Real Estate Heat Index off the charts in 2017

After the final 2017 Seattle-area real estate sales data was released last week by the NWMLS, I updated my chart of the “Residential Real Estate Heat Index” for King County single-family homes and condos.

As a reminder, the “Residential Real Estate Heat Index” is an index that rolls changes in the median price, new listings, total inventory, pending sales and closed sales all into a single number to measure the relative “heat” of the market. Note that this index only looks at the real estate sales market. It does not factor in any other economic conditions such as wages, interest rates, rents, etc.

Below is the latest data for the heat index of King County single-family homes and condos. It has been quite a while since I last updated this chart, and… holy cow.

King County Residential Real Estate Heat Index

At 213.9, the latest King County heat index dwarfs the average level seen during the last bubble (42.6). Keeping with the trend we saw during the previous bubble, the condo heat index is even more out of control, coming in at 334.3 in the fourth quarter (more than five times the 61.4 average during the last bubble).

Based on this measure, we have been well into bubble territory since late 2015, and things have gotten seriously out of control since then.

However, as I mentioned earlier, this index doesn’t account for external economic factors at all. The current situation is definitely very different from last time, and we need to look at a more complete picture before we can definitely say this is a new bubble. I’ll be updating some of those broader charts later this month.

Still though… damn.


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

142 comments:

  1. 1
    Doug says:

    Tim, what drives the increasing volatility that you start to see in mid-2015?

  2. 2
    Erik says:

    Dang, it would have been pretty smart to invest all your money in Seattle condos over the past few years.

  3. 3
    Dustin says:

    RE: Erik @ 2 – And cash out right now. ;)

  4. 4
    toad37 says:

    Just got back from the King County foreclosure auction… prices were basically just a smidgen below retail. The out of town hedge-fund guy (Blackrock) was bidding stuff up as usual. I may check out the Pierce county auction next week. Will report any findings.

  5. 5
    Liam O'Reilly says:

    These exploding prices will drive those who purchased homes over a decade ago to sell, and for new sub-divisions to be built even farther out from downtown Seattle, making the drive time even longer.

  6. 6

    RE: Liam O’Reilly @ 5RE: Erik @ 2 – Only part of this is price.

  7. 7
    The Tim says:

    RE: Doug @ 1 – I believe that the index has spiked so high in the fourth quarter in 2015, 2016, and 2018 is because of how crazy low the number of new listings and overall inventory has been falling at the end of the year. Closed sales and pending sales are at relatively normal levels, but new listings and total inventory keeps hitting new lows every December. This drives the index really high during those periods.

  8. 8

    RE: The Tim @ 7 – You need to make it seasonally adjusted! ;-)

  9. 9
    S-Crow says:

    RE: Liam O’Reilly @ 5 – It is an acute problem for the senior community. Property taxes are having a negative impact on that community in my opinion based upon conversations with our escrow clients and 2018 valuations are going to shock.

  10. 10
    redmondjp says:

    By S-Crow @ 9:

    RE: Liam O’Reilly @ 5 – It is an acute problem for the senior community. Property taxes are having a negative impact on that community in my opinion based upon conversations with our escrow clients and 2018 valuations are going to shock.

    Maybe we can pass our own version of California’s Proposition 13 to protect seniors and others on a fixed income.

    Nahhhhhhh! Sound Transit is going to need more money soon, so that would never work.

  11. 11
    GoHawks says:

    Thank you for all of the recent content Tim.

  12. 12
    Ross says:

    By S-Crow @ 9:

    RE: Liam O’Reilly @ 5 – It is an acute problem for the senior community. Property taxes are having a negative impact on that community in my opinion based upon conversations with our escrow clients and 2018 valuations are going to shock.

    I thought Seniors could defer property taxes. Anyways, only homes rising in value more than the median should have property tax increases.

  13. 13
    Anonymous Coward says:

    RE: Ross @ 12 – Haven’t most of the recent levies been on assessed value?

  14. 14
    Joe_Clave says:

    Today from Seattle Times:
    “Seattle-area rents drop significantly for first time this decade as new apartments sit empty”

  15. 15
    Joe_Clave says:

    RE: Joe_Clave @ 14
    From article:

    “Overall, there are 24,500 apartments under construction now across King and Snohomish counties. There are an additional 35,000 units in the pipeline, although not all of those will get built.

    The city of Seattle is getting more apartments this decade than in the prior 50 years combined. For the Puget Sound region as a whole, the current construction frenzy rivals the record apartment boom from the late 1980s, which was centered in the suburbs.”

  16. 16
    wreckingbull says:

    RE: Ross @ 12 – You have to be pretty low income by Seattle standards to qualify. Plenty of people in the middle get squeezed out.

    https://www.kingcounty.gov/depts/assessor/TaxpayerAssistance/TaxRelief.aspx

    In addition, even if a deferral keeps someone in a home, most plan to use the proceeds from the eventual sale to fund part or all of assisted living. It’s still ‘real money’.

  17. 17
    Joe_Clave says:

    RE: Joe_Clave @ 15

    One more quote:

    “The rental slowdown runs counter to the for-sale housing market, where home prices continue to shoot up unabated at the fastest rate in the country. A key difference is that there are very few new single-family homes being built in the region, in contrast to the frenzy of apartment construction.”

    My take: Common wisdom is prices are being driven up partially by millennials with software engineering jobs- but what happens when rental prices become more attractive?

    “The vacancy rate across the region grew 0.8 percentage points to 5.4 percent in December — the highest since 2010 — a sign that supply has outgained demand.

    In South Lake Union, where developers have been gung-ho about Amazon’s rapid growth, so many new apartments have opened up in recent years that the vacancy rate increased from 4.6 percent to 7.1 percent (the figure excludes brand-new buildings just starting to lease up). That’s a huge jump that gives the neighborhood the second-highest vacancy rate in the region, behind the Everett/Mukilteo area.”

    Last one ;-)

  18. 18

    By Anonymous Coward @ 13:

    RE: Ross @ 12 – Haven’t most of the recent levies been on assessed value?

    Levies and things like libraries and ports, yes. But a lot of the tax is as otherwise described, so if your house goes up less than average you could still get a tax cut even with an increased assessment. And it works the same way on the way down–you might not see a tax savings.

  19. 19
    David says:

    When things do cool off in the next recession – those condos are going to be an albatross around SO many people’s necks. After 2008 , some markets literally had ZERO condo sales/resales for the year. I owned a condo and it was emotionally traumatizing to realize you were stuck in limbo for years.

    Unless there is a shortage of appropriate housing, I see little need to own a condo trap.

  20. 20
    Erik says:

    RE: toad37 @ 4
    Told yah. It’s worth the money to buy in Seattle, trust me this time. The 3 most important things in real estate are location, location, location. You want something you can afford in a nice area, not a nice place in peirce county.

  21. 21
    toad37 says:

    RE: David @ 19 – You’d think, but who knows. Maybe foreign buyers continue to flood in, maybe San Fran gets gobbled up in a ‘quake and survivors swarm here for housing… just never know. The stock market melt-up is scary… and the fact they approved bitcoin trading on the CME spells trouble for the dollar I would think? .. we’re in such crazy times it’s almost impossible to make any reasonable forecast, imho. Trade the market in front of you, and for now it’s still bullish.

  22. 22
    toad37 says:

    RE: Erik @ 20 – You’re adorable.. and exactly right… But I’d just be flipping if I get something down there. I’ve always been interested in learning about this underbelly side of the market…. foreclosures, flipping, etc. I do feel dirty at the auctions… I better find a way to give back to the communities to balance any bad karma that may be picked up there…

  23. 23
    Erik says:

    RE: The Tim @ 7
    Right, supply and demand is in full effect.

    Kind sir, I would like to see a graph that compares prices to supply/demand somehow over the years. On the same axis, you could plot actual prices. I’m trying to grasp how closely prices correlate with supply/demand. Not sure how it would look, but there has gotta be a way.

  24. 24
    Erik says:

    RE: toad37 @ 22
    Haha! The auction is full of snakes. Just be honest and don’t try to cheat anyone.

    The goal is to hold as much cash as you can when the next collapse happens. When the market collapses and everyone is scared, the smart money buys at the auction because those auction prices overreact the most and you can get some screaming deals.

    If black rock is back at the auction, I tend to believe something big is going to happen in Seattle. Last time black rock was buying at the auction in 2012 and they nailed it. My guess is Seattle is in for a huge growth. Black rock has a great track record. I have a hard time believing they miscalculated the market this time.

  25. 25
    toad37 says:

    RE: Erik @ 24 – It’s just one guy, and he usually loses to Vestus… I wouldn’t read too much into it.

  26. 26
    David says:

    I own Blackrock stock. I made 70% is one year on their stock a few years ago and it has kept going. Blackrock has a HUGE reputation for managing risk well. If they are buying houses then I have to wonder 2 things:

    1) They are supporting local housing prices til they sell some assets; or
    2) They expect price appreciation on new assets – which would translate into higher Return on Equity.

    So which is it?

    FYI, I also bought Bitcoin 4 month s ago and sold all of it at 80% gain which I used to buy PG&E stock recently. Bitcoin has 2,000 competitors and 4,000,000 of the original Bitcoin have been permanently lost – BTC is useless long term.

    lBy Erik @ 24:

    RE: toad37 @ 22
    Haha! The auction is full of snakes. Just be honest and don’t try to cheat anyone.

    The goal is to hold as much cash as you can when the next collapse happens. When the market collapses and everyone is scared, the smart money buys at the auction because those auction prices overreact the most and you can get some screaming deals.

    If black rock is back at the auction, I tend to believe something big is going to happen in Seattle. Last time black rock was buying at the auction in 2012 and they nailed it. My guess is Seattle is in for a huge growth. Black rock has a great track record. I have a hard time believing they miscalculated the market this time.

  27. 27
    toad37 says:

    RE: David @ 26RE: David @ 26

    I haven’t seen him buy one to be honest… but he sure squeezes Vestus to pay up.

  28. 28
    Eastsider says:

    By David @ 19:

    When things do cool off in the next recession – those condos are going to be an albatross around SO many people’s necks. After 2008 , some markets literally had ZERO condo sales/resales for the year. I owned a condo and it was emotionally traumatizing to realize you were stuck in limbo for years.

    Unless there is a shortage of appropriate housing, I see little need to own a condo trap.

    Not only that, you may not be allowed to rent your unit and still have to pay monthly HOA fees even when it is vacant.

    Condos suffer the worst price drop in a correction compared to SFHs. But when they outperform SFHs, watch out below.

  29. 29
  30. 30
    Erik says:

    RE: Eastsider @ 28
    Yes, it’s emotionally taxing. Tough life owning condos and collecting sweaty renter cash while my value goes up and people pay down my mortgages. This lifestyle is not for the faint of heart.

  31. 31

    By toad37 @ 22:

    RE: Erik @ 20 – You’re adorable.. and exactly right… But I’d just be flipping if I get something down there. I’ve always been interested in learning about this underbelly side of the market…. foreclosures, flipping, etc. I do feel dirty at the auctions… I better find a way to give back to the communities to balance any bad karma that may be picked up there…

    BTW, just so that you know, if you plan on being a true flipper, you need a contractor’s license and bond. Consult an attorney about your specific situation.

  32. 32
    Eastsider says:

    RE: Erik @ 30 – Yep, and be ready to rip off banks and taxpayers when time is tough.

  33. 33
    GoHawks! says:

    Amazon expanding again in Seattle with 2 more leases, as growth continues unabated: Seattle Times

    But what about HQ2 worries?

  34. 34
    Erik says:

    RE: Eastsider @ 32
    Yep, it’s all part of the game I guess. Thanks to Tim and people on this site, I have an idea how to play the game now. Shout out to Seattle Bubble.

  35. 35

    RE: Ross @ 12
    If You’re Income is Under $40K/Yr

    Otherwise ya pay full property tax. Retired and trying to live on like a few thousand net pay per month and pay the full few thousand/mo property tax= bankruptcy. Get your lifetime McDonalds uniform on you lazy senior and limp to your job until ya die [you can’t afford a car in King County]….

    There’s HORRIFYING cheap smelly nursing homes that will take you in BTW….anyway. The state will take your wealth in that case and kick you out of your house…gladly :-)

    Ya see why ya need to start a buildable retirement savings when you’re young.

  36. 36
    Matt P says:

    RE: softwarengineer @ 35 – If you own a home and you’re retired, $40k per year is plenty to live on especially if you’re on medicare. If you’re not at that age yet, then you shouldn’t have retired anyway. That’s over $3k a month for food and … what other expenses can you have? The car should have been paid off or they should still be working. If you’re making more than $40k per year and can’t afford your property taxes, then it’s time to sell and move.

    The choice is not work at MacDonalds all your life or go to a horrible nursing home. That line of thinking is what keeps people poor. Social mobility is often tied to physical location. People would do a lot better if they would just take a chance and move. That our wages are stagnant are in no small part due to relocation rates being the lowest since the stat has been tracked when it should have been the highest due to the recession.

  37. 37
    ess says:

    By GoHawks! @ 33:

    Amazon expanding again in Seattle with 2 more leases, as growth continues unabated: Seattle Times

    But what about HQ2 worries?

    Amazon probably has no plans to abandon Seattle. But it probably dawned upon them that they needed much more space than the area in SLU could provide. Not only is there physical and political safety in spreading the wealth, but now there are two states that can be aggressively lobbied for tax breaks. And by calling it HQ2, the second location is an equal amongst equals (for tax goodies). HQ3 is probably being discussed right now

    While these latest leases are not huge by Amazon standards, they do give a certain comfort to those who worry that Amazon will leave and the sky will fall.

  38. 38
    ESS says:

    By Erik @ 34:

    RE: Eastsider @ 32
    Yep, it’s all part of the game I guess. Thanks to Tim and people on this site, I have an idea how to play the game now. Shout out to Seattle Bubble.

    Erik

    While you are having all this fun, and I hope for both our sakes that housing prices and rents escalate far into the future. You should also be developing a contingency plan in the event that real estate and rental prices drop 10-35 %, and vacancy rates increase to 10% or beyond.

    Hope for the best and plan for the worst usually keeps you out of most difficult situations.

  39. 39
    wreckingbull says:

    RE: Matt P @ 36 – Did it ever occur to you that sometimes people don’t always choose to retire, especially those who have used their physical body to make a living? Sometimes the body just wears out.

    Do you really think that food and property taxes are the only expense for a senior citizen? Medicare does not cover everything. Most also have to buy supplemental insurance which also does not cover everything. Cars still wear out when you are a senior citizen, houses still need repair, sometimes expensive repairs. Homes must still be insured. Senior citizens still need to buy other non-food items like everyone else.

    Based on your comments, it sounds like you think a taxation scheme should be designed around the perfect, financially secure household, everyone else be damned. I predict that when you have more life experiences and start having to care for your own elderly family members, your cold view will soften a bit.

  40. 40
    Matt P says:

    RE: wreckingbull @ 39 – So what do you think is a reasonable income level for a senior tax break so they can stay in their house? And why should that not apply to non-seniors?

  41. 41
    Saffy The Pook says:

    The Tim: please post the formula used to calculate the “heat index”. Without that, it’s impossible to ascertain what relevance it has, if any.

  42. 42
    S-Crow says:

    RE: wreckingbull @ 39 – I’m glad to see a conversation regarding the housing conundrum for Seniors and those on fixed income. Adding to that conversation I’d like to mention the drumbeat from the usuals advertising on the radio regarding seniors using their home equity for reverse mortgages. This is still a very debatable loan program with huge upfront and ongoing mortgage insurance fees.

    In fact two local Sno Co. homes that I identified very recently for a client that were bank owned had underlying reverse mortgages. HUD has admitted that the traditional FHA/VA insured mortgage insured loans were funding or being utilized to offset the huge spike in HUD insured reverse mortgage defaults/foreclosures over the last couple of years– in this market! Robbing Peter to pay Paul.

  43. 43
    wreckingbull says:

    RE: Matt P @ 40 – I think the nature of your question points out the exact problem. There is no arbitrary dollar amount. A cap, as a percentage of MAGI, would be a start. Also get rid of deferrals. Not many die in their home anymore. They die in an expensive assisted care facility, of which the home is often sold to pay for.

  44. 44
    Kmac says:

    By Kary L. Krismer @ 31:

    By toad37 @ 22:

    RE: Erik @ 20 – You’re adorable.. and exactly right… But I’d just be flipping if I get something down there. I’ve always been interested in learning about this underbelly side of the market…. foreclosures, flipping, etc. I do feel dirty at the auctions… I better find a way to give back to the communities to balance any bad karma that may be picked up there…

    BTW, just so that you know, if you plan on being a true flipper, you need a contractor’s license and bond. Consult an attorney about your specific situation.

    And to top that off, I’m amazed that so many flippers buy just below retail and think they are going to make any amount of money given that it usually costs about 8 to 9% to sell the property the very next day.
    I think many flippers must only have a $5,000 margin of error and heavily rely on a greater fool to come along. (or they perform labor for free and mistake that as their “profit”??? Why buy your job?)
    No thank you!

  45. 45

    RE: Kmac @ 44 – The biggest mistake I see is picking a house with a limited upside, like say a 1 or 1.5 bathroom house, or one next to another ratty house.

  46. 46
    toad37 says:

    RE: Kary L. Krismer @ 45 – Thanks for that.. I’ve been making a list of what to avoid if I were to bid something. So far…

    1- Don’t buy if it’s occupied, heard it can easily take 60 days to get them out
    2- No houses with basements… all of ’em eventually have water issues
    3- Nothing under 2 bathrooms

    What else?

  47. 47
    Alex says:

    RE: Kmac @ 44 – most flippers buy their homes at 20 to 30% below market value.

  48. 48
    Blurtman says:

    RE: toad37 @ 46

    Get them out, those vermin!

  49. 49
    Erik says:

    RE: Kmac @ 44
    I have never flipped. I buy, live somewhere 2 years, and sell it. I think on top of real estate agent fees and excise tax, you have to pay 35% capital gains tax on a flip. I’m not interested in paying Uncle Sam when I did all the work.

    My current home which I’ve had about 6 months, I bought about $150k under. It was in good shape when I bought it and someone was living in it. I painted, updated electrical switches, outlets, and thermostats, and put in new flooring. Next is countertops, sinks, and appliances. I got lucky at the auction that week is all and was able to get a real good deal. These days everyone at the auction seems to not be getting good deals except for homes in maple valley, but I’m not interested in pierce county.

  50. 50
    Erik says:

    RE: toad37 @ 46
    I have broken your 1st and 3rd rule and those were my best deals. My current place was occupied. Paid dimensions law $57 to evict. The more complicated the deal, the more risk. The more risk, the bigger upside. Get your hands dirty and buy what lazy investors don’t want to buy. That’s how you get good deals.

    My 1br 1ba condo was my best deal. Got it in march for $203k and Zillow says $380k, but I think it’s worth $360k. Right after I bought it, 1br condos went way up in that area. I’m losing money on that one every month, so I’ll have to raise my rent. Good equity and poor cash flow seems to be the story of my life.

  51. 51

    By toad37 @ 46:

    RE: Kary L. Krismer @ 45 – Thanks for that.. I’ve been making a list of what to avoid if I were to bid something. So far…

    1- Don’t buy if it’s occupied, heard it can easily take 60 days to get them out
    2- No houses with basements… all of ’em eventually have water issues
    3- Nothing under 2 bathrooms

    What else?

    I don’t know that basements are that problematic, but the problem is you wouldn’t know and those sorts of issues can be somewhat expensive to fix. But I don’t know that they are more expensive to fix than other nightmare scenarios, like mold in the attic or significant wood rot somewhere.

    If you’re talking about a house, I wouldn’t go under 3 bedrooms. I’ve seen one relatively modern large 2 bedroom house, but those are rather rare and I don’t know what the market is for them.

    I’d probably avoid anything with a shake roof, unless it’s fairly new because determining the condition can require going onto the roof, and replacing it can require new sheeting and be expensive. I’d also avoid anything with composite wood siding unless you can walk around the house.

  52. 52

    RE: Matt P @ 36
    I Don’t Support Property Tax Decreases For Seniors BTW

    It should be a debt owed the county and paid back after the senior’s death.

    Most of the old money loot is going to likely go to lucky X-Gens getting inheritance then blowing it on over priced real estate deals. Savvy investors?”?? LOL

  53. 53
    Justme says:

    By Saffy The Pook @ 41:

    The Tim: please post the formula used to calculate the “heat index”. Without that, it’s impossible to ascertain what relevance it has, if any.

    I also think it is essential to know the exact formula of the heat index.

  54. 54
    Matt P says:

    RE: softwarengineer @ 51 – With Boomers pension for profligacy and their extreme longevity, there won’t be much in he way of inheritances for gen Xers.

  55. 55
    Blurtman says:

    RE: Matt P @ 53 – Maybe genXers should make their own wealth.

  56. 56
    ARDELL DellaLoggia says:

    RE: Matt P @ 53

    I just showed a house bought new for about $15,000 the year I was born, 1954, which the original owners are now selling for the first time. It will sell for over a million in original condition except for ongoing maintenance items. No loans against equity over the 63 years they have owned it. So maybe the key is to stop “moving up” so much.

    The tax laws were changed so that people didn’t need to buy up to avoid capital gains, this some time ago and not the recent change. But when people preserve their “home as savings” plan we have less inventory. So someone will complain either way.

  57. 57
    ARDELL DellaLoggia says:

    RE: Kary L. Krismer @ 50

    I just saw one yesterday that was new Hardie plank on the front but part old wood and part “defective wood product” on the walk around.

    Kind of like the old “don’t judge a book by it’s cover” as the siding replacement may be partial with the best in the front. Though I have also seen the best on one side only.

  58. 58
    Jon says:

    RE: Matt P @ 53 – The real problem is that instead of dying at a young age from disease and starvation, third world people are coming here and out-bidding the locals for 64 year old houses.

  59. 59

    By Jon @ 57:

    The real problem is that instead of dying at a young age from disease and starvation, third world people are coming here and out-bidding the locals for 64 year old houses.

    There’s nothing wrong with 64 year old houses. They are generally in better locations with better construction methods than construction built this century. The exception is electrical, seismic and insulation, but those to some extent can be upgraded to close to what current construction would be (electrical to current standards).

  60. 60

    RE: ARDELL DellaLoggia @ 55RE: ARDELL DellaLoggia @ 56 – Your clients maybe carried the tax thing too far, because they probably won’t be totally protected given the limit of exclusion if $500,000. But they probably will do better selling this year compared to last year.

    As to the siding, often the damage is only on one side, and on houses built after about 1990 or so it is quite common to have something different on the front and cheap but easy to install sheet product on the sides and rear. That’s something I doubt you’d ever see original on a 64-year-old house!

  61. 61

    RE: Kary L. Krismer @ 59

    One I don’t get the “your clients” thing…I wasn’t talking about my clients.

    Two, the front is usually the least likely to have new on a two story, especially in the lower covered area by the door which should have the least damage.

  62. 62
    toad37 says:

    RE: Kary L. Krismer @ 50 – Thanks guys… updated
    For flips (rentals or primary residence has separate list)
    1- Don’t buy if it’s occupied
    2- No houses with basements
    3- Nothing under 3 bd, 2 ba
    4- No shake roofs unless verified newer
    5- No composite siding unless can walk around the house to verify condition

    keep ’em coming :-)

  63. 63
    ARDELL DellaLoggia says:

    RE: Ardell DellaLoggia @ 60

    Sorry, reading in pieces as I’m out showing property. The 64 year old house is not the same house as the one with the siding issue which is 40 vs 63 years old. The wood composite product is easier to spot when the home was built in the worst years for that, give or take 2 years from 1993. It’s harder when the house is older and fully or partially replaced in those problem years.

  64. 64
    Jon says:

    RE: Kary L. Krismer @ 58 – I didn’t mean to impune the quality of those houses. I just had in mind that their size is small in comparison to the amount being paid for them now. Those small houses were often used to raise large families of boomers. Still 15k was alot of money when gas was 20 cents a gallon.

  65. 65
    wreckingbull says:

    By Blurtman @ 54:

    RE: Matt P @ 53 – Maybe genXers should make their own wealth.

    Agreed. We will need it to service the country’s debt obligations!

  66. 66

    By Ardell DellaLoggia @ 60:

    RE: Kary L. Krismer @ 59

    One I don’t get the “your clients” thing…I wasn’t talking about my clients.

    Sorry, I thought that was the one you were getting ready to list–I didn’t read carefully enough or had not enough coffee.

  67. 67
    Kmac says:

    By Kary L. Krismer @ 31
    BTW, just so that you know, if you plan on being a true flipper, you need a contractor’s license and bond. Consult an attorney about your specific situation.

    This was enacted in 2008 and the rcw’s were revised. As far as I can tell, it was revisited in 2015 and was changed by SB 1749.
    http://lawfilesext.leg.wa.gov/biennium/2015-16/Pdf/Bills/Session%20Laws/House/1749-S.SL.pdf

    So it looks like you do not need to be a contractor to flip a house at <12 months, but ONLY IF you have CONTRACTED with a licensed contractor to do the work.

  68. 68
    ARDELL DellaLoggia says:

    RE: Jon @ 63

    The house costs almost nothing. The land it sits on costs a lot. 1/3rd the price a brand new (and larger) home would sell for on that lot equals the land price. Whether or not it’s a teardown depends on who buys it.

  69. 69
    ARDELL DellaLoggia says:

    RE: Kary L. Krismer @ 65

    The house I’m working on is older than me. :) 1946 in Wedgwood, Seattle.

    The two above are houses I was looking at for buyers. One is $110k overpriced, the other will bid up by that much. January’s always fun like that. Hope both don’t bid up when they look at offers next week. We’ll see how efficient the market is in 2018.

  70. 70
    Kmac says:

    By ARDELL DellaLoggia @ 67:

    RE: Jon @ 63

    The house costs almost nothing. The land it sits on costs a lot. 1/3rd the price a brand new (and larger) home would sell for on that lot equals the land price. Whether or not it’s a teardown depends on who buys it.

    Okay ARDELL, that is a “RULE OF THUMB”. And who determines how much bigger and how much nicer that supposed new home is that would put your formula to work?
    This is a formula that the real estate cartel has encouraged it members to use in the valuation process to MAXIMIZE their client SELLER’S properties and to promote maximum commissions for their members.
    You may get many people willing to do this 3x thing in markets like Seattle, Bellevue or Kirkland but I will tell you that as an occasional small builder of spec homes outside those areas, I (and many like me) would NEVER buy a property at that 3x rate. Not enough meat on the bone – so to speak- for the risk that ensues. And also, at that 3x rate, nothing more irritating than getting to closing table and finding that the supposed “profit” is practically split 3 ways – bank/ RE broker/builder – but yet the builder took most all the risk and 6 to 12 months of tying up resources only to have to share the bounty equally.

    I have found 4x lot to be much more reasonable as a “RULE OF THUMB in many areas aside from those mentioned above, but the rule of thumb ONLY comes in AFTER I have numbers for the proposed project and then it only serves as a general check to see if it is in line against what I already know.
    But then again, maybe I just don’t like giving all of MY efforts away to others and maybe I have a lower risk tolerance than may other builder types.
    I am pretty efficient, so I don’t think it is about the cost to build…….

    You use your rule as a starting point for the seller, but I use it as a buyer – ONLY on the back end – to check if I am within parameters against my cost estimates going in.

    I would NEVER pay 150k for a lot to put a 450k home on (3x)
    but
    I *might* pay 110k for a lot to put it on (4x)

    Perhaps in Seattle, Kirkland, Bellevue there are willing participants to do so?
    Perhaps in the more rural areas there are uniformed folks willing to do so also…. ?

  71. 71

    RE: Kmac @ 69

    Kmac: “I would NEVER pay 150k for a lot to put a 450k home on (3x)
    but I *might* pay 110k for a lot to put it on (4x)”

    Not following you there. If you are building a house for yourself you would want a 2x, not a 4x. 3x is the right price for a spec house on a tear down lot. Or more correctly, 1/3rd is what the old people should get for their old house that the builder is going to tear down. That establishes lot value. Find the closest newest house that sold as a NEW never lived in house recently to get the 1/3rd number.

    4x would be overpaying . You don’t want to build a 4X unless you are a builder trying to make a killing.

    An owner occupant will pay more than lot value for a teardown and a flipper will pay less than a builder for a teardown. Of course people make mistakes everyday, but if someone pays $800,000 for a new house on a $150,000 lot, well, then you know you did it wrong. But yes…you can still do it.

    If there are no new houses in the last 5 years anywhere near you, the lot value may be close to nil if the builders don’t want it at all. When the houses are really cheap but not bad houses, it usually means the land value isn’t appreciating.

  72. 72
    Kmac says:

    By Ardell DellaLoggia @ 70:

    RE: Kmac @ 69

    Kmac: “I would NEVER pay 150k for a lot to put a 450k home on (3x)
    but I *might* pay 110k for a lot to put it on (4x)”

    Not following you there. If you are building a house for yourself you would want a 2x, not a 4x. 3x is the right price for a spec house on a tear down lot. Or more correctly, 1/3rd is what the old people should get for their old house that the builder is going to tear down. That establishes lot value. Find the closest newest house that sold as a NEW never lived in house recently to get the 1/3rd number.

    4x would be overpaying . You don’t want to build a 4X unless you are a builder trying to make a killing.

    An owner occupant will pay more than lot value for a teardown and a flipper will pay less than a builder for a teardown. Of course people make mistakes everyday, but if someone pays $800,000 for a new house on a $150,000 lot, well, then you know you did it wrong. But yes…you can still do it.

    If there are no new houses in the last 5 years anywhere near you, the lot value may be close to nil if the builders don’t want it at all. When the houses are really cheap but not bad houses, it usually means the land value isn’t appreciating.

    Huh…?

    What I am saying is I(and many others) may look at a lot (or offer on) if it is roughly at about about a 25% value to the finish new construction sell price (I refer to this as 4x)

    You seem to be saying that the new construction sell price should be at 33% of the new construction sell price?

    I am talking vacant land and you seem to be talking land with a tear down on it.????
    A tear down would take an additional 10k to get rid of so I would deduct that from the vacant land value as a buyer.
    Yeah, I guess I’m not competitive on the race to nowhere.

  73. 73
    S-Crow says:

    RE: Kmac @ 71 – Your approach will provide dividends to you and I’m guessing it already has. I can’t tell you how may small builders and contractors did not stay disciplined during the last run up and I’m seeing cases of it today.

    By the way, maybe you should consider Coeur d’alene for building.

    “Bubble? What Bubble?” : http://www.cdapress.com/local_news/20180113/bubble_what_bubble

    Labor/Employment Info for Northern Idaho:
    https://labor.idaho.gov/publications/lmi/pubs/Northern.pdf

  74. 74
    ARDELL DellaLoggia says:

    RE: Kmac @ 71

    We were talking about old houses that cost a lot of money. That’s why we were talking lot value being 1/3rd the price a new house in its place would sell for. If a builder can put a house there and sell it for 2.1M, he will pay $700,000 and throw the old house away. An owner occupant buyer will outbid the builder. A flipper will pay less than both in most cases, when they can. Though as S-Crow pointed out, some are getting burned right now as the margins are too thin due to competition.

    When you see it run up toward the builder getting 3.5x lot, the price of the next teardown goes up to bring it back to 3x lot. When you see builders getting 4x lot, the bubble will burst in the next cycle.

  75. 75
    Kmac says:

    I guess what the problem is is that you are stating that the lot is the lot because” I say it is”….
    To me, the lot isn’t necessarily what YOU say it is.
    Seems RE folks try to dictate what things are by using some arbitrary formula on the front end.
    Guess it works in some areas.

    I do the math with givens and I know what the selling price is within reason before consulting any RE professional, and then do a reverse engineering on the numbers.

    Maybe it come down to most builders are willing to do anything just to stay busy.

    Although, I have noticed that some savvy small builders have a permit in hand within days of actual closing on the lot.
    Perhaps this technique mitigates some of the risk of the time value- ie: less holding costs.

    And please Ardell, don’t take this personally, as I really like the contributions you always seem to offer up…

    And as far as ID goes, I read a couple weeks ago that ID is the fastest growing state now.

  76. 76
    Eastsider says:

    RE: Kmac @ 74 – Some builders will do 3x or even less because they are not risking their own capital. If the market declines by 10%, it will easily wipe out profits and more. In a 20% down market, these builders will be gone.

  77. 77

    RE: Kmac @ 74

    It really isn’t because I say it is. I didn’t make it up and it is not an “exact” science. Unfortunately agents have a ton of sometimes stupid rules that make it harder for me to describe to you here than to a client. But I’m going to go out on a limb and break a rule before going to bed by using examples. Not really allowed in a public forum for me to do that, but this is an important point for people to know. I didn’t just make it up and I do test it often and I don’t repeat it just because I heard it somewhere.

    https://www.redfin.com/WA/Bellevue/12829-SE-2nd-St-98005/home/508379
    Lot on the above was $660,000. 3 x lot would be $1,980,000 sold for $2,098,000. Close enough.

    https://www.redfin.com/WA/Kirkland/10834-108th-Ave-NE-98033/home/461367
    Lot on the above was $625,000. 3 x lot would be $1,875,000 sold for $1,750,000. Close enough.

    https://www.redfin.com/WA/Kirkland/8643-NE-124th-St-98034/home/282428
    Lot was $412,500. 3 x lot would be $1,236,000. Sold for $1,328,000. Close enough.

    It’s after midnight and I pulled those in 5 minutes without Cherry picking. The first three I saw.

    This is an important Rule of Thumb, because if you see that the builder paid $300,000 for the lot and is asking $1,500,000 for the new house…you have to know that something is not right. Maybe you still buy it for $1,500,000…maybe you don’t. But at least you know you have to come to some rational reason why you would. Maybe it’s a personal reason. Maybe it’s because you have money to throw away and plan to die in the house so you don’t care. But you should still know the rule and why you are breaking the rule.

    Off to bed. :)

  78. 78
    Kmac says:

    After thinking about this 3x lot thing overnight, perhaps it is kinda like the home maintenance “rule of thumb” that was being chatted about on the last entry.

    A house is a house- very similar no matter the specific area. The land is what makes the difference.

    Expensive land= house is a lower percentage of the completed value.

    More rural area= house is a higher percentage of completed value.

    I’ve built houses east of the cascades that were 5x and 6x lots, meaning the land was cheap by Puget Sound region standards and the total dollars of projects was much, much lower.
    ($165,00 1200 sq ft house on $25,000 lot)

    Nonetheless, I think a blanket statement about 3x this- 3x that encourages unsophisticated land buyers, who go out to cheaper pastures, to pay too much (and take all reason away from the market).

  79. 79
    synthetik says:

    It looks like Erik is the new Meshugy.

  80. 80

    By Kmac @ 66:

    By Kary L. Krismer @ 31
    BTW, just so that you know, if you plan on being a true flipper, you need a contractor’s license and bond. Consult an attorney about your specific situation.

    This was enacted in 2008 and the rcw’s were revised. As far as I can tell, it was revisited in 2015 and was changed by SB 1749.
    http://lawfilesext.leg.wa.gov/biennium/2015-16/Pdf/Bills/Session%20Laws/House/1749-S.SL.pdf

    So it looks like you do not need to be a contractor to flip a house at <12 months, but ONLY IF you have CONTRACTED with a licensed contractor to do the work.

    There’s still an issue if you’re overseeing the contractor, which could make you a contractor yourself, and drag you back in. That would probably be true of most flippers, and at least argued in litigation if there were a problem with the house. The consequences of being unlicensed are so severe I wouldn’t risk it, and instead opt to be licensed and bonded (preferably cash bond).

  81. 81

    As to the other two threads, both involving “rules of thumb,” perhaps the real message is that if you’re going to be involved in a real transaction (actually make an offer) you should work with some real numbers that pertain to the specific property.

  82. 82
    ess says:

    By Kary L. Krismer @ 78:

    As to the other two threads, both involving “rules of thumb,” perhaps the real message is that if you’re going to be involved in a real transaction (actually make an offer) you should work with some real numbers that pertain to the specific property.

    Or to paraphrase Tip O’Neil who popularized the phrase ” all politics are local”

    All real estate deals are local

  83. 83
    ARDELL DellaLoggia says:

    RE: Kmac @ 76

    For agents, the most important application of the 3x lot rule is when choosing a list price for an old house. Again, speaking in the context of why old and even dilapidated “houses” can sell for what appear to be ridiculous prices from a buyer’s perspective. AKA “Why should we pay almost a million dollars for this crap box?”. The answer to that is always about the land value.

    What happens in Wenatchee stays in Wenatchee and this is not “Wenatchee Bubble”. I assume where a building lot can be had for $25,000, people aren’t paying obscene prices for a crap box. :)

    When we see an agent list an old house for $200,000 under land value because they don’t know the 3x lot rule, it’s embarrassing to the profession. It is also very costly for the consumers in total. The last time I saw that happen there were about 50 offers and no, that is not great.

    My mind automatically calculates the 30 or more of that 50 who were relying on that list price having a rational basis when doing a pre-inspection. At $500 per pre-inspection, that’s $15,000 of money down the toilet due to agent error. A “house” shouldn’t list for less than the value of the dirt it sits on.

    So while people who build may not like the rule, it is an important concept in markets where land value is high and highest.

    Another application has to do with a buyer’s expectations as to the condition of the house. If you are paying lot value, then the house is free. A free house might have many defects and understandably so. In other markets I have worked in where we were selling a “crap box” for $1.5 Million lot value, we did so “as is; sight unseen” to drive that point home. It might have termites. It might have a recalled old electric panel. It might need a plumbing upgrade from galvanized pipes. But not the seller’s concern if it is being sold at lot value.

    So while there are limited applications and primarily where land values are exceptionally high, it is still an extremely important rule for people to know.

    It follows the same logic as the foreclosure discussion. Foreclosures are supposed to be so cheap that defects are a non-issue. When that is not the case, as others are pointing out due to overbidding at the auction, mistakes will be made.

    But if you buy a “house” at 1/3rd the value that a new house on the same lot would sell for, the house is free. If you choose to live in a free house you just paid a million dollars for because you like the pricey neighborhood and commute, go for it. But don’t whine that it’s a “crap box”.

    Lots of valuable applications to the 3x lot rule…where crap boxes sell for obscene prices.

  84. 84
    wreckingbull says:

    Ardell, why would someone use a rule of thumb for a transaction as large as RE purchase. If it were my money, I would put together a detailed analysis with global and transaction-specific variables. I would run a handful of different scenarios though the model. All easily done with a free afternoon and a spreadsheet.

  85. 85

    RE: Matt P @ 36
    Ya Gotta Move Out of Seattle if You’re Too Old to Afford It?

    LOL…..tell that to the West Seattle Scandinavians who have lived in Seattle all their lives with their families…

    $40K is lots of money? I’m rolling on the ground in laughter…..what planet do you live on? BTW, they make like $2K/YR in the 3rd world and live in ditches….what you really mean is we need to spread the wealth, after all the Rich Elite Progressives allege the world owns and controls America, not its voters?

  86. 86
    Eastsider says:

    RE: ARDELL DellaLoggia @ 80 – The “3x rule” applies only to a small number of mostly expensive neighborhoods. On the Eastside, there are neighborhoods of half-century old houses valued at $600k+ (mostly ‘land’ value!). No builder will build $2m new homes in a neighborhood of teardowns using the 3x rule. For example, when is the last $1m+ new house built and sold in Lake Hills?

  87. 87
    wreckingbull says:

    By ess @ 79:

    All real estate deals are local

    I think the experience of 2008-2009 pretty much disproved this old mantra. Oh, and also one of the hilariously timed books from our old friend David Lereah

    https://www.amazon.com/All-Real-Estate-Local-Sellers/dp/0385519222

  88. 88

    By wreckingbull @ 84:

    By ess @ 79:

    All real estate deals are local

    I think the experience of 2008-2009 pretty much disproved this old mantra. Oh, and also one of the hilariously timed books from our old friend David Lereah

    https://www.amazon.com/All-Real-Estate-Local-Sellers/dp/0385519222

    I’d disagree. Although that was a national event, some localities and property types did much better than others. In simple terms, some localities and property types are more volatile than others. As an example, for waterfront property that would have been a great time to buy and a poor time to sell. Surprisingly, to me at least, in contrast, Seattle condos held up fairly well.

  89. 89
    Kmac says:

    RE: ARDELL DellaLoggia @ 80

    Great explanation, but Wenatchee Bubble? LoL!
    Come on, you know the point I was hammering at.

    Get away from the CORE area and your formula has less reliability.

  90. 90
    Kmac says:

    By Ardell DellaLoggia @ 77:

    RE: Kmac @ 74

    It really isn’t because I say it is. I didn’t make it up and it is not an “exact” science. Unfortunately agents have a ton of sometimes stupid rules that make it harder for me to describe to you here than to a client. But I’m going to go out on a limb and break a rule before going to bed by using examples. Not really allowed in a public forum for me to do that, but this is an important point for people to know. I didn’t just make it up and I do test it often and I don’t repeat it just because I heard it somewhere.

    https://www.redfin.com/WA/Bellevue/12829-SE-2nd-St-98005/home/508379
    Lot on the above was $660,000. 3 x lot would be $1,980,000 sold for $2,098,000. Close enough.

    https://www.redfin.com/WA/Kirkland/10834-108th-Ave-NE-98033/home/461367
    Lot on the above was $625,000. 3 x lot would be $1,875,000 sold for $1,750,000. Close enough.

    https://www.redfin.com/WA/Kirkland/8643-NE-124th-St-98034/home/282428
    Lot was $412,500. 3 x lot would be $1,236,000. Sold for $1,328,000. Close enough.

    It’s after midnight and I pulled those in 5 minutes without Cherry picking. The first three I saw.

    This is an important Rule of Thumb, because if you see that the builder paid $300,000 for the lot and is asking $1,500,000 for the new house…you have to know that something is not right. Maybe you still buy it for $1,500,000…maybe you don’t. But at least you know you have to come to some rational reason why you would. Maybe it’s a personal reason. Maybe it’s because you have money to throw away and plan to die in the house so you don’t care. But you should still know the rule and why you are breaking the rule.

    Off to bed. :)

    Boy, that got lost somewhere in moderation land didn’t it.
    Now the post numberings are all screwed up.

    If I am able to get a killer deal on something (anything), does it make sense that a future buyer gets their panties in an uproar because they can see what I paid for it?
    Or does the real estate agent get upset that THEIR formula isn’t at play and they need to look like the smart one in the room?

    Please tell me why it matters what a seller paid for what they are selling if it is obvious that the new house appraises at the agreed price and everyone is good with it otherwise.

  91. 91
    Erik says:

    RE: synthetik @ 79
    People have said that on here for years. Sounds like this meshugy character is pretty smart.

  92. 92
    Matt P says:

    Read this about incremental improvements. It talks about the 3:1 rule. If goes much more in depth on the rest of the blog if you are interested:https: //www.strongtowns.org/journal/2017/6/12/the-little-house-a-story-of-incrementalism
    Full series on incremental growth: https://www.strongtowns.org/journal/2017/12/12/the-power-of-growing-incrementally-series

  93. 93
  94. 94
    ronp says:

    RE: wreckingbull @ 43 – According to http://nursinghomediaries.com/howmany/ of the 78 million baby boomers 3.9 million will end up in nursing homes or assisted living. So good odds of dying from a fall or other causes in your house or apartment!

  95. 95
    Kmac says:

    RE: Matt P @ 92
    The Little House That Could story seems to suggest that when a property has an
    improvement/land ratio of 3/1 that it should be re-developed back to a
    9/1 ratio.
    ,(or some other higher ratio number where the improvements far outweigh the land value)

    Doesn’t that fly in the face of the suggestion on here that the redevelopment must follow the formula of 3x lot and that a $600k lot must have a $1.2 million dollar improvement for a total value of $1.8 million – no ifs, ands or buts?
    This newly developed property would be a 2/1 (improvement/land ratio), which is even more under utilized than the example in the story.

    Maybe a $1.8 million dollar property should be a 200k lot (8/1 ratio-$1.6 improvements/200k lot)
    or perhaps
    a $600k lot should have a $4.8 million dollar improvement [YIKES!] placed upon it for a total value of 5.4 million (8/1 ratio).

  96. 96
    ARDELL DellaLoggia says:

    RE: Kmac @ 95

    Haha! I think you added the “no ifs, ands or buts” part. LOL! Busy work day. I’ll try to respond to questions late tonight. I gave you three valid examples. No comment? You just don’t want it to be so even though I sent you proofs?

  97. 97
    jon says:

    By ronp @ 94:

    RE: wreckingbull @ 43 – According to http://nursinghomediaries.com/howmany/ of the 78 million baby boomers 3.9 million will end up in nursing homes or assisted living. So good odds of dying from a fall or other causes in your house or apartment!

    That article makes so many internal contradictions that it doesn’t seem trustworthy enough to try to decipher. Here is a more reasonable and comprehensive set of statistics: http://news.morningstar.com/articlenet/article.aspx?id=564139

    eg. 40%: The expected percentage of deaths in the U.S. occurring in nursing homes by 2020.

  98. 98
    Matt P says:

    By Kmac @ 95:

    RE: Matt P @ 92
    The Little House That Could story seems to suggest that when a property has an
    improvement/land ratio of 3/1 that it should be re-developed back to a
    9/1 ratio.
    ,(or some other higher ratio number where the improvements far outweigh the land value)

    Doesn’t that fly in the face of the suggestion on here that the redevelopment must follow the formula of 3x lot and that a $600k lot must have a $1.2 million dollar improvement for a total value of $1.8 million – no ifs, ands or buts?
    This newly developed property would be a 2/1 (improvement/land ratio), which is even more under utilized than the example in the story.

    Maybe a $1.8 million dollar property should be a 200k lot (8/1 ratio-$1.6 improvements/200k lot)
    or perhaps
    a $600k lot should have a $4.8 million dollar improvement [YIKES!] placed upon it for a total value of 5.4 million (8/1 ratio).

    RE: Kmac @ 95 – Yes, that is right. Traffic problems in the US are caused by the lack of population density. Seattle, San Francisco and Los Angeles should look more like NYC with a much more concentrated core, which would then spur better public transportation, but instead we just get sprawl until traffic is untenable and people are commuting from 4 hours away as is the case of people coming from Sacramento into the Bay area every day. We’re too far along to simply scrap everything and start over, but continually building bigger houses and more and more expensive land is not going to make these places better, but maybe that will just crystalize Seattle’s size and stop growth. I doubt it, though.

  99. 99
    Kmac says:

    RE: ARDELL DellaLoggia @ 96
    I did say “outside of CORE areas”, and the examples you gave are inside those core areas.
    I never disputed that people are paying those prices, my argument is is it realistic or sustainable if we have some kind of hiccup in the local economy and is it your place to question how much the seller paid for something?

    Look, all I am saying, like what was mentioned earlier by others, is that what works in one area won’t necessarily work in others.
    People hear you go on and on about 3x lot and they think “gee let’s head north and we can buy this land and we will build a nice home and it falls into the 3x paradigm etc. etc”.
    Can you say UP SIDE DOWN?

    But, I want to hear more from Matt P about the Little House that Could.
    Even though the valuation process that was put forth seems to agree more with my method of valuing older properties, the presentation seems somewhat discomforting for some reason.

    At 3x lot you are in a different place than the piece’s author.

    Good day!

    Edit:
    I see Matt P chimed in while I was typing this out…

  100. 100
    Matt P says:

    By Kmac @ 99:

    RE: ARDELL DellaLoggia @ 96
    I did say “outside of CORE areas”, and the examples you gave are inside those core areas.
    I never disputed that people are paying those prices, my argument is is it realistic or sustainable if we have some kind of hiccup in the local economy and is it your place to question how much the seller paid for something?

    Look, all I am saying, like what was mentioned earlier by others, is that what works in one area won’t necessarily work in others.
    People hear you go on and on about 3x lot and they think “gee let’s head north and we can buy this land and we will build a nice home and it falls into the 3x paradigm etc. etc”.
    Can you say UP SIDE DOWN?

    But, I want to hear more from Matt P about the Little House that Could.
    Even though the valuation process that was put forth seems to agree more with my method of valuing older properties, the presentation seems somewhat discomforting for some reason.

    At 3x lot you are in a different place than the piece’s author.

    Good day!

    Edit:
    I see Matt P chimed in while I was typing this out…

    RE: Kmac @ 99

    Basically, land is overvalued out in the suburbs because there is not enough high density housing inside the core of the city. You’d be crazy to build 9x $500k land value in the suburbs because no one is going to want to live in apartments that far out and a house than expensive would never sell or fit on the property. That’s why they’re going so far in the first place. But with land so overpriced, ever larger and more expensive houses are being put on them to justify the land value, but there’s only so high that house can go.

    We’re finally seeing a construction boom bringing in more apartments which will turn into condos which will bring people back into the city and drive down land values outside the city – if it keeps going. If there’s a large correction again, the cycle will start over, apartments won’t get built, projects under construction and in the pipeline will be cancelled, and we’ll go back to land values outside the city going crazy again because we don’t have the high density housing we need. A lot of it is a NIMBY problem where people simply won’t admit that large apartment buildings are the answer.

  101. 101
  102. 102
    wreckingbull says:

    RE: Kary L. Krismer @ 88 – Kary, let’s be honest here. That daft old trope is stupid.

    How about “All real estate is a mix of local, macroeconomic and irrational psychological trends” Does that work for you?

  103. 103

    RE: Kary L. Krismer @ 59
    Old Versus New Houses???

    Ask a recent Bellevue home Owner about the rusty water from the 60 year old Bellevue infrastructure.
    Ask a New Home Owner in the Seattle area how big their lot is.
    Ask a Seattle home owner where guests can park.
    Ask an Amazon worker how they can pay rent in Seattle with their dinky pay.

    Old homes are not energy efficient and I’m sure old home owners would never admit they keep the heat off to save money and this causes mildew BTW…do you like a nice warm clean smelling house in the winter? Buy a small energy efficient one then….my heat is never turned down. I don’t like mildew.

  104. 104

    RE: softwarengineer @ 103
    Its Also a Great Selling Point Too

    I can sell the house and brag about my $354/mo Christmas Heating/Light electric bill on my 1460 SF rambler design….it was high and its a selling point [I don’t need incense covering up the mildew odor when listing the house….LOL]. Leave your heat on high if you like clean air in the winter…ask an allergy doctor if you want to disagree.

    Imagine a proportional utility bill on an old 2×4 frame insulation…mine is 2×6. 50% more insulation HAS to make a big difference to you folks that don’t understand math and science.

  105. 105

    RE: softwarengineer @ 104
    Educated Idiots

    Believe Open Border Asian engineers will make insulation unnecessary….after all, they are so much better than lower paid American ones….LOL

    Unrelated to post….did you hear t the Detroit Auto Show? Trucks are King now. FCA [American Engineered Dodge] stock is leading the Big Three. 31% dividend GROWTH. Not only did Americans design them; they’re highest quality and cheapest in price too. The Toyota Corolla is priced about the same as a Dodge Charger.

    What is American made anyway? It sure isn’t American engineered anymore….LOL.

  106. 106

    By wreckingbull @ 102:

    RE: Kary L. Krismer @ 88 – Kary, let’s be honest here. That daft old trope is stupid.

    How about “All real estate is a mix of local, macroeconomic and irrational psychological trends” Does that work for you?

    Stupid would be too strong of a word because “local” matters a lot all the time. Changes in macro conditions and trends are somewhat infrequent. But yes those other two factors do come into play.

    Just to put things in context, one of the stupidest things I ever heard an agent say was to price a house by taking its purchase price from years ago, and multiply that by the ratio of the current NWMLS median for the NWMLS area over the same number from the date the property was purchased. Ignoring the fact that different house types would have different rates of appreciation, even an NMWLS area is not sufficiently “local.” It’s not uncommon that being some direction from a certain road makes a considerable amount of difference in value.

  107. 107
    N says:

    An interesting read on what lengths some chinese apparently go to in order to buy canadian property. Wonder if this applies here?

    http://vancouversun.com/opinion/columnists/douglas-todd-explosive-b-c-court-case-details-seven-migration-scams

  108. 108

    By softwarengineer @ 104:

    Imagine a proportional utility bill on an old 2×4 frame insulation…mine is 2×6. 50% more insulation HAS to make a big difference to you folks that don’t understand math and science.

    That’s why I said insulation could be updated “to some extent.” The walls are typically the exception because of the use of 2x4s, although there are some enclosed ceiling areas that have issues too.

    For my house the two biggest energy savers were insulating the ductwork and getting rid of the Honeywell thermostat which did not allow an adjustment of swing.

    It’s amazing what they didn’t insulate back in the days of cheap energy. Most houses built before sometime prior to 1960 might not have any insulation in the walls.

  109. 109
    N says:

    https://wolfstreet.com/2018/01/16/sales-prices-of-manhattan-office-buildings-as-chinese-buyers-absent/

    While not residential and not Seattle, I wonder if anyone has any insight to what the current demand from Chinese buyers is like given its been most of a year since the tighter controls on outflows from the Chinese government.

    Of course if they are using the tactics from the above article I posted perhaps they are getting around it.

  110. 110

    RE: Kary L. Krismer @ 108
    True Kary

    They also have Seattle area leak detection specialists to assist energy efficiency patching on old structures….but I’ll be blunt Kary…anyone who understands the basics of thermodynamics knows insulation is the key, if not sole solution, to energy efficiency.

    Ask a good home inspector….they’ll tell ya the same thing….

  111. 111
    Kmac says:

    By Kary L. Krismer @ 108:

    By softwarengineer @ 104:

    Imagine a proportional utility bill on an old 2×4 frame insulation…mine is 2×6. 50% more insulation HAS to make a big difference to you folks that don’t understand math and science.

    That’s why I said insulation could be updated “to some extent.” The walls are typically the exception because of the use of 2x4s, although there are some enclosed ceiling areas that have issues too.

    For my house the two biggest energy savers were insulating the ductwork and getting rid of the Honeywell thermostat which did not allow an adjustment of swing.

    It’s amazing what they didn’t insulate back in the days of cheap energy. Most houses built before sometime prior to 1960 might not have any insulation in the walls.

    You could add foam and then new siding, but that is expensive and a negative return on dollar for many years…
    I think doing R-49 in the attic would probably have a reasonable payback period

    Limiting air flow is a key to efficiency as well as adding insulation.

    I have noticed that in my detached shop, that is finished on interior, that if I keep the heat at a steady upper 60’s – 24/7 – I am using way less electricity than if I turn the heat down at days end.

    The thermal mass of the concrete, drywall and everything else in the room absorbs heat and radiates it back. And much less moisture problems as SWE suggests.
    I also keep some Dri-Z-Air cannisters in 2 opposing corners and empty them every other week.

    No more cycling the heat up and down – just one consistent temperature.

  112. 112

    By Kmac @ 111:

    I think doing R-49 in the attic would probably have a reasonable payback period

    Limiting air flow is a key to efficiency as well as adding insulation.

    I should have mentioned that our ductwork was both sealed and insulated. That had an incredible impact on our heat bill–more than a 20% savings. We also did the crawlspace insulation at the same time, but I’m attributing most of the gain to the ducts.

    We did the attic later and quite frankly I didn’t notice a bill change at all, and I keep rather good track of energy use, noting also outside temperature. It did help slightly in the summer keeping the house cooler.

    What I always wonder is what’s the payback period on new window frames, particularly if the old ones were already two-pane. Of course there are other benefits over aluminum, like less condensation, but I can’t imagine the payback is less than 10 years.

  113. 113
    S-Crow says:

    Buying or Selling in Seattle? Just received Final Electrical Bill from City Light from a closing J-U-L-Y 2017. It’s January 16, 2018.

    Agents, please inform your sellers refund disbursements can take this long. We have others from closings last year that we are waiting on. It is nothing short of a mess and the Seattle Times article this past weekend sort of shed a light (no pun intended) on the billing issues.

    S-Crow

  114. 114
    uwp says:

    By Kary L. Krismer @ 106:

    Just to put things in context, one of the stupidest things I ever heard an agent say was to price a house by taking its purchase price from years ago, and multiply that by the ratio of the current NWMLS median for the NWMLS area over the same number from the date the property was purchased. Ignoring the fact that different house types would have different rates of appreciation, even an NMWLS area is not sufficiently “local.”

    I agree that “guidelines” are only guidelines, but I use a similar bit of math to estimate sales price with moderate success, probably +/- 5% with what the house eventually closes at. Then again, I’m not an agent :)

    Obviously, if I was seriously looking at a home or something I would dig deeper, but it’s handy for seeing something pop up in my neighborhood with a list price designed to get a bidding war and have a quick rough idea of where it will end up.

  115. 115

    By S-Crow @ 113:

    Buying or Selling in Seattle? Just received Final Electrical Bill from City Light from a closing J-U-L-Y 2017. It’s January 16, 2018.

    Agents, please inform your sellers refund disbursements can take this long. We have others from closings last year that we are waiting on. It is nothing short of a mess and the Seattle Times article this past weekend sort of shed a light (no pun intended) on the billing issues.

    S-Crow

    You should have seen my transaction for a client buying a HUD property in Seattle, back when HUD required you use their escrow–the worst escrow in the world! It was ridiculous because Seattle Utilities’ payoff was always padded in an amount that exceeded the escrow’s authority. After two extensions they finally found a solution, and it involved putting the utilities in my client’s name before closing, and without permission! I don’t remember why that helped, but it worked.

  116. 116

    By uwp @ 114:

    By Kary L. Krismer @ 106:

    Just to put things in context, one of the stupidest things I ever heard an agent say was to price a house by taking its purchase price from years ago, and multiply that by the ratio of the current NWMLS median for the NWMLS area over the same number from the date the property was purchased. Ignoring the fact that different house types would have different rates of appreciation, even an NMWLS area is not sufficiently “local.”

    I agree that “guidelines” are only guidelines, but I use a similar bit of math to estimate sales price with moderate success, probably +/- 5% with what the house eventually closes at. Then again, I’m not an agent :).

    On the topic of being an agent, I could see maybe doing that if you had a client who wanted a higher price than what you were suggesting, and the math worked out to support your number. And I could see it would have a bit more merit if the client’s house was priced near either the mean or the median when purchased and you used the calculations based off of whichever it was. If the price were far from the mean or median I’m not sure what it would really tell you. Ignoring that, if you narrowed it down to zip code it might work even better. I’ve never done that though and would prefer a more detailed analysis.

  117. 117
    Bitcoin Bubbles says:

    Was the local Bitcoin real estate sale the top of the Bitcoin bubble?

  118. 118

    RE: Kary L. Krismer @ 112
    Good Question Kary

    I got a rock chip in my living room window from gardeners on the road with riding mowers throwing rocks. I glued the chip with strong adhesive. Two paned glass is a positive; but pay back on investment of replacing 2 pane with new 2 pane is ZERO.

    No use throwing good money at bad maintenance.

  119. 119

    Apparently Apple is also going to have another corporate campus. Hopefully it’s not in Seattle proper! Maybe that Weyerhauser space in Federal Way! “Auburn” properties which are not really Auburn could use a boost. ;-)

    https://www.usatoday.com/story/tech/2018/01/17/apple-pays-38-billion-trump-tax-bill-open-second-hq/1041261001/

  120. 120
    Jon says:

    RE: Kary L. Krismer @ 119 – Since technical support jobs are a leading candidate for replacement with AI, it would make sense to put those jobs close to the engineers that are developing the code to do that.

  121. 121
    Blurtman says:

    10 year UST’s – to the moon!

    https://www.cnbc.com/quotes/?symbol=US10Y

    Run, you fools!

  122. 122
    Kmac says:

    Amazon HQ2 candidates:
    http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2327285

    – Atlanta, GA

    – Austin, TX

    – Boston, MA

    – Chicago, IL

    – Columbus, OH

    – Dallas, TX

    – Denver, CO

    – Indianapolis, IN

    – Los Angeles, CA

    – Miami, FL

    – Montgomery County, MD

    – Nashville, TN

    – Newark, NJ

    – New York City, NY

    – Northern Virginia, VA

    – Philadelphia, PA

    – Pittsburgh, PA

    – Raleigh, NC

    – Toronto, ON

    – Washington D.C.

  123. 123
    ARDELL DellaLoggia says:

    RE: wreckingbull @ 84

    Usually one would use three or four methods as checks and balances against one another. One or two of those on their own might appear to be “stupid” as Kary said, IF it were the ONLY method being used.

    Odd to me you listed “global” first. Something crossing my mind now and again is why is “global” so relevant and right thinking…until Russia comes along and has an opinion on who they want to be our next President :)

  124. 124
    ARDELL DellaLoggia says:

    RE: Eastsider @ 86

    Sorry it took me so long to reply. I haven’t been beating my head against the wall in Ardmore or Lake Hills since late 2016/early 2017 when things started getting whacky over there. Without the Lake Hills division that is aka Executive Lochmoor, the out of Country investors started mucking up the valuations by being overly mesmerized by the Bellevue/Swellvue tag. Jury’s still out as the resultant Million plus flips are still in play. I just checked this morning before heading to meet the carpet installers. We should have that answer by end of first quarter.

    You can’t be 1/3rd lot if the builders never want your lot. That might move it to flipper math, but usually not as flipper prices lag behind the owner occupant bidders by a wide margin.

    While it is true that 3x lot doesn’t apply in every neighborhood, it still establishes the upper limit via nearby neighborhoods. So they are interdependent valuation methods.

  125. 125
    Matt P says:

    By Kmac @ 122:

    Amazon HQ2 candidates:
    http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2327285

    – Atlanta, GA

    – Austin, TX

    – Boston, MA

    – Chicago, IL

    – Columbus, OH

    – Dallas, TX

    – Denver, CO

    – Indianapolis, IN

    – Los Angeles, CA

    – Miami, FL

    – Montgomery County, MD

    – Nashville, TN

    – Newark, NJ

    – New York City, NY

    – Northern Virginia, VA

    – Philadelphia, PA

    – Pittsburgh, PA

    – Raleigh, NC

    – Toronto, ON

    – Washington D.C.

    RE: Kmac @ 122
    That Miami made the final list of 20 tells me that this isn’t about what’s best for Amazon but where Bezos wants to go. Miami has hurricanes, constant flooding, and massive amounts of fraud. No major company would seriously consider putting a 2nd headquarters there for anything but personal reasons of the CEO.

  126. 126
    uwp says:

    They couldn’t get the “short” list down to 5? or at least 10?
    The amount of time and money the “loser” cities will spend on this is sad.

  127. 127
    S-Crow says:

    Buyers with financing alert: Obtaining seller paid contributions.

    it is incredibly important that you make certain your loan officer provides you an accurate closing cost picture almost immediately after you come to mutual acceptance. If seller contributions toward allowable closing costs are not completely used up HAVE A PLAN to prevent the loss of some or substantial portions of seller contributions. DO NOT LEAVE MONEY ON THE TABLE. Any unused portion of those funds will go back to the seller as proceeds.

    Contracts must have air tight language that provides for a scenario to use ALL the seller contributions as they were intended.

  128. 128

    RE: S-Crow @ 127 – That’s always been a potential problem, but seldom an actual problem, in my experience. I’m not sure though what an agent or buyer could do to change the language–there were issues in the past when they made a change to 22A, but they’ve since corrected them. I had language back then correcting it, but that was an entirely different market. Custom language is much more difficult/impossible to get sellers to accept in this market. Do you have a specific example of something that a lender would have allowed that the contract did not allow? Or was it just the case of a lender who wasn’t good at math?

    BTW, as to the “seldom” comment, we did have it pop up last year on a listing. The buyer ended up leaving about $800 on the table, but the amount requested was set by their lender!

  129. 129
    David B. says:

    Regarding the “3x rule”, I generally agree with it. I actually came up with that figure on my own several years ago while considering buying a lot and having a modest home built on it; based on estimated construction costs, spending more on the lot than the “3x rule” dictates would have resulted in a cost per interior square foot (figuring in both land and building costs) above market rate for acquiring existing properties. Then I did some research and found (not too surprisingly) that the “3x rule” was an established rule of thumb.

    In my case, lots inexpensive enough to result in a 3x ratio for the sort of home I wanted to live in just didn’t exist, so that was enough to make me drop the idea. It wasn’t my original plan anyhow, but I had decided to entertain the idea after discovering how scarce the sort of home I was seeking was. (Eventually, I managed to get one of those scarce existing homes.)

    Basically, unless you’re dead-set on a brand-new home, housing (controlling for location, size, neighborhood quality, etc.) is fungible, and it doesn’t make sense to spend *significantly* more per square foot than the going market rate.

  130. 130
    Kmac says:

    RE: David B. @ 129

    If you are referring to comments above ^^^, spending LESS than 3x (1/3 final improved value) on the lot, — NOT MORE than the 3x (1/3 final improved value) is the point I was making.

    I will concede that this(3x Lot) may be an established rule in a core metropolis area such as Seattle (with higher valuations attributable to the raw land), but less accurate out away from the big city.

    The last house I did about a year ago was a 450k home on a 90k lot in a UGA within SnoCo. = 5x (20% of final valuation) and well within existing neighborhood valuations

    When the final, not estimated numbers came in, 110k was the most I could have justified paying for the lot. Roughly a 4x (or 25% of finish valuation)

    But someone hears 3x and sees existing 450k- 500k homes and might think 150k is a good price for the lot to build a 450k property…….
    Knock yourself out, but I think you would have paid too much in those circumstances.

    I guess re agents need something to establish a baseline, but ultimately it is only worth what someone is willing to pay.
    and
    I guess some builders have the need to constantly be doing something too, price be damned- (& hoping a greater fool comes along..)

  131. 131
    Kmac says:

    “What is the market value of land, which currently does not have a well, in light of the Hirst Decision?” The answer is: “Whatever the market will pay for such land.”

    https://dor.wa.gov/sites/default/files/legacy/Docs/Pubs/SpecialNotices/2018/sn_18_HirstDecision.pdf

    I think buying raw land without a municipal/community water system is going to be very complicated going forwards in WA.
    Rely on an future “EXEMPT” well at your peril.
    This will be a statewide issue too, not just Puget Sound region.

  132. 132

    RE: Kmac @ 131 – I think it’s been an issue more for out of the Puget Sound area. Water rights are big east of the mountains. Hirst itself was Watcom County, but it affected all rural areas (without water systems).

  133. 133
    Marc says:

    RE: Kary L. Krismer @ 128RE: S-Crow @ 127

    We run into this all the time because we rebate a big chunk of the commission to buyers. It used to be a lot harder than it is today but we do occasionally get push back on our contract language that deals with it. Particularly on new construction with bigger builders.

    Back when we started in 2009 I don’t recall any lender that would allow 3rd party contributions in excess of buyer closing costs and prepaids despite that being perfectly permissible under Fannie/Freddie/VA/FHA guidelines so long as handled appropriately. Today many lenders still won’t do it but more and more will including long-time hold out Wells Fargo. However, I am still wary of Wells on this issue and worry that it might be a case by case thing, i.e., luck of the draw in getting an old school or progressive underwriter to handle your file.

    S-Crow is right though that if you negotiate for a big seller credit or rebate from your lender or broker, you need to have a good understanding of how your particular lender handles third party contributions so you don’t leave money on the table.

  134. 134
  135. 135
    Kmac says:

    Puget Sound outlying areas will probably have issues too.
    ie: I-90 between Issaquah and the Summit and the growth spurt along Hwy 2 to Stevens are potentially affected areas that could be problems depending on what the counties do.

    I know that a lot of these places in the hills, that you think should have water because of the location, do not (at a reasonable cost anyhow).

    A reduced water availability study by the county could potentially affect water purveyors too, especially in a rapidly growing area.

  136. 136
    Kmac says:

    RE: David @ 134
    Burien is like another planet to me…..

    How much to build the improvement required for final approval of the 2 addtnl lots?
    How much would that Burien home be valued at on a much smaller lot?

    I’ve noticed that many sellers of paper lots always price them as if they are actually constructed.
    Better get educated before buying an uncompleted project.
    **Not saying that is the case here**

  137. 137

    RE: Marc @ 133 – I assumed S-Crow was just talking about seller paid closing costs, per 22A. As you know, on the 22A issue, if the buyer cannot use all that the seller agreed the seller just gets to keep the money. Yours is more an issue of being able to get financing with the rebate–the lender allowing it. Sort of similar to part of a down payment being gift, where some lenders care, some don’t.

  138. 138
    Wile E. Millenial says:

    The legislature apparently just agreed on a “Hirst fix” today.

  139. 139
    jon says:

    There is an interesting map of the locations of headquarters of Fortune 500 companies at http://fortune.com/fortune500/visualizations/ . Denver doesn’t seem to be any more popular than Miami, and that has been a frequent prediction for HQ2. The exclusion of Seattle and San Francisco are for obvious reasons, and apart from the concentration around DC it is a pretty representative set of cities. It seems to me they could have come up with that same list in an afternoon with no publicity at all.

    By making it so public they probably hope to make as many of their customers as possible feel like they had a fair chance, and that means keeping if geographically representative right up until they select a location in the NY-DC corridor.

    (The other visualization on that map is fun to hover the mouse over various columns)

  140. 140
    Eastsider says:

    By Blurtman @ 121:

    10 year UST’s – to the moon!

    https://www.cnbc.com/quotes/?symbol=US10Y

    Run, you fools!

    I commented only last week that mortgage rate might hit 4.25% sometime this year. MND now shows it is at 4.22% lol (http://www.mortgagenewsdaily.com/)

    UST 10yr yield has continued its upward march unabated and is now at 2.63%. (It was 2.03% on Sept 7, 2017.) At this rate, it might even exceed 2.75% before midyear. I believe one Fed governor is now talking about potential 4 hikes this year. The Fed, as usual, is behind the curve and is now playing catch up. If you are a CD buyer, you saw the sea change in rates in the past month.

    I don’t see the yield curve inverting this year… well, perhaps after the midterm election if Dem wins both houses.

    Expect higher mortgage rate going forward. The low rates are probably history.

  141. 141
    wreckingbull says:

    By Kary L. Krismer @ 132:

    RE: Kmac @ 131 – I think it’s been an issue more for out of the Puget Sound area. Water rights are big east of the mountains. Hirst itself was Watcom County, but it affected all rural areas (without water systems).

    This is correct, except for the east/west comment. It is hitting western counties just as bad. The Hirst decision was made on the arguments of lobbyists, not scientists, and I hope there is some resolution to this mess.

  142. 142

    RE: wreckingbull @ 141 – I didn’t mean the west side wasn’t affected, but more that water rights were a big issue in the east even prior to Hirst.

    I believe this is the legislation passed by the legislature to “fix” Hirst. It’s rather long and I haven’t made my way all the way through it, but it seems to have temporary and long-term fixes.

    http://lawfilesext.leg.wa.gov/biennium/2017-18/Pdf/Bills/Senate%20Bills/6091-S.E.pdf

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