope they (or any part of our government) never do.   Competition keeps mortgage rates low.  If we are ever left with just the big banks providing mortgages or controlling rates, consumers will pay dearly.

If you are to use shopping rates as one of the values for selecting your mortgage originator, please do not rely on APR…even Jillayne thinks it’s a mistake to shop by APR.   I do think there are other important factors besides rates (which are constantly changing) in selecting who will be helping you get your loan closed during this sometimes challenging climate…however when you do compare LO’s by rate, make sure to:

  • Contact each LO at the same time of the day (within 15 minutes) as it is not uncommon to have mortgage rates change 3-5 times PER DAY.
  • Give each LO the same criteria (credit score, sales price, loan amount, program, property type and estimated closing time/lock period)
  • Insist on quotes being provided in writing.  The LO does not have to issue a Good Faith Estimate without a complete application as defined by HUD, but they CAN provide you with a written rate quote.
  • Compare rates by total closing costs (all closing costs less any rebate pricing, if applicable).   Pre-paids and reserves do not need to be factored when shopping rates as this is property specific.

I’ve done some checking this morning to compare my rates to a credit union and a bank — I’m seeing a spread of about 0.5% in rebate for the same rate.   NOTE:  Consumers will need to become more accustomed to the terms:  REBATE (credit applied towards their closing cost) and DISCOUNT (additional cost to buy down the rate).   Consumers may be hard pressed to find a loan priced with exactly 1 or 0 points with the new rule.

Please do make sure that your mortgage originator is highly qualified to care for your financing needs.  Remember, 0.5% difference in fee or 0.125% in rate doesn’t mean a thing if your loan doesn’t close.

Real Estate Investing: It Can Be Lucrative, But So Are Ponzi Schemes

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Another day spent closely reading the real estate section, another gem… Sunday’s local Times included this piece from the Philadelphia Enquirer that noted the large number of bank-owned properties on the market and the likely buyers of those properties: investors. Its a hot topic, and this article makes some good — although hardly disputed — points. But here’s my favorite passage:

Nationally, investors gobble up more than half of the bank-repossessed properties. “Most are rehabbing and renting them quickly to obtain a positive cash flow, then refinancing the property and taking the cash to buy another one,” Sharga said. They are looking at three- to five-year investments, he said, “so the current short-term depreciation of real-estate values isn’t a big deal.”

Other investors are doing wholesale flipping, Sharga said, buying “the most absolutely discounted properties, doing minor repairs and flipping to another investor, buying 20 cents on the dollar of the last sale price and selling for 50 cents.”

I added the emphasis, needless to say.

This raises the following question in my mind: Was Mr. Sharga laughing when he said this? Or maybe wearing a clown suit? I mean, what investor in his right mind says that you don’t have to worry about short term depreciation of the asset at issue if you intend to sell WAY off in the future — like 3 years! Even stock brokers will tell you that a 3-5 year investment horizon is relatively short and does not lend itself to risk. A depreciating asset at the time of purchase, to be sold 3-5 years down the road, should be a MAJOR concern to any investor. And that ignores the reality that transactional costs for real estate (taxes, commissions, escrow fees, insurance fees) are much higher than equities. Its a pretty absurd comment — but it will likely entice somebody to “invest” in real estate.

And why would that be important to Mr. Sharga? He spills the beans in the very next paragraph. At first blush, it sounds like these investments are fantastic: Pay 20% of “true value” — whatever that means, its another pet peeve of mine I’ll address in a future post — invest a few bucks, and then sell for 50% of value. That’s greater than 100% profit, presumably in 3 years or so! But here’s the catch: you gotta sell to “another investor.”

So this profit relies on pulling new investors into the market all the time, presumably those that don’t appreciate the fact that they’ve already missed the boat on the easiest profit. As long as those new investors are there to buy, the investors further up the pyramid… er, I mean supply chain will make great money.

Thinking of becoming a real estate investor? Yes, it can be lucrative, but be careful. And don’t believe everything you read.

Springtime in Seattle — Its Beautiful! Its Magical! :-)

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I’ve recently become enamored with Realty Times, a rank booster site for the real estate market. I love it because, every once in a while, the enthusiastic cheerleading leads them to pull back the curtain a little more than they intend. The resulting insight can be delicious.

Naturally I assumed that the Seattle Times, while sharing the same moniker, did not share the same approach to “news.” I mean, they’re journalists, right? Devoted to an impartial uncovering of the “truth,” right?

Maybe not. Yesterday’s Seattle Times had some good insight into the local housing market, but the title of the piece was a little, er, disingenuous: “More spring in local home sales, but too soon to call it a trend“. That headline paints a pretty bright picture, all things considered. But the body of the article strongly suggests otherwise.

Here are my cherry-picked excerpts from the article:

Buyers closed on 1,525 houses last month, according to statistics released Wednesday by the Northwest Multiple Listing Service. As expected, that number was lower than in March 2010. But the decline — 4.5 percent — was “less than you might have otherwise expected,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

[T]he relatively small year-over-year sales decline is “a little bit surprising, considering we don’t have that deadline hanging over buyers’ heads,” said Tim Ellis, editor of the usually bearish Seattlebubble.com real-estate blog.

But both Ellis and Crellin said a steeper, 11 percent year-over-year drop in pending sales — offers that were accepted by sellers in March, but haven’t yet closed — could bode ill for the market as spring turns into summer. Fewer pending sales now should mean fewer closed sales later, they said.

So the decline was less than expected, and forward-looking data suggests further, steeper declines. I’m no meteorologist, but that doesn’t sound like any sort of “Spring” to me. Moreover, I was pretty adept at the ol’ pogo stick when I was a kid, so I know a “spring” when I see it — and this simply doesn’t qualify.

My “Huh?” moment was only heightened when I pointed my browser to my third favorite blog (until he adds me as a contributor, anyway), Seattle Bubble, the primary vehicle for Mr. Ellis’s insights. Given that he’s quoted in the article — an article noting that “spring” in the market — I assumed his post for the day would have a similar tone. The title of his post? “NWMLS: Sales start to tumble, inventory still sucks.”

That’s when it suddenly all made sense. Sure, its “Spring” in the housing market — just like in Seattle, where its cloudy, drippy, and about 50 degrees. Ah, the joys of Spring…..