Oct. 23, 2006 - For Sale or NOT for Sale, that is the ?
Shame on You!! On Friday the property was shown as ACTIVE and available to purchase. Before writing an offer, I called the agent who said it was in minutes of being sold. Just a couple of initials. On Saturday the property was STILL showing as ACTIVE. On Sunday...still showing as ACTIVE. I called and the female agent of the "team" said she had been away for four days and yes it was sold subject to inspection, and she would change the status in the computer. Monday morning...STILL ACTIVE!! Called agent and she was on her way into the office to change the status.
Some rules really should not be broken, and this is one of them. An agent needs to change the status from ACTIVE to ACTIVE STI (subject to inspection) ASAP! after a contract is accepted. While the rules give you 24 hours to do that, even 24 hours is too long. Four days is just nasty. Agents are showing the property. Buyers are narrowing down their choices to that one house. Lots of wasted time, effort and emotion only to find that the house was sold days ago.
Do I report the violation? Not until the house closes. Why? Because if it falls out of escrow, as it did once before, my buyer client may be penalized for my actions of reporting the agent being in violation of the mls rule, if and when they get an opportunity to submit an offer. There really is no excuse for an agent who lists property to not change the status fairly immediately. If you don't know how to change the status, which takes about two seconds, you should be listing property.
Changing the status from STI to PENDING or from PENDING to SOLD is not as ultra important to be done ASAP as from ACTIVE to STI. ACTIVE means agents are showing the property, and to cause agents and buyers to be wasting their time is just unconscionable IMNSHO. Some days I'd like to start my own Hall of Shame.
For a few weeks now an agent friend of mine has had a client who is considering purchasing a house that backs up to a freeway. The agent has asked for my thoughts. The owner has asked for my thoughts. After questioning both of them, I still could not come up with the answer, because they were not providing the information I needed to offer my advices. So I went to the house with the other agent's clients (with her permission of course) to gather the information needed.
On the plus side, you could not SEE any cars. Even worse than road noise, is road noise and seeing the cars going by. This is true of streets that have much less traffic than a freeway as well. If you see cars going by at a steady clip. If you are at the bus stop, which is very noisy as the bus stops and starts, and you have people waiting for the bus hanging out on your front step, Generally, what you can see and what commotion is happening at the house, is more important than road noise alone. Noise alone is better than noise and visual chaos.
So I get to the house and there is noise at the house. That there is no noise IN the house is good, but still, don't you want to be able to open the window? Always judge the house by the noise you can hear with the window open, or from the front steps, the deck and the yard.
Why would someone buy a house that back up to a freeway? Easy answer, because it is much cheaper. It has a view of the lake and mountains, it's a great house and it is $300,000 to $500,000 less than that same view in a better location. If you really want a view, and you can't afford a view house in a good location, at the right discount you can get that view home in a lesser location.
The property WAS properly discounted for the negative aspects of the location, so why did I say NO, you should not buy this house? They liked the floor plan and they liked the view. But that was about all that they did like. They talked about doing a $50,000 remodel on the kitchen. They talked about doing a $20,000 remodel of the master bathroom. They talked about replacing every door frame and every door and every cabinet in the place. By the time they stopped talking about what they would DO to the house to get it the way they wanted it, they were up to $100,000 or more of improvements.
If you like the house just the way it is. If you do not plan to sell it in the near future. If you could see yourself living there for fifteen to twenty years. Then you should buy it if it is properly discounted for the location weaknesses. But if you are going to sink a ton of money into it AND think you may want to move in three to five years...then NO, do not buy that house!
By the way...the seller RAISED the price $50,000 after not selling it for two years, because Zillow said it was worth more. Guess Zillow can't see the road noise and need for updating :-) Zillow can be a great tool, if sellers understand that computer generated value calculations need to be adjusted for things a computer can't see or hear.
Once you have determined the optimal asking price for your home, you need to run through potential offer scenarios to determine the acceptable sale price and terms of an eventual offer. Don't wait until you have an offer in your hand. Run through a series of "What Ifs" beforehand.
Note to agents: Do not leave the seller's house until you have run through various scenarios of likely offers. You need to know if the owner is prepared if they get an offer that is LESS than full price. Don't be surprised! If you settle on an asking price of $799,000, ask what they will do if they receive an offer of $790,000. You and I may think it is obvious that an owner would accept an offer of $790,000 if they are asking $799,000, but do not assume that and do not wait for the offer, to test the seller's expectation of full price.
If you have an offer of $790,000 in the first 48 hours, and have heard other agents say their clients "may be" writing an offer, of course you may consider countering at full price. But if 20 buyers have come and gone with NO interest whatsoever, and you receive an offer of $790,000, and lose it by countering at $795,000? $799,000 should, at minimum, mean $790,000 or better. Does it matter if they are a cash offer? Does it matter if they close faster? Does it matter whether or not they are making the sale contingent on a home inspection? Price and terms.
Every once in a while I run into a seller who expects to get the exact asking price. It is my job to ascertain that, before the property goes on market. I can either talk to the seller about being willing to take something less than the asking price, before the property goes on market, or raise the asking price before it goes on market to allow room for a win-win negotiation.
Oct. 23, 2006 - How long does it take to sell a house?
When you put your home on the market, the expectation is that you will have an acceptable offer and be in escrow, by the end of 30 days. Every 30 days, you need to evaluate why you haven't received an offer, OR why the offer you received didn't make it into, or through the end of, escrow to closing.
The first 10 days is the most significant timeframe to get the property "positioned to sell". If you started at the right price. If you staged the home and cleaned it to be the best it can be. If you have 10 to 15 good quality photos showing on all of the public sites. If you didn't start showings until the property was on good showing condition. If you have done all of these things, you should have an offer within 30 days and be closed within 60 days.
At the end of 30 days you need to evaluate why you do not have an offer, and make changes. Sometimes you know these things immediately and change a few things in the first 10 days. If you did make changes in the first 10 days, then you need to wait 30 days from the change. If at the end of 30 days you make additional changes, then you need to wait 30 days from then. At 60 days you need to take a harder look and at 90 days, if you have refused to make changes since day one, you really need to decide whether of not you want to sell the house. If you have had no offers in 90 days, no matter what Zillow says about the value of the property, you need to make some changes if you are going to be successful in selling your property.
Generally there is no need whatsoever to be alarmed until you get to 60 days. If you have had lots of showings and no offers, there is likely something wrong AT the property. If you are getting no showings, then there is likely something wrong with the price. If people are making appointments and then not showing up, then you have an exterior problem that is not readily apparent when viewing the property on the internet, but is obvious once they get within range of your front door causing them not to come inside.
Don't be the seller who says, "Can you go back to that buyer who offered us $790,000 three weeks ago, and tell them we wish we had that offer back again!" Take the time now to think about how you will respond, if and when an offer at less than asking price comes in.
Does it matter how you obtained the money you have in the bank?
Yes. One of the considerations of the lender in determining whether or not to loan you money, is whether or not you can afford to repay the money. Let's say that your current rent payment is $1,000 a month, and your new housing payment after you purchase the home is going to be $2,500 a month, The lender will be looking for some proofs that you can afford to pay the $1,500 increase in monthly housing payment.
You have 10% for the downpayment to purchase the home at $350,000 ($35,000) and you have the money to pay your closing costs ($6,500) and you have the income to support the $2,500 a month ($85,000 a year) and you have little or no debt payments. On the surface, everything looks good. Now the lender wants to see 12 months worth of bank statements, including the statements for the account where you have the $41,500 or so that you are using for the downpayment and closing costs.
Everyone seems to know that the lender needs bank statements. But they don't stop to think about what the lender is doing with those bank statements. Ideally what the lender is looking for, is that you have accumulated the $41,500 or so that you are using to pay for your downpayment and closing costs on an equal monthly basis over time. Since your new housing payment will be $2,500 and your current housing payment is $1,000, it will be obvious that you can handle the new, higher payment, if you are consistently putting $1,500 into your savings account. If they look at your bank statements and see $1,500 transferred from your income to your savings account for over two years, and that is how the savings account grew to be $41,500, then that is proof that you can afford the new,higher payment.
If however, the bank statements show that you had no money left over every month, and the $41,500 you have in hand came in all at once last week, that is a big red flag that you really cannot afford to pay $1,500 more a month on a housing payment.
That does not mean that you cannot get a loan if the $41,500 was an inheritance or bonus. There are many ways to get around lending standards But whether or not you need to prove to the lender that you really DO have an extra $1,500 a month, you should prove it to yourself. For some period of time before you purchase a home, pay your rent of $1,000 a month and put $1,500 a month into your savings account. This will not only help with the loan process, but it will help you prove to yourself, that you are willing to live with the trade offs in your life, associated with a $2,500 a month housing payment.
Just click on the image above to see the video. I can't get the YouTube version to upload here on the blog, but while I am working on that, I think I may like this "click on the photo" version better.
I was trying to post it the way Rudy of Sellsius does his and the way Dustin instructed to "Use You Tube as a Marketing Tool but I think I may like this even better. A simple text link, a small image click on link...seems good to me.
Is there any advantage to using the big media player You Tube version I see on other blogs, over doing it the way I have done it?
In addition to Tim's observations of a 35% increase in rent cost over a 12 year period vs. a 240% increase in housing costs during that same period of 12 years, Seattle Moose commented on a 240% increase in a 7 year period, on a house in Denny Blaine. Of particular note were Seattle Moose's comments regarding the California influence, on areas with the highest appreciation levels, at least for Seattle proper. I think his observations are "spot on" as they say, and found his comment even more interesting than the original article.
When it comes to housing choices, all segments must be included. In other words, there must always be a place for a minimum wage earner to live. Maybe they need a roommate, or even two or more roommates, to get by on that income. But every city, and to a lesser extent surrounding areas, must have affordable housing available for all people. Not necessarily to buy...but at least to rent.
Here's an interesting tidbit. When I was single, I rented a one bedroom apartment for between $600 and $650 a month. So add that to "The Tim's" equation, and then let your jaw drop down to your feet! We're talking 1978! So clearly expecting the housing market to follow the rental market, as in "I think that sums it up" is just silly. Why? Because of the land value!
Not to be too Scarlett O'Hara about it, but let's let Gerald O'Hara's quote "Do you mean to tell me, Katie Scarlett O'Hara, that LAND doesn't mean ANYTHING to you!?" fall on The Tim's maybe deaf ears, for a minute. The value of a house that is about to be torn down IS reality, when expressing opinions regarding rent prices and purchase prices. The land value is what is growing at these paces and not the house at all. An old house will rarely rise above replacement cost. Land, on the other hand, is not reflected in rent prices, at least not the cheap prices being quoted in the Seattle Bubble article.
When the value of the land itself, goes up 10 times, and the house gets old or functionally obsolete, it is not the cost of living inside the structure that you own vs. the structure that you rent, that can be compared in any way, shape or form. So "that sums it up" may make a whole lot of sense to a 20 year old...but not to an adult who thinks past today's monthly housing payment and factors in the rising cost of the land's value.
Let's assume the purchase price is $315,000 and the loan amount is $283,500. Some costs are based on the loan amount, so we need to make some assumptions. Since the costs vary only slightly if the sale price changes, this should be a fair idea of what the costs will be. I will total all of this up at the end after I break it down from the simplest to understand to the hardest to understand. (Note: I round up so that at the end there is a little buffer for variances.)
Total cash needs at time of closing $7,600.00 less any seller credits built into the offer. Add the $900 you already paid for the Home Inspector and Appraisal, and you have $8,500 plus your downpayment of $31,500 and that equals a grand total of $40,000 less the $10,000 you put up front as an Earnest Money Deposit. Before closing $10,900 will be paid and the day of closing you bring your Driver's Licenses and a Cashiers Check Payable to Escrow in the amount of $31,100. Costs $8,500 downpayment $31,500.
Here's a breakdown.
Escrow fees are split 50/50 between the buyer and the seller. These fees are based on Legacy Escrow, and can vary from one escrow company to another. The buyer's half is $539.06 including tax and an additional $108.90 for the second mortgage. The seller pays for owners Title Insurance and the buyer pays for Lender's Title Insurance, which should be about $465.00 plus $40 to record the second mortgage.
Add about $100 for recording fees to record the new deed with the County and $50 or so for misc Delivery fees.
Actually that $1,350 total are the only real COSTS except for your lender fees, which are the largest cost item. You can lower the 1% origination fee, but that usually increases your interest rate. There are loan processing fees, underwriter fees, flood cert, tax service and lots of miscellaneous fees associated with the type of loan you will need. The lender fees alone will be about $4,000, so added to the other closing costs, let's call it $5,500.00.
At $5,500 we are still less than the $6,000 I estimated could be built into the offer, as a seller credit.
But we also have fire insurance, say $600 for a one year policy paid up front. Plus $150 for three months toward next year's insurance policy to be put into the lender escrow account. That's $750 for insurance. Then we have real estate taxes of $270 or so a month. If you closed at the end of November, you would have to pay $270 to the seller who already paid December of 2006. Then you would have to pay 3 months or so to the lender, so he can pay six months worth of taxes come April. So $270 + $270 x 4 = $1,355.00.
So if you build in $6,000 toward closing costs, less $5,500 for costs, equals $500 left. Then $750 for insurance costs equals $250 you would need at closing pus the $1,355.00 equals $1,605.00. Let's call that $1,600 as I rounded the taxes up on the monthly.
$1,350 in costs + $4,000 lender fees + $600 ins + $1500 in Prepaids (prepaid taxes and insurance)
My commission that we discussed up front is not included, as that is paid from the Seller's Net Proceeds.
Let's total that again. $1,350 costs + $4,000 lender fees + 750 ins + $1350 RE taxes + 400 for home inspector + $400 for appraisal equals $8,250 that I rounded up to $8500.00 plus 10% of the Purchase Price for a downpayment. You may be able to build in $8,000 as a seller credit. We won't know that until you find a house and make an offer.
Until we identify the house in question, I cannot firmly determine who will be paying the closing costs. But in the $300,000 give or take price range, many, if not most comparable sales, would have had $6,000 or so in closing costs paid by the seller built into the price. Consequenty, for valuation and negotiating purposes, it will likely be best for Adrianna to request $6,000 in closing costs from the seller in her eventual offer.
Before we get to "cash TO close", let's talk about cash BEFORE close needs. At time of offer, an Earnest Money deposit of $1,000 or $5,000 or $10,000 will be in order. The more you like the house, the more certain you are that "This is the ONE!", the higher the Earnest Money deposit. Since the downpayment is expected to be $30,000 to $33,000, an Earnest Money deposit is simply and advance against the downpayment.
On the one hand, if there are any doubts about the house you should maybe try to get away with $1,000. On the other hand, $1,000 sends a clear message that you may have doubts about the house. It's a catch 22.
Besides the Earnest Money Deposit at time of offer, there are two other out of pocket expenses before you close on the house. One is the Home Inspection fee which is about $400 and the other is the Appraisal Fee which is also about $400. Possibly $900 for both. These monies are gone, once spent, whether you buy the house or not.
Next we will examine how much of the total cash to close is expected to be met by the $6,000 requested of the seller in the offer. Let's see if Adrianna has any questions regarding this part before we move on to the costs at tome of close.
Today we are going to answer the question, Can I afford that? The price point is approximately $300,000. Since this is a minimal price for single family home, we need to answer the question, "How high can we go?" The target is to keep the payment at about $2,000 a month.
We have already ascertained that the house will likely be a 3 bedroom, 1 bath rambler style with a big lot and great schools. When looking at payment, we first have to subtract the monthly cost for real estate taxes and fire insurance. Each area may have different taxes. Today we are looking at Arrowhead Elementary where the annual taxes are expected to be $2,900 to $3,200 a year. We will set aside $300 a month for taxes and fire insurance, leaving $1,700 for the principal and interest, mortgage payment.
The First Mortgage is for 80% of the sale price. Let's put the sale price at $330,000 to open up the options a bit. 80% of that is $264,000. As of yesterday the rate for this situation would be 6.125%. That would put the payment on the First at $1,604. Whoops! Already getting close to the total! Let's look at the Second at 10% of Sale Price and a rate of 8.25%, that would be $33,000 and a payment of $247.92.
$300 T&I + $1,604 + $247.92 = $2,151.92 Total Payment at $330,000 sale price.
I am still amazed at times at my instincts :-) When I first met Mr. and Mrs. Adrianna, I told them to prepare to be $150 over the $2,000. I swear I hadn't looked at any property or done any of the numbers yet and LOOK AT THAT! $151.92 over the bogey! It scares me how accurate instincts become over 16 years of doing this stuff.
So if we can keep the taxes and insurance costs a little under $300 a month and the price at or under $330,000, we should be just fine.
Tomorrow...how much cash do we need to close. Stay tuned!
ARDELL
DellaLoggia
On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle.
Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com
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