Knife-Catcher: The Tim’s Short Sale Buying Experience

A number of people have expressed interest in hearing more about our process in successfully closing on a short sale. So, let’s just dive right in.

In general we had been avoiding short sales like the plague, since we wanted to actually buy a home, not sit in a perpetual pending state for months waiting to hear back from some paper-pusher in a bank office across the country. In the poll I posted shortly after we went under contract (pending), the vast majority (86%) of voters thought that trying to buy a short sale either a giant waste of time or a total crapshoot. That’s pretty much where I was coming from as well.

However, when this home came on the market on March 14th right in the middle of the neighborhood where we had been focusing our search, at a price well below our maximum comfort level, we figured we should at least go check it out. When we looked at the house on March 18th, we all had the same reaction: “Wow, this is way nicer than anything else we have looked at anywhere near this price range around here.”

So, we decided to go ahead and make an offer. Since the home was so much nicer than the price would suggest, we decided to make a full-price offer, with three conditions: 1) The seller could not entertain “back up” offers. 2) The seller would finish installing the second egress window in the basement that he had started. 3) The sellers’ bank would contribute $3,000 toward our closing costs. The sellers were anxious to sell ASAP, and since they could tell that we were serious, they accepted all of our conditions the same day we submitted our offer (March 19th). In total the home was active on the market for just five days.

There were a few factors that made this particular short sale more likely to be successful than your average short sale. One major factor was the fact that although the sellers had an 80/20 mortgage, both of the loans were still held by the same bank. This is huge. I would venture to guess that a majority of short sales that fail are due to the “junior lienholder” (i.e. the bank that holds the 20% loan) rejecting the deal. Fortunately that was not a factor in our transaction at all.

Another big plus was the proactive nature of the listing agent. This was her third successful short sale, so she clearly knew what she was doing. Before the sellers even placed the home on the market, she had them contact the bank that held their mortgage (Ocwen) to get the bank’s “short sale packet” with all of the forms that the sellers would have to fill out to get the process going with the bank. Also, before she submitted our offer to the bank she made sure that she had everything that they were going to want (e.g. Preliminary Title Commitment, signed Form 17, etc.) so that back-and-forth with the bank could be minimized.

[Edit]
As our lawyer and agent Marc points out in the comments, I forgot to mention another major factor that no doubt helped things move so smoothly. The sellers were eligible for the Home Affordable Foreclosure Alternatives (HAFA) program. HAFA sets time limits on the servicer to process the short sale application and in this case they met those time limits.
[End of Edit]

drip drop by jonrawlinsonOn March 23rd the listing agent submitted the offer packet to the sellers’ bank, and the waiting game began. To our surprise, we got a response back from the bank just over a week later. On March 31st, the bank responded that wanted to adjust the various deductions from the sale price (closing costs, commissions, etc.) such that the total being paid out of the sale price to various entities was no more than 8%. We made a couple of minor adjustments to the agents’ commissions, sent it back to the bank the same day, and began another wait.

On April 4th the listing agent called the bank to check in and was told that they would likely be giving us an answer within a week. On April 12th the bank informed the listing agent that they had approved the deal and were sending over the paperwork. The next day, the listing agent had the paperwork in hand granting the full approval as well as a $3,000 moving assistance benefit for the sellers. Just 20 days from submitting the short sale to the bank and receiving full approval. We were downright shocked.

The sellers’ bank asked for a closing no later than May 21st (a Saturday), which we gladly agreed to. Now that we had the bank’s short sale approval in-hand, we kicked off our financing, inspection, and other closing tasks, the details of which I’ll save for another post.

Got any questions about the process? Drop a line in the comments and I’ll do my best to answer them!

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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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

107 comments:

  1. 1
    toad37 says:

    Congrats Tim. My foreclosure in Texas was a nightmare. We tried to get Chase (who held the first and second, from WaMu takeover) to work with us and it was one problem after another. They kept saying that they lost documents, etc. This was almost two years ago, so maybe banks are starting to get the process down. You got LUCKY, but luck is good.

  2. 2
    Patrick says:

    You got lucky, that’s unusually fast / smooth. I don’t see any mention of a BPO. (Broker Price Opinion, done by the bank). Did they not do one, or was it pre-initiated by the seller’s agent?

  3. 3
    The Tim says:

    RE: Patrick @ 2 – Yes, they did have a BPO done, but we never heard back the specifics on that. It was part of their process in determining whether or not to accept our price, but it was totally opaque to us exactly when that happened and what the specific result was.

  4. 4
    Chirag says:

    Congrats Tim.
    Could you please provide more details on “we made a couple of minor adjustments to the agents’ commissions”?

    I am assuming that the agents agreed to lower their commissions?

    Also a breakdown on the 8% paid out by the bank to various entities would be great (assuming that the bank did pay out the full 8%). I’m just trying to gauge who took the bigger hit.

  5. 5
    Pegasus says:

    I think the bank had reviewed the large amount of nearby repeat sexual offenders and were scrambling to dump the property. That only 5 percent repeat figure bantered around here does not seem to apply in your neighborhood.

  6. 6
    ray pepper says:

    RE: Pegasus @ 5

    I knew that was coming. I didn’t know who or when it would start up again.

    But, since that last heated blog everytime Tim’s home comes up is schools and pedophiles gonna start again?

    I think we beat that one into the ground…

  7. 7
    The Tim says:

    RE: Chirag @ 4 – Yes, the listing agent lowered her commission to 2.5%, and our agent lowered his to about 2.1% to cover the rest. Of course, since our agent was Marc with WaLaw (also now a Seattle Bubble advertiser), reducing our agent’s commission just meant reducing the refund we received toward closing costs (since they charge a flat fee).

    Here’s the breakdown from the HUD-1 Settlement Statement of all the costs that were paid out of the sale price before the sellers’ bank got the rest.

    • listing agent commission (2.5%): $5,625
    • buyer’s agent commission (~2.1%): $4,776
    • title insurance fees: $1,001
    • excise tax (~1.78%): $4,009
    • holdback for final utilities: $540
    • 1st half 2011 property taxes: $1,612
    • Total (~7.8% of sale price): $17,563
  8. 8
    Pegasus says:

    RE: ray pepper @ 6 – You are right but I just could not resist placing a fact out there that no one else will touch. Sorry…I am done with the subject.

  9. 9

    […] Another big plus was the proactive nature of the listing agent. This was her third successful short sale, so she clearly knew what she was doing. Before the sellers even placed the home on the market, she had them contact the bank that held their mortgage (Ocwen) to get the bank’s “short sale packet” with all of the forms that the sellers would have to fill out to get the process going with the bank. Also, before she submitted our offer to the bank she made sure that she had everything that they were going to want (e.g. Preliminary Title Commitment, signed Form 17, etc.) so that back-and-forth with the bank could be minimized. – SeattleBubble.com […]

  10. 10
    ray pepper says:

    RE: The Tim @ 7

    16k to move a 250k home!!

    I will say it again……………………THE MADNESS HAS GOTTA END!!!!

  11. 11
    SummitSeeker says:

    Question about the discount brokerages…Redfin, WaLaw, 500Realty and others.
    Is the refund the buyers receive considered taxable income?

  12. 12
    Cascadian says:

    RE: SummitSeeker @ 11
    No, it’s not taxable income. When I got my rebate from Redfin they included a letter stating as such.

    http://blog.redfin.com/blog/2007/03/the_taxman_does_not_cometh.html

  13. 13
    MichaelB says:

    Typically short sales start out at top dollar and then the price is decreased by a significant amount each month until a buyer is found. Given the location of this property and high crime rate, the bank would be foolish not to accept such a generous offer. What was the rush? We have already identified that an adoption was not driving this transaction – What was the compelling event driving this purchase? Why not rent in the neighborhood first?

    Hopefully the readers on this blog will be able to learn from the mistakes made in this transaction. It is a case study on how not to buy a house.

    A failure to negotiate hard always leads to a smooth transaction – Duh!

    In the spirit of full disclosure, it would be interesting to know if Tim was compensated in any way by Redfin for purchasing a home. Was it part of the employment terms? This purchase obviously has an impact on perceptions in the Pacific NW real estate market when a bear becomes a bull.

  14. 14

    RE: Cascadian @ 12 – That’s based on an opinion letter, which as I recall isn’t even binding on the IRS. The opinion letter though does mention one Revenue Ruling which seems applicable, and in any case is the result I would expect (that it affects basis instead of being reportable income).

    As to Redfin, however, I’m pretty sure the entire amount (3% or whatever) is taxable to them for their B&O taxes to the state of Washington. Fortunately those are at a rather low rate.

  15. 15

    By MichaelB @ 13:

    Typically short sales start out at top dollar and then the price is decreased by a significant amount each month until a buyer is found. .

    Only for short sales listed by agents who don’t care if the state yanks their license!

    http://www.trulia.com/blog/kary_l_krismer/2011/05/yes_agents_can_lose_their_license_by_pricing_a_short_sale_too_low

    I was critical of that practice even before the state came down on it.

  16. 16
    The Tim says:

    RE: MichaelB @ 13 – This post is an incredibly transparent, over-the-top troll, but for the benefit of other readers I will respond to a few of your nonsensical claims.

    We have already identified that an adoption was not driving this transaction – What was the compelling event driving this purchase? Especially since the author believes the market will continue to go down or stay flat. Why not rent in the neighborhood first?

    I already answered this question. We needed to move out of our below-market rental to an adoption-friendly home. Running the numbers for the neighborhoods and home types we were interested in showed that buying would be cheaper than continuing to rent for us. Also, with two dogs and a large number of plants (roses, a raspberry patch, etc.) that we wanted to bring with us from our rental house, finding a rental would have been much more difficult for us than your average renter.

    In the spirit of full disclosure, it would be interesting to know if Tim was compensated in any way by Redfin for purchasing a home. Was it part of the employment terms? This purchase obviously has an impact on perceptions in the Pacific NW real estate market when a bear becomes a bull.

    What a ridiculous notion. Of course I was not compensated in any way for buying a home. There was absolutely zero pressure (formal or informal) on me at work to buy.

    I’m done responding to this obvious trolling by MichaelB.

  17. 17

    By The Tim @ 16:

    Of course I was not compensated in any way for buying a home.

    What amazes me is that they wouldn’t even make an exception to the short sale rule for an employee, and be your agent for the purchase. I can see why they wouldn’t agree to do employees’ short sale listings, but to not do an employees’ short sale purchase seems really strange to me. Assuming they didn’t compensate you (which I believe and have no reason to doubt), they actually went beyond not compensating you by not representing you on the purchase.

    Out of curiosity, if an agent employee was to buy a house, using only their own efforts, could they write it up through Redfin and keep nearly 100% of the commission? I could see why that type of thing wouldn’t apply to you, because you cannot access houses, etc., but I am curious about the actual agents.

  18. 18
    bobthemagicman says:

    Tim, I noticed there is no mention of the difference between what the seller owed on the property and the purchase price. Perhaps it was mentioned in a previous post but do you think that made any difference in the speed of the process? I am thinking that if a bank is looking at foreclosing on a home worth (random numbers here) 350k, and is short selling at that price, and the current occupant owes 375 or 400k they are going to be more likely to move then if the home is worth 350k, and is short selling for that price, but the occupant owes 500k on it. I am just curious if you, or anyone else, think this was a factor or if it could be for others considering a short sale purchase.

  19. 19
    The Tim says:

    By Kary L. Krismer @ 17:

    What amazes me is that they wouldn’t even make an exception to the short sale rule for an employee and be your agent for the purchase. I can see why they wouldn’t agree to do employee’s short sale listings, but to not do an employee’s short sale purchase seems really strange to me. Assuming they didn’t compensate you (which I believe and have no reason to doubt), they actually went beyond not compensating you by not representing you on the purchase.

    I’m going to go into this in more detail in another post later in this series (probably next week’s post), but to be clear, Redfin would have been happy to make an exception for me. I didn’t ask for one for a number of reasons (again, I’ll save the full explanation for next week).

    Out of curiosity, if an agent employee was to buy a house, using only their own efforts, could they write it up through Redfin and keep nearly 100% of the commission? I could see why that type of thing wouldn’t apply to you, because you cannot access houses, etc., but I am curious about the actual agents.

    I really have no idea. If you’re really curious I could ask one of the agents.

  20. 20
    The Tim says:

    By bobthemagicman @ 18:

    Tim, I noticed there is no mention of the difference between what the seller owed on the property and the purchase price.

    Well, I don’t know for sure how much the seller owed at the time of sale, but according to public records their July 2006 purchase at $364,000 was 100% financed. So if they had an interest-only loan, they still probably owed about that much. If they were making normal amortized payments, they would have owed around $340,000. After all the aforementioned deductions from the final sale price, the bank received about $207,500, which comes out to between 57% and 61% of what they were owed.

    Unfortunately, I don’t have any idea how much (if at all) that factors into the bank’s decision of whether or not to approve a short sale. My gut says that if the bank would be taking a significantly bigger hit than they are on other homes in that same geographic region, it certainly doesn’t help get an approval, but there are probably other factors that are more important to them.

  21. 21
    ray pepper says:

    RE: The Tim @ 16

    I totally missed his comments earlier. I think you got him upset before over something. I forgot what it was…

    Wonder if he works for RedFin?

    Someone eyeing your job?

    Maybe you beat him out on your home purchase and hes pissed?

    Check the IP address and see if its a regular.

    Excitement here at the Bubble!

  22. 22

    RE: The Tim @ 19 – Yes, I am “really curious,” so please ask. I don’t know how Refin keeps track of agents’ time either, but in asking the question what I’m assuming is that they do whatever it is they need to do for themselves in a way that doesn’t affect the amount of work they do for Redfin. That it’s completely on their own time if they’re expected to work 40 hours per week, or whatever.

  23. 23

    By The Tim @ 20:

    Unfortunately, I don’t have any idea how much (if at all) that factors into the bank’s decision of whether or not to approve a short sale. My gut says that if the bank would be taking a significantly bigger hit than they are on other homes in that same geographic region, it certainly doesn’t help get an approval, but there are probably other factors that are more important to them.

    I would hope that the employee making the decision doesn’t even know what the bank’s owed. What the property is worth should be the basis for their decision. For them to have amount owed affect the decision is exactly the same thing as a seller deciding their price should be enough to net X dollars.

  24. 24
    Chirag says:

    RE: The Tim @ 7
    Thank you for this information. I will be sure to ask my agent to see how much wiggle room they provide in the commission they charge.

    For example, I see that Redfin may split the commission – but it seems that they have a minimum $6000 charge (ouch). Further, Redfin doesn’t want to deal with Short Sales and they direct you to partner agents. Finally, from a buyer’s perspective, I don’t see why I have to pay my agent more if I buy a more expensive house (e.g. if I buy a $400K home, Redfin gets $6000, v/s if I buy a $500K home, Redfin gets $7500 – assuming 1.5% paid to Redfin).

    I do like the flat rate commission as offered by the agent you used. This way:
    a) The agent has no incentive to force you to spend more.
    b) If I do spend more on a house, I get a larger percent of the commission offered by the seller paid back to me.

    I’ll be sure to look into that.

  25. 25
    ARDELL says:

    RE: bobthemagicman @ 18

    The amount owed is not usually a factor. Back in the early discussions of short sales before the market dropped, say late 2007 early 2008, there was a bogey set at X% of what was owed.

    Now that the market has dropped well below that % factor, they are usually looking at the value based on an appraisal or more often a Broker Price Opinion, against the offer price. They then decide if they might do better foreclosing and selling it as an REO, vs selling it short. If the short sale offer is close enough to the BPO (weighing that against cost of foreclosing and selling it on their own) they will usually go with the short sale.

    Sometimes it has to go through foreclosure to wipe out junior liens, if there are a lot of judgments against the property, even if the short sale offer as to price is reasonable. So what is owed to the one lienholder who might foreclose, is not the only consideration.

    Those that have only one or two lienholders and some backed up utility and RE tax bills usually fare better than those with 5 or more liens from judgments that have nothing to do with the house itself. Also, if the seller filed bankruptcy, the bankruptcy proceeding can interrupt a short sale process. Not always pure dollars and cents.

  26. 26
    ray pepper says:

    RE: Chirag @ 24

    get your checkbook ready!

  27. 27
    MichaelB says:

    RE: ray pepper @ 21

    I know my posts are transparent, but Is this really trolling? Why beat around the bush? Tim is putting himself out there as a real estate industry expert, and I am simply pointing out that he overpaid for a home in a high crime area? My point is not outlandish, nor over the top. In fact, the average value for a home in that area is about $177K.

    To me, the points I’m making are valid. I’m not saying anything that other readers of this blog aren’t thinking….

    Home Value Estimates for 3601 Wetmore Ave
    Low Estimate High
    Zillow $173,907 $214,700 $246,905
    Eppraisal $193,452 $227,591 $261,729

    Need to research the renting versus buying claim as it is hard to believe that you couldn’t rent in that area for less than the costs of purchasing, especially considering the downside risk.

    Is it trolling when Ardell says Tim painted himself into a corner? Or Pegasus raises the issue of predators in the neighborhood? Or people question why he didn’t consider schools?

    Let’s see, it’s O.K. and professional to make fun by name of a real estate agents’ images, prose, etc..but when the tables are turned – it’s trolling?

  28. 28
    MichaelB says:

    RE: ARDELL @ 25

    Ardell, great comments as usual!

    Wouldn’t there be some risk associated with buying a short-sale? Shouldn’t that risk demand a premium to compensate the buyer?

    Thanks

  29. 29
    ray pepper says:

    RE: MichaelB @ 27

    Yes, Yes, Yes…but he is a proud homeowner and has been pounded relentlessly…

    If this keeps up he will NEVER have his housewarming party and invite us Bubbleheads…In fact, I wouldn’t be surprised if its cancelled altogether now knowing people like Sam Ferris will show up.

  30. 30
    Andy says:

    Hi Tim

    Question for you. As part of your offer, you mentioned 3 conditions, the first being that the seller could not entertain any “back up” offers. Could you elaborate on this? My understanding of “normal” real estate transactions (non-short sales) is that the seller (bank in this case) can entertain as many offers as they want – and respond/counter – until they are under contract (pending) with one. Am I misunderstanding the process in general, or is there something about short sales that is unique in this regard?

    Thanks
    Andy

  31. 31
    MichaelB says:

    RE: ray pepper @ 29

    I have to admit that owning two dogs is a great decision. Hopefully, they are Doberman attack dogs or Pit Bulls.
    “dogs meet Sam”

  32. 32
    ARDELL says:

    RE: MichaelB @ 28

    MichaelB, Are you a real estate agent?

  33. 33
    Pegasus says:

    RE: ray pepper @ 29 – Buying a home, especially your first one, should be an exciting experience and not a situation where everyone criticizes your every move in the process. Hopefully he gets to enjoy it after he milks the purchase for all he can here. Unfortunately that opens his entire reasoning and methods up for critique. One should note the proud home owner does not handle opposing views very well. Perhaps it’s time for new material here instead of Tim’s house. I do believe though that he is providing a service especially for first time buyers. Every home I ever purchased was an exciting time for us and not muddied with applying an acid test on each and every detail of the purchase. We liked the houses, the areas for many reasons, could afford the house and we bought. End of story. I truly hope Tim and his wife are as excited as we were on our first home purchase and will be on all their subsequent purchases. I am sure there will be many and I hope they get to enjoy them all.

  34. 34
    ARDELL says:

    RE: Andy @ 30

    No one can prevent a “back up” offer from being submitted. All written offers must be presented to the seller by law up to the day when that seller no longer owns the property.

    What the short sale addendum normally provides is whether the seller is free to accept other offers or not and submit them to the creditor. So the agreement is generally about whether there can be multiple offers submitted to the creditor, not if there can be “back up” offers that are not submitted to the creditor. Back up offers are usually in place to take 1st position ONLY in the event the first escrow fails, not as a multiple offer as noted in the short sale addendum.

    If the seller were aware of an offer that would pay the lienholder more than the accepted offer, the question comes into play as to whether the seller is morally and possibly legally obligated to advise the creditor that they could get more.

    Every contract is different, but the standard short sale addendum has an election of accepting offers to be sent to the creditor in addition to the first one accepted. That agreement is usually silent as to “backup” offers and is a gray area.

  35. 35
    MichaelB says:

    RE: ARDELL @ 32

    No – just interested in Seattle real estate. Appreciate many of your comments – much more tactful than mine!

  36. 36
    ARDELL says:

    RE: MichaelB @ 28

    “Wouldn’t there be some risk associated with buying a short-sale? Shouldn’t that risk demand a premium to compensate the buyer?”

    The highest risk associated with buying a property headed for foreclosure would be if someone bought “at foreclosure” at the Courthouse Steps. The risk of a short sale or bank-owned is about the same as buying a corporate relo or an estate sale. Often there is a discount, but not always.

  37. 37
    ARDELL says:

    RE: MichaelB @ 35

    I asked because you brought up the point that this site on occasion takes pot-shots at agents. Usually people who are not agents enjoy that, so I thought you might be an agent. :)

  38. 38
    The Tim says:

    RE: Pegasus @ 33 – Couple of things.

    1) I’m not trying to “milk” my purchase. I just thought that it would be a source of useful information for readers. If people don’t find this content interesting or useful, I’ll stop and just go back to the non-personal stuff.

    2) I appreciate a good debate, and I enjoy it when people post opposing views here on any subject. You can see plenty of examples of spirited, friendly debate between me and other commenters, even in the threads about my home purchase. What I do not appreciate is obvious trolling like these recent comments by MichaelB:

    May 31:

    Tim – Sell now and get out while you still can!

    June 3:

    Redfin Mgmt: “Tim, we think it might be a good idea if you were to align Seattle Bubble a bit more with Redfin’s outlook…”

    June 22:

    Wow! Tim, How are you ever going to top this one? This may actually be the day that your blog “jumped the shark”. You’re not right next door to a nuclear reactor are you?

    Like I said before Tim – It is apparent you made a decision to purchase this home for various emotional reasons – nice wood trim, looks like grandpa’s home, etc… and are now trying to justify the purchase in hindsight using charts graphs, etc…. That’s O.K., we all tend to justify decisions after the fact.

    June 22:

    Your priorities are basically meaningless…

    June 24:

    Hopefully the readers on this blog will be able to learn from the mistakes made in this transaction. It is a case study on how not to buy a house.

    When someone would rather take personal potshots and throw around a bunch of empty hyperbole than engage in a reasoned discussion, that’s when I draw the line and stop engaging that person.

  39. 39
    MichaelB says:

    By The Tim @ 38:

    RE: Pegasus @ 33 – Couple of things.

    1) I’m not trying to “milk” my purchase. I just thought that it would be a source of useful information for readers. If people don’t find this content interesting or useful, I’ll stop and just go back to the non-personal stuff.

    2) I appreciate a good debate, and I enjoy it when people post opposing views here on any subject. You can see plenty of examples of spirited, friendly debate between me and other commenters, even in the threads about my home purchase. What I do not appreciate is obvious trolling like these recent comments by MichaelB:

    May 31:

    Tim – Sell now and get out while you still can!

    Attempt at humor…not trolling…I simply believe that the bubble hasn’t fully burst. Surely the kind of comment you would expect to hear on “Seattle Bubble” In a few years you may accept this as good advice…

    June 3:

    Redfin Mgmt: “Tim, we think it might be a good idea if you were to align Seattle Bubble a bit more with Redfin’s outlook…”

    Further attempt at humor…but surely I am not the only one who has mentioned the perceived conflict of interest?

    June 22:

    Wow! Tim, How are you ever going to top this one? This may actually be the day that your blog “jumped the shark”. You’re not right next door to a nuclear reactor are you?

    Your blog on people being concerned about sex offenders being “silly” is over the top. Unbelieveable. Is this trolling? How could you not consider crime and schools in your assessment? I am sure I am not alone in this opinion…

    Like I said before Tim – It is apparent you made a decision to purchase this home for various emotional reasons – nice wood trim, looks like grandpa’s home, etc… and are now trying to justify the purchase in hindsight using charts graphs, etc… That’s O.K., we all tend to justify decisions after the fact.

    I thought that was a good point…evidently, you didn’t. Just proves you are still in denial. Several others questioned your decision process – is this really trolling? In fact, you present your process as being mathmatically proven when it isn’t even logical. I stand by this point. Not trolling.

    June 22:

    Your priorities are basically meaningless…

    What was the context of that? Seems like you may have taken this comment out of context. If I said only this, I would accept it as a trolling type statement – I wouldn’t have meant your personal priorities – just the priorities in the chart…please read my comment in detail….you could have applied those priorities to many, many neighborhoods. not trolling.

    June 24:

    Hopefully the readers on this blog will be able to learn from the mistakes made in this transaction. It is a case study on how not to buy a house.

    You are putting it out there…you did seem to make some very elementary mistakes in my opinion. Ardell has also asked that you admit that schools and crime be included…

    When someone would rather take personal potshots and throw around a bunch of empty hyperbole than engage in a reasoned discussion, that’s when I draw the line and stop engaging that person.

    Maybe you don’t appreciate my writing style, but I believe many of my comments are valid. If you are looking from high fives and pats on the back and ego strokes on your home purchase, maybe you should look elsewhere….

    You are the one who made the blog about you Tim…I don’t believe I have personally attacked you, only your decision making process.

    You have recently made negative comments about real estate agents by name, so I don’t know why you are so thin skinned.

  40. 40

    By ARDELL @ 32:

    RE: MichaelB @ 28

    MichaelB, Are you a real estate agent?

    All the praise he’s slathering on you, Ardell, he’s probably either your real estate assistant or your nephew:)

  41. 41
    Jonness says:

    By MichaelB @ 13:

    In the spirit of full disclosure, it would be interesting to know if Tim was compensated in any way by Redfin for purchasing a home. Was it part of the employment terms? This purchase obviously has an impact on perceptions in the Pacific NW real estate market when a bear becomes a bull.

    I really doubt Tim was financially compensated for buying a house.

    OTOH, I believe his employment at Redfin influenced his decision to buy. In short, his economic outlook has been influenced by the Realtor philosophy that house prices are solely a local phenomenon. He also was influenced by the warm fuzzy feelings present in most Realtor speak pertaining to house buying. These things are both implicit and explicit in the culture he is surrounded by during the majority of each day.

    While his low level of interest in the macro economic picture has somewhat shielded him from fully understanding his local housing market, all things considered, he did an amazing job of timing his house purchase and developed an expert level understanding of the subject. Therefore, he should stand as a stellar example of how to do it right. In short, become as informed as possible. And if you knowingly pull the trigger early, mitigate your downside risk by purchasing a home well beneath your means.

    For anybody still on the fence and being influenced by RE agents pretending to be economists or pretending they know something about evaluating the investment potential of homes, I’ll lay out a short set of rules on how to diss the dummies and instead time the markets in order invest (gamble) your hard-earned money:

    1. When Bernanke says he’ll print more money, buy stocks and commodities.
    2. When Bernanke says he won’t print any more money, sell stocks and re-evaluate your commodity holdings.
    3. When Bernanke raises interest rates, limit your cash holdings, and buy a house.

    (Pre-run the market on this as Bernanke’s actions are always telegraphed way ahead of his formal announcements).

    And here is the most important thing you must understand if you are to succeed in buying a house as an investment. Borrowing $500K at 5% interest is a terrible mistake when the underlying asset is losing value. 99% of RE agents will lie to you about this because they stand to make a huge sum of money if you follow their advice. If you want to be a real investor, leverage in at a time when prices are appreciating faster than the interest you are paying to hold the loan, and time this period as close to the bottom as possible (see point 3 above). In the former scenario, you are losing 5% of a $half million per year plus the amount the house falls in price. In the latter scenario, the bank is paying you to borrow the money.

    If there is one thing I could put in the head of all these boneheads that went out and bought early just because mortgage rates were low, it’s always pay attention to the spread! It’s too late for the boneheads who bought simply because rates were low, but it’s not too late for those on the fence. Pay attention to Bernanke and the spread!

  42. 42
    ARDELL says:

    RE: Ira Sacharoff @ 40

    I do have a son-in-law named Michael…but he’s MichaelS. :)

  43. 43
    ARDELL says:

    RE: Jonness @ 41

    ” I believe his employment at Redfin influenced his decision to buy…”

    I don’t think so. I think being employed might have influenced his decision to buy, but I don’t think it would have mattered where he was employed. If I go work for a funeral parlor, I don’t think it will influence me to want to be in a coffin…no matter how nice it is.

  44. 44
    Jonness says:

    By ARDELL @ 43:

    RE: Jonness @ 41

    ” I believe his employment at Redfin influenced his decision to buy…”

    I don’t think so. I think being employed might have influenced his decision to buy, but I don’t think it would have mattered where he was employed. If I go work for a funeral parlor, I don’t think it will influence me to want to be in a coffin…no matter how nice it is.

    I emphatically disagree. All human beings are influenced by the people and culture they exist within. It is impossible to live otherwise. Not only was Tim heavily influenced by his culture, if you worked at a funeral home, you would stand a much higher chance of purchasing burial plots for you and your loved ones well in advance of your deaths than otherwise. Any well-designed statistical study will reveal this as fact.

    Furthermore, I buried my best friend in a Metallica casket. When the time comes, the design of the box does make a difference! When I’m finally laid to rest, it will be in a casket shaped like an acoustic guitar case. Hopefully that doesn’t mean the the mortician will be forced to cut off my arms. Oh wait, they can put my legs in the part of the case where the guitar neck rests and put my wider shoulders in the wide part of the case where the guitar body rests. Kind of upside down, but I’ll take it! :)

  45. 46
    ARDELL says:

    RE: Jonness @ 44

    Italians are very into their caskets and such. We don’t need to work there to start laying out “the clothes we want to be buried in” many years in advance. As for the guitar…absolutely! and have them lean it vs lay it flat…like it’s on a break. :)

  46. 47
    The Tim says:

    By Jonness @ 41:

    I really doubt Tim was financially compensated for buying a house.

    OTOH, I believe his employment at Redfin influenced his decision to buy. In short, his economic outlook has been influenced by the Realtor philosophy that house prices are solely a local phenomenon. He also was influenced by the warm fuzzy feelings present in most Realtor speak pertaining to house buying. These things are both implicit and explicit in the culture he is surrounded by during the majority of each day.

    There are two problems with your theory.

    1) Go back and read my homebuying timeline. I was starting to think more seriously about actually finally buying in early 2009. I hired Marc and toured my first home in February 2010. I didn’t start at Redfin until July 2010. It would be pretty hard for my employment at Redfin to have had an affect on my decision to buy, since the decision was already made before I started.

    2) Most of my day is spent with the web developers and product managers on the technology side of the business. There is little to no talk among that group about who owns vs. who rents, who is buying, etc., and many of them have anything but “warm fuzzy feelings” about homebuying. Mostly though, we talk about how to improve Redfin’s technology, and the usual geeky stuff that you would expect developers to talk about (board games, tech trends, etc.). Even the real estate operations folks don’t spend much time chatting at work about buying a home, though. When we do talk about real estate, it’s usually in the context of the overall market and how the business is doing.

    Believe what you want, but the only affect my employment at Redfin had on my homebuying process or decision to buy is that I needed to be employed somewhere in order to get a loan.

  47. 48
    Lo Ball Jones says:

    Seems to me the short sale process would start to get real at the point just before the huge plunge in price when they they are trying to unload as fast as possible before the forthcoming glut of houses hits the market.

  48. 49
    ARDELL says:

    RE: Lo Ball Jones @ 48

    No…it usually runs toward the trustee sale date. Some…the seller is not late on his payments. They have a snowball’s chance in hell most times. Some exceptions, but not many.

  49. 50
    MichaelB says:

    RE: Ira Sacharoff @ 40

    Are you kidding? I’m old enough to be Ardell’s uncle!

  50. 51
    ARDELL says:

    RE: MichaelB @ 50

    I doubt it. I’m a grandmother of 2.

  51. 52
    MichaelB says:

    RE: Jonness @ 41

    All good points. Your Redfin theory seems quite plausible. We humans certainly do rapidly adapt to new environments! I think you give Bernanke more credit than he would take himself…He can impact the market in the short term, delay the pain for awhile. Unfortunately, Bernanke cannot solve 30 years of accumulating government and private debt with any fiscal policy. After the 30 year party comes the several year hangover. Buying drinks all around just creates a false sense of security. I would argue that until the debt problem is resolved, investing in highly leveraged asset markets like real estate will end in tears. Sooner or later that shadow inventory is coming back.

  52. 54
    MichaelB says:

    RE: Kary L. Krismer @ 15

    Interesting…and as you note, the practice is wide spread… Way over my head. My only real point is that the first price is generally the highest and over time the price can drop significantly to attract buyers. So, buying as soon as a short sale hits the market may not put you in the best negotiating position. Obviously, everyone is happy if they get their intial price on a short sale and people are more willing to negotiate with the passage of time.

  53. 56

    By MichaelB @ 27:

    I know my posts are transparent, but Is this really trolling? Why beat around the bush? Tim is putting himself out there as a real estate industry expert, and I am simply pointing out that he overpaid for a home in a high crime area?

    Ignore the high crime area for a bit, and find a similar style and condition house that is either currently available for less, or sold for less in the past year in any part of Everett. So to be clear it needs to have been built before 1930, be roughly the same size, and have the same quality kitchen and woodwork.

  54. 57

    By MichaelB @ 28:

    Wouldn’t there be some risk associated with buying a short-sale? Shouldn’t that risk demand a premium to compensate the buyer?

    The main risk is simply wasting your time, and you go in pretty well knowing that the seller typically won’t make any major fixes on inspection items (Note that Tim did get one thing done).

    Unlike a bank sale though, you get the same warranty deed you’d get on a normal sale, but from a person of perhaps questionable solvency.

  55. 58

    By ARDELL @ 36:

    The risk of a short sale or bank-owned is about the same as buying a corporate relo or an estate sale. Often there is a discount, but not always.

    Not really. I already mentioned the warranty deed, but a bank owned will typically pretty well exclude just about any other type of warranty or representation claim. Again though, such claims would typically be against a person of questionable solvency, but that could be the case on an equity sale too.

  56. 59

    RE: Rhonda Porter @ 55 – I would also think it entirely possible that the first would be owned by one entity and the second by another, even though originally they were created by the same bank. Unless you have a portfolio lender, that might be likely. I don’t know why they would be sold together–that would seemingly make the whole point of having a first and second pointless from the lender side.

    That said, if they are serviced or process the short sale through the same entity, even if owned differently, I could see that would help, sort of how it can help to have title and escrow at one shop.

  57. 60
    ARDELL says:

    RE: Kary L. Krismer @ 58

    Question for you Kary. What would be the incentive for a seller who has filed Bankruptcy to do a short sale, vs letting it go to foreclosure? If selling short is to avoid foreclosure, once you have the bankruptcy ding on credit…why bother?

    I have found that sellers who have filed for bankruptcy, often after the property is listed as a short sale, lose a lot of the incentive to do all the things necessary to close on the short sale. Could that be because there is little to no advantage to the seller at that point?

    They don’t pull the listing, but they are also not as willing to jump through all the hoops, like send updated financial statements, in order to get lienholder approval. They don’t refuse to send it initially…but when the request comes for them to re-send things, they are not as willing to do it all over again. At that point the buyer and the agents seem to have a lot more incentive than the owner.

    Exception is when they are getting that move out money, as in Tim’s example. But if the property is already vacant, the seller moves on to “what’s in it for me?” Why bother?

  58. 61
    Dirty_Renter says:

    RE: Jonness @ 44
    You need to hear John Prine’s ‘Please Don’t Bury Me’.
    It addresses all your concerns.

  59. 62
    MichaelB says:

    RE: Kary L. Krismer @ 56

    Kary, bit of a straw man argument. First of all, you can find much better homes in better neighborhoods, for the same or less without buying a short sale. But here are properties currently for sale in the neigborhood per RedFin:

    3609 Wetmore $137K
    3629 Wetmore $119K
    1710 35th $80K
    3401 $169K
    3730 $155K

    Comps? No.

    I heard a rule of real estate was to buy the worst house in the best neighborhood….not the best house in the worst neighborhood.

  60. 63
    MichaelB says:

    By Kary L. Krismer @ 58:

    By ARDELL @ 36:

    The risk of a short sale or bank-owned is about the same as buying a corporate relo or an estate sale. Often there is a discount, but not always.

    Not really. I already mentioned the warranty deed, but a bank owned will typically pretty well exclude just about any other type of warranty or representation claim. Again though, such claims would typically be against a person of questionable solvency, but that could be the case on an equity sale too.

    In that case the buyer should be compensated for the additional risk and less recourse if something is wrong with the home. Buying at or above market rates is not a good deal. I doubt many readers would be willing to pay $250K let alone $275K or $300K for that home.

    Old homes are money pits. That home appears to be a flip. Doubt they put in all new electrical, etc… though I have to admit the kitchen looks nice.

  61. 64

    RE: MichaelB @ 63
    Old homes may be money pits, but a lot of people want them and like them.On the top of Queen Anne, it’s hard to find an old home for less than 750,000 dollars. And they sell. In many Seattle neighborhoods, the older homes sell faster than newer homes.
    Old homes are usually built with better craftsmanship and design, and have character.A lot of new homes are simply big and soulless. And often slapped together with cheap materials.. But to each his own. A new home is going to need less immediate attention.

  62. 65
    ARDELL says:

    RE: MichaelB @ 63

    LOL “…just when I thought (you) were out…they drag you back in:” Al Pacino

    I was trying to steer you away from the “troll” label. :)

    My standard discount for bank-owned or short sale is “up to” 17% below today’s fair market value. But for an awesome house in a prime area with great schools, that can be as little as 5% under fair market value. It shouldn’t “hit” market value.

  63. 66
    Pegasus says:

    RE: MichaelB @ 62 – Hehe.. I see you are being obtuse again. Give it up. Go fishing or something.

  64. 67
    MichaelB says:

    By Kary L. Krismer @ 56:

    By MichaelB @ 27:

    I know my posts are transparent, but Is this really trolling? Why beat around the bush? Tim is putting himself out there as a real estate industry expert, and I am simply pointing out that he overpaid for a home in a high crime area?

    Ignore the high crime area for a bit, and find a similar style and condition house that is either currently available for less, or sold for less in the past year in any part of Everett. So to be clear it needs to have been built before 1930, be roughly the same size, and have the same quality kitchen and woodwork.

    Kary, on a mico level, I found a house on RedFin that is worth significantly less and it is right in Tim’s neighborhood!

    Here it is:

    Home Value Estimates for 3601 Wetmore Ave
    Low Estimate High
    Zillow $180,264 $214,600 $238,206
    Eppraisal $193,452 $227,591 $261,729

    “Note: 73% of the homes in this neighborhood are worth less than this home”

    Also, average price per square foot in this neighborhood is $126

    Again, it is a strawman argument, because you must assume that someone wants to live in only that neighborhood. Ignore the high crime rate? Yes. Also, ignore the long commute, sex offenders, poor schools, etc… If you ignore all of those things, you could pick that home up and drop it in Mercer Island. Feel like were kicking a dead dog here Kary.

    On a macro level:

    China , Greece, Italy, Portugal, Spain, Ireland Japan, EU, United States all in financial trouble. If you think the USA has a real estate bubble, check out China. Shadow inventory in the US is huge, with 25%+ of homeowners underwater. Incredible unsustainable levels of private and public debt in the US. Wages are dropping and will drop further. American military all over the world sucking money out of the country. Poor education standards in the United States & high crime and it’s going to get worse as the economy continues to stagnate -Tim’s neighborhood is a good example. Sending your kids to a private school won’t be enough because the society is in trouble. Huge gap between wealthy and poor in this country. That’s the gap between Tim and his neighbors. Oh, and that IT job at Redfin, it can’t be done in the cloud by some guys in India because… why? This real estate market can’t be good for the likes of RedFin. Shrinking middle class. Wealthy don’t want to pay their fair share of taxes and corporations control the country and political system, shipping American jobs overseas for the last 20 years and giving welfare to Wall Street to gamble in the stock market.

    There is currently no viable political or economic solution in place, so things are going to get much much worse before they get better. This is not a cyclical problem, it is structural. It is all about debt and jobs. No wonder 48% of Americans believe we’re headed for a depression!

    In summary, US real estate is not going up for a very, very long time. That does not bode well for Tim’s neighborhood. Real estate may be local, but depressions are global. Interesting that Tim picked a house built before the Great Depression – That was a long time ago, wasn’t it! And yet the house is still there to remind us of very difficult times in our country’s past….

    Seriously, I would admit my mistake (it’s O.K.) and sell that place or try to give it back to the bank and move to a safer neighborhood, closer to work, with good schools. If you can afford private schools, you can afford a small loss on that property. And, yes – I would rent until prices drop at least 20% more. (I believe prices could easily drop in Seattle and the rest of the USA until the average home is 2.5 X the average wage.)

    “History doesn’t repeat, but it sure does rhyme…”

    O.K., I feel better now!

  65. 68
    MichaelB says:

    RE: ARDELL @ 65

    Thanks Ardell, but I am hopeless! – I guess I must be a troll after all because I just can’t help myself!

  66. 69
    MichaelB says:

    RE: Pegasus @ 66

    I guess I’ll just obtusely wander back to my home under the Fremont Bridge. :)

  67. 70
    MichaelB says:

    RE: Ira Sacharoff @ 64

    They were once “soul-less” new homes Ira! Today’s new home will be full of soul in 100 years! “Gimme Shelter”

    I would rather have a new mustang than a 1961 stang – airbags, gas mileage, pollution, breaks, etc…

  68. 71
    Pegasus says:

    By MichaelB @ 69:

    RE: Pegasus @ 66

    I guess I’ll just obtusely wander back to my home under the Fremont Bridge. :)

    Better check the crime rate and offenders list first and watch out for those three billy goats known to cross that bridge. They have it in for trolls.

  69. 72

    By ARDELL @ 60:

    RE: Kary L. Krismer @ 58 – Question for you Kary. What would be the incentive for a seller who has filed Bankruptcy to do a short sale, vs letting it go to foreclosure? If selling short is to avoid foreclosure, once you have the bankruptcy ding on credit…why bother?

    They would still be avoiding a foreclosure, and that should help, assuming banks recognize the difference. In other areas they didn’t though, but even if they do today you wouldn’t know about the future.

    I would think a short sale would be easier after bankruptcy because there’s zero issue on a deficiency. That should make the bank’s decision easier.

    Finally, a short sale might prolong their time in the house if they do get an offer.

  70. 73

    RE: MichaelB @ 63RE: MichaelB @ 62 – I think you’re admitting none of those in 62 are comps. And a 1965 Mustang would probably be a money pit too if you drove it daily, but that doesn’t mean it might not be worth more than a 2011 Mustang. As Ira mentioned, some people like old homes and are willing to pay more for them. That makes them worth more, It’s the inverse of people not being willing to pay as much for a split entry. That makes them worth less, even though if you were only looking at features and condition it might be identical to a nearby two story.

  71. 74

    By MichaelB @ 70:

    Today’s new home will be full of soul in 100 years! “Gimme Shelter”

    I would rather have a new mustang than a 1961 stang – airbags, gas mileage, pollution, breaks, etc…

    Today’s new homes probably won’t last 100 years.

    And a 1961 Mustang, that would be a priceless prototype! :-D

  72. 75
    MichaelB says:

    RE: Kary L. Krismer @ 73RE: Kary L. Krismer @ 73

    Got me there, Kary…. See the home I did find that is very similar and worth a lot less….

    Queen Anne and Everett, you are comparing apples with…well, other apples of lower quality… Guaranteed you won’t find the same socio-economic groups living in these two geographies…

  73. 76
    David Losh says:

    RE: MichaelB @ 70

    The old house attraction is the timber it was built with. Many houses on Capitol Hill, and Everett, Portland, or even Aberdeen were built with dimensional lumber milled locally. It depends on the over all construction, but if you are gutting to rebuild you can’t match old growth.

  74. 77
    David Losh says:

    RE: MichaelB @ 67

    Well, the macro economic rant does nothing for what the price of property is in Everett.

    Down town Everett is another one of those out of area locations that got way over priced, well beyond any amount of reason. There is an area of nice homes, but not enough to have driven up the prices to the level they are now, let alone in 2007, 2008. Of course prices will adjust downward, but it is simply a matter of the location of Everett. It’s removed, out of the way, with no real economy. It may claim jobs, but I don’t see why.

  75. 78
    MichaelB says:

    RE: David Losh @ 77

    How dare you call my well thought out economic theory a rant? :)

    Old growth timber, blackberries, Pioneer Square, salmon, Here Come the Brides,… Oh to return to the authentic, nostalgic past of old Seattle… Honestly, if you try hard enough you can still smell the pulp and paper mills when you drive by Everett…

  76. 79
    Jonness says:

    By The Tim @ 47:
    B.F. Skinner says otherwise. But don’t take it too hard. It happens to the best of us! :)

  77. 80

    By MichaelB @ 75:

    RE: Kary L. Krismer @ 73RE: Kary L. Krismer @ 73

    Got me there, Kary…. See the home I did find that is very similar and worth a lot less….

    Queen Anne and Everett, you are comparing apples with…well, other apples of lower quality… Guaranteed you won’t find the same socio-economic groups living in these two geographies…

    You really are being troll like. I have no idea what you’re claiming when you way you gave an address in Queen Anne. Are you talking about post 62?

    You’re being very much like Pegasus at this point. If you have a point to make, be specific and don’t expect other people to do your work for you looking up information.

  78. 81
    The Tim says:

    By The Tim @ 47:

    It would be pretty hard for my employment at Redfin to have had an affect on my decision to buy, since the decision was already made before I started.

    By Jonness @ 79:

    B.F. Skinner says otherwise. But don’t take it too hard. It happens to the best of us! :)

    Wow, I didn’t realize that he was a time travel theorist!

  79. 82

    RE: MichaelB @ 62

    Okay, check out these sold listings:

    3220 Hoyt $237k, but not as nice of wood.
    3215 Kromer, $290k, very nice, but not as nice of kitchen and only 1.5 bath.

    Those are both within 1 miles of the subject property with Hoyt being within .5 miles. There are many others if you go out two miles.

    BTW, 3629 Wetmore is apparently some sort of 4 unit building built in 1997, so not a comp in any sense of the word.

  80. 83
    David Losh says:

    RE: Kary L. Krismer @ 82RE: MichaelB @ 67

    Let me put this into perspective. After the Howard Bono post about Arlington we went out there to visit some freinds. The house next door was for sale for $219K. It sold for $225K. The neighborhood is dicey because of a few foreclosures.

    Arlington? Rambler? Hello?

  81. 84

    RE: David Losh @ 83 – Under 12,000 square feet lots I’m showing about 1 per month in that price range ($220k-230k) selling in Arlington. With larger lots it can of course go much higher.

  82. 85
    ARDELL says:

    RE: Kary L. Krismer @ 82

    The one on Hoyt has an interesting history.

    mls says it sold for $85,000 in November of 2010. County records calls that $99,750.

    It was fixed, staged and flipped for $227,000 (not $237k)

    So jumped from under $100k to $227k between November and May.

    Kromer looks like a very nice house in a little pocket neighborhood of very nice homes called “Rucker Hill” closer to the water, several of which have views. Kromer did not seem to have a water view, but the comps close to it did. The price range for Rucker Hill seems to be $150k – $445k in the last six months due to its proximity to water and water views.

    Same .25 radius of 36th and Wetmore shows the range in the last six months of $79,900 to $197,000, excluding Tim’s purchase.

    I’d say “Rucker Hill” is a different neighborhood even though it may be within an appraiser radius for comps. Often as you travel along the water’s edge in most any area, the proximity to water and water views pulls up the comps in a narrow strip, as is often indicated on heat maps.

  83. 86
    The Tim says:

    RE: ARDELL @ 85 – 3215 Kromer is definitely not on Rucker Hill. I toured it when it was on the market. No view at all, across the corner from a cheap-looking mini-mart, and as I mentioned in the price-guessing contest, a sheer dropoff into a ravine instead of a back yard.

    The house itself was quite nice (especially the cedar shake roof & siding), but its location was definitely not comparable to Rucker Hill view homes.

  84. 87
    ARDELL says:

    RE: The Tim @ 86

    According the the Historic Register, it is in Rucker Hill…or across the street from “it”.

    http://www.livingplaces.com/WA/Snohomish_County/Everett_City/Rucker_Hill_Historic_District.html

    The map in the link includes the 3200 block of Kromer.

    http://www.livingplaces.com/WA/Snohomish_County/Everett_City/Rucker_Hill_Historic_District_Map.html

    Though I agree it is at the “fringe” of Rucker Hill, as Rucker Hill ends at Kromer, and may be on the wrong side of Kromer to be “in” vs “out” of Rucker Hill. Still, that small pocket has a much higher recent sale range up to $445,000.

    I would think it is pulling its value from those homes and its .2 or so proximity to water in Rucker Hill, even if it is on the “wrong side” of Kromer to be “in” “the historic district”.

  85. 88
    David Losh says:

    RE: Kary L. Krismer @ 84

    It’s not the lot size.

  86. 89

    RE: David Losh @ 88 – What I was doing by restricting lot size was eliminating rambler properties that sold for much more than $230k.

  87. 90
    MichaelB says:

    Hey Kary, I was responding to Ira’s post (63?) and yours at the same time…Multi-task trolling… I really don’t appreciate you lumping me in with trolls like Pegasus – Can you believe that guy? He hardly agrees with anything you say… ;)

    Again, you have put up a straw man argument and framed the context of the discussion on your terms to reach your conclusion regarding the value of homes in a neighborhood in Everett, where you are apparently a real estate agent.

    I played along with you, but historical prices are of course not an accurate indicator of future values. Let’s pull the numbers again in 12 months and see if they’ve dropped or increased. If they’ve gone up, even at the rate of inflation, I will concede that I was wrong about the values of homes in Everett. If they’ve dropped by 5% or more, it was a bad investment…I would bet on the latter.

    The market is a voting machine in the short term and a weighing machine in the long term… Real estate agents and real estate companies are always voting on prices to go up for obvious reasons.

  88. 91

    RE: MichaelB @ 90 – I don’t think you know what a strawman argument is. Nice try though changing the topic from whether Tim paid too much to whether it will be worth less in 12 months.

  89. 92
    David Losh says:

    RE: Kary L. Krismer @ 89

    It’s Arlington, rambler, in Arlington, $225K. It was listed for $219K and sold for $225K. It’s in Arlington for gawd sakes. Arlington is somewhere out near Canada. It’s past Boom City!!!

    So Tim paid the same price for a house in Everett, urban Everett.

    I’m just saying that the price of Real Estate is all screwed up.

  90. 93
    more says:

    By Jonness @ 41:

    By MichaelB @ 13:

    In the spirit of full disclosure, it would be interesting to know if Tim was compensated in any way by Redfin for purchasing a home. Was it part of the employment terms? This purchase obviously has an impact on perceptions in the Pacific NW real estate market when a bear becomes a bull.

    I really doubt Tim was financially compensated for buying a house.

    OTOH, I believe his employment at Redfin influenced his decision to buy. In short, his economic outlook has been influenced by the Realtor philosophy that house prices are solely a local phenomenon. He also was influenced by the warm fuzzy feelings present in most Realtor speak pertaining to house buying. These things are both implicit and explicit in the culture he is surrounded by during the majority of each day.

    While his low level of interest in the macro economic picture has somewhat shielded him from fully understanding his local housing market, all things considered, he did an amazing job of timing his house purchase and developed an expert level understanding of the subject. Therefore, he should stand as a stellar example of how to do it right. In short, become as informed as possible. And if you knowingly pull the trigger early, mitigate your downside risk by purchasing a home well beneath your means.

    For anybody still on the fence and being influenced by RE agents pretending to be economists or pretending they know something about evaluating the investment potential of homes, I’ll lay out a short set of rules on how to diss the dummies and instead time the markets in order invest (gamble) your hard-earned money:

    1. When Bernanke says he’ll print more money, buy stocks and commodities.
    2. When Bernanke says he won’t print any more money, sell stocks and re-evaluate your commodity holdings.
    3. When Bernanke raises interest rates, limit your cash holdings, and buy a house.

    (Pre-run the market on this as Bernanke’s actions are always telegraphed way ahead of his formal announcements).

    And here is the most important thing you must understand if you are to succeed in buying a house as an investment. Borrowing $500K at 5% interest is a terrible mistake when the underlying asset is losing value. 99% of RE agents will lie to you about this because they stand to make a huge sum of money if you follow their advice. If you want to be a real investor, leverage in at a time when prices are appreciating faster than the interest you are paying to hold the loan, and time this period as close to the bottom as possible (see point 3 above). In the former scenario, you are losing 5% of a $half million per year plus the amount the house falls in price. In the latter scenario, the bank is paying you to borrow the money.

    If there is one thing I could put in the head of all these boneheads that went out and bought early just because mortgage rates were low, it’s always pay attention to the spread! It’s too late for the boneheads who bought simply because rates were low, but it’s not too late for those on the fence. Pay attention to Bernanke and the spread!

  91. 94
    MichaelB says:

    RE: Kary L. Krismer @ 91

    You win Kary… Now please stop smirking…

  92. 95
    BillE says:

    By David Losh @ 83:

    Let me put this into perspective. After the Howard Bono post about Arlington we went out there to visit some freinds. The house next door was for sale for $219K. It sold for $225K. The neighborhood is dicey because of a few foreclosures.

    Arlington? Rambler? Hello?

    Did someone say Arlington? Why not move up here and overpay for a bank owned townhouse that never should have been built?
    http://www.redfin.com/WA/Arlington/520-N-French-Ave-98223/unit-A/home/12542439
    Don’t like those? How ’bout these?
    http://www.redfin.com/WA/Arlington/521-E-Division-St-98223/unit-B/home/28834509
    Looks like there’s about 11 of ’em. I actually watched these from when they demolished the old house that used to be there, to the townhomes sitting through a rainy season in a half built state.
    Or check out this one.
    http://www.redfin.com/WA/Arlington/7805-Jensen-Farm-Ln-98223/unit-D4/home/22958097
    Nearing the magic mark of 500 days on the market!

    Who ever would have thought that building townhomes in Arlington was a losing idea?

  93. 96
    MIchaelB says:

    By MichaelB @ 94:

    RE: Kary L. Krismer @ 91

    You win Kary… Now please stop smirking…

    And Kary, you obviously don’t understand the meaning of Net Present Value.

  94. 97

    By David Losh @ 92:

    RE: Kary L. Krismer @ 89

    It’s Arlington, rambler, in Arlington, $225K. It was listed for $219K and sold for $225K. It’s in Arlington for gawd sakes. Arlington is somewhere out near Canada. It’s past Boom City!!!

    So Tim paid the same price for a house in Everett, urban Everett.

    I’m just saying that the price of Real Estate is all screwed up.

    I don’t think Arlington is quite as far as you think, but remember, Tim’s place was a short sale and could have likely sold for more if it had not been such. Also, that price in Arlington does seem to be the tops where you’re not dealing with larger pieces of land.

  95. 98

    By MIchaelB @ 96:

    By MichaelB @ 94:

    RE: Kary L. Krismer @ 91

    You win Kary… Now please stop smirking…

    And Kary, you obviously don’t understand the meaning of Net Present Value.

    NPV hasn’t been a topic at all in this thread, that I can remember. That an item might be worth more or less in a year is not a topic involving NPV.

    One of my favorite stories though is waking up on First Hill less than an hour before my Finance exam at the UW. I showered, drove to the UW, found a parking spot, ran to class showing up about 10 minutes late, but with the adrenalin I had in my system I finished before anyone else an managed to get 100% on the exam. Financial calculators were allowed, and my fingers were flying.

  96. 99
    David Losh says:

    RE: Kary L. Krismer @ 98RE: BillE @ 95RE: Kary L. Krismer @ 97

    No, Arlington really is past Boom City, and somewhere near Canada.

    My point is that the price of housing units became homogenous. Tim could pay $225K for a short sale which is the same price for a property in Arlington that sold for what I would call retail. How do you make sense out of that?

    It makes no sense.

    What happened is that banks began lending on anything at any price. The value of the property just had to make enough sense for the mortgage to be sold. In order to do that areas like Arlington needed to rise in price equally.

    So you keep looking at sales data which is meaningless. Sales is what some bank would lend on a property. Banks controlled, and do control the housing market. As long as people continue to lose money, the banks won’t care, and don’t care about how they lend. They make interest income, and end up with the asset. In the mean time the mortgage is sold, and the loan serviced.

  97. 100
    MichaelB says:

    RE: Kary L. Krismer @ 98

    Those HP Calculators come in handy! Here’s a real estate finance question I found.

    Question: A home is purchased in Everett for $225,000. Inflation is 3%. Cost of capital is 5%. One year later the home is worth $175K due to the realization by the market that it is in a high crime area with poor schools and the lack of industry as a result of a global financial crisis. What is the net present value of the home?

    Answer: Who cares? The real estate agent has already made his commission and the owner believes buying is cheaper than renting (affordability calculations prove it!), and his sending his kids to private schools anyway….Plus, there are comps that prove the home is now actually worth $250,000!

  98. 101
    ARDELL says:

    RE: MichaelB @ 100

    The issue that comes up for me is the increased # of homes to choose from if you wait until you can afford more than $225,000, or you use more than 17% of gross income of one vs two incomes. The options expand a lot for each $25,000 increment of price.

    Assuming a house has at least 1,500 sf with 3+ bedrooms and 1.75+ baths and a lot of at least 5,000 sf. In King and Snohomish combined, sold in the last six months, you jump from 838 options to 402 additional if you add $25,000 to price, 779 additional if you add $50,000 to price and 1,133 if you add $75,000 to price.

    So for just the difference of up to $250,000 vs up to $225,000 you are looking at 1,240 potential choices vs 838. So renting until you can afford at least $250,000 often makes more sense.

    If you wait until you ca afford at least $280,000, you double your options.

    That only includes homes sold vs available to buy, assuming if someone bought them they were possibly better than the ones no one bought at all.

  99. 102
    MichaelB says:

    RE: ARDELL @ 101

    Yes, and there are some out there who believe that today’s $250k home is tomorrow’s $225k home. $250K also gets you into some pretty good neighborhoods, school districts, closer to Seattle and Bellevue…. I believe average home prices will reach 2.5 x average earnings…whatever they may eventually be – hopefully not as low as this poor slave in China in the NYT article – “Bridge comes to San Francisco…. ” a pretty good summary of what is wrong with the USA today..

    http://www.nytimes.com/2011/06/26/business/global/26bridge.html?_r=1&scp=2&sq=bridge&st=cse

  100. 103
    David Losh says:

    RE: ARDELL @ 101

    The question is if people who bought last month, or the month before ignored some very big economic milestones. We have the debt ceiling debate, the end of QE II, with the passing Spring selling season. Will the market in August be as robust with even lower prices?

    In my opinion the price of Real Estate will decline this year, more than the year past. My reasoning is that the Fed is done playing banker with more important issues to deal with.

    I was going to include the unrest in Northern Africa, and Europe in my list, but thought that was too far out there. The fact is though that in the past six months a lot has happened globally to make any financial decision volitile.

  101. 104
    ARDELL says:

    RE: David Losh @ 103

    That may all be true, David. But there will never, ever come a day when NO ONE buys a house, regardless.

  102. 105
    MichaelB says:

    RE: David Losh @ 103

    What is the American home worth if most Americans are unable to borrow funds to finance the purchase? What if banks required 30% downpayment, or were simply unable or unwilling to lend? US public debt is almost equal to GDP at $14 Trillion, that’s $40,000 per man, woman, and child. Private debt at $50 trillion. How long will it take to pay this debt down to a reasonable level?

    Leverage (debt) caused the housing bubble and without leverage, prices can drop much, much further. In Japan prices dropped 75% from their bubble highs in a relatively strong global economy. Why is the US different?

  103. 106

    By MichaelB @ 5:

    In Japan prices dropped 75% from their bubble highs in a relatively strong global economy. Why is the US different?

    Why is Seattle different than Phoenix? Arguments based on comparing one area to another which suggest that all areas will decline by the same percentage are merely designed to convince the ignorant.

    But to answer the Seattle/Phoenix issue I’d note that between 2004 and peak in 2006 Phoenix went up 75%. That creates conditions ripe for rapid declines.

  104. 107

    […] let me point you to the write-up I posted of my own experience buying a short sale. It won’t be a road map of every challenge you might encounter, but hopefully you will find […]

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