Paying for the Privilege of Marginalization

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The real estate industry is a funny place…

There is an obvious tension between the industry players who win through cooperation and the individual agents who win by differentiation. It kind of reminds me of the Tragedy of the Commons in that the actions that individual agents are taking in their best interest are slowly breaking apart the well oiled machine that is today’s real estate industry.

In particular, I’m thinking of all the agent money that is currently being poured into advertisements for companies that are building tools designed to marginalize the role of real estate agents. Joel Burslem picked up on one example when he mentioned that Topix (jointly owned and run by the newspaper publishers: Gannett, Knight Ridder and Tribune) is getting into the FSBO market. If this is not a clear enough signal of the newspaper’s intent, the fact that the Tribune recently purchased forsalebyowner.com should make it clear that the newspapers are now the competition…

While it may be in best interest of individual real estate agents to put ads in local papers, these ads are funding companies who are clearly attempting to completely disrupt their industry. (Don’t even get me started on the irony that a bunch of real estate professionals in Seattle are giving content to the PI that will likely be plastered in FSBO ads before long!).

But it is not only newspapers where agents are paying for the privilege of creating their own demise. Every time an agent buys an ad on Google, they are helping to fund a tool that is clearly meant to marginalize them.

I’ve been holding my tongue on this issue for quite a while because I’m sure a good argument could be made that I’m too biased in that I’m viewing the topic through my employer’s tinted glasses. Nonetheless, I can’t help but wonder if agents are going to get hip to the fact that they really should be using and/or creating their own media before the commons are destroyed.

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“Man in the Bushes” Listing

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[photopress:man_in_the_bushes.jpg,thumb,alignright]This article is in response to a reader’s request yesterday, that I describe what a “man in the bushes” listing means.

Over the years, I have used the term “man in the bushes” most often in response to the question, “Can I sell my home myself as a For Sale by Owner”. If they are ready, willing and able to do that, I tell them to try it for up to 30 days, even two weeks, to see if they have a “man in the bushes”. I once sold a home with 23 men in the bushes.

A “Man in the Bushes” property is usually a unique home that has something that no other house has, and is also one people have suspected may at some time be sold. In this case a stand out corner property in Mount Baker built at or before the turn of the last century in the late 1800’s with some Lake view. It also has an owner who for some reason, actually many reasons, never got around to moving into it. So it has been vacant on and off for some forty years.

There’s usually someone, or several someones, who drive by it on a regular basis (in this case visiting his brother who lives nearby) who has said to himself a skazillion times, “If that house ever goes up for sale, I’d like to have it”. Of course they don’t know for sure until it does go on market and they go in it. But they are already 70% sure they want it. That’s a “man in the bushes”. Not just someone who is the first one to view it when it is listed, but someone who has been waiting for that opportunity to arise for a long time.

A seller can either try a FSBO on that, or get a deeply discounted rate if the “man in the bushes” comes forward very quickly. Another option is to list it in the mls and “exclude” the man in the bushes from the listing with a timeframe. “If Mr. X arrives and makes an offer on the property within 7 days, the listing is null and void”. To do it that way, you need to know who Mr. X is in advance and put him in the contract by name.

Sometimes the Man in the Bushes is a relative who has indicated an interest in buying it over the years, but may be “all talk” and “no ability to do so”. You give them 7 days to “put up or shut up”. This way the family doesn’t have to hear for the rest of their lives that this guy would have bought it, but no one gave him the opportunity to do so. There should never be a fee connected, other than maybe a handling fee, for people to sell their home to a relative. So if you think you have a “Man in the Bushes” in your family, give them 7 – 10 days to at least put that interest on paper, with no or little fee paid if a family member buys the property in the early part of the listing.

Want to live in the Golden State? Bring lots of Evergreen State money.

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[photopress:180px_California_state_seal.png,thumb,alignright]I recently returned from my almost annual vacation in beautiful California to visit my family and a few famous real estate bloggers (Dustin & Andy). And it was interesting to note what I learned about real estate in the Golden State during my two weeks down there…

Non surprises 

Bay Area real estate is still expensive. That wasn’t surprising at all. It’s been that way as far back I can remember. During my coffee talk w/ Andy, we discussed how the San Francisco side of bubble bay has popped, and the Oakland side is peaking. 

LA traffic is still awful.

Small Surprises

Santa Barbara is even more expensive than Silicon Valley.

Camp Pendleton is the only thing separting San Diego from Los Angeles & Orange County. I hope for San Diego’s sake, the Marines stay put.

RedFin has finally invaded the Bay Area. I wonder who’s next? 😉

Bay Area traffic is catching up to LA.

Big Surprises 

Home values in Southern Ventura county (home to Dustin’s new employer) are on the ridiculous side of expensive. In fact, it’s Silicon Valley expensive. I wasn’t expecting cheap prices (after all, I did grow up in California), but I wasn’t expecting this!?

I didn’t expect Santa Ynez to be as expensive as it is. Maybe Wacko Jacko’s Neverland ranch has done to Santa Ynez’s property values, what Bill Gate’s house has done to Medina’s? My parent’s home town (Santa Maria) is comparitively inexpensive, but it’s about as pricely as the Seattle Eastside is (median price ~$450K).

San Diego County is downright cheap in comparission to it’s neighbors to the north. In fact, prices there are less than 10% more expensive than Bellevue! Maybe being next to the Mexican border is keeping prices low, but I would’ve expected San Diego to be second only to Santa Barbara and the Bay Area. 

So what other markets in the country (or the rest of planet earth for that matter) have surprising prices (both more expensive and less expensive than you might expect)? I’ve heard from more than one local realtor, that many out of state real estate consumers have sticker shock when they first come to King County. And I’m still surprised that Portland is so cheap compared to it’s nothern & southern big city neighbors.

Lame MLS Data Again!

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[photopress:mea_culpa.jpg,thumb,alignright]Looks like I need to get down on bended knee and beg Robbie’s forgiveness, pounding my chest and saying “Mea Culpa!” Robbie, I try and try to give you accurate data, honestly I do. But it just is not always within my power to do so. I am totally stumped on this one.

If anyone out there can help me get the accurate data for Robbie, PLEASE point me in the right direction.

I listed a property in Mount Baker. Checked the tax record and it said “Year built 1900”, so I entered that “data”. This is a “man in the bushes” listing, so I already know who is likely going to buy it. But still, for Robbie’s sake, I would like the data to be accurate. Out of curiosity, I wondered if there were any houses older than this “Grand Olde Dame” of Mount Baker.[photopress:mt_baker.jpg,thumb,alignleft] I did a General Query in the tax database for homes built between 1800 and 1900, and guess what?! Anything OLDER than 1900, shows AS 1900 in the tax records!

So here I am realizing that I put “Year Built 1900” in the mls, and maybe it is really older than that. Of course my first thought is about Robbie and his “Cries Against Lame Data”. Tell me please, what’s a girl to do when the tax records won’t take me back further? So I contact the Title Company and they say they can only do what I did, giving them 1900 also. They then go a step further, and now do know that “the original plat declaration” for that section of Seattle was in 1888. So maybe that tells us that the house was built in that 12 year window, between 1888 and 1900.

Could “the original plat declaration of 1888” be filed AFTER the house was built there? Enquiring minds want to know! Sorry Robbie, I aim to please; and yet again disappoint. MLS has no way to put a “date range” for year built, or “older than” 1900. So 1900 it stays. Though I did try to account for that in the remarks section.

Am I forgiven, or do I end up on “Robbie’s Lame List” with a “lazy agent” dunce cap on my head? Oh well, “Wednesday’s Child is full of Woe”, as the Nursery Rhyme goes. Some days I wish I were born on a Sunday.

What’s hot and what’s not in Seattle?

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Where to invest next in Seattle/Eastside neighborhoods? I’ve been thinking about the list Seattle Metropolitan Magazine came up in April (see below). With gas prices up, rapid transit going in, I think the next hot spots will be along those rapid transit routes like what happened in San Francisco and Portland.

Here are 2 lists, one from last month and one from 3 years ago. My clients usually make a decision where to buy based on either the commute or schools, sometimes as specific as a certain grade school. What about home age and style. It has been suggested that buyers like the homes their grandparents lived in, not the ones they grew up in, so Will the next batch of buyers want the 50’s and 60’s houses as has been suggested and if so, should we be buying in those areas? There was supposed to be a trend away from large homes, and that’s probably the case considering home prices are so high most can’t have the size home the buyers of the 90’s did.

Here is the Seattle Metropolitan Magazine list of 15 of the hottest neighborhoods in it’s April issue.

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Grandes Dames: established and well rooted neighborhoods:

  1. Medina: (recognize the house above?)
  2. Madison Park
  3. Admiral

The Rock Stars: fast rising districts surging with glamour and vitality.

  1. Ballard
  2. Pike/Pine Corridor
  3. Moss Bay, Kirkland

Cinderellas: Formerly neglected areas now traipsing to the ball

  1. South Lake Union (courtesy of Paul Allen)
  2. Columbia City
  3. Georgetown
  4. Westwood

Sleeping Beauties: Location, economy and neighborliness drawing overdue attention

  1. Upper Rainier Beach
  2. North Greenwood
  3. Monroe
  4. Stadium district, Tacoma
  5. Cape George Colony, Port Townsend

This is a dramatic change from 2003, when SeattleMagazine.com had their list of hot neighborhoods

  1. Bryant
  2. Montlake
  3. Sunset Hill
  4. North Beach
  5. Blue Ridge
  6. Olympic Manor
  7. Phinney Ridge
  8. Greenwood Manor
  9. North Admiral
  10. Westwood

Almost all of these were north of the U District.

Does this mean that our citizens are fickle and don’t have favorites more than 3 years in a row? Or was it this kind of story that drove the prices up in those neighborhoods so that they are now not affordable? Is it possible in 3 years that even Georgetown will be sizzling? I’d love to tap into the collective minds of RCG bloggers and see what you think.

I think Burien is an up-and-coming area and it’s not on either list. Any other hidden gems out there?

Using Alexa to Compare Traffic Across Sites

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Do you ever wonder how well your website and/or blog is doing in comparison to your competitors?

While there is not a great site on the web for getting accurate traffic statistics on competitors, Amazon does provides some stats based on people who are using their Alexa Toolbar. Rather than try to give total site hits (which they can’t do), Amazon gives us relative stats (as in “X number of people out of a million” visited this site). Here are some observations from some searches I did tonight:

All good stuff, but remember to take these statistics with a grain of salt. As Matt Cutts of Google discussed a while back, the type of people visiting a site can definitely skew these results greatly and considering Rain City Guide is in Amazon’s backyard, we’re more likely than most to have traffic from people with the Alexa toolbar installed.

Where do the kids sleep?!?

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[photopress:dig_deep.jpg,thumb,alignright]Whether you are a buyer or a seller, you really need to dig a little deeper when determining the value of a home. One thing I noticed when I first started practicing real estate in the Seattle area, is that almost no one digs deep enough when determining value based on “buyer profile”. This is an old fashioned concept, I guess, that I learned many, many years ago when I was the Certified Corporate Property Specialist (CCPS) for a large real estate company on the East Coast. That’s a fancy name for someone who must quickly sell the vacant inventory homes of relocated executives whose homes were “acquired” via a “buyout” corporate perk. The very first question I had to ask myself when I went to the property before putting it on market was, “Who is likely to buy this house?” I needed to know if I had an expanded or diminished buyer “pool”.

Remember, the market is shifting from a “baby boomer” market to a “Generation X” market, and we have to change our thinking and valuing with the trends that are affected by this shift. “We” meaning anyone interested in the “value” of property, whether that be buyers, sellers or real estate professionals.

Here’s a simple scenario. Four houses. Each 2,600 hundred square feet per mls. Let’s say everything is comparable in terms of neighborhood, lot size, view considerations (all have a view) and improvements. The ONLY difference being the placement of the square footage, each being 2,600 square feet not including the garage.

House #1 – 1,400 square feet on the main level and 1,200 square feet on the second floor. 2,600 above ground square feet with 4 bedrooms on the second floor and none on the first floor. View from all “main” rooms, (kitchen, living room, entertainment spaces and master bedroom).

House #2 – EXACTLY the same house as House #1, but with views out the front door, not visible from main rooms and views from all children’s bedrooms only, when inside the home. In other words on opposite side of the street so front door faces the view instead of the rear of the house facing the view.

House #3 – 2,000 square feet on the main level with 3 bedrooms on main level and 600 finished square feet in basement level with one bedroom in the basement. All views from main areas on main “entertaining” level.

House #4 – 1,300 square feet on the main level with only the master bedroom on the main level and 1,300 on the basement level with three “children’s bedrooms” down in the basement. Another variation would be two bedrooms up and two bedrooms down.

What really concerns me, is I see people getting info from the internet regarding total square footage, and doing comps based on this total square footage. “The house across the street sold for $800,000, so this one is worth X on a “price per square foot” basis. Even if it is the house next door, PLEASE stop valuing property based on price per square foot based on TOTAL square footage. Clearly you can see that those four houses, all 2,600 square feet, have considerable differences with regard to value.

When a pregnant woman and her two year old walk into house #4, they have to walk right back out. Do you really think she is going to love her master bedroom with view, if her newborn baby and two year old are sleeping “in the basement”? Now, personally I love my kids being “in the basement”, as mine are grown. But I wouldn’t pay as much for the house with a huge master suite on the second floor and all other bedrooms in the basement, as I would for one with more bedrooms “up”, even though that suits MY “buyer profile“.

Diminished buyer pool means that the average family buying a home cannot live with that floor plan, and that affects value, even if that floor plan suits YOUR needs. If the answer to the question, “Where do the kids sleep?!?” is down in the basement, on a separate floor from “Mommy”….hmmmmm.

Investors be very aware of this concept, as what you are thinking is a “bargain” in the neighborhood, and buying as a flip project, may be the ones with this “floor plan flow” problem. You sink a ton of money into granite counters, etc. only to find the low price was based on these types of differences in square footage placement, and you get nailed on resale of the improved flip house.

If a house is not selling and the price is reduced below the prices of the neighboring properties, make sure you know WHY that is happening. Likewise, if a real estate agent prices a house with 3 bedrooms on the main level and views from main rooms like house #3, based on the price “per square foot” of the house next door like house #4 with the kids in the basement…THAT house may be a TRUE bargain.

Website Owners Not Liable for Comments

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Considering this issue comes up every time Russ and I speak in front of an audience (including yesterday), I thought it would be interesting to share that the courts have been consistently ruling that blog owners are not legally responsible for the comments on their site, even if they moderate…

It happens all too often that some website owner in the US is sued with claims of libel over comments on that site in an open forum. We usually point to Section 230 of the Communications Decency Act, and note that it’s pretty clear that service providers of such forums are not liable for content they didn’t write themselves. We also like to point to a 9th Circuit ruling, noting that, even when such comments are moderated or approved, the site owner or moderator isn’t responsible. While the Supreme Court later refused to hear an appeal on the case, meaning the ruling really still only covers the 9th Circuit, the ruling is so reasonable, you’d have to hope other courts would agree with the logic. It appears some already are. Tech Law Advisor points us to a few different sources covering a District Court ruling (outside of the 9th Circuit) that comes to similar conclusions (even if the article is improperly headlined). The case involves the somewhat infamous TuckerMax forums, which are known for being a bit on the… free wheeling side of things. Apparently, a bunch of anonymous commenters there were upset about a party thrown by some publicist, and posted some relatively mean comments about him in the forums. The publicist then sued Tucker Max, claiming that he was liable for the comments, even though it was clear they weren’t made by him. The actual court ruling (warning: pdf) is an enjoyable read, as the judge clearly explains why he’s throwing out the case. He even cites the ridiculous number of censors China employs to filter the internet to explain why it’s not reasonable to expect internet site owners to police their forums more carefully — even as he notes that Tucker Max clearly admits to moderating comments on his site. The ruling also refers back to an older ruling pointing out the importance of protecting free speech, even when vulgar. It’s another reasonable ruling concerning these issues. Hopefully, once enough of these pile up, most lawyers will know better than to file such lawsuits.

The Tax Man Cometh and Stayed and Stayed

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I hated to be so absent on RCG the last couple of weeks, (took me several hours to catch up on posts. Ardell, you’ve outdone yourself, as usual, plus all those deals!Dont’ know how you do it). Here’s my excuse, I’ve had two audits this spring and they’ve both buried me. Plus I’ve been on two investment fact finding trips and hired two new agents for LTD just this week. (hmm, something about 2’s) I’ve been buried but wanted to share something that I thought my 2 (there it is again) tax attorneys and one real estate attorney should have prepared me for and had never heard of.

You try to listen to your attorney when he or she tells you to protect yourself and set up an LLC. but, if you’re like me and didn’t give much thought to how you share staff, leases, assets like office furniture, holdings, like real estate holdings, etc, etc, etc, please avoid the following that can cost thousands if found in an audit.

[photopress:taxman_1_2_3_4_5.JPG,full,alignright]For example, if I own two companies, a construction company and a company that buys property, subdivides, remodels, build new, etc., and if an employee from the construction company (where the liabiltiy and stop gap insurance is) builds for the venture company, then I must charge sales tax to myself!. Yes, I know the LLC’s and the Inc.s are their own entities, but it never occurred to me that I’d have to charge myself sales tax and give it to the state even if I’ve already paid sales tax at the point of sale. Similarly, if I bring my computer from home (or office furniture or ANYTHING and GIVE it to one of my companies, I must again pay sales tax. I own the computer, I own the company, I paid sales tax when I bought the computer. However, the state wants it’s $ so they consider that I sold the computer and therefore must pay sales tax.

Another example. If the construction company pays an architect for plans for the venture company, then I must charge tax and pay it to the state, even though architects are a service industry and don’t incur sales tax. I could elaborate but it’s just more of the same. Reminds me of my restaurants I had in the 80’s. I had a similar audit and because I gave free meals to my employees(100 of them at $2/day for 5 years), I had to pay sales tax to the state on those FREE meals. Go Figure.

So, I’m now much poorer and hope I’ve alerted at least someone out there to watch this on your books. I have 11 LLC’s, I’m just glad the audit is done and I won’t get in trouble next time. There is the possiblility that there will be some relief for this injustice in July, but it would probably only affect some of the issues.

But, lesson learned and I’m now cutting paychecks out of 4 different companies. Four sets of W-2’s, etc for each employee. Yuck

I’m going to start blogging on some cool strategies to invest 401K, Seps, IRA, Roth IRA in real estate when I get the time, but I wanted to alert you to a webinar that is excellent being given by a great custodial company, Pensco, in case you want to hear how to invest one of those entities in real estate and use leverage, even though most accountants will tell you you can’t. There will be many upcoming webinars about similar subjects. Click here for a description and to register.

And on a better note, sold a 1.3 million piece of waterfront land on Beach Dr.near Alki today. Gotta pay for those taxes somehow!

New Construction Closing Dates

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Further to this string of three posts, I think we need to talk about new construction closing dates. I received a call about ten days ago from a former client whose brother was pulling his hair out regarding a new construction purchase. He was TOLD that the home would be ready in July or August, or at least that is what he heard. All of a sudden he got a call telling him that closing was in 2 days.

It was a very large, well known builder of moderate priced homes in this area whose contract stated they had about 60 days to build it and then the buyer had 2 days after that to close it. The buyer’s first language was not English and relied more on what he was told and did not read the contract specifics. I jumped in and resolved the problem for him. All worked out and I won’t give the details of how I did that, as that is not the point of this post.

The point is that buyers of new construction must know that builders ALMOST ALWAYS have a condition in the contract that the buyer must close within X days after the home is completed. Unless the builder takes a contingency on the sale of your home AND a contingency on the fact that the sale CLOSES, you are required to close within 10 days or less usually of the time the home is completed. Builders often do not put close dates unless it is a spec house already built. They do not want to carry that house after it is completed, they want to close. Read your contract carefully with regard to when you will be required to close and do not rely on “proposed completion dates” or verbal representations by the sales people.

Usually there is NO PENALTY to the builder if the home is built later than expected and there is a per diem charge to the buyer if the buyer does not close within the X days of the completion date. Also the builder does not have to extend the close date, so paying the per diem may not even be a viable option for the buyer. If you cannot buy unless you sell, you need to be sure you understand the complexity of meeting these builder contract requirements. Matching a sale to a new construction purchase is extremely challenging and ridden with potential pitfalls.