Eastside Real Estate Blog

American Homeownership Increases Again as Housing Market Looks for Balance

November 7, 2018 by Kathy Reichle Leave a Comment

More Americans became homeowners in the summer months, fresh evidence of a housing market that’s finding some stability after several rocky years.

The national homeownership rate was 64.4% in the third quarter, the Census Bureau said Tuesday. That’s a half-percentage point higher than a year ago.

A look at the rate of homeownership since 2004. Census Bureau/Haver Analytics

After touching an all-time high of 69.1% in 2004 as the housing bubble inflated, the homeownership rate bottomed out at 62.9% in 2016 as waves of Americans lost their homes or sold under duress. At the same time, many Americans who would ordinarily become buyers were locked out of the market by stringent lending rules, a lack of affordable inventory and a challenging economic backdrop.

All that has made the post-crisis housing market not just less accessible, but less dynamic. It’s possible the moderation in home prices over the course of 2018, which some analysts believe came from would-be buyers pushing back against hefty price gains, helped many of them finally become owners.

The homeownership rate can be controversial. Some analysts believe that government policies that helped enable ownership more broadly were responsible for the housing crisis, although many others believe there’s blame to go around.

Still, the meager recovery to this point puts the homeownership rate only back to 1995 levels, well before the run-up to the bubble. That suggests it may be possible for many more Americans to become owners, if housing market conditions ease further. The vacancy rate for owners was just 1.5% for the second month in a row, tighter than the 1.6% it averaged throughout 2017.

By Andrea Riquier

To PMI or Not to PMI

November 2, 2018 by Kathy Reichle Leave a Comment

New Chinese Tariffs to Raise Renovation Costs. Should You Postpone your Reno?

October 30, 2018 by Kathy Reichle Leave a Comment

We talked last month about the potential impact of new Chinese tariffs on the real estate industry, and now there’s another issue that could slow down an important associated industry. “New Chinese tariffs are about to make your home renovation more expensive,” said CNBC.

Renovation demand has been growing as homeowners tap their home equity to make updates and improvements. “This year, the National Association of Home Builders’ Remodeling Market Index (RMI) revealed that in the fourth quarter of 2017, the RMI reached 60 for the second time since 2001,” said HousingWire. “Although the demand for home renovation has continued to increase in 2018, recently imposed tariffs are expected to reduce affordability for homeowners seeking renovations.”

So, could the higher costs associated with renos be enough to slow their roll? To be clear, the first round of new Chinese tariffs took effect on September 24, hitting “about $10 billion worth of Chinese products exclusive to homebuilding and remodeling, according to the National Association of Home Builders,” said CNBC. The tariff is expected to rise “to 25 percent by the end of the year. That would be equivalent to a $2.5 billion tax increase on the industry.”

That’s putting pressure on an industry that has been thriving even under a labor shortage, and that could bend to uncomfortable levels under higher materials costs. In addition, “Clients and contractors are having to set contracts with escalation clauses for projects that are being scheduled for six months from now, largely because we’re not sure how far prices are going to go north,” Washington, D.C.-based contractor Justin Sullivan told CNBC.

So, if you were getting ready to add a bathroom, redo your kitchen, or create a killer outdoor area, should you proceed? That all depends.

“Trump’s trade tariffs will drive up the cost of some home renovations, so you might need to speed up your plans to finish a remodel before the supply chain impact hits you directly,” said GOBankingRates. “On the other hand, some costs are already up, so it might be worth postponing your renovation until prices stabilize.”

Specifically, they recommend moving forward with new kitchens and bathrooms. “If you’ve got a new kitchen or bathroom in mind, don’t wait. The new tariffs aimed at Chinese imports will raise the prices for tile used in bathrooms and kitchen backsplashes, cabinets, wallboards and floorboards, light fixtures, and heating and cooling equipment.”

Popular countertop materials like quartz are especially tenuous, facing a “double whammy,” with the U.S. “imposing import duties on quartz, which an investigation found was being illegally ‘dumped’ into the U.S. by Chinese exporters, capitalizing on subsidies from the Chinese government. Quartz prices are already rising and will likely continue to do so,” they said.

Nonetheless, updated kitchens and bathrooms are among the most-wanted features in a new home, so if you’re renovating to sell now or even a few years into the future, by all means, don’t change those plans. GOBankingRates also recommends moving quickly if you want to “convert a basement or mudroom into a laundry room.”

As for what projects to skip until costs head back down? Adding a room or garage can wait. “Some of the first tariffs President Trump imposed were on Canadian lumber, charging that Canadian companies were being unfairly subsidized by their government,” they said. “Canadian lumber prices have also risen in response to a supply decline due to tree disease and slower transportation. Wait for lumber prices to stabilize before you build a new home, add a room, add a garage, convert a basement into an in-law unit.”

WRITTEN BY JAYMI NACIRI

Conditions are perfect for the real estate market in Seattle to cool some

October 23, 2018 by Kathy Reichle Leave a Comment

October will be the last month with good inventory — so now’s as good a time as any to buy

Summer is over, but the real estate market is just catching up.

The heyday for the market is typically between May and October, when the sunshine makes for nice pictures and easy open houses. Which means that the final month is here to take advantage of the housing market before the fall drop-off.

Slowing real estate might let us catch our breath — or knock the wind out of us

October 18, 2018 by Kathy Reichle Leave a Comment

Last year Seattle ranked first in a widely watched report on markets with an strong outlook for real estate. This year it’s not in the top 10. (Greg Gilbert / The Seattle Times)

If you read my colleague Mike Rosenberg, you already know that segments of the Seattle real-estate market are slowing.

We have an apartment glut thanks to heavy investment in multifamily housing coming out of the Great Recession. Sales and inventory numbers for homes in King County are back to 2012 levels. Prices are dropping many places after record leaps in recent years.

Last week came further evidence: For the first time in about a decade, Seattle wasn’t among the top 10 markets for the coming year in the “Emerging Trends in Real Estate” report by the Urban Land Institute and PricewaterhouseCoopers. Last year, we were No. 1.

The report focuses on the Seattle-Bellevue area, setting Tacoma (No. 53) out separately. And it doesn’t directly correlate with livability. Rather, it assesses investment and development trends, and for several years has chronicled the rise of high-quality urban centers.

Many people will see this as all good news, a pause from explosive growth that has also been blamed for lower affordability, rising inequality and social ills. I would add that markets go down as well as up, and every swing creates winners and losers.

Still, while Seattle’s growth isn’t stopping, going from the equivalent of 90 miles per hour to 50 would be felt, and in some unpleasant ways, too.

“Emerging Trends” is the gold standard in real-estate forecasts, based on interviews and surveys of hundreds of leading developers, investors and lenders. It provides a deep analysis of the outlook for residential, retail, office, hotel and industrial properties, as well as the wider economic environment.

For next year, the top overall markets according to the ULI study are Dallas-Fort Worth, Brooklyn, Raleigh-Durham, Orlando, Nashville, Austin, Boston, Denver, Charlotte and Tampa-St. Petersburg.

At No. 16, Seattle still shows a decent outlook among the 79 markets surveyed. We rank No. 20 in homebuilding prospects. And second, behind Boston, in local market attractiveness for investors. Office demand is expected to continue doing well in the central business district. Being No. 1 isn’t everything. I’d take Seattle over almost any city among the top 10. But Seattle dropping off might mark an inflection point — emphasis on “might.”

The report also offers this caution about Seattle’s drop: “Seattle is still viewed as an attractive place in which to invest, but did media coverage of potential new supply being delivered and increased regulatory discussions sway the opinion of survey respondents?”

(I’d say the news coverage reflected real events and trends.)

Seattle’s population is expected to keep growing, next year at twice the national rate. Hard as it is to process, Seattle also gets relatively good marks for housing affordability within the context of the Pacific Coast (Tacoma does even better). Demand remains strong for distribution space, too. The report points to a local economy operating near capacity (e.g. employment) as a constraint on real-estate investment next year.

“This is evidenced by the comments from focus group participants in Seattle and Portland that attracting qualified labor is getting more difficult and could be hurting employment growth,” it reads. The unemployment rate for Seattle-Tacoma-Bellevue was 3.6 percent in August. Assuming the larger economic climate is stable, we can expect Seattle to go from “hot” to “warm.” Even so, a pullback in construction would be felt, and not just by speculators.

Being the crane capital of America was part of the enormous construction boom during this expansion. It put hundreds of millions of dollars into the city treasury. This has helped finance low-income housing and social services.

On the other hand, the economy is never static. Risks abound nationally and internationally, from trade battles and asset bubbles to new vulnerability in the banking sector. Geopolitical instability is rising. So are interest rates.

The past week’s wobbly stock market was centered in nervousness about potential inflation — enough at least to cut into profit margins. Popular tech stocks, including Amazon, were among the shares roughed up. Nobody has repealed the business cycle, so this second-longest expansion in modern American history shouldn’t be taken for granted. A veteran asset manager quoted in “Emerging Trends” says, “2019 will be a turning-point year. I think about the capital markets correction that is coming. We have been used to easy money and very low rates for so long. Now is the time to harvest, to hedge, to be cautious.”

Seattle specifically has yet to see how a “separate, equal” HQ2 — yet to be announced — will affect it. Those effects could pinball to small-businesses, city tax revenues, vendors and even charitable giving, as well as hiring at the city’s largest employer. The metro area would also be hurt by a stock market correction — not only in terms of lost wealth, but potential job cutbacks by companies in response. But the stomach-knot scenarios might not happen. What we know is that real estate is slowing. This boom has remade Seattle more dramatically than almost any since the Great Fire. It’s been a lightning rod for criticism, and not just from the social-justice warriors.

Too many classic Seattle three-story brick apartment buildings have been lost, diminishing lower-rent units for renters. Too many useful commercial buildings have been demolished for towers, annihilating affordable retail space and the human-scale delights of the city. Add in straight-up skyscrapers with no setbacks and little distance between them, plus loss of views toward the Space Needle.

I’ve watched these changes over a decade and wondered: Why does this happen in a supposedly progressive city?

Some will pour out corruption conspiracy theories. My guess about what happened is a combination of inattention to protection and design standards; addiction to construction fees; loss of imagination among architects, and political division — all happening as this firehose of demand came at us with great suddenness. On the other hand, the real-estate boom has been pretty good to Seattle, and not only in terms of tax revenues.

On the commercial side, it’s been driven by demand from some of the top companies offering some of the best jobs. We’re not cursed by the desert of huge surface parking lots or store fronts emptied out by changing consumer patterns and online competition. Speculation is an element in rising housing prices, but demand was the big driver. Real estate and construction are significant employers.

In the America as it is, rather than what I might wish it to be, this is a gift horse that shouldn’t require obsessing over its dental work. In the many left-behind localities — places without the bother of an Amazon headquarters — inequality and opportunity are worse than here and future prospects are dim. These include some of the once-greatest American cities.

Seattle has been lucky, and made its luck. Now we’ll see whether what’s happening in real estate is a natural downshifting or something more.

Jon Talton

The Seattle Times

Lawn Care For The Fall: Essential Tips to Follow

October 15, 2018 by Kathy Reichle Leave a Comment

All summer you’ve been watering, cutting, trimming and feeding your yard in the hopes of having the greenest plot of land in the neighborhood. So what should you do to get your lawn in shapefor the cool breezes of autumn? These six steps will help you get a head start on the colder weather.

Aeration and Overseeding

If you live in a climate with cool-season grass, fall is the perfect time to aerate your lawn because the air is cool and the soil is still warm from the heat of summer. The earlier you can do this, the better the results will be for your yard. Depending on where you live, September or early October is the best time to tackle this project. You’ll pay around $120 for lawn aeration.

Aeration removes small plugs of soil from your lawn, allowing greater amounts of air, nutrients and water to reach the root system of your grass. It also reduces soil compaction in the process. Following aeration, you might want to overseed your yard. Overseeding makes it easier for seeds to germinate while the soil is loose.

Feed Your Yard

Fall is the prime season of the year to fertilize cool-season grasses. Unlike warm-season grasses, which often go dormant in the fall and winter, cool-season grasses can actually hit their peak growth rates during the fall. This means they need a full dosage of nitrogen to help boost the health of the soil and your grass. Most importantly, this will help prevent the growth of weeds, which choke out the grass over time.

Cut Down on Mowing

Throughout the summer, you’ve gotten into the habit of mowing weekly. But if you have cool-season grass, it’s time to start cutting back on the number of mowing events each month. Generally speaking, every other week should be your maximum. If you have too much leaf coverage on your yard, you can mulch those up, but remember to leave your cutting deck high so you aren’t cutting off too much of your grass in the process.

The professional recommendation is not to cut off more than one-third of the total blade of grass each time you mow. Doing so can result in scalping the lawn, which stunts the growth of your grass. If you live in a warmer climate with warm-season grass, you can likely skip mowing altogether because your grass is going into its dormancy cycle.

Leaf Removal

There are two approaches you can take when dealing with falling leaves. At a bare minimum, you should remove any fallen foliage within seven to 10 days because it blocks sunlight from reaching your grass. But, if you get a relatively light leaf fall each autumn and you own a strong mulching mower, you can turn fallen leaves into a composting gold mine. If you mulch your leaf fall on a regular basis — at least once a week — you are recycling the nutrients back into the soil. If your leaf pile is too big, consider hiring a pro. You can expect to pay about $310 for professional leaf removal services.

Sow and Reseed

Believe it or not, but fall is a great time to reseed the bare patches of your yard and sow new sections of lawn for cool-season grasses. Applying fresh soil and some new seed to barren patches of your yard can help prepare your lawn to bounce back in the fall. As mentioned earlier, this time of year is often the strongest for cool-season yard growth, so take advantage.

Winterize Your Sprinkler System

If you have an underground sprinkler system to help you keep your yard green all summer, it could be the biggest threat to your utility bill and soil during the winter months. If you fail to blow out your underground system, the water left in the pipes could freeze, expand and burst the pipes. This could lead to a water leak in your yard that could compromise the integrity of the soil and cause serious damage. If you live in a cooler climate, it’s important to winterize your sprinkler system immediately.

Conclusion

With one weekend of work, you can accomplish most of these tasks and have a yard that looks great for the coming fall months.

WRITTEN BY ANDREA DAVIS

Halloween Decorating and Marketing Tips For Selling Your House

October 12, 2018 by Kathy Reichle Leave a Comment

Planning to deck your house out with ghosts and skeletons and every last one of the pumpkins and gourds in your supermarket’s produce department? If you’re also planning to sell your home, you might want to rethink that strategy.

There are mixed opinions on how much to decorate for Halloween—or if you should at all—when selling your home. Can it actually help you sell a home if you turn the holiday into a marketing opportunity? Possibly. We took the temperate of the industry for some guidance.

When should you put up your decorations?

You may want to keep an eye on your neighbors for this one. If you’re the first house on the block to decorate, your home may stand out for the wrong reasons. If you’re still worried that your Halloween décor may distract from the home, follow Mass Realty’s advice. “Overall, you won’t want to put up spooky Halloween decorations until the night of Halloween and make sure to take them down the next morning,” they said. “Instead, it’s alright to put up seasonal decorations, such as pumpkins, bright leaves, or colorful corn cobs. That way, no one gets offended and you can keep them up for weeks to feel the spirit of the season.”

Should you continue your annual spooky theme?

You may be known for your elaborate displays that have a different theme (Friday the 13th, Carrie) each year, but perhaps it’s best to forgo that when trying to sell your home. “If Halloween is your holiday, it is best to take a break this year,” said Shorewest Realtors. “Over decorating will hide your home and turn off potential buyers. Instead think of how you will decorate your new home!”

If you do want to add some Halloween-specific decorations, use common sense. “Experts say keep Halloween decorations neutral,” said Lyst House. “So what Halloween decorations should you avoid? Well for starters…clowns, dead children, blood and gore, and rotten pumpkins.”

Time your listing photos right

Be careful with your listing photos if you do decorate for Halloween. If your home is still for sale come Thanksgiving and Christmas and New Year’s and even Valentine’s Day, your photos will look extremely dated. This will likely turn off buyers, who may wonder what’s wrong with you home because it’s been on the market a while. A good tip is to use spring photos, if possible, said Fortune Builders. “If you can, try to take property photos when the sun is shining and you can take advantage of all the great natural light that spring has to offer. It will help your property stand out in a cold (and gloomy) market.”

Don’t miss a marketing opportunity

“If you must decorate for the holiday, hold a Halloween open house to attract buyers with children or those young at heart,” said Mass Realty. “Set the date for the weekend before the spooky holiday to bring in more potential buyers. Offer homemade cookies and a $10 gift certificate to an ice cream shop for the adult with the best costume who registers at the door. Take photos to compare costumes after the open house. Have your real estate agent contact the winner to pick up the prize, giving the agent time to discuss the home with all who registered.”

Turn it into a party

We love this idea from Opendoor, who threw Halloween Open Houses in three Arizona cities on Halloween night last year. “We greeted trick-or-treaters at three Opendoor houses in Glendale, Gilbert, and in North Central Phoenix,” they said. “We gave out more than 1,000 candy bars…as well as other tasty treats. We had games and activities for the whole family, including a fun real estate trivia game. The big hit, though, was the haunted GIF photo booth to capture the fabulous costumes of our visitors—we had lines at every house! The event was a huge success. We saw more than 1,200 guests across all three homes and, more importantly, we brought our neighbors across the valley together on Halloween night.”

WRITTEN BY JAYMI NACIRI

Four Ways Real Estate Can Boost Retirement Income

October 9, 2018 by Kathy Reichle Leave a Comment

Even if you manage to sock away a fair amount in your 401(k) every year, it’s not unusual to worry that inflation may eat away at the value of your retirement portfolio. To reduce the likelihood of that happening, you can boost retirement income by investing in real estate.You’ll gain the added benefit of increased asset diversity and balance in your portfolio. And depending on which real estate investment option you pick, you could also create a retirement income stream that rises in tandem with inflation.

Let’s look at the pros and cons of common ways to invest in real estate:

1. Purchase shares in private lending pools.

2. Invest directly by purchasing rental property.

3. Buy shares in real estate investment trusts (REITs).

4. Cash out home equity.

1. Investing In Private Mortgage Funds: Pros And Cons

Private mortgage funds lend money to real estate flippers who buy, improve and resell properties. (Full disclosure: I am the CEO of one such lending organization.) Since the pool lends money to hundreds of flippers, risk is diversified across many deals.

As a borrower, you can also avoid risks you’d face if you tried to flip a single property yourself, like buying high and selling low, not knowing enough about renovations to do a good job or taking so long to finish the renovations that holding costs eat your profit.

Private mortgage funds are long-term, fixed-rate investments that aren’t as liquid as stocks and bonds. You typically need to commit to the investment for a set number of years and provide many months’ notice if you want to redeem your investment early. They’re also not traded on an exchange, so it’s important to vet the company offering the investment.

2. Direct Investment In Real Estate: Pros And Cons

Direct investment has many upsides. You can buy with relatively little cash, so it potentially has one of the highest returns on investment (ROI) of the three options. Independent home lenders offer investment property home loans with as little as 15% down, so you could buy a $200,000 property with $30,000 cash down. Let’s say home prices rise 5% next year. Your rental property is now worth $210,000, a 33% gain on your $30,000 investment.

Real estate also tends to move with inflation. As consumer prices rise, so do rents, making direct investment in real estate a solid hedge against inflation. Timing your rental property mortgages to pay off by the time you retire creates an inflation-hedged income stream.

Purchasing rental properties is a long-term investment with much less volatility than stocks. Home values change over years, not hours, like equities. After the real estate crisis, median home sale prices hit a low point of $148,000 in 2012. Six years later in mid-2018, the median home price was $231,000, according to Zillow data.

If you buy with a 15- to 30-year mortgage and don’t sell your rental property, home price changes won’t influence you. But if you do need to sell, it can take months, especially in a down market. And when home prices fall, rents may follow suit. The investment that was paying for itself can suddenly start costing money every month. When rents don’t generate enough income to cover taxes, insurance, repairs and the like, you’ll have to pay for those costs out-of-pocket.

Real estate also carries big transaction fees, like sales commissions and transfer taxes, that make it a costly investment to sell. A 6% sales commission on your $200,000 investment property will run you $12,000, quite a bit more than selling shares in a private loan fund or REIT.

3. Real Estate Investment Trusts (REITs) Pros And Cons

Real estate investment trusts (REITS) take money from shareholders to invest in real estate, such as residential or commercial properties, or mortgage-backed securities.

There are hundreds of REITs to choose from and since many are publicly traded, they’re as easy to buy and sell as stocks. The average return for all REITS since 1972 was about 9.7%, according to data from the National Association of Real Estate Investment Trusts.

Since REITs are fixed-income investments, their value may fall when interest rates rise. A REIT that invests heavily in a single class of real estate — say, strip shopping centers or retail malls — can be hurt when that property type falls out of favor. REITs that invest primarily in mortgage-backed securities can see their prices drop when interest rates rise because they hold securities with interest rates below current rates.

4. Cashing In Home Equity Pros And Cons

Since a whopping 78% of Americans own a home by age 65, according to Census Data, home equity may be one of the most consistent sources of retirement income opportunities. To cash out home equity, you have to either sell a home you’ve built equity in, refinance or take out a reverse mortgage.

Selling and moving to a less-expensive home would allow you to pocket up to $500,000 in profits tax-free (married, filing jointly). However, since millennials are postponing homeownership to a later point in life than prior generations, they may be less likely to own homes free and clear by the time they retire.

To do a cash-out refinance, you generally need to have income from investments or employment to show you can afford monthly payments. Reverse mortgages pay you either monthly or as a lump sum. The lender bases your payment on your current home value. You don’t have to repay a reverse mortgage until you sell your home, move out or pass away.

The fees on reverse mortgages can be significant and those seeking income early in retirement will find they typically don’t receive monthly reverse mortgage payments that are as high as those an older borrower can receive.

WRITTEN BY

Bobby Montagne

Private Lending: Why It’s So Important

October 1, 2018 by Kathy Reichle Leave a Comment

Have you heard of private lending? Not so much as an owner-financed home but loans made by a certain type of lender using its own internal guidelines without having to follow third party regulations? Private money, or so-called “hard money,” is a valuable asset in the world of real estate and without it many existing properties could ultimately fall into a state of disrepair such to the point where it detracts value from surrounding real estate. In the residential world, private loans are used to buy and rehabilitate investment properties.

Most residential loans today are issued following guidelines set forth by Fannie Mae or Freddie Mac. When a lender approves a loan using these standards the loan is then eligible for sale in the secondary market. Selling a loan means freeing up more capital for the lender in order to make more loans. With a private loan, the goal isn’t selling the loan, it’s getting the loan paid back. Private loans will carry higher interest rates and are only available for a short period of time, time enough to buy and rehab a property. Once the property is rehabilitated it can then be in a condition where traditional financing can be used.

For example, consider a fourplex unit that is vacant and needs more than a little TLC. The property is in such a condition that a traditional loan can’t be placed. An investor sees the potential in the property and with a little due diligence comes to the conclusion the property would show some serious cash flow once stabilized and sell for a tidy profit once the repairs have been made. The investor then contacts a private lender and makes the proposal for a private loan.

Private lenders look primarily at the “exit strategy” which means telling the story how the private loan would be paid off. Typically, the exit means the property will be sold once repaired. The private lender agrees and issues the needed funds to buy and rehab the property. After a few months, the property is completely rehabilitated and ready for conventional financing.

If private lending didn’t exist, this same fourplex could fall into such a state of disrepair the only option is a complete demolition and building brand new from the ground up, a costly proposition compared to a private loan. When you hear the term “hard money” it’s far from a bad thing. For many projects, it’s the initial seed capital needed to turn a dilapidated property into a money maker.

WRITTEN BY DAVID REED

How much do you really know about the value of your home?

September 27, 2018 by Kathy Reichle Leave a Comment

If you stalk the real estate listings in your neighborhood and make the open house rounds on the weekends you may feel pretty good about your real estate knowledge. I know I like to play the game of guessing my home’s value every time a house near us sells. But real estate can be a high stakes game, even if it sometimes seems like play money being thrown around on real estate TV shows. A misstep can cost thousands, even tens of thousands of dollars, but how do you even know what you don’t know?

To get some insight into mistakes many of us may be making when it comes to our houses, I talked with Seattle-based real estate expert Aaron Hendon. And did he set me straight.

1. YOU TRUST AN ALGORITHM KNOWS YOUR HOME’S VALUE

The worst thing Hendon sees, he told NBC News BETTER, is homeowners who assume they know something about the value of a house. Maybe they saw something about real estate prices on the news, or talked to their uncle, or saw it on Zillow, he said. The absolute worst, he added, is to think that the Zestimate is the true value of your home.

The “Zestimate” is an estimated value listed on popular real estate site Zillow. And it’s notoriously off, Hendon said. So badly so, in fact, that when Zillow CEO Spencer Rascoff sold his condo, the the Zestimate was 40 percent off.

“The problem is you can’t do it by an algorithm because there are too many variables and they change too rapidly to get a good read,” Hendon explained. “The assumption is there’s a real inherent value to our house but there is not. There’s what a buyer is willing to pay for it on the day they buy it and what the seller is willing to take for it. You’re selling a commodity, one of multiple houses, and you have no idea who’s shopping that particular week. How could you value your house by a computer estimate? At best it’s a guess.”

There is some value to be found in the Zestimate, however, Hendon said. “Say I want to track my house value over time. I check the Zestimate every six months, and it’s going up. It doesn’t tell me what it’s worth but tells me it’s worth more than it was.”

2. YOU THINK YOUR NEIGHBOR’S HOUSE WILL TELL YOU YOUR HOME’S VALUE

So the house up the street just sold. You quickly do the math and figure out the price per square foot, then apply that to yours: voila, there’s your value.

Not so fast.

What’s more, “all square footage is not equal,” he said. If it were, “that would mean 4000 square feet should be worth twice as much as 2000. You need a first thousand to even have a house, the next thousands are options. What are those rooms? Bedrooms are worth way less than bathrooms.” People tend to gloss over a myriad of variables that are hidden, he said.

3. YOU BELIEVE THE APPRAISER SETS THE VALUE

“The tendency is to live like the appraiser is coming up with the true value,” Hendon said. But, he reiterated, “there is no value, it doesn’t exist, it’s worth what someone will pay for it and you’ll accept.”

At the end of the day “it’s a subjective valuation of your property,” he said. The appraiser doesn’t have to agree that you paid the right amount. “Their job in that case is to say to the bank, ‘if this guy defaults you’ll be able to get your money back.’”

This, at least, is one thing not to worry so much about.

4. YOU THINK RENOVATING BEFORE SELLING WILL BOOST THE VALUE

Tempted to upgrade the kitchen or get new carpet right before you sell? That’s a mistake, Hendon said. “Don’t redo your house right before you sell. I can’t tell you the number of people I have to talk out of remodeling right before sale. I’m a little blunt, I go ‘that’s crazy thinking.’”

He asks sellers to look at the math. “You’re going to spend how much to redo kitchen? Say 15? Do you think we’ll get 20 more? The kitchen will be torn up for six months, that’s got to be worth something, and then we don’t know what the market will be in six months — and everyone may not love your choices.”

When’s the right time to remodel? Five years ago, Hendon said.

“If you did it five years ago and you loved it and used it you don’t care if you get the money back.”

If you’re a professional flipper, go for it, he said. Otherwise, “clean it, get it neutral. You’ll get less, but the net will be the same.” And you save yourself the hassle.

5. YOU UNDERESTIMATE THE ROLE OF THE REALTOR

Homes are the most expensive, most emotionally impactful, rarest sale and purchase in our lives, Hendon said. “What makes me craziest — when people go hire a realtor, they do it with due diligence of where to eat dinner. They hire their friend, they go to Yelp or Zillow and see stars, they use a discount broker or see a guy’s signs all over the neighborhood.”

“No one has ever asked me to see my last 12 months statistics,” he said. “That is crazy to me.

It takes nothing to ask that.” And no realtor should be offended by the question, he said. “You’re going to give someone $8,000 [commission] they should be ready to compete, they should be ready to fight for your business.”

6. YOU CAN SAVE THE SIX PERCENT BY SELLING THE HOUSE YOURSELF

While in a very hot market there could be value in a FSBO, or for sale by owner, the math on this rarely pans out, Hendon said.

Is it worth it? “If you don’t have a job [so you have the time], and you’re ok with letting strangers in your house and leaving while they’re there, and doing all the work, and will somehow find a way to price it correctly, and don’t mind the risk involved in the liability of getting it to close, and you who do not negotiate for a living, who do not sell a hundred houses a year are going to trust that the buyer’s agent is somehow not going to screw you over …” Hendon said. We’ll take that as a you do the math.

When my husband and I sold our last house and bought our current one, some of the biggest value to us was our realtor’s role as counselor in guiding us through the process and keeping our best interests first in negotiations with our buyer and seller and their respective agents. It felt like a house of cards most days that would fall apart at any moment, but he made it happen and that was more than worth the commission.

We also listed and sold our house for more than we’d have ever tried ourselves. Hendon wasn’t surprised to hear this.

by Dana McMahan

New Chinese Tariffs to Raise Renovation Costs. Should You Postpone your Reno?

Contact Us

Larry & Kathy Reichle

Real Estate Tools