Join me for a Housing Market Conversation with Lawrence Yun July 16, 2008
I don’t normally cross-post between 4realz.net and Rain City Guide, but tomorrow I’m having a conversation with the Chief Economist of the National Association of REALTORS that I think will interest many people in the Rain City Guide community. We’re going to be talking about the effect that the recent news associated with the FDIC bailing out IndyMac and the Treasuring providing support to Freddie/Fannie will have on the housing market.
I fully expect this radio show to be interesting, lively and informative and welcome you to join. As with Rain City Radio, there’ll be an associated chat, and I’ll be picking out questions from the chat room. Please consider joining us!
Can you price your house at land plus structure? July 15, 2008
Let’s deal with this sentence first and get it out of the way “A property around Seattle, correct me if I’m wrong, has about half of its value in the land, and half in the structure.” No, not true. One can not even begin to generalize, but a good rule of thumb for builders is that the new house will sell for 3X the lot value. But that is ONLY if the lot was worth buying in the first place.
If your land has value separately from the structure, then your structure often doesn’t have any value. When your structure has value with the land on a combined basis, then the (extra) land can usually only add 10% more to that value unless the lot can be split into two or more lots.
If a builder might want the land, then yes, the value of the land is part of the valuation process. If a builder wouldn’t want the land, then no, the land does not “value out” except as “an extra”.
Let’s take a regular neighborhood where the only buyers are those who are buying homes, and not builders who want the lot. How can you tell? Every house on the street is the same age, is a good clue. No builder has ever bought a house torn it down and put a new home on that street, usually means no builder wants to do that. If a house burned down, well then of course the lot would have a value. But if no one is interested in tearing the house down and putting a different house on it, then you don’t value the property by valuing the land first and then the structure. Most homes on the Eastside (housing developments) fall into that category, and any street in Seattle or Kirkland or Bellevue, considered to be a bad investment for new construction, falls into that category as well.
When no one would build a new house on the lot, you value a property based on comps alone, and the value of the land becomes irrelevant. Most times the homes are on lots of about the same size. A bigger lot vs. a smaller lot becomes “an extra”. Sometimes extras add value and sometimes they don’t. Too large of a lot often is viewed by potential buyers as “too much maintenance” and can actually detract from the value. Often corner lots fall into the “more maintenance” category. In these neighborhoods the large lot only values out IF it is SUBDIVIDABLE. If the person buying it can turn the lot into two lots and put another house on that second lot and sell it, then yes, the extra land would be a factor in determining the asking price or offer price.
Before we leave this category of “no” you don’t separate the land when determining an asking or offer price, let’s talk about land as “an extra”. The best rule of thumb for “extras” is they can’t in total equal more than 10% of the value of the property without the extras. Say you have a house that comps out at $650,000. You can’t get more than $65,000 more for that house because of extras, or $715,000. Beyond that it just has too many extras. Extras include, tennis courts, pools, extra land beyond the norm for the neighborhood, and to some extent new kitchens, new baths and any “added value” unless many in the neighborhood homes have also added these things and the comps have grown as a result. If no one in the neighborhood has done ANY improvements since 1968, you can’t get double the price of everyone else’s house because you remodeled your house and have a pool and a bigger lot, etc. That ONLY applies in areas where land is not separated from the structure in order to do a valuation.
So for all of the above, simple methods of price per square foot and adding and subtracting for some things here and there is the only method that works.
Let’s move on to where Larry is correct.
Larry, when the land does matter…then often it is ALL that matters, and the structure does not.
When it’s not all about square footage or value of structure, it often shifts to all about the land.
Example: I had a buyer client who bought a 4-plex at 7th and Market in Ballard. When he sold it two and a half years later (a year ago) the value of the 4-plex was roughly $720,000. I listed the property at $850,000 because IF the buyer wanted to tear down the 4-plex and build townhomes, the value of the land was worth more than the value of the 4-Plex with the land under it. It sold for $855,000 and five townhomes are being built on it as we speak. People called who wanted to buy a 4-plex and it didn’t “pencil out” and a lot of agents thought I was nuts 
When the value of the land exceeds the value of the home plus land, then the structure is “free”. This is true where builders are building and only WHEN builders are building. If builders stop building for five years because the market is soft, then the value will go down to whatever an owner occupant will pay for it, and whomever buys it can live in it and sell it when the builders come back out looking for lots to build on. We are entering a market like that and to some extent have been in that market for 10 months or so in some areas and in some locations.
So to answer your question, the reason it is or is not done the way you suggest is not because the “calculation is too complex”, it’s because it’s unnecessary. A buyer isn’t going to pay you 3X the value of the neighbor’s lot plus the value of your structure, because the lot is 2/3rds bigger, unless it is subdividable into THREE lots. If it can only be subdivided into two lots, then they may pay you the value of your house based on comps and price per square foot, plus a portion of the value of the extra lot, not triple, even though it is 3X bigger. And if it can only be one lot, they may not want it at all, because it is too much maintenance and that can reduce the value overall.
The highest value of a lot is usually where the value of the structure is about nil AND a new house built on that lot will sell. If you live on a street with no newer houses, if no one has ever wanted to build a new house on your street, the houses could end up at no value if no one wants to buy it as is and no builder wants to build on the lot. Then it becomes your home for life…or a perpetual rental property
A woman approached me this Sunday. She asked me what her property was worth. The house was tiny and worth about $300,000 with a huge yard. The lot was worth $300,000 without the house. When I told her the lot was worth $300,000 she started talking about the house. No! You can’t add the value of the house to the value of the land. No one is paying $300,000 for a big yard. They will only pay $300,000 if they are going to tear the house down. Someone may buy it and live in it, but they will get the house for free if they do. Maybe you can get $350,000 for it. A $50,000 house is dirt cheap and someone may pay an extra $50,000 over lot value and live in the house. But you can’t value the house at price per square foot and add it to the value of the lot.
You can sell it to a builder for lot value, or you can try to find an owner occupant who is willing to pay a little more than the builder will pay for the lot. Those are your options.
Larry, my guess is your land is treated as “an extra” and adds 10% to the value IF a buyer views it as an extra vs. a shortcoming. Today most people don’t want to spend all of their free time mowing the yard. And you can only get 10% more for ALL extras on a combined basis. So if your house is already worth 10% more than your neighbor’s homes because you added a new kitchen…then the extra land is not of value as your exceeded you cap for “extras”.
Sunday Night Stats - King County July 7, 2008
I started working on some June YOY stats over on my blog, but I think I’m going to give it a few more days to make sure all of the June closings are posted before making any comparisons over here besides the regular stats. It is a holiday weekend, and I’m sure more than the normal amount of June 30 closings may be posted next week.
So far it looks like June 2008 residential sales in King County were 44% less than last year and 56% less than the high as to volume, and prices are slightly down both on a price per square foot basis and median sale price, Condos also down a little over 50% as to volume both from last year and from the high, but while median price per square foot is down, median prices are up as is the median size of condos sold in June. Instead of spending less, condo buyers are opting for getting more square footage at that lower price per square foot, and spending more to get the larger units. Likely a move toward being able to hold longer.
I’ll do some 1st and 2nd quarter comparisons and 1st half YOY in a few days when I’m sure the majority of June 30 closings have been posted. For now let’s update our regular weekly stats. Inventory is down this week (selling faster than they are coming on market) in both the condo and residential categories.
King Couny Condos
2004 - 1Q - 1,694 - $188, 2Q 2,636 - $199, 3Q 2,540 - $196, 4Q 2,176 - $195
2005 - 1Q - 2,066 - $198, 2Q 2,925 - $209, 3Q 2,769 - $226, 4Q 2,266 - $224
2006 - 1Q - 1,956 - $242, 2Q 2.748 - $252, 3Q 2,737 - $269, 4Q 2,217 - $278
2007 - 1Q - 2,042 - $295, 2Q 2,862 - $302, 3Q 2,676 - $311, 4Q 1,618 - $294
2008 - 1Q - 1,258 - $299, 2Q 1,485 - $286 (2Q postings as of 7/06/08)
Changes in condo stats for this week
Active Listings: 3,958 - DOWN 89- median price $319,990 - MPPSF asking $319 - DOM 64
In Escrow: 870 - DOWN 43 - median asking price $295,000 - MPPSF asking $298 - DOM - 49
Sold YTD : 2,777 - UP 132 - median list price $292,000 - median sold price $287,900 - median PPSF - $291 DOM 49 Note: only 35% selling in 30 days or less.
Residential King county
2004 - 1Q 5,650 - $152, 2Q 9,237 - $160, 3Q 8.737 - $163, 4Q 7,467 - $165
2005 - 1Q 6,402 - $173, 2Q 9,093 - $185, 3Q 9,131 - $192, 4Q 7,301 - $195
2006 - 1Q 5,596 - $201, 2Q 8,248 - $214, 3Q 7,771 - $216, 4Q 6,204 - $217
2007 - 1Q 5,304 - $222, 2Q 7,393 - $230, 3Q 7,944 - $229, 4Q 4,301 - $221
2008 - 1Q 3,640 - $219, 2Q 4,558 - $220 (2Q - postings as of 7/06/08)
Changes in residential stats for this week
In Escrow: 2,760 - DOWN 103 - median asking price $435,495 - DOM 49 - MPPSF $209
SOLD YTD: 8,315- UP 407- median asking $449,950 - median sold price $440,000- DOM 49 - MPPSF $218 Note: Only 36% selling in 30 days or less.
Actively for sale 11,903 - DOWN 284- MPPSF <$800,000 is $220- MPPSF >$800,000 is $336
Stats not compiled or published by NWMLS. (Required disclosure)
Free Credit Monitoring…available for a limited time July 3, 2008
Due to a settlement from a class action lawsuit where they were accussed of reselling personal and financial consumers information for marketing purposes, Transunion is offering free credit monitoring. Selling the information is a violation of Fair Credit Reporting Act. You only have until September 24, 2008 to apply for your benefit of either free credit monitoring or possibly a cash payment.
You are eligible if you have had credit from January 1, 1987 until May 28, 2008. This includes mortgage loans, credit cards, auto loans, student loans…if you’ve had credit over the past 21 years, this is worth checking out!
Here are your choices:
- Sign up for six months of credit monitoring services. If you select this option, you can also register to possibly receive cash benefits in the event of a cash distribution or file an individual lawsuit against the Defendants.
- Sign up for nine months of enhanced credit monitoring services. If you select this option, you will not receive any further benefits, including a cash payment, and you will not be able to file an individual lawsuit against the Defendants.
- Register to possibly receive a cash payment. If you select this option, you can also sign up for six months of credit monitoring; however if you receive a cash payment, you cannot file an individual lawsuit against the Defendants.
Of course you can always chose to do nothing!
You can call TransUnion’s settlement number at (866) 416-3470 or visit the website: www.listclassaction.com to file your claim.
It’s about time these Trigger Leads came to an end!
Form 17 — an addendum to the contract?
As always, this is not legal advice. If you want legal advice, consult an attorney, not a blog.
Is the Form 17 part of the purchase and sale agreement (PSA)? Should it be listed in the “Addendum” paragraph of the PSA? In a word: NO! (At least if you’re the seller — if you’re the buyer, then YES!)
First, some background: Here in Washington, a seller is required to provide a fairly comprehensive Seller Disclosure Statement to any buyer of real property. Our local MLS provides this to sellers as its “Form 17,” so everyone in the biz refers to this legally required disclosure statement as the Form 17. Pursuant to the statue, the Form 17 “is for disclosure only and is not intended to be part of any written agreement between the buyer and the seller,” i.e., it is not supposed to be part of the PSA. On the first page of a PSA, there is a section in which the various addendums to the PSA should be listed so that there is a clear description of the complete contract and its terms.
In practice, many agents (and unrepresented parties) will list the Form 17 along with the various addendums that are typically included in the PSA (e.g., financing contingency, title contingency, inspection coningency, etc.). If you are a seller, this is a significant mistake. Conversely, if you are a buyer, this provides you with some leverage if the seller fails to disclose or misreprsents a defect in the house.
By listing the Form 17 as an addendum to the contract, the parties incorporate the Form 17 into the contract notwithstanding the statutory language. In that event, if the seller fails to disclose or misrepresents a defect, then the seller has arguably breached the contract. This would give rise to a breach of contract claim against the seller, which is an easier claim to prove than a claim of fraud, the typical claim arising out of a seller’s misrepresentation. Moreover, the PSA contains an attorney’s fees clause. Thus, if the buyer were to prevail on the breach of contract claim, he would also be entitled to an award of his fees and costs incurred (which will very likely exceed the cost to repair the undisclosed defect). Fees and costs typically are not available on a fraud claim (although the case below calls that proposition into doubt, a topic of a future post).
A very recent case helps to illustrate this point. Stieneke v. Russi, decided July 1, involved a seller’s failure to disclose a leaking roof. At trial, the court concluded that the Form 17 was part of the contract, even though the buyers signed it four days after mutual acceptance. The trial court reasoned that a seller should not be able to easily avoid liability for the contents of the Form 17. The court found that there was “an understanding” between the parties that the Form 17 was “part of the deal.” Accordingly, the seller was liable for breach of contract.
On appeal, the appellate court reversed the trial court. The appellate court focused on several issues, including the fact that there was no mention of the Form 17 in the PSA itself. Had the PSA referenced the Form 17 in the “Addendums” section, thus specifically including the Form 17 in the terms of the contract, the appellate court would have had a much more difficult time concluding that the Form 17 was not part of the contract.
So, if you’re a seller and you receive an offer showing the Form 17 as an addendum, prudence would dictate that you strike that term and present the counteroffer back to the buyer. There is no reason to include the Form 17 in the contract, and indeed the legislature did not intend for it to be part of the contract as indicated by the statutory language. On the other hand, if you’re a buyer, go ahead and list the Form 17. Why not? It is common practice among agents and there is a good chance the seller will accept this term. In that event, you will have some additional protection to insure that the contents of the Form 17 really do reflect the actual knowledge of the seller. If the Form 17 does not reflect the seller’s actual knowledge, then you will have a good claim against the seller for the costs you incur as a result.
[Footnote: the damages in the Stieneke case, the cost to repair the leaking roof, was $72k, but the attorney's fees and costs were $175k. Clearly, as a buyer it is really, really good to preserve any ability to recover your fees and costs in the event you have a claim against the seller. In a future post, I'll discuss other interesting aspects of this case, including the basis for this award of fees even though there was no breach of contract claim.]
Pocket Listings in Seattle? June 23, 2008
I was a meeting this weekend with an agent in Southern California where he showed me a website he says he visits a couple times a week. A competitor had built up a large repository of “pocket listings” for the Beverly Hills area and then stuck them behind a registration wall… of which he visited regularly.
Being a Rain City Guide kinda guy, I’m not keen to put things behind registration, but I am fascinated by the idea of putting together a page of pocket listings as a resource for Seattle area agents and consumers. If you’re an agent who serves any area supported by the NWMLS and you’d like to advertise a pocket listing on RCG, let me know in the comment below.
If I get 5 or more pocket listings in the comment section of this post in the near future, then I’ll assume there really is demand for such a tool in the Seattle area and I’ll start up a new page (right between “About RCG” and “Seattle Agent Recommendations”) for pocket listings.
Here’s the only information I need from you:
- Neighborhood
- One to two sentence description of the listing
- Contact information (name & phone)
For obvious reasons, I’m assuming that most agents won’t want to list the address of the pocket listing, but if you want to include that information as well, all the better. And just to be clear, this is a free service of RCG. Assuming it becomes a lot of work, I may charge a nominal fee to cover my time and/or automate the system, but I honestly don’t see that happening in the near future.
Are there rules for getting your pocket listing on RCG? Most definitely! But I don’t even know what they are yet. However, I will definitely figure out some rules if people start abusing the system. Some potential rules that come to mind: (1) Only allow agents to list their top 3 pocket listings, (2) must let me know if a pocket listing gets listed on the MLS and/or (3) must let me know if a pocket listing is no longer available. But even those rules aren’t hard-and-fast yet until I get some feedback from the community.
So, if you are an agent intersted in getting some additional exposure for your pocket listings, let me know!
How Much Home You Can Buy with $17,550 Down June 18, 2008
My purpose for this post is to hit it home what a great window of opportunity we have with FHA Jumbo 
mortgages which are only around until December 31, 2008 unless Congress passes an extension of some sort (which is a possibility-but not guaranteed).
For the remainder of this year, you can use $17,550 to buy a home priced at $585,000 using FHA Jumbo with 3% down. FHA requires the buyer to invest 3% into the transaction (which can be a qualified gift). 3% of $585,000 = $17,550. (With roughly 5% down, utilizing FHA Jumbo, you can puchase a home for $600,000). The Seller can contribute up to 6% towards closing costs and prepaids as long as the buyers 3% required investment is met. With this scenario, the Seller is contributing around $14,000. The loan amount is just under the maximum allowed FHA Jumbo for King, Snohomish and Pierce County of $567,500.
With FHA there are no income limitations and much easier on credit scoring than conventional mortgages which ding you if your score is 719 or lower. Effective January 1, 2008 2009 (as things currently stand) the FHA loan limit will be reduced to their actual loan limit of $362,790 for King, Snohomish and Pierce Counties.
Of course, you’re not limited to FHA if you only have around $17,550. There’s also Fannie Mae Flex (someone please knock on wood fast before Fannie shelves decides to put this product on the shelf) which allows lower down payment–currently as low as 97%. However the highest loan amount allowed is the true conforming of $417,000. Utilizing a Fannie Flex program, you could purchase a home priced around $434,000 with the seller contributing about $12,000 towards your closing costs and prepaids.
So we’re talking $585,000 sales price using FHA Jumbo (while supplies last!) or $434,000 with Fannie Flex97 (while this product is still available) if you have $17,550 for a down payment. Can you see why I’m so crazy about FHA Jumbo? This is a window of opportunity for those who qualify for the payment but may be shy on the down payment that’s scheduled to close on December 31, 2008.
Stay tuned for my follow post on Seller Contributions and Buydowns, thanks to Leanne!
Not showing a less-than-3% SOC commission? That’s unethical and illegal June 11, 2008
This is not legal advice. For legal advice, consult an attorney directly, not a blog.
It’s common knowledge (based on those comments, at least) that some buyer’s agents will not show properties with an SOC of less than 3%. Is that a problem? In a word, Yes.
First, the ethics: The term “ethics” in this context refers to the code of conduct by which a professional is expected to perform his or her duties. “Ethics” in this sense usually — but not always — correlates with what a layperson would consider “right” and “wrong.” Generally speaking, “ethics” in the professional sense imposes an obligation to perform a professional duty in a fair and reasonable matter.
Admittedly, I am not up to speed on the rules of ethics that would apply to a real estate agent. Many agents are also Realtors, and I know that they are thus subject to a particular code of ethics. Attorneys are subject by law to the Rules of Professional Conduct, rules of ethics formulated by the State Supreme Court. I am unaware of any similar rules that apply to agents.
With that disclaimer, it certainly seems like this conduct SHOULD be considered unethical. Surely an agent has an ethical duty to diligently work for the client, including the identification and showing of any property that is or may be suitable for the client. From an ethical perspective, I would even argue that this applies to properties with no SOC whatsoever. Admittedly, in that circumstance, the agent has every right to and should discuss this with the client, as the agent need not work for free. Thus, the agent should, either at the initiation of the representation or when the issue arises, discuss with the client whether and how the agent will be compensated if the agent finds a house that does not offer an SOC. The parties may agree that, in that instance, the client does not expect and has no right to receive information from the agent about that property. Regardless, with this conversation, whatever its outcome, the client can knowingly consent to any limited scope of representation, and consent is the key when dealing with an ethical issue.
Now, the legality: This conduct is almost certainly illegal (at least where there is something more than a 0% SOC), but there is very little chance that it will give rise to liability. How is it illegal? RCW 18.86.050 is the relevant statute. It requires a buyer’s agent to “make a good faith and continuous effort to find a property for the buyer,” except that the agent need not “show properties as to which there is no written agreement to pay compensation to the buyer’s agent.” In addition, the agent is relieved of this obligation entirely IF the buyer agrees otherwise in writing after receiving the required “Laws of Agency” pamphlet. So, assuming the property offers a commission in some amount (i.e., greater than zero), I believe the agent has a legal duty to bring that property to the client’s attention.
So why no liability if the agent fails to do so? That turns on general legal principles applicable to wrongful conduct. Where such conduct causes an injury, the wrongdoer is liable for the harm caused. Here, assume an agent fails to show a “dream house” to the client because of a 2% SOC. The client subsequently buys another house for the same price. The client then finds out that he was denied an opportunity to buy his dream house because his agent did not tell him about it. What is the injury? Given that they are the same price, there is no way to quantify the client’s injury. Under those circumstances, it will be difficult to find the agent liable. Note, however, that if the house actually purchased cost MORE than the dream house, the client may be able to recover the difference.
From a practical perspective, too, there is little chance of the agent being held liable. The whole claim turns on what the client did not know. So, in order to even raise the claim, the client has to learn that his agent failed to inform him of his dream house. Needless to say, it is hard to even fathom a situation where the client would learn of this information after the fact.
So, it ends up being one of those unfortunate facts of life where — as of today, given the laws as they exist — there is no real remedy for the injured party. Unethical? Yes. Illegal? Probably? Any way to stop the behavior? Unfortunately, probably not.
Upcoming Changes with FHA Mortgages June 10, 2008
I was just reading Brian Montgomery’s speech from yesterday which reminded me of what’s on the horizon with FHA insured mortgages. He points out that the increased loan limits are temporary–you only have until the end of this year to take advantage of the increased loan limits and then *poof* this coach turns back into a pumpkin! Instead of doing 3% down with a loan amount up to $567,500, if you’re buying in King County, the maximum loan amount for a single family dwelling will be $362,790. This is really a window of opportunity that is closing (this window includes conforming jumbo, too). I suspect that Congress will pass an extension to the loan limits…and IF they do, they may reduce the loan limit to somewhere between what is offered now to what the real loan limit is…this is a big IF. For now, we just know that FHA-Jumbo (and conforming jumbo) are here until December 31, 2008.
Next month, FHA will start their risk based pricing for mortgage insurance. This from Ken Harney’s recent article:
On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5%. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually.
The difference in savings is not super significant for borrowers. Using a loan amount of $360,000 and a rate of 6.5%, here’s how it pencils out for the credit scores above 680, 680-560 and 560 and below (who may have a tough time finding a lender regardless of FHA being willing to insure them. Lenders have their own underwriting “over-lays”).
- 680 plus with 10% down = upfront mi of 1.25% = $4,500. $4500 plus $360,000 = $364,500. Principal and interest = $2,303.89. Monthly mortgage insurance @ 0.5% of the base loan amount = $1,800 divided by 12 months = $150. $2,303.89 plus $150 = $2,453.90 (not including taxes and insurance) for the “preferred” FHA borrower.
- Credit scores above 560 with less than 10% down (this is the current model) = upfront mi of 1.5% = $5,400. $5400 plus $360k = $365,400. Principal and interest = $2,309.58. Mortgage insurance is the same rate as above, so the payment (not including taxes and insurance) is $2,459.58. A difference of just over $5 based on this loan amount.
- Credit score below 560 is going to have a different interest rate. In fact, many lenders will not do FHA loans under 580. Assuming a 559 credit score finds a lender, the upfront mi increases to 2.25% of the loan amount: $8,100 based on our example. The rate would be significantly higher in addition to the increased mortgage insurance costs.
So, the moral of the story is that if you have credit scores 680 or better and 10% down, don’t wait until next month to take advantage of the improved mi pricing. It’s not going to pencil out to the consumer as much as it will to FHA. You’ll potentially lose any gain by the rising mortgage interest rates (which have gone up again today).
Watch out for Down Payment Assitance Programs which are on the endangered species list. Even President Bush is on the bandwagon to do way with DAPS. Quite frankly, I’ve never been a huge fan as I’ve witnessed sales prices being jacked up to absorb the cost the seller has to contribute to participate and structure the transaction…who does this impact? The buyer. The practice of increasing a sales price over the list price, like the do-do bird, probably wouldn’t fly in today’s market anyhow. Home buyers utilizing FHA should count on investing 3% into the transaction (which can be a gift) and the seller can contribute up to 6%. I do believe the down payment assistance programs days are numbered.
I do hope that more people take advantage of the FHA Jumbo loans while they’re available for the remainder of this year. As I’ve mentioned, they’re a great resource for people with less than 20% down and with Fannie Mae’s DU 7.0, I’m sure we’re going to be seeing more and more FHA financing. Keep in mind that various lenders may have their own guidelines (3% vs 5% down w/FHA Jumbos, for example) in addition to those of FHA.
Fishing season is officially open! June 4, 2008
To this title you might ask, “which salmon is available?” Well, I’m not really talking about fish with scales and fins here. What we’ve noticed over the past month is that the fishing with low offers is getting pretty common in a lot of price ranges. These occurred in neighborhoods ranging all over the area too including Greenwood, Phinney Ridge (x2), Bellevue (Bridle Trails), and Mercer Island.
Some of these properties I can understand the desire of investors to lowball and get a bargain. One of these homes I had listed was already priced to be a good value for the neighborhood so my clients completely ignored some extremely low all cash offers from an investor because they weren’t THAT motivated to sell - meaning, we’d only been on market for about 30 days. Now, 2 years ago being on market that period of time would have made some people nervous but, realistically, most homes take longer than just a few hours to sell or even just a couple of weeks. So, we ignored the first 2 ridiculous offers and another one came along (still low). We put forward a counter with a very small price change and the buyers took it. WAKE UP CALL! We’re not in a buyer’s market in the Puget Sound region. We’re in a balanced market.
What I’ve noticed in talking with all of the agents submitting offers for these various listings I have is that they’ve all bought into their client’s mindset of thinking that “it’s a buyer’s market” and they should be able to really drop prices via their offers. But the agents aren’t helping their clients by doing the work associated with helping “sell” those offers.
Yes, there are some sellers out there that are still hanging on and desperately wishing for the days of the high flying markets we had for 5+ years, but reality is kicking in for most and the scales are becoming more balanced. This isn’t the rust belt where the economy has sunk and houses have sunk lower. If you’re a listing agent you had better be able to justify your pricing. And, if you’re a buyer’s agent you should do the same for your offer. One lowball offer we received my partner went back and asked the guy to submit his comps that supported the offer. The agent’s reply was, “well, I don’t have any, it’s just what they wanted to offer.” Our client almost completely ignored their offer except for some details we pointed out that led us to believe they’d accept a counteroffer with a minor price change - and it worked.
Another listing had an agent providing comps but they just solidified my client’s view that our pricing was right on. We did go ahead and submit a counter with a faster closing date and some small concessions that we expect will be accepted.
I will admit though that with a couple of my buyer clients, who are not in a hurry to buy, we’re doing some of this offer roulette. We submitted an offer on a MI house for about $100k less than asking price but we also put forward our pricing analysis and comps that supported the price point. The house had had several large price drops based on other agent feedback as well and it was definitely a cosmetic fixer. It might have worked out for my clients except that the house got another offer the same day - it was still a very low offer but not as low as ours so the seller started negotiating with them. But, that’s okay because my clients are willing to wait for the right deal for them. This house was going to need roughly $200-400k in updates over time so from a cost perspective the price we offered was what they were willing to spend knowing the costs they’d incur later.
Having watched the low offers come in for one of our listings my client provided the impetus for this post by saying in an email, “well, it looks like fishing season is officially open!” I’m glad that she’s got a good head on her shoulders and a good sense of humor too. These are the clients you really enjoy working with especially when you can have sensible discourse with regard to your work together, market conditions, strategy, and more.
Happy fishing! 
