Investment Sales

I recently attended a short class presented by a mortgage loan officer that provided some ideas and formulas for assisting buyers of residential real estate who would like to purchase real estate as part of their investment portfolio.  Real estate agents can obviously assist people with their purchases.  In this tight market agents are looking for every opportunity to get involved in a transaction.

It’s my belief that agents should proceed with great caution.  I would stick to writing contracts, negotiating inspection items, and providing very, very limited advice on potential income, expenses, and appreciation.  Unless you have been properly trained in researching and evaluating income streams and all of the expenses association with an investment property, you should refer the client to someone who is experienced in this field.  And don’t provide a future appreciation rate that the client relies on for their analysis.  The National Association of Realtors has a series of (5) week-long courses to educate realtors on investment real estate, Certified Commercial Investment Member, a (CCIM) Certificate.

The investment analysis spreadsheet presented in the short class, that a real estate agent currently uses for their analysis, was fraught with assumptions and errors.  If an agent becomes involved with a buyer of properties to be used for investment purposes, direct the buyers to sources of information to answer the questions that you may not be qualified to answer, an accountant, a real estate attorney, a property management company, etc.

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Buyers – Position Yourself to Win

It’s extremely difficult for residential buyers to purchase properties in the Seattle Area.  The supply of inventory is at historic lows and there are multiple buyers submitting Offers to Purchase on each property.  Buyers are performing “Pre-Inspections” and then waiving their Inspection Contingencies, 30% of buyers are purchasing with all-cash and “Closing” in 10-14 days, and many buyers are submitting Offers without a Financing Contingency yet, retaining the appraisal inspection.

Here are some ideas to better position yourself as a buyer to succeed when submitting an Offer to Purchase in today’s environment.

  •      Be fully underwritten by your lender. This means the only item the lender needs to fund the loan is an appraisal verifying the loan-to-value ratio of the loan. Submit your Offer without a Financing Contingency while retaining the appraisal inspection.  Have enough cash in reserve as equity in case the appraisal comes in below the agreed price.  Your earnest money is at risk if you do not purchase the property.
  •      Your lender should be someone local who has worked in the industry for many years and knows how to properly communicate with the Listing Agent. Consider using the favorite lender of the Listing Agent.  The Listing Agent knows their lender will do everything possible to fund the loan.
  •      Select a Buyer’s Agent who has the experience, skill, and expertise to impress the Listing Agent and move it to the top of the pile. A great Buyer’s Agent will know how to properly communicate with the Listing Agent to not only present the price, terms, and conditions in the Offer that the seller is most likely to accept but, they’ll know the nuances of when and how to communicate with the Listing Agent.
  •      Include a “Love Letter” with the Offer that touches the heart of the Seller. What you like about the home; layout, remodel, gardens, sunny rooms, architecture, etc.  Describe what you like in nearby parks.  The Seller knows the features and benefits of the home and neighborhood.  They want to hear that you also know the features and benefits.
  •      Waive as many of the Contingencies in your Offer to Purchase as you feel comfortable. Remember that every Contingency is a protection for you as the Buyer.  Discuss these with you experienced agent to fully understand what you’re waiving.
  •      Visit the Listing Agent at an Open House and introduce yourself. Enjoy a brief conversation.  Make sure your Buyer’s Agent also visits an Open House to get to know that person.  Go separately.
  •      In this market homes are selling at 105% to 115% above List Price. You should visit homes at the price point to allow you to escalate your Offer and still feel comfortable with the purchase price.  Oh, did I say submit an Escalation Clause?  An experienced agent will know the nuances of the escalation amount and how to protect you from escalating, if at all.  If you have a financing contingency will your Offer include a larger escalation amount if the other Offer is all-cash?
  •      Present the cleanest Offer possible. The Seller is very unlikely to make any changes/corrections to your Offer and then submit it back to you.
  •      Submit a large down payment amount, if possible. The seller will likely accept the Offer with the largest down payment amount if the top two Offers are identical.

If you have any questions or comments about this article please contact me.  Steve Meyers, Managing Broker, Keller Williams Greater Seattle, (206) 972-3328, smeyers@kw.com

A Seller Must Disclose!

Prior to listing a condominium or single-family home for sale an owner in the State of Washington is required to complete a very detailed state prepared Seller Disclosure Statement that must be available to all potential buyers.  Buyers have the opportunity to review this document and can terminate the transaction if the buyer finds something unusual or unacceptable to the buyer.  The buyers Earnest Money Deposit will be returned to the buyer without any objection from the seller.

Here’s the tricky part.  If a buyer performs an inspection of the property and communicates a concern to the owner that was not disclosed on the Seller Disclosure Statement, the owner must immediately update the Seller Disclosure Statement to reflect what they’ve learned.  This is not unusual.  Generally, an owner doesn’t hire and inspector to perform an independent inspection of the property prior to listing the property for sale.  An inspection may uncover something that should be disclosed on the Seller Disclosure Statement that the owner didn’t previously know about.

Rather than providing copies of any pages from the inspection report to the owner, buyers should simply request specific actions/repairs to be performed by the owner prior to “Closing” on the Inspection Response Form.  A buyer should request copies of the invoices paid for the repair and, require those repairs to be performed by a licensed/bonded/insured contractor.  The buyer should also gain written approval for a re-inspection of those items 2 or 3 days prior to “Closing” to confirm the work has been properly completed.  The buyer should allow the owner to perform those actions/repairs that do not require specific expertise to perform.

Keys to Selling in Today’s Market

by Steve Meyers

Even in this tight residential real estate market with low inventories and lot’s of buyers in the market hoping to purchase a single-family home or condominium, there are still properties that are lingering on the market longer than expected and then selling at, or below, market value.  Sellers must do everything they can to properly prepare their property for sale, select the price that will generate the most Offers to Purchase and, then hire the very best real estate agent available.

To properly prepare you home for sale to obtain the highest sales price you must be of the mind-set that this is a “Balanced Market” (4 to 6 months of inventory) and not a “Sellers Market” (30 days of inventory).  To receive the highest sales price you need to paint, shampoo/replace carpet, clean windows, make necessary repairs, replace all light bulbs, de-clutter, de-personalize and, clean, clean, clean.  Engage a staging consultant and do 90% of what they recommend.  If it’s vacant, have the home staged.  Isn’t it  worth spending 0.5% to 1% of the value of the home to increase its’ sale price by 5%, I would think so.

If you price the home at its’ fair market value you’ll generate far more Offers to Purchase than if you overprice your home.  If you overprice your home, buyers will know it.  They go into every home on the market and compare the features and benefits of each home to its’ list price.  If its’ overpriced they’ll let you know by not submit an Offer to Purchase and, it’ll linger on the market and go stale.  If you price your home at its’ fair market value, you’ll generate multiple Offers and ultimately, sell at a higher price.

You get what you pay for.  Discount brokers account for less than 5% of all real estate transaction.  95% of sellers recognize that a professional real estate agent will generate a much, much higher sales price that will offset the lower fees of a discount broker, many times over.  Engage the very best real estate agent possible.  But, their level of experience, skill, and expertise varies dramatically.  If you needed surgery, would you look for the least experienced surgeon or, the very best surgeon possible.

New Landlord/Tenant Regulations

Over the last 18 to 24 months the Seattle City Council has passed several regulations for rental properties to ensure each unit meets a specific level of livability for tenants as well as attempting to assure potential tenants that landlords are evaluating renters equally.

In late 2014 the Rental Registration and Inspection Ordinance (RRIO) was passed to ensure rental units are safe and meet basic housing maintenance requirements.  Each unit is required to be registered with the City prior to December 31st, 2016.  There are significant fines and penalties if the unit is not registered.  Owners must have their units inspected once every 10 years by a City approved housing inspector or, an employee of the City who performs these inspections.  A landlord cannot evict a tenant if their rental property has not been previously registered with the City.

Effective January 1st, 2017, there is a “First-in-time Ordinance” (1st Come, 1st Serve) ordinance that states the landlord must offer tenancy to the first prospective occupant who meets all screening criteria established by the landlord.  Applications must be screened in chronological order to determine if the prospective applicant meets all of the minimum stated criteria and qualifications.  The criteria must be in writing.

Enacted in January of 2017, there are restrictions on the amount of the Security Deposit and Move-In Fee.  A Security Deposit cannot be larger than the first month’s rent.  The Pet Deposit cannot be larger than 25% of the first month’s rent.  The combination of the Security Deposit and Pet Deposit cannot be larger than the first month’s rent.  Move-In Fees are limited to no more than 10% of the first month’s rent.  A applicant may pay the Security Deposit and Move-In Fee in installments over the first 6 months of the rental period.

Effective on September 19th of 2016 there is now a Source of Income Protection Ordinance.  This means a landlord cannot discriminate against an applicant based upon his/her source of income.  A landlord must equally consider someone with a Section 8 housing voucher (or equivalent) with a full-time employed individual.  A landlord cannot also provide a preference for rental from an applicant working for a specific company or industry (Amazon or technology industry)

To go into effect in February of 2018, a landlord will not be able to discriminate based upon a prior criminal record.  There will be an outright ban against using an applicant’s prior criminal record to deny rental.  There may be exceptions for sexual offenses or if a landlord can provide a “Legitimate Business Reason” for such denial.

I urge you to seek the advise of a qualified landlord/tenant real estate attorney for clarifications of these rules and regulations.

If you have comments or questions about this article, please email me at smeyers@kw.com.

“Zestimate” – I had to laugh

I listed a condominium on Lake Washington in Madison Park on Wednesday for $830,000.  Zillow gathers information on new listings in the early morning hours and posts the listing on their web-site the next day.  An agent can log onto Zillow and update incorrect information and add additional information the day following it going “Live”.

Zillow has permission to pull information from the Keller Williams Listing Service (KWLS) and other web platforms but, not the Northwest Multiple Listing Service (NWMLS).  On Thursday, when I logged onto Zillow, their “Zestimate” for the condominium was $720,000.  I made all of the corrections and added quite a bit of information that is on the NWMLS but, not available to Zillow.

The following Day, Friday, I logged back on to confirm I had all of the information correct.  Low and behold, the “Zestimate” was now $845,000, a 17% increase in less than 24 hours.  I encourage each agent to enter their information on our KWLS and then log onto Zillow the following day to make the corrections and additions.  Your seller will be very pleased to find the “Zestimate” substantially higher.

Zillow now provides agents and visitors easy access to the comparable properties uses to come up with its’ “Zestimates”.  Unfortunately, it doesn’t allow the agent to input the most comparable properties.  This is a conversation you should have with your sellers if the “Zestimate” is different from your educated Comparable Market Analysis.

If you would like a more thorough explanation of how Zillow is so far off with their estimations, please contact me and I explain it further.

Communicate with the Appraiser

This is a challenging time for appraisers to accurately pin-point the value of a property because of the escalating prices.   The Listing Agent and Selling Agent can, and should, provide information to the appraiser to assist him, or her, with their analysis.  Remember however, an appraiser can only include prior closed sales of similar homes based upon location, size, and condition of the property in their analysis.

The Listing Agent and Selling Agent should provide the appraiser with their Comparable Market Analysis (CMA) they’ve provided to the seller to establish the List Price and to the buyer to justify their Offer to Purchase Price.  If there are comparable homes that are currently Pending, and that will close prior to your transaction, the Agent(s) should provide the details of these Pending transactions to the appraiser.  There may be one or more of these transactions that will benefit the appraisers valuation of the home.

Other information to provide the appraiser include; any Seller concessions to the Buyer, the school district the home is in, the proximity to the County line (ie. King vs. Snohomish), the owner occupancy if it’s a condominium building.  Inquire of the appraiser if there is any other information they need.

An appraiser does not need information contained in the Inspection Report or Form 35R (Inspection Response).

If you have comments or questions about this article, please email me at smeyers@kw.com.

If you would like to read other real estate articles I’ve written and published on-line, go to http://www.ourseattlehome.com/my-articles/



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