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Property Procurement | A House By The Park
Archive for the ‘Property Procurement’ Category

On Real Estate Agents and Finding Properties

My opinion on real estate agents is that, as a whole, they are about 25% as useful as they were before the internet came along. That is not to say the best agents are not 100% or even more valuable than they once were, but the simple truth is that people need less from their agents nowadays because buying or selling a home can involve a degree of self-service that wasn’t practical or possible in the past.

The last time I sold a home, my agent listed it on the MLS, did a couple of open houses and then let it sit. I ended up then hiring my friend to take over and he more or less did the same thing but took less commission. The condo eventually sold after 8 or 9 months but it was only because a buyer found it themselves, online, and decided to purchase it.

Similarly, the last time I bought a condo, I found the place off-market, via a friend, and negotiated the purchase myself — directly with the seller — and all my agent-friend did was charge us about $1500 to write up the contract. I ended up getting the condo for about $400,000 (substantially under market) and the seller got the equivalent of selling it for $425,000 if we had agents involved.

Since I like searching and negotiating for properties myself, I really only need a buyer’s agent for three things:

  1. Finding off-market properties because of their connections in the neighborhood.
  2. Driving me to properties that I find myself and letting me in.
  3. Writing up a purchase and sale agreement (99% of which is just a form letter).

Are any of those worth a full 3% commission? To me, #1 is, #2 may or may not be depending on if you end up seeing one place or 30 places, and #3 certainly isn’t.

That said, I am not up for signing an official buyer’s representation contract with an agent at this time. If an agent lets me into one property that I found by myself and I end up buying it, that agent should refund me all but a grand or two of the commission. If, however, he/she brings me an off-market property or ends up spending a lot of time on my account, go ahead and take the full commission. Unfortunately, typical real estate contracts do not accommodate this sort of arrangement so I’m staying contract-free for now. A real estate agent friend of mine has agreed to show me around any places I find as well as keep a lookout for off-market properties without officially engaging as my agent, so this is how we’re moving forward for now.

With regard to searching for properties yourself, it all comes down to one acronym: RSS.

Setting up a saved search on your local real estate site (I use Windermere) and consuming the results via RSS ensures that you find properties the minute they hit the Multiple Listing Service. RSS is so quick that often you’ll see a listing before photos of the property are even uploaded.

If you’re not up for RSS, at least choose to get your saved search results via e-mail. There’s no excuse for missing a single property when you use saved searches.

So Close!

So it’s been several months now and the Seattle real estate market in the middle of winter appears to be an extremely quiet place. I’ve looked at hundreds of listings which continue to come up every week, drove by about 20 of them, and went inside of only five. Since I am already comfortable in my condo, there is no need to jump on a property unless it is perfect.

Yesterday, however, my agent took me to a property which, strangely, has been on the market for about six months and yet I never remember seeing. It turns out the photos of the property that the realtor uploaded online were so awful that I wrote the place off months ago without even checking out the specs. It’s an old 1950s tear-down on a huge 15,000 square foot lot with a great water view in the exact area I want to be in! After touring the property, I instructed my agent to contact the selling agent and feel out the situation. The price has already dropped about $500,000 since it was originally listed and I’m wondering what price would make it mine.

To my unfortunate surprise, it turns out an offer was accepted today, a full six months after it went on the market. Man, I am so mad I didn’t find this earlier.

Lesson: Don’t let online photos dissuade you from checking out a property in person.

It turns out this place is an estate sale and there are 10 beneficiaries, so I am going to put in a “backup offer” in case the first offer falls through. I’d love to figure out a way to outbid the existing bid and move into first place, but apparently in real estate, it is almost impossible for a seller to get out of a contract unless the buyer is in breach. Any interference by me could be considered what’s called “tort interference”, which you can be sued for.

Fingers crossed, but not hopeful.

Backup Bid Update

It’s been a few weeks since I put my backup bid in and I had a couple of other agent friends call the selling agent to “express interest” in the property, hoping to get the message through that there are other buyers willing to bid on this property. If the current buyer misses any deadlines, I want the seller to come to me. So far, I have no reason to be optimistic except the selling agent did let slip that there was some sort of “boundary dispute”. Hopefully that is just the opening I need.

Unfortunately, the seller did not officially accept my backup bid, so even if the first bid falls through, I am not locked in. My bid was below the asking price, but I tried to price it such that it was slightly above the already accepted bid. My feeling is that the selling process has been so long and arduous for the seller that the selling agent (who doesn’t strike me as particularly experienced or skillful) doesn’t want to do anything that will jeopardize the deal. Perhaps he is thinking that if the seller sees a higher bid, it could destabilize what should be the endgame towards his hefty commission.

Continuing to wait…

It’s Never The Last House

Just as I received word that the property on which I placed a backup bid closed, my agent informed me of a property that was being prepared for market, several blocks north of my sweet spot but on a great street and allegedly with a great view of Puget Sound.

I love off-market properties, because they afford you a bit of bargaining power before the place goes on the market. For instance, the seller doesn’t need to pay to stage the place. Also, if they haven’t signed on with an agent yet, they can save at least half of the 6% commission. Furthermore, in this down real estate market, any offer from me is doubly strong, because I can close quickly and am not overly affected by the radically reduced amount of mortgages available since the sub-prime collapse.

On to the Property

My agent arranged for me to see this new place, and upon arriving, we met the real estate agent who the seller was thinking about working with. She had not officially gotten the listing yet, but she smartly had the seller sign a one-day listing agreement in case I decided to put in an offer. This is an extremely important step for a prospective selling agent to take in ensure she gets her 3% in the event of a sale, and it doesn’t require the seller to commit to her long-term.

The house has a lot going for it. It’s a mid-century modern home on a prestigious street with great bones and a nice view of Puget Sound through several tall trees. It has a beautiful butterfly roof which creates a nice, sloping exposed beam ceiling on the inside. The entrance and main floor are on street level and the daylight basement below provides extra bedrooms and other space. It’s definitely the nicest house I’ve seen in my price range, but it needs some serious work.

The house was designed around 1960 and hasn’t been updated in awhile. The owner is an elderly gentleman who is apparently a bit crotchety and refuses to sign the Seller’s Disclosure Statement which makes me instantly suspicious, given the guy is a civil engineer. According to the selling agent, the guy simply decided years ago that he should never have to sign these things for properties he sells and that basically, “it is what it is”. I’m not letting this strange circumstance keep me from buying this house, but it’s certainly going to cause me to triple-check everything.

More importantly, however, the house has a few characteristics which I need to get cool with in order to pull the trigger. Number one, it’s probably too nice of a house to tear down, but possibly not nice enough of a house to make perfect upon an extensive remodel. The biggest issue would be going up a story. From the roof of the existing structure, the view just explodes. It goes from a 90 degree view of the water between trees to a 120 degree of the water and a nearby lighthouse above the trees. The difference is dramatic. If I buy this house, going up a level is an absolute must.

The other thing about the house is that the arrangement of rooms is not ideal. Currently, a lot of the square footage is buried in the daylight basement (with no view) and the master bedroom is pretty small by current day standards.

I’m going to take the evening to think about this and perhaps put a bid in tomorrow. Bid or no bid, however, this house has reminded me of something important to consider when you’re house shopping: whatever house you’re looking at, it’s never the last house. There will always be another one around the corner. Seeing this house lessens the emotional impact of not getting the previous one tremendously.

Offer is in

Today, I decided to submit an official offer on the off-market house I saw yesterday. I am not sure I want the house yet and I definitely need to do some inspections, but my agent’s advice in this case is good: go ahead and lock it up under contract and then spend the next week deciding if you really want it.

Unfortunately, I don’t agree with my agent’s advice on the price I should bid, however. I want to come in $150,000 less than what the seller wants. My agent doesn’t think I should come in more than $50,000 below. This illustrates another reason why I think the value of real estate agents is overrated: their motivation is to get you a house as quickly as possible at any price that is comfortable to you (and thus collect a nice commission). My motivation is to get a house that I want at as low of a price as possible. If I bid $150,000 less than the ask, the seller can always say no and then I can come up quickly to his price, if need be.

So that’s what I just did. We’ll see what happens.

Offer Accepted!

Well what do you know? Bidding $150,000 below the asking price was a good idea! The seller accepted the bid without even countering. Had I listened to my agent’s advice, I’d be on the hook for an extra $100,000.

Lesson: If you feel your real estate agent isn’t correct in their negotiating advice, follow your own intuition.

So now that we’re officially under contract, I have five business days to complete any inspections I’d like to conduct. Since this seller refuses to sign a Seller’s Disclosure Statement, I’m going to be extra careful. If any inspection comes up less than roses, I may back out. I’m planning the following inspections:

In addition, I’ll be calling two groups of architects and builders out to the property to give me their initial thoughts.

Inspections Completed. Deliberations Begin.

Both the sewer and structural inspections are now complete and I have three more days to decide if I want to go ahead and buy the place.

Sewer Inspection

The sewer inspection was an A+ and Hydro Physics even gave me a DVD of the footage from the inside the sewer. It’s pretty interesting. They snake a tiny camera from inside the house all the way to the sewer main in the street. Checking a sewer may seem like an unimportant thing to do, but if there are tree roots down there slowly ruining the line to the sewer main, I’d rather know about it ahead of time.

Structural Inspection

The structural inspection was obviously quite a bit more important. Initially, I had planned to get two separate inspectors in there but Dave Pioli of Criterium Pioli Engineers did such a thorough job that I didn’t need another set of eyes after all.

According to the structural inspection, the general build quality of the house was very good and there were no major issues with its condition. There were, however, signs that the house had been added onto, and probably without a permit. Pioli noticed that the exposed beams over the covered patio didn’t even butt up to each other indicating that part of the patio covering was added on later, and not with a ton of attention to detail. He also found a stabilizer bar across the ceiling of the garage that looked like it wasn’t part of the original construction. Since the seller is an engineer and he refuses to sign the Seller’s Disclosure Statement, it raises a few alarm bells in my head that perhaps he did some of this himself and he knows a bit too much.

Most importantly, however, his opinion was that the house — although structurally sound — was not a good candidate to have a story built onto it. Apparently, when you add a story on, vertical load isn’t usually a big issue; it’s horizontal shear that you have to account for. Horizontal shear occurs when forces like wind or earthquakes push laterally against the house. Apparently, on a house like this, I’d have to build what’s called a “moment frame” just to handle the load.

Final Analysis

After digesting the results of the structural inspection, I’ve come to the conclusion that if I buy this house, I’m going to have to knock it down to get everything I want out of it (particularly a view from a second story). This is a bit disconcerting to me since it’s a pretty nice mid-century modern house that a lot of people would love as-is, but it’s just a fact, unfortunately.

Since this would be a new construction project of two years and not a remodel of a few months, the qualifications of it being a “perfect property” are even tougher to achieve in my mind. I’m not willing to put two years of my life into something that isn’t going to be exactly what I want when I’m done with it. Given that it’s a little far north and the view is more of an A- than an A+, I would put the chances of me going through with the purchase at this point at about 30%.

Much to think about over the next couple of days…

No Sale

After a grueling few days of deliberating, I decided to rescind my offer on the place today. I went back and forth several times, but in the end, the overriding factor was that I wasn’t convinced that after two years of construction, it was a place I’d want to live in for perhaps the rest of my life. It’s a dream property… just not my dream property.

It also helped that many people I talked to told me they “sensed” it wasn’t the right property for me. This could only be because of the way I spoke of it, and it’s good to have others tell you that you don’t sound as excited as you may think you are.

Another trick a friend suggested was to get two pieces of paper and write “Buy” on one and “Don’t Buy” on the other and then crumple them into balls and pick one at random. If you are disappointed when you unravel your ball, chances are, you should make the decision that is written on the other sheet. If you are happy, then vice versa. I ended up picking “Buy” and I indeed felt not quite right.

Even though the results of this near-transaction were disappointing in the end, it’s never the last house, and I expect more properties to start coming on the market as the weather in Seattle gets warmer.

UPDATE: A week later the house went on the market and got four offers on the first day. Not a surprise at all to me. If anything, it makes me more confident that I can spot value in this transitional real estate market. Best wishes to the buyer and I hope they shine it up with a nice remodel.

End of Spring Update

Well, it’s been about two months since I decided to back out of a not-quite-perfect property, and in the interim, the market seems to have come to a complete stop. I haven’t seen anything close to a good fit, and although I swung away from the desire to do extensive remodeling or building after the last property, I am now swinging back towards it, considering that 99% of houses that I see come on the market are painfully boring craftsman homes or super-old brick Tudors or Cape Cods.

I’m not feeling too optimistic right now, but on the bright side, window-shopping for houses is a lot of fun and I’d hate to have already picked one out only to find a better one come on the market as the summer selling season kicked in.

Continuing to search and wait…

Jackpot

While puttering around the neighborhood today, I received the following text-message from my agent:

“Off-market opportunity with commanding view. Can u meet in 45 mins?”

I called him back to confirm my availability and get a quick overview of what we were going to be looking at. Apparently, it’s an estate sale, hasn’t been lived in in a couple of years, needs quite a bit of work, but sits on a large lot with a jawdropping view of Puget Sound. It is currently being prepared for market, but the sellers (four beneficiaries) have not signed on with an agent yet or communicated a price.

Upon hanging up with my agent, I turned to my girlfriend and said “I have a good feeling about this.”

Love at first sight

45 minutes later, we met my agent several blocks from the property and drove over in one car. Upon arriving, the first thing that struck me is that the house is only a few steps away from one of the nicest parks in Seattle. I don’t spend a whole lot of time in parks, but it’s certainly a nice amenity to have at your doorstep.

The house itself — from the front — was quaint in its own way but unremarkable. Built in the early ’50s, it was conceived in what I would consider an architectural dead spot: right between the brick Tudors of the ’30s and ’40s and the wonderful mid-century moderns of the late ’50s and ’60s. It has a carport instead of a garage, sits very low to the ground, and is covered in a combination of old-growth wood and period-popular stone siding.

Entering the house exposed right away both the greatest and worst things about it.

On the great side, the view is about as spectacular as I’ve ever seen in Seattle. It’s a full 180 degree Puget Sound view spanning from Alki beach to the south all the way past the north point of Bainbridge Island to the north. Almost as amazing as the view itself is the fact that the backyard drops right off a 300 foot cliff so no one can ever block your view. Additionally, the house is completely separated from its neighboring structures on both sides by beautiful foliage.

The view facing west before sunset. Apparently, bald eagles perch on the tree to the left.

On the bad side, however, the layout of the interior squeezes four levels into two stories, one of which is a daylight basement. Essentially, there is the daylight basement, then two bedrooms a half floor up, then the main floor another half floor up, and then two more bedrooms another half floor up. Because of all the half floors and the staircase that connects them — right down the middle of the house — the great room and other areas are chopped up a lot smaller than they could be. Without that staircase and one of the levels, the great room could be 2-3x as roomy and open. Additionally, although the house is in fine shape, it hasn’t been updated much at all since it was built.

With the above and about 100 other considerations and details in mind, this house is the first house I’ve seen which feels unconditionally like a place I could live in for the rest of my life. Much better than the last house and also the first house.

Meeting the seller

While at the house, I got to meet the seller. He is one of the four beneficiaries of the estate and the one officially handling the sale of the house. He’s an attorney (as were his parents and as are two of his siblings!) and a really down-to-earth guy. I asked him for some historical stories about the house and he told me that he had lived there from age 5 or 6 all the way up until college. He also showed me a great Sony reel-to-reel tape player and phonograph from 1960 which still sits in the living room. I told him if I ended up buying the house, I wanted to showcase that stuff in the new living room.

In talking to the seller, I could tell this had been a special house to a lot of people and it was a tough decision for the family to sell at all.

Not a question of if, but how

After we left the house and my girlfriend and I discussed it for a few minutes, the question wasn’t if I would make a bid, but instead how and for how much. The seller hadn’t signed on with a selling agent yet and was still auditioning several of them, so there was still a possible opportunity to save him some sell-side commission and thus get the house at a lower price.

I’ll be writing up an offer of some sort tomorrow. So psyched.