Tag Archives: real-estate

Woohoo!! Merv's got it DOWN!!

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[photopress:sc.jpg,thumb,alignright]At first glance it might appear that Greg Swan and I are like-minded when it comes to commission issues. but not so. Greg and I do agree that the buyer should not be led around thinking they are getting a free ride compliments of the seller, and we are both part of a growing minority in that regard. We do in many ways lead the cause of buyers controlling their side of the fence, though sometimes Greg goes a little over the net on that one.

But Merv has got it DOWN!!! Agents like Merv and I are running the test cases that will prove to be the real answer to all of this. No One Size Fits All commissions. A range of prices for various scenarios. A range of prices based on a collaborative effort of determining the client’s needs…a collaboration between the agent and the consumer.

Merv, I am totally with you on this one, and I too have case studies, though by and large, and specifically as to commission negotiations, I was not planning to unveil mine until Jaunary 2007. You GO BOY! Woohoo! The agent and the client TOGETHER determine the services and advices that the client both wants and needs. The agent cannot participate in the consumer cutting themselves short of what they need, to be successful in the client’s goals. Nor should the agent build everything around a total package of high fee services, that always leads to a win for the agent, by including more than the client needs.

For instance, just closed one where the buyer represented himself, after first trying a “full service”/full fee agent. The seller and I gave the buyer the FULL 3% buyer agent fee. Buyer just moved into his new home and is thrilled! Seller is happy and has moved on, after unsuccessfully trying a full stripped down mls only version, before hiring me. Total fees paid in that transaction – 2%. In another instance, on a different property, a buyer called and said she was going to represent herself. I asked her a few questions and she knew absolutely nothing about what I was talking about and was missing several key details needed to represent herself. Seller and I said NO, you can’t represent yourself, you just don’t have the background of knowledge needed, in this particular case, on this particular property. Total fees paid in that transaction (different fully represented first time buyer) – 6% split 3% to me and 3% to buyer’s agent. Portion of my fee used to make repairs to property. I made more on the one where the seller paid 2%, than I did on the one where the seller paid 6%. So much for percentages…they are truly irrelevant.

The agent needs to be involved in determining whether or not the buyer or seller’s wants and choices, fits the consumer’s objectives AND abilities. The consumer in turn has to be realistic about what they can do themselves, and what they can’t do themselves. It’s a collaboration with neither party “dictating” to the other.

THIS is the model of the future. Just as you can hire an attorney to fully represent you, or to partially represent you to save some money, you should also be able to hire a real estate agent to fully represent you or to partially represent you. But no attorney is going to get into the middle of partial representation unless he makes the judgment call that the client is fully capable of handling a portion of the duties. No agent should hand over responsibility to someone without making the judgment call that they know what they are doing, with regard to the services selected and not selected.

A buyer who assumes responsibility for selection of property, via the internet or other means, should not pay the same fee as one who needs agent advices. A buyer who just can’t assume full responsibility for all lender issues, should not pay the same fee as one who needs no assistance with the lending issues whatsoever. A seller who has everything ready when you walk in the door, should not pay the same as someone who needs the agent to help with getting the property ready for market. A seller who can’t read the contract, should not be able to purchase a service that says “all offers to be submitted to the seller direct”, nor should an attorney/owner pay a real estate agent to explain a contract.

No one size fits all commission! No trading in one “one size fits all” for another “one size fits all”! That’s where Greg and I part ways. I love that Merv…and Pam. Get Merv’s blog on your MUST READ list today!

Cocktail Party Primer

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I’d like to open this thread up to a conversation on the health of the Seattle market…

but there is a catch. I will not allow it to dissolve into a conversation about racism, liberals, RCG, or faith. If you’d like to have a reasonable intellectual conversation, you are more than welcome to participate. If you attack me, RCG, or any contributor, then I’ll happily delete your comment.

By the way, please consider this post the “anti-linkbating” post. Not only will I quickly delete any off topic comments, but more importantly, I will mark those comments as “spam”. That will allow me to ban your email, name, IP, etc. from the site after only a few off-topic comments.

Two days ago, Michael Lindekugel of Team Reba made a very interesting comment. No one ever challenged him on the merits of his argument, so I think it makes an appropriate starting point into a discussion on the health of the Seattle market:

It’s the hot topic at most cocktail parties. Is Seattle going to experience a bubble and burst? The short answer is no…..the long answer follows:

We experienced a busy market with a shortage of supply and increasing demand resulting in four or five offers and short “Days On Market

Do the Banks Own Seattle?

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[photopress:bank.jpg,full,alignright] The photo is of the Bank I worked in for twenty years. Lots of memories in there and lots of pranks pulled up on that balcony 🙂

I was perusing The Tim’s blog while writing something on my blog earlier today, and ran into the comments regarding King County median income and median home prices, again. I never seem to draw the same conclusions as other people. So I tested my thinking on the subject. From my way of thinking, at least SOME of the people have SOME money to put down when they purchase a house. So the median income is relative to the median mortgage used in the purchase, not the sale price. Isn’t it? So I calculated some random stats you might find interesting to prove that the Banks and Mortgage Companies don’t TOTALLY finance EVERY home purchase.

First I went to the high end and found that Seattle high end homes were financed at only 36% of value. That includes 40% of the randomly chosen properties sold in the last 3 or 4 months that were bought with cash and no mortgage at all. Mercer Island and high end Eastside, like Clyde Hill and Medina, financed at a higher rate of 49.5%. Both represented about $28 million dollars worth of homes purchased. Seattle financed $9,750,000 of their $28,000,000 purchase prices while Mercer Island, Clyde Hill and Medina financed $13,500,000 of their $28,000,000. Still plenty of equity though, so NO, the banks do not own the McMansions 🙂

One thing I found that was surprising to me up in the high end is that one of the most expensive homes sold was sold all cash…not surprising. The occupant at the time of sale was a tenant! That cracked me up. Why would someone rent a Six Million Dollar house? Oh, well…just a random observation.

Then a went down to the $475,000 to $500,000 price range, more in the median range and pulled through separate market segments. South Seattle was 90% financed. North Seattle was 85% financed and Eastside was only 70% financed. Why would the Eastside have more people with more money to put down on their homes? Easy. Cheap condos. The condo market was really cheap two to three years ago, and is still relatively cheap by Seattle standards. So people who bought those instead of renting 3 to 5 years ago had built up enough equity to put an average of 30% down on their single family home purchases.

Just random stats that I found interesting. The banks own 90% of South Seattle, 85% of North Seattle, 70% of Eastside and only 35%-50% of the most expensive homes. At least the ones that everyone who is reading King County median income/median home price stats are talking about, those bought recently.

There will never be a real estate bubble

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When Susan Ryan posted Just Say No To Bubble Talk, where she states “There is no real estate bubble and never will be” (emphasis mine), she probably wasn’t thinking of the traffic and links she would bring in through such blatant link baiting. But in one crazy statement, she swung for the fences and brought in over dozens and dozens of angry replies.

In a sort of a reverse of the Greg vs. Ardell 100-posts-in-24-hours contest, I propose a link baiting contest. Can you write the most outlandish post that warrants over 88 angry replies (current count) in the shortest period of time? Extra credit if you hit 100 in a day. The prize: an autographed photo of Jerry Falwell, a man who understood link baiting before the internet even existed.

The fine print: If a Rain City Guide member takes up the gauntlet, other co-bloggers (or “cloggers”) can only count for one angry reply (that means both of you Russ and Ardell!). You’re on your honor not to comment on your own posts or ask friends to do so. Any single angry responder can count for up to 5 comments, but after that you get no credit for making them angry.

I will take myself out of the running right now, as I don’t know enough about the gold standard to argue on its behalf or enough about the illegality of the IRS to argue against it.

Update: OK Folks, we’re done. Unless you have something to say that hasn’t been said, which includes almost all points of view on the real estate market, views on the writers of Rain City Guide or the writers and commenters at Seattle Bubble, and views on the intelligence or lack thereof of nearly everyone in the United States, lets move on. Do someting that makes you happy (and please, no comments about duking it out on a blog making you happy!). Please, no cheers, no jeers. Seriously. Move on.

The Wisdom of Crowds

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At a client conference in my last job, one of the keynote speakers was writer James Surowiecki, author of the book The Wisdom of Crowds. Pulling notes from his book, he made a compelling case that large groups of people are smarter than an elite few, no matter how brilliant; better at fostering innovation, coming to wise decisions, and even predicting the future.

[photopress:crowds.jpg,full,alignright] The most fascinating example (and there were many) of this wisdom is in the investigation of a submarine that had sank and disappeared. The Navy had limited information regarding its location, and all searches came up empty. One smart fellow had the idea to consult a wide range of experts – in oceanography, ballistics, physics, engineering, etc., and ask them to come up with a probable location of the submarine. All the answers were collected and analyzed, and an ‘average’ location was charted based on the data. Chillingly, the sub was found within hundreds of yards of that location.

With large sample sizes, crowds form a network, and the best solutions bubble up from the collective thought. Though it sounds very Borg-like, we witness examples of it every day. The financial markets often sniff out trends and problems before they hit the front page. There is no collusion or any critical mass of explicit cooperation here – these trends are created by the cumulative wisdom of the market’s millions and millions of participants.

Which brings me to the potential wisdom of the Chicago Mercantile Exchange’s housing futures index created by Karl Case and Robert Shiller. Theoretically, this market would allow individual homeowners to hedge their investment by purchasing future contracts based on their metro level housing market. Let’s say I owned an apartment in NYC that is worth $1.5mm today. I could buy contracts that would pay me if the market dropped by 20%. I would effectively lock in a certain value for my property at a future date with these contracts.

If this concept takes off, the swings in the housing market would flatten considerably. If Joe homebuyer sees the contract prices that are based on next year’s housing values reflect a substantial drop, Joe homebuyer will be less likely to overpay for a property. Also, if Joe homebuyer could basically buy insurance against a large correction, the real economic impact of such corrections would be dampened by the payout of this ‘insurance’. However, Surowiecki has doubts that such a ‘wise crowd’ can materialize in the near future. As explained in a New Yorker article on this market, culture and habit matter as much as economic rationale. He writes:

“Even today, it’s clear that otherwise rational people harbor deep-seated beliefs that make housing futures a tough sell. People generally don’t hedge individual investments, because they don’t like to limit their potential gains in advance. That’s especially true when it comes to housing, because of the ingrained assumption that, over time, real estate is guaranteed to be an excellent investment—even though Shiller, in a recent book, shows that, allowing for inflation, American home prices barely budged during the twentieth century. In that sense, the housing-futures market has what is known as a framing problem: selling a contract seems like betting on housing prices to fall, rather than simply insuring yourself in case they do.”

This market debuted only about four months ago, so there is by no means any critical mass to it. It’s thinly traded, and it only offers futures on 10 US markets (Seattle is not one of them). Interestingly, the trading activity indicates a correction in the ten covered markets over the next year (with Denver showing the least downside). I would love to have had Seattle on the list. But, if trading activity increases, I would imagine that more markets would be added – and Seattle’s got to be high on that list.

Given that real estate is extremely localized (e.g. neighborhood by neighborhood), would a market that had critical mass (millions of contracts exchanged per day) be a driving force in the direction of a metropolitan market’s value? Would the average increase or decline be pretty darn close, even if street level values varied significantly block by block? My guess is that they would be extremely influential in how money moved in and out of the housing market. Such an efficient market would provide opportunity for long term homeowners to hedge their investments, speculators to make bets on the direction of the market, and renters to protect themselves from ‘missing out’ on appreciation.

In other words, many of the financial benefits of the American dream of homeownership could be had without ever buying a home. Take things a step further, and perhaps a fully matured and stable housing futures market would advance the dream of disintermediation further than Redfin or Housevalues could ever do. With good market info, long term home buyers wouldn’t have to worry so much about overpaying on a property if the market indicates a strong future value. Therefore, a precise valuation that an agent might be able to give versus that of an automated system may not worth the extra money it would cost in agent fees.

The "Goldilocks" Principle

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[photopress:images_1.jpg,full,alignright] I know that applying the “Goldilocks Principle” puts me in the category of “hopeless utopian”, but hey, for one solid year, until December 31, 2006, I am going to stay in this thought mode.

I’ve tried various commissions with various people, and for the most part disregarded anything I’ve ever known, and everything that anyone has to say on the subject. I say “for the most part” because you really can’t erase your brain. But you can test and try varied options, just like Goldilocks rested herself on the three beds before deciding which one was “just right”.

I find that all of the rhetoric available on the topic is pretty much bunk. Reality is, it depends on the sale price/purchase price. I plan to do a “year in review” on 1/1/07, my blogging anniversary, to post my experiences and conclusions. But since this topic keeps coming up in the comments of various articles with everyone spouting out percentages, or flat fees, or hourly fees, etc., I thought I’d at least post that the results of my experiments are absolutely hinged to price of property.

The other reality is that my “awakening” with regard to commission issues started three months BEFORE I started blogging, and being in the Blogosphere really isn’t what turned my head with regard to commission issues. What turned my head was when I, myself, purchased a house for $850,000 with $59,500 of commission issues plus $22,000 of other credit issues thrown into the mix. Trust me. There is no question in my mind that I, the buyer, am the one paying for that whole $81,500 in my mortgage payment. I’m not complaining. I structured everything that way for a reason. But overnight I realized that the buyer pays the commission…no question.

I also realized that it didn’t bother me on the 10-12 properties I purchased before this one. So price of house does matter. The experience revolutionized my whole thought process with regard to real estate commissions. Nothing causes you to “get real” more than putting yourself into the equation, and experiencing it personally, from the inside out. So for now, I’m trusting my own judgment and using “The Goldilocks Principle” when determining the fairness of commissions. A full year of experiments, and then I’ll come out the other side and see where I’ve been and which feel “just right”, which were too high and which were just not enough.

For now…price matters is the key, and almost none of the discussions anywhere, focus on different fees for different home prices. So basically, they are ALL wrong.

The Big List of RCG Plugins

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My list is a little longer than Greg’s…

Akismet. A must for WP blogs… I’ve complained in the past how their service is somewhat of a blackhole and I can’t seem to rescue a few of the people who leave comments on RCG from the Akismet spam filter. Nonetheless, the service catches hundreds of spam messages every moment. If I didn’t have a life, I could just keep hitting refresh on my spam filter and there would always be another spam message to delete. Matt, if you’re listening... Here are the two improvements I’d like to see. (1) A way to not have spam limited to showing only the most recent 150 spam messages. Recently, I’ve had two different people leave comments who say there were picked up by the spam filter, but because my queue had already built up to greater than 150 messages, I had no way to rescue them. When I hit the “delete all” button, I only (wrongly) reinforced that these people were spam. (2) A way to rescue people who are labeled spam from deep within the blackhole of Akismet’s database. Galen, one of RCG’s contributor’s has to go “save himself” every time he posts. This sucks! (but is better than me dealing with 450 spam messages a day!)

Exec-PHP. Allows for Admin and Editors to write PHP code within their posts… Both dangerous and powerful and the easiest way to get the Archive plugin to work.

Filosofo Comments Preview. This allows for the preview button. I wish I had time to figure out how to format the “preview” page, but I remember spending a whole evening on that one time and not making enough progress, so I just leave it unformatted. It’s ugly, but better than not having the preview option!

Gravatars. This plugin allows me to easily show the author’s photo on the beginning of every post. At one point, I tried to set this up to allow commenters to have their own gravatars (which is the more common use for this plugin), but I couldn’t get it to work with my theme.

Recent Comments. This really nice plugin lets me show the most recent comments on the sidepanel. It is highly configurable and very easy to work with. I attribute the use of this plugin to the high comment level that we get on many RCG posts because it allows everyone to easily seeing where there is “action” on the site…

GeoPress. This allows me to geocode my posts so that they show up over a map. If you haven’t seen this in action, then you’re going to have to wait a little longer. Normally, when you visit adetail page on Anna’s home search tool, a bunch of little rain drops show up that represent blog posts about that location. At the moment, no rain drops are showing up and I suspect this is because of changes to the server during my recent move and Robbie and I never noticed it was broken (until now!). It’s a very cool feature and way under-utilized by me. Note that the author mentions there is a new and improved version of the plugin here.

PhotoPress. This was top-of-the-line when I first started built RCG a year and a half ago. Since then, WP has designed a built-in photo uploaded that is better integrated with the core system. However, I’m stuck on the old photo upload program because I don’t even want to try thinking about reloading all the photos to a new system and getting everything to work. I dread thinking about the day when the PhotoPress people stop updating their code because demand has shrunk. That’s the day I’m going to be forced to hire a developer for this site!

WP-Print. Add a little printer icon next to the post and allows people to print off a clean looking version of the post. I never print articles, but I’ve heard others do, so this is meant to help save a few trees.

Role Manager. This lets me be very picky about what the different contributors can do on the site… Do I want Jon to upload photos but not publish? Do I want to give Ardell all “editor” rights except the ability to run PHP within posts? This plugin handles that kind of thing.

WP-Stats. This page provides a lot of pretty useless stats, but I installed it and have never turned it off… On the day when I decide to award free-round vacation packages to the top 10 WP contributors, I’ll use this plugin because it counts links like number of posts by author and number of comments by author.

Smart Archives. Clean, simple, smart archive.

Ultimate Tag Warrior. This this is so feature rich, I’ll never even play around with half the options on my beta site. At this point, I’ve been keeping it pretty simple and using the code to tag the bottom of blog posts and create the tag cloud in the archives.

WordPress Database Backup. A backup option without the need to go into PHPmyAdmin! Greg once mentioned that he linked my quote: “I believe real estate agents are either in marketing or broke”… Today’s version: “People running website either backup on a regular basis, or they are broke!”.

WP-Contact Form. Simple, but useful, contact form. I use it on the buyer information and seller information pages. (note: this is also the way that I monetize this blog! 😉 )

Permeating Self-Promotion

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Here’s a few stories from around the real estate blogsphere I found interesting…

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Phil is obviously have some fun in Boise, although others may find his anatomy of a listing he won’t take more relevant to recent RCG conversations…

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Jonathan sends out a blogger’s prayer and some really nice words about RCG.. Thanks!

Fortunately, I ran into Ardell DellaLogia, her blog, and the Rain City Guide. Between her advice and her blog, and the larger Seattle based blog to which she contributed, I got a sense of what a blog could be – articulate, meaningful, educational. And that’s what I decided I wanted and what I’ve strived for, with mixed success.

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The xBroker is clearly and definitely over-the-top. Yet, despite the self-promotion that permeates all of his posts, I really like this guy. In emails and blog posts, he’s come across as someone who is definitely informed and wants to communicate his knowledge… There’s definitely a there, there…

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Tech alert: Greg Linden turned me on to a very interesting post by Google’s Steve Yegge, where he looks at the management of Google through the lens of the Agile programming philosophy. The story would have been good enough, but then Microsoft’s Dare Obasanjo made it better by comparing the ideas to the (failed) management structure at Enron… All three posts are worth reading (but make sure you have some time!).

Light Fixers – Before and After

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As a follow up to Ardell’s post about finding those homes where the owners just didn’t take the time, or have the money/energy to bring the home to retail condition, I’d like to share a few before and after photos. These two sets of photo are from light fixers my wife and I rehabbed last year (our first two, actually). We put about $15K total into each property, and each sold within a week of listing.

[photopress:Kitchen_Before_right.2.jpg,full,alignleft]
[photopress:KitchenAfter.3.jpg,full,alignleft]

This first set of photos shows the before and after condition of the kitchen in a small rambler up in northeast Marysville. We used the existing cabinets, adding new pulls and hinges for a simple update. New paint, vinyl flooring, appliances and fixtures rounded out the upgrade.

This second set of photos shows how a little paint (and some nice staging) can go a long ways. This home is in Shoreline.

[photopress:Shoreline___Painted_Walls.1.jpg,full,alignleft]

[photopress:Dining_Nook___After.jpg,full,alignleft]

If we had chosen to do the work ourselves, we could have cut down total rehab costs to close to $10K. Now, on the other hand, as a preview for a future post on major rehabs, here’s a final before and after (total costs for this job in the $120K range). This one is on the market right now, but in the spirit of neutrality, I’m going to hold off on discussing this in detail until after it’s sold.

[photopress:Job_Pics_038.jpg,full,alignleft]

[photopress:Kitchen_2.0.jpg,full,alignleft]

Buyer Agent Commission

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[photopress:int_auction.jpg,thumb,alignright]I was reading Greg’s newest article on Buyer Agent Commissions and thought it might add more information to both his readers and ours, to run a “Point Counter Point” kind of discussion. So I have his article up side by side and will touch on some of the points where I either disagree with Greg, or have something to add.

Greg: “Want to foment a revolution in residential real estate?…(buyers just say) these five simple words: ‘How much do you charge?’…Historically, buyers have not understood that they, too, pay for representation”.

Greg, while the concept is indeed “revolutionary” in one sense, I find that most consumers would like we in the industry, to lead the revolution and win that battle for them, rather than being involved in the process of that change in the industry. Of course here in the Seattle area we have Redfin leading the charge, by revealing that there is a Buyer Agent Fee.

Sometimes Greg and I shake our heads at the shenanigans of the industry that pretend there really is no Buyer Agent Fee. Buy how can Greg expect the buyer consumers to lead this needed change in the industry, when most buyers NEVER even see the fee? Does anyone know a public search site that shows the Buyer Agent fee to the consumer? Does anyone’s mls system print the Buyer Agent Fee on the client version of the property printout? Has anyone seen the Buyer Agent fee show on the Buyer’s Closing Statement when the transaction closes?

How is a buyer supposed to even verify that the agreed upon amount, is what the buyer agent in the end collected? The commission paid to both the Seller’s Agent AND the Buyer’s Agent, only shows on the seller’s closing statement and NOT on the buyer’s closing statement. “Oh, yeah…I charged you ten bucks . You want to SEE it? Oh, sorry, that’s a seller privacy issue. You can’t see the actual fee charged. Just trust me on that ”

I’m not going to go into the “chicken or the egg” debate agents like to play with regard to who “actually” pays the commission, because it truely is purely subtrefuge. I often wonder how they’ve gotten away with it for all of these years, but then we really do know how they’ve gotten away with it for all of these years, don’t we? Because buyers really like the idea that it’s free and don’t want to sign an agreement to the lower amount, because they really don’t want to sign an agreement with an agent at all…even if it does save them money. They want the lower amount with no strings attached. Not saying they are wrong, and I actually honor that. But let’s not pretend this isn’t a two way street.

I don’t like Greg’s answer either, because he makes it looks like the buyer pays the seller’s agent fee too, and that’s just a pendulum swing to the subtrefuge, which doesn’t work either. Seller pays his agent and buyer pays his agent, is the only rational answer, regardless, so each knows the cost for their side and negotiates their side and sees their side at the end.

Greg says: “We baby buyers, (by) telling them tender, loving lies: ‘Buyer representations is free.’ ‘I’m paid by the seller.’ ‘My services cost you nothing.'” Truth is, buyers really do like these lies up to a point. They really do like to believe that is is free and the seller is paying it. Buyers like to “receive money from the agent” like the Redfin cashback. It’s a whole lot more fun to believe that they are “getting back” $20,000 than to understand that they are paying $10,000. They are not really getting back anything, they are financing their cash credit, if they take it in cash or cash credits. To truly save something, they have to negotiate a sale price with the seller and AFTER the fact, reduce the purchase price by the negotiated buyer agent fee difference. Otherwise they are including the full fee and they are paying it with interest for 30 years! They are borrowing it from the lender, not “saving” it.

Greg says: “If you’re buying a new build, the builder may be paying “your” agent a huge commission. You should negotiate to make sure that you receive any funds over a reasonable rate”.

Well, of course, it does NOT only apply to new build. Here’s my comment on new build though. I just got an email while I was writing this that said “$5,000 bonus on last 5 units!” I deleted the email after mentally translating it to say, “We’ll pay you an extra $5,000 if you will help us get rid of the five last dogs that no one seems to want.”

And last but not least, Greg says: “…you will not get to a more reasonable buyer’s agent commission without mastring those five little words: “How much do you charge?” (That question seller’s have known to ask forever because sellers understand that they are hiring a Realtor and it isn’t free – paraphrased).

But Greg does not give any advice regarding what to respond when the agent replies: “What do I charge? Why nothing! It’s Free! The Seller pays it! Greg, if you want them to ask the question, you have have to give them a little more advice than simply asking the question that will initiate the response of free, that we both know many will get. Let’s have a follow up piece titled, “What do you say to a buyer agent who tells you his services are FREE?”