Guide To Seattle Real Estate

Rhonda Porter at the aptly named MortgagePorter.com, gives us some great advice on Debt To Income ratio or DTI.  She explains and lists some of the standard DTI ratios and then reminds us that, “Just because you qualify for a higher mortgage payment does not mean that you must have it.”  All too often the home that clients have to own is the one that is priced at the absolute maximum that they can qualify for.

While maximizing your DTI isn’t always the wrong move, it can be devastating. I work with several clients who have had their homes listed with another agent and had the listing expired because it was overpriced.  Often these clients purchased their home just in the last few years and even threw in a little refi when the rates looked good.  Now that the market has changed and values are being re-examined, they’re in trouble.  For whatever reason they have to move and need to sell their home, often because of other financial stressors, to reduce their monthly outlay.  Unless you absolutely have to, it is best to sell you home in favorable market conditions.

So, we have two issues, clients that are already facing unfortunate financial stressors and the need to sell in an unfavorable market.  These two combined can lead to financial ruin if not approached carefully.  I have had one client who, by a series of unforeseen incidences, fell behind on a payment or two and now are unable to refinance their ARM.  With high payments and other bills, they are over their heads and their home isn’t worth what they owe.  They have had to make the hard decision to cash out some of their retirement to hold on to their home until they have the ability to sell or Refi as it may be.  Caution: This solution isn’t right for every situation.  It is important to have advisors that are willing to give you the right advice even if it means they don’t make a commission.

Working with clients whose homes have expired, I have the unfortunate role of turning down business because I am unable to help.  I do my best to give them good advice on how to proceed, but the best possible advice to give is to not end up in that situation in the first place.  Find what you want in the price ranges that you can afford, not qualify for.

Over at Issaquah Undressed, Larry Cragun give us a little encouragement to use the lender recommended by your real estate agent.  Time and time again I have found this to be true.  While there are some occasions in which a client had worked with a lender before and had a great experience, most of the time it has been a disaster.  Whether they have chosen a family member or friend and they are trying to do them a favor or they are going with the person who called them just after dinner asking about their Refi and ARM, you should use someone who has something at risk. 

Your agent will have a couple of lenders to recommend to you.  These lenders get referrals from your agent on a regular basis.  If they drop the ball and you have a rough experience they are not only losing out on your business but all the business that would come from your agent.  So instead of losing one loan they are potentially losing several.  They will pay close attention to how they can best serve you knowing that their relationship with the agent is on the line.

I use about three lenders on a regular basis, this way my clients have options and can choose who would work best for them.  One specializes in FHA, another in “Creative Financing”, and another in that personal touch.  They are all great people and work hard for their clients and me.  If you are thinking of making a purchase or refinancing your home and need a great referral, drop me a line.  206-579-5605

So we have talked about what a BATNA is and how it relates to Real Estate from the buyers perspective, what about the seller.  This can be a touchy subject for many sellers, “Full price or nothing!” I have heard many say.  Well that would be great but it doesn’t always work that way.  Neither Sellers or Real Estate Agents get to decide at what price a home will sell for, buyers do.  Lets look at an example:

Joe and Jane have found and purchased a home closer to their preferred elementary school, Alki Elementary in West Seattle.  Their old house in the Alaska Junction is currently vacant.  Between the utility bills and their mortgage, it is costing them about $2,500 a month to keep that house warm and showable.  Currently the housing market in West Seattle is averaging about 100+ days to sell a home.  That is just over 3 months of mortgage and utilities.

Their house in the Alaska Junction is comparable to other homes that have sold for 500k.  They set their listing price at 500k. They have a little savings and could, worse case scenario, keep both houses for six months tops. They could sell their home for as low as 470k to cover mortgages and selling costs. What is their BATNA?  Well they have to sell within 6 months or risk losing out entirely.   Every month they wait, they spend another $2,500.  When there first offer comes in at 30 days their BATNA is: 5 months * $2,500 + 470k = 482.5k

In other words, if someone offered 480k they would be better off waiting for another offer rather than settling for this one.  Of course this is not taking in to consideration a changing market, that is another topic all together. But as time passes their BATNA changes.  Their reserves dwindle, and their motivation to sell increases.  At 90 days their BATNA is: 3 months * $2,500 + 470k = 477.5k.

Wait a minute if they would have accepted the original offer at 480k they would have been better off right?  Yes, they would have.  But they would have lost the opportunity to receive an offer of 490k or even a full price 500k offer.  Not everyone has the stomach for negotiating when this much is at stake.  That is why it is so very important that you choose a Real Estate Agent whom you are comfortable with and has the negotiating experience to guide you through this process.

Batboy who!? No not batboy, your BATNA.  Best Alternative To No Agreement (BATNA.)  The concept was originally created by Roger Fisher and William Ury, Getting to Yes: Negotiating Agreement Without Giving In.  Before you begin the real estate negotiation process you need to know at what point you will walk away, also known as your reservation price or set point.

Basically what it comes down to is this.  How much do you want this house or sale as it may be. What would your next best choice be if not this house.  If you have to have a specific piece of real estate and no other will do, then you really have no business negotiating hardball style. Would you really want to risk losing  the home of your dreams. If it is a toss up between two or more homes then ask yourself ,what price would tip the balancing point between the two homes?  This would be your BATNA.  Let look at an example:

Joe and Jane would like to live near the Alaska Junction in West Seattle.  They have found a great town house for 430k and a rambler for 475k.  The town home is brand new, granite and stainless everywhere. While the rambler was built in 1950, linoleum and wall to wall carpet but a nice yard.  Joe and Jane would like to have a yard for their future children to play in, so the rambler is their first choice.  But money doesn’t grow on trees, how much is that yard really worth?  They decide that having a yard is worth 70k.  So their BATNA is: The town home + 70k = 500k.

So, at what price would the town home  be a better deal? They figure that they will have to pay for about 45k in remodeling to raise the rambler to a level in which they would want to live in it.  That brings the total price to 520k. So if they can negotiate the purchase of the rambler with the additions for under 500k they are a go. 

That means that their reservation price is 455k.  If they aren’t able to talk the sellers down to 455k, then they will buy the town home and enjoy the granite and stainless while taking the children to the park:)

Stay tuned for more as we discuss what this looks like from the Sellers point of view.

Figuratively, of course. When receiving an offer that is too low, and they all are these days, it is important to use everything you can to get an edge on your competition. Negotiation tactics are an edge that all top producing agents have.  This post is the second in a series on Negotiation tactics and real estate.

When an initial offer comes in the correct reaction is to “flinch.” You want the bearer of the offer to feel like they just dropped a brick on your foot. “Ouch!”  Then wait. Don’t say anything. Nothing. Silence, is the next move. Almost like you are waiting for an apology from the brick dropper. Wait until they talk next, no matter how long it takes. I have waited so long that people have asked if I was still on the phone, like it was a dropped call.

When I am shopping in the grocery store and I accidentally bump someone with my cart, my first reaction is to apologize. I have actually had agents, after dropping a brick on my foot, apologize for their offer. What?! Who is selling who? While agents often “feel” each other out over the phone to gauge where and how far they can push a situation, they should never apologize. Making an offer is not like bumping into someone in a grocery store. Apologizing is admitting that the offer is too low or high as it may be.

Negotiating real estate contracts are often a “quid pro quo ” game. I’ll give you this if you give me that. The flinch offers an opportunity to get a little for nothing. I have even heard of agents offering to increase their asking price right over the phone when faced with the flinch and a nice long pause. This is not the norm and many good agents know and understand these tactics. Does yours? Ask your agent what their response is going to be to this situation, before you hire them.

When entering into negotiations you had better know your Set Point. Without knowing your Set Point your just shooting in the dark aimlessly with no real stragety.  A good agent can smell this a mile away and counter effectively.  I will talk more about what and how to determine your Set Point tomorrow, stay tuned.

The market is changing, but I mean that the confidence bottom has dropped out of some real estate agents. I have always been a student of the human condition. How people react when their ego is hurt, what they do when they are in a position of power, or do they go on the defensive when threatened. A real estate agent is supposed to be your protection from these absolutely normal reactions to situations, especially when the bottom drops out of the real estate market.

Barrier to emotion, is one of the benefits to using a real estate agent to negotiate. Any agent really, whether it is a sports agent or an actors agent, is a negotiating tool. When the seller, or buyer as it may be, comes back with an outlandish response, your agent is there to respond using wise tactics.

All too often agents either just say, “Thank you for the offer I’ll see what I can do” or they over react giving away their clients real position. Either way hurts their client, not good business skills. If a client is going to pay for full commission service, they should get what they pay for. A great real estate salesperson, who understands the selling process.

I am going to talk more about the negotiation process in the next few days so stay tuned for more.

Located in West Seattle on SW Alaska just west of 42nd next to the Alaska House, this park was planned for development in 2005.  With 200,000 for acquisition costs with a projected construction start of Summer 2007, we are a little behind schedule in the Alaska Junction.  Up until just recently this has just been a fenced off area, near the Alaska Junction.  They have spread the grass seed and now we are watching it grow.  With 2008 rapidly approaching I doubt we will see it finished this year, and by the looks of the design it wont be finished for quite a while.

Here is what it currently looks like:

I have to say that even this sparsely planted grass and yellow tape, it is better that the chain-link fenced gravel field that it used to be.  The West Seattle Junction will be a better place when this project is finished.

Jonathan Martin
GuideToSeattleRealEstate.com

Pricing a home, the key to a sale.  If pricing isn’t right the first time ,we all know that the home may not sell.  In this market, pricing is key.  Here is situation were the comparable pricing that was initially presented was the correct price to set the home at, not what the seller wanted. Well, we all make mistakes.  How we learn from them is the key. This is an example of a time when I should have been more forceful and possibly not taken the listing. I took this listing and allowed the seller to talk me into a higher price for the home, bad mistake.

The home is a beautiful 3 bedroom rambler just south of Seattle.  It had an updated kitchen and the owners took fabulous care of the home and the yard, it showed like a champ.  With all of the updates to the home it comped out at 289k.  During the listing presentation I allowed the seller to talk me up to 299k for the home.  I said ok based on a pre-signed price change form for 30 days out.  I gave a day or two for him to discuss it with his wife.  She talked him up to 309k and had another agent friend that would list it at that price.  With the added pressure he said that we had to try it at 309k for a month and then lower it to 299k.  I explained to him that most of the buyers in the area are looking for a home that is below 300k.  Pricing the home above this would exclude the home from most searches.  He insisted.

Here is the error.  I like the sellers, they’re great people, they have a great home.  I took the listing.  Now I did my part as a consultant, giving the right direction and advice.  But when the home didn’t sell at 309k or at 299k the sellers lost motivation.  3 months went by with very few showings.  They must have thought that no one wanted their home.  But that wasn’t it, no one could find their home because it was overpriced. By the time we had the price lowered below 300k the seasons had changed, the market had drifted.  We took the home off the market earlier this week. 

When I gave the keys back to the seller he said, “Hopefully if things improve we will put it back on the market in the spring.”  But, while I don’t have a crystal ball, at best the market is going to be flat not better.  If the market doesn’t improve and they are going to stick with the above 300k price we are just going to repeat the past.  The definition of insanity is repeating the same action over and over while expecting different results.  I am not insane:)

Ok so what did I learn.  I took the listing at a price that was too high, because if I didn’t someone else would have.  While I gave the clients the right advice, I wasn’t forceful enough about it.  By not turning them down I did them a disservice.  They were just trying to get as much as they could for their home.  Who could blame them?  But in the end it backfired.  There is actually no way of knowing if the home would have actually sold if it was priced how I recommended.  I do know that it would have had a better chance. Other homes in the area that were crap compared to this one sold at around 289k and 295k.

Even if I have to turn down business, I will not take an overpriced listing.  Not even for people that need to get the most from their home.  If they can’t sell then they can’t sell.  I don’t set the price, buyers do.

Again so it is burned into reality: “I will not take an overpriced listing!”

So how many blogs do you read?  I currently read about 25+ regularly.  Most are real estate oriented others are Seattle specific and a few just for fun.  But using the Internet Explorer RSS reader was driving me crazy.  It just took too long to go through all of the posts and decide which conversations to join.  I did a little research and exploring the notion of using a RSS Feed Reader.  I decided on Google Reader.  Mainly because of its ease of use and my ability to read through the daily’s quickly.  Do you use an RSS Feed Reader, if so which one?

After our little late fall rain, the neighborhood hole is now a lake.  This is the corner of 42nd and Alaska in West Seattle.  They are down about 60 feet and planning on going further.  The lake has slowed their progress. They have been pumping water out for the past two days.