How to evaluate “the comps” and price per square foot April 11, 2008
With more and more home buyers and sellers participating in the home buying & selling process to a greater degree than ever before, we can’t write enough posts that provide the basic infomation and skills that help them evaluate home prices. The other day I talked about the popularity and pricing of homes in differering age segments.
Today I’m going to talk about “the comps” and median price per square foot of homes of differing styles. For this purpose I’m going to use Bellevue, Kirkland and Redmond vs. Seattle or all of King County. We will be looking at the differences in price per square foot for ramblers, split-entry homes and ramblers with basements, tri-levels and two story homes both with and without basements. I’m using all sales from 1/01/07 to date, to insure enough volume of sales in each category, to have a relevant median price per square foot. I eliminated lots in excess of 13,000 sf so the “extra” land doesn’t skew the data.
The photo above is a tri-level. When you’ve been in the business for many years, you can pretty much know the floor plan of a house without ever needing to go inside. When a house looks like one story from one side and two story from the other, viewing it from left to right while standing only in front of it, that is a tri-level. You will enter on the main level which has the living room, dining room and kitchen. After you are inside the main floor (and not when you immediately enter the front door) you will go up 4 or 5 steps to the bedrooms or down 4 or five steps to the family room that exits to the yard, usually via sliding glass doors. The garage entrance is on the other side of the family room and no portion of the tri-level is underground. That is your basic tri-level and you can tell that without having to go inside.
The home pictured to the left is a split-entry home. For those reading this from outside of the Seattle Area, you may call a “split-entry” a 2-level, a bi-level, a raised rambler or a raised rancher. All are referencing the same style of home called different things in different areas. Basically it is a rambler with a basement, most often but not always a daylight basement. The underground side of the basement is raised high enough for there to be windows.
The front steps take you up to the front door that looks like it is centered in the middle of the structure. Once you walk in the front door you have to go immediately up or down from the foyer to access any of the rooms. It is a rambler with a basement that is not fully underground at any point. A rambler with a daylight basement is basically the same home, but the street side of the basement is fully underground, so you enter at street level onto the main floor.
Now let’s do some stats on the differing home styles. PPSF = Price Per Square Foot.
Rambler/One Story Home - median price $491,500 - median sf 1,470 - median PPSF $334 DOM 26
Rambler w. basement - median price $699,000 - median sf 2,760 - median PPSF - $253 DOM 30
Some people think that the smaller square footage is creating the higher price per square foot. What is really happening is that the main level is valuing at $334 per square foot (same as the rambler) and the basement level is valuing at $172.50 per square foot. For instance the 2,760 sf divided by two, equals 1,380 on the main level times $334 equals $460,920 for the main floor “rambler portion”. The difference, $699,000 minus $460,920 = $238,080 for the basement divided by 1,380 sf equals $172.50 PPSF for the basement. That averages $253 PPSF for the whole house as to finished square foot and does not include the garage or unfinished/not heated basement area. It’s a bit simplified, but hopefully you get the gist of that. Same is true for the split entry.
Split-entry home - median price $510,000 - median sf 2,150 - median PPSF $237 DOM 30
Again, the main level of 1,075 sf of the split-entry is valuing the same as the rambler at $334 or $359,050. $510,000 minus $359,950 = $150,050 divided by 1,075 basement sf = $139.58 for the basement sf and that averages to $237 PPSF for the whole house. In reality above ground square footage values higher than underground square footage, so if the basement is all underground on either the rambler or split entry, the basement square footage would value for less than a “daylight” basement and the fully above ground portion would value for more than the partially above ground portion. So don’t pay the same for a fully underground basement as you would a daylight basement.
Two Story Home - median price $750,000 - median sf 2,760 - median PPSF $271 - DOM 39
Two Story Home w/basement - median price $1,097,000 - median sf 3,920, median PPSF $280 - DOM 59
The two story home with a basement does not get “diluted” in value by the basement because it is basically the top choice of available homes, there are fewer of them and almost half of them have a lake view. The builders will put the most house, 2 story plus a basement, on the priciest lots with views. So there are a lot of factors that create what looks like full value for the basement on these 2 story homes, when in reality it is an external “plus feature” doing that. Only 4.7% of splits and 1 story ramblers have a lake view, 11.4% of 2 story homes without a basement have a lake view and 42.8% of 2 story homes with a basement have a lake view. 31.8% of the big ramblers with basements have a lake view, so adjust for that as well.
The longer days on market has more to do with higher total price of home, than home style.
The tri-level pictured at the top is only valued at $268 per square foot, even though all of the living square footage is above ground. There are fewer of them, but that does not make them more desirable and a higher PPSF, because when you chop up 2,000 sf into three levels, no level seems large enough. When you put the family room on the main floor next to the kitchen it values higher on the main level, than when you put it down on the basement level. If you can see into the family room on the lower level from the kitchen, it values higher than if you can’t.
It’s really common sense when you think about it that way. With more and more people using price per square foot as an indicator of value, I hope this post gives you a little more info to help you to refine your DIY valuation process.
Have a great day!
Sphere: Related ContentFriday Night at Crossroads Shopping Center March 26, 2008
I received an email announcing that The Taylor Jay and Doug Bright Combo are “performing hot jazz standards from swingers like Louis Armstrong, The Inkspots, Billie Holiday, Bonnie Guitar, and many others.”
Looks like Friday night from 7:30 to 10:00. I expect it’s free, as there is no info regarding price or tickets and likely in the open food court area. I don’t know them, but I like that kind of music, so I thought I’d throw it up here as a public announcement of a local, apparently free, event.
Sphere: Related ContentSeattle Neighborhood Blogs March 25, 2007
I spent some time tonight searching for Seattle-area neighborhood blogs. I then added the ones that are interesting and publish frequently to RCG’s sidepanel. Please let me know if I missed any that should be included!
Sphere: Related ContentNow that Matt… March 13, 2007
… has a new condo in Bellevue at the Meritage, you might have thought he would slow down the pace of his condo blogging at Urbnlivn. But no chance there… instead he unleashes the urbnlivn forum for the Seattle-area Market. Very cool. It’s a little quiet at the moment (the site is brand new), but I’m sure under Matt’s guidance, it won’t stay quiet for long…
Also a belated, but HUGE, congratulations to Matt on your new condo!
Sphere: Related ContentPuget Sound’s Market Conditions Update January 11, 2007
Every New Year, my husband’s family makes a trip to Ocean Shores with most of his brothers and sisters and nieces and nephews. It is a tradition that we look forward to which includes as much bowl games you can cram into a weekend, razor clamming, go karts and I get to read the newspaper from front to back while everyone else in our hotel room is still sleeping.
To my delight in the Dec. 30, 2006 issue of The Seattle Times, there is an article forecasting the local 2007 real estate market called “Looking ahead: The sky isn’t falling for the Puget Sound market”. In a nutshell, the article states that there is still “good job growth and in-migration in our region and that our limited land availability, means we’re likely protected from a drop off in home values in the near future.
In addition, Seattle and Bellevue area homes are anticipated to appreciate about 10% this year with farther out areas having around a 7% appreciation “because there’s intrinsically a value to our time.” I guess you’ll have something to smile about the next time you’re stuck in traffic if you’re commuting from Seattle or Bellevue!
Other predictions from the article are that mortgage interest rates should stay stable and, barring any wild-card impacts such as terrorist attacks, should remain below 7%. This is point seems to be supported by others the industry, including Barry Habib, of Mortgage Market Guide and who often makes appearances on CNBC. Barry predicts “for 2007, we actually see interest rates slightly lower, within a range of 5.75% and 6.75%, with a sweet spot between 6.00% and 6.375%.”
Rental rates are also expected to increase, which will aid in keeping local housing values strong.
All of this really puts a burden on first time home buyers. “Only 40 percent of people in this category can afford a single-family starter home in King County, and only about half can in Pierce and Snohomish counties.” In my opinion, first time home buyers need to lower their expectations for what they are considering buying. Many of the FTHB’s I know are buying (or trying to) MUCH nicer homes than I first did.
If current conditions hold up, 2007 will be another strong year in our local housing market.
Sphere: Related ContentMicrosoft vs. Google a real estate perspective August 30, 2006
On a side note, nothing to do with the topic, isn’t that MAC advertising campaign fabulous! Doesn’t everyone want to run out and get a MAC when they see that commerical? Of course I can’t get the mls on it, or at least not easily, so I hate them. But that has got to be the best advertising campaign I’ve seen in a long time. Doesn’t everyone want to be that guy on the right? Heck, I’m a woman and even I want to be that guy on the right.
On to Microsoft vs. Google. So far my Google clients have been able to negotiate significantly higher savings in real estate transactions than my Microsoft clients. Of course I’m dealing with a very small portion of the Microsoft poplulation, even though I have more Microsoft clients than Google clients.
Microsoft has a contract that kicks back 35% of the real estate commission when a new employee is hired, even if they don’t buy a house for a year to 18 months after they are hired. Perhaps Microsoft doesn’t get all of that 35%, but the agent who has to pay it is still unable to negotiate with the buyer, nor are they as able, at 65%, to resolve issues in the transaction using commission dollars. This agreement that the agent pay 35% to Microsoft also limits the employee with regard to agent selection.
I recently had a call from a Microsoft employee’s wife who is being transferred. She was checking online and trying to pick an agent she felt comfortable with and happened upon me. I told her that she really needed to check with her husband and his employer, as I didn’t think she was totally free to pick an agent of her choice. I told her I might be willing to match the 35%, but she would likely need to try the assigned agent first, before suggesting she wanted someone other than the assigned agent.
Now these programs where an agent is assigned to an employee are, of course, beneficial. These programs have been around for a very, very long time. I myself did tons of relocations with Siemens and other companies around the Country, utilizing this very same program. The 35% of the commission paid by the agent to the relocation company, helps pay for a portion of the relocation benefits such as movers, temporary housing, and other benefits.
In my experiments over the past few months with negotiating buyer agent fees, and a few other out of the box negotiations, I have been able to transfer $20,000 of pure cash advantages plus an additional $10,000, into transactions, with Google clients. More importantly, I have been able to treat the Google clients in these negotiations, identically to the way that I treat seller clients…which is my goal.
If Google does hire 1,000 new people, as Dustin suggests they might, I hope that they will not lock the employees into a program that skims off the employee’s ability to negotiate and ties their hands with regard to agent selection. Relocating is a very stressful and emotional process. Feeling hogtied at the same time, only adds to the stress. While many are happy to have someone ready, willing and able to assist, this benefit should be optional at best and should allow the employee more freedom of choice and no restriction with regard to fee negotiations.
Not trying to change Microsoft here…just trying to encourage Google not to follow suit. Once released from the 18 month requirement, I have been able to assist Microsoft employees and negotiate fees, but the Google guys are still way ahead for some reason in total dollars. Not sure why that is, I’ll have to ponder it when I do my year end round up of “the experiment”.
Since we are entering the Age of Transparency in the real estate transaction, kind of like The Age of Aquarius in my day when everone was stripping off their clothes, I do think that it should not be a surprise to anyone that there is an exchange of monies between the agent and a third party. That goes for any “purchase of a person”, see Zapped, that does not disclose to the person that they have been bought and sold.
Sphere: Related ContentSeattle Street of Dreams - 2006 July 23, 2006
Robbie, Stephanie, Harrison and I went to the Street of Dreams together yesterday. What I enjoyed most, was their company. What Harrison (age 3 1/2) enjoyed most, was the school bus ride from and to the car. His first ride on a school bus.
The house I liked best, though not everything about it, was of course the highest priced one at $5,500,000, but I’d want it moved somewhere else with a view. Because I am a “view person”, not everyone is, I came home and liked my own house better than any of them.
Trends, products, styles, features…a run down. I guess I’m “jaded” by having seen lots and lots and lots of houses all over the country, because I didn’t see anything I liked, at least not that I liked in that setting. House number 6, which is purportedly “sold” was the best of the batch, all things considered. Best lot, house that seemed appropriate to the lot and setting, house that seemed appropriate for the area. But I’d like to “live in it” for a week or two like a timeshare. I’d want to move it to the bottom of a ski resort and timeshare it out for two weeks at a time unless I could afford it as one of many homes as a “getaway” house. But then I’m a City Girl who can’t be rustically oriented for more than two weeks at a time. I get hives.
Lots of too much dark, caves, caverns, pitch black theater rooms, stone inside the house, even a clay tile roof inside the house. Lots of too much “old” as in new made to look “old”. Coming from Philadelphia, I know what old looks like, and that’s not it. Two of the homes had a very dark “wood” floor that was supposed to look like the floors of an historic home. Not. Wide plank…yes, dark, yes, waves in each and every plank…not. Someone said it looked like it was made out of plastic.
Every house had a “butler pantry”, I think, and I was evaluating them all. One was totally off as if the designer didn’t know what a butler pantry really was all about. A butler pantry, copied from historic homes which were likely homes patterned from England, is that small galley between the dining room and kitchen with counters and cabinets on either side. It originally did not have a sink, as any water used by the butler would have been the “soda water” type in a bottle to freshen and make new drinks for the guests. For a “butler pantry” to be “true”, the butler should be able to stand in it and see the whole dining room table from it. He watches and quietly comes out as needed to fill a wine glass, freshen a drink or refill the string bean bowl as it gets low. The vantage point should be such that the guests do not really see him most of the time. So the one butler pantry that had only one side and standing there gave the butler a view of the backyard? I don’t think so.
Stephanie noticed this and it was a riot. In one house there is a fish tank inside the shower. Cool, but…the other side of the fish tank built into the wall was not in the master bedroom, it was in the hallway! I went into the shower and did a little dance as Stephanie stayed in the hallway to see if she could see me moving about. All of the people in the house were laughing and talking about how the kids in the “West Wing” could sneak down the hall and watch Mommy and Daddy in the two headed shower through the fish tank.
Moral of the story is NEVER go to The Steet of Dreams with a Real Estate Agent. They look at what’s wrong…not what’s right, at least this one does. Mostly the homes were not “true to themselves” mixing modern smack against historic replica features. That new sink that looks like a laundry tub (modern) next to an island with an Early American spindle table leg built into the corner. The pantry with relatively cheapo looking shelves, with a crystal chandelier hanging in the middle of the pantry. Better to hire a carpenter to build the shelves in, if you are planning to hang a crystal chandelier up between the Frosted Flakes and the Pop Tarts.
So Robbie and family got a taste of what looking at homes with Ardell is like. They look at what’s right, I look for what’s wrong. Robbie kept wanting me to give an opinion of value and projected days on market…but that’s something I do after I get home from showing property, as it is a “data” driven function, not a WAG 
Best Places to Live/Microsoft July 19, 2006
Bellevue is #21 of the top 100 best (smaller) cities to live in around the Country . What’s up with the “Biggest Employers” section though? U-Dub #1 at 25,000, Microsoft not listed?
How many employees DOES Microsoft have working on the Eastside?
Sphere: Related ContentWant to live in the Golden State? Bring lots of Evergreen State money. June 7, 2006
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.
Sphere: Related ContentAre We Brewing A Bubble In Seattle? April 28, 2006
Probably the most frequent single question I get as a realtor from my friends and clients and contacts is “Are we in a real estate bubble?” Natural question. First because around here we got beat up pretty bad in the crash of the tech bubble. And second because there are a number of very visible real estate bubbles around the country. Third because the term bubble has a horrifyingly exciting connotation to it that is great for selling news stories – so we see it a lot. And we pay attention because we know it could hurt us.
For the last three years, since prices here seriously started rising again, I’ve been saying “No, there are real estate bubbles in places like Florida and Las Vegas and San Diego, but not here”. And my strongest argument was that we were still in the center range of the housing affordability index. Three years ago a family with median income in our area could easily afford to buy a median priced house. No more. Now the median family income can afford about a third of the houses on the market. One of the most readable data sources I know is the Wells Fargo ‘Housing Opportunity Index’. Nice label change – now we’re talking about ‘opportunity’, not ‘affordability’ J
From all the stories we read, we might get the sense that there are two kinds of residential real estate bubbles. One appears to be driven by investors speculating on a continuing rapid rise in prices, and buying multiple properties to (hopefully) rent, and then flip in a year or so. Examples are the Florida coast and Las Vegas . Builders build because buyers will buy, both as fast as they can until the buyers finally get too stretched, or the prices get too high, or both. Then it crashes. That has happened lots of times, and we’ve all heard the stories. Let’s call that a Type I bubble.
The second kind of bubble, let’s call it Type II, seems to occur when there is a limited supply of homes relative to demand, and people start bidding up the prices, i.e. being willing to pay more, in order to get the home they want in the place they want. Jobs and commute times and schools seem to be the big drivers in this. These forces are at work in San Francisco and Los Angeles and San Diego, and they are at work here. In our greater Seattle and east side area, we are blessed with a very strong economy, and continue to enjoy relatively low mortgage interest rates. But we have very restrictive state and local growth management laws and land use ordinances, and building is not keeping up with demand. And commute times force people to concentrate on areas closer to their jobs. In the Microsoft area there is tremendous buying pressure in the 5-mile circle, Redmond, Kirkland, Bellevue, because of Microsoft’s aggressive hiring program. For another example, there’s a lot of upward pressure on prices on Mercer Island - great schools, short commute to either the city or the main eastside companies.
What I am seeing now is very short time on market for new listings, and frequent multiple offers. And as buyers get disappointed and don’t win, they don’t go home, they go faster and bid higher. Note that if new listings are on the market for less time, then at any given moment there are fewer sitting there available for a new buyer to look at - velocity creates its own image of shortage. And every sale sets a new benchmark price for the neighborhood. At the end of March, county wide, we were already up almost 12% from last year, and just starting into the hot-market season. Right now it feels as though prices in my east side neighborhood market may be rising about 2%/month. Here’s a reference note: http://www.msnbc.msn.com/id/12200136/
Well, the fact is that this has happened a couple of times before. In the late 70’s home prices in our area went on a tear, and peaked at 30% appreciation in 1980. And again in the late 80’s - it peaked at 30% in 1990. And interest rates then were a lot higher than they are now. But in both cases over the following years, the median price of a home did not fall from the new lofty level, it just went flat for 2 or 3 years.
So what should we expect now? First, prices will probably go quite a bit higher. The competition for good houses is intense, and the good economy is feeding good incomes - people are willing to stretch to get the home they want. Second, this ‘bubble’ will probably not burst. Type I speculative bubbles do seem to burst, and they make great news stories. Type II demand-driven bubbles don’t seem to burst, they just seem to pause while the world catches up. Ours doesn’t seem ready to pause yet.
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