A Broker’s Perspective

Way back in ‘72 I was a first grader at Briarcrest Elementary School — out on NE 157th, in the Shoreline School District — just a few blocks east of Shorecrest High School. 

Between last bell and the yellow buses pulling out to haul me home, I would sprint the couple of hundred yards to the Sunshine Grocery Store, and with my lawn mowing money, I’d buy myself a couple of Zotz for the long ride home.   I have fond memories of those jogs and the sweet taste of nickel candy with fizzy sugar.

Nearly 30 years later, the Sunshine Grocery had disintegrated into a malt-liquor-cigarette-porn selling, teenage-loitering hangout.  And then it was gutted by fire.  I couldn’t help but do something to bring back the Sunshine that I remembered.  This is what it looked like when we bought it in 2001, for $215,000:

Actually, it was way worse, but I didn’t take pictures.  The owner had collected his insurance money, boarded it up, and left all of his smoke damaged inventory in place.  When we closed (sight unseen), the rats had been partying for months.  Every day for two weeks our workmen would spread D-CON.  And every morning, a few more cat-sized rats would be feet up.  One of the all time nasties in a long line of nasty remodels we’ve done.   And those abandoned RV’s, well - those are harder to get rid of than you’d think.

A year and way more cash than we expected later, the place was back to how I remembered it — pristine, all new windows, new systems, new framing, new roof.  Here’s 1952’s photo from the King County Archive, and today:

I thought it would be easy to find a new Sunshine proprietor; except in 2003 there weren’t a lot of businesses that wanted to reopen a neighborhood grocery store just a few blocks from an Albertsons, QFC, and Safeway. 

After some trials, we found a woman who wanted to realize her dream, and she opened Sunshine Coffee, serving espresso to the masses.  She ultimately moved on, and sold to another guy who tried to expand into teriaki and other cafe type food.  Didn’t work.  So the Sunshine building is once again vacant, standing proud, and waiting for another business owner to fill the space with their dreams and wares.  I think a motivated, community minded businessperson could really make the espresso/sandwich shop work.

We’re back on the market, for lease ($1850) — and we’d entertain a sale — $595,000.  If you have a yearning to do something creative in a great neighborhood commercial space, let us know!  Would love to work with the right person in doing something that benefit the very active and supportive Briarcrest community.   If fact, if anyone out there has a great idea about what this space could be, let us hear it!

UPDATE 5/7 — We now have an agreement with a terrific couple for this building.  Their idea and use is extremely cool and I think will be well received by the community!  So stay tuned for Sunshine rising again.

Gordon Stephenson 
Owner and Licensed RE Broker
Real Property Associates, Inc.
206.577.0824
gordon@rpaseattle.com

I love seeing three bits of happiness about Northwest business on the front page of the Wall Street Journal.

Yesterday’s (4/24/0 edition in the “What’s News” column:

• Amazon’s net income climbed 30% on a “healthy jump” in sales.  Shares up $3 today to $81.  Lots of Amazon investors and employees in Seattle who are loving the stock’s jump from $40 a year ago;
• “Boeing posted a 38% gain in profit” on strength in its commercial airline biz
• Liberty Mutual agrees to buy Safeco for $6.2b in CASH.  While this will mean some lost jobs in Seattle, eventually, it means lots of cash for Safeco investors — of which many shareholders in Seattle have been behind the company for decades.  My father worked for Safeco briefly in the 50’s, and my wife’s first job out of Stanford was at Safeco (she got laid off…but managed to bounce back by taking a position at Microsoft).  Fisher Broadcasting (FSCI), whose founding family bought 3m shares in SAFC back in the 30’s, stands to have a huge cash infusion from this sale of their remaining 2.3m shares — over $150m for Fisher to pay down debt or to make other strategic investments.

To be fair, there as also a hit to a Seattle company noted on this same page:

• Starbucks warned of lower earnings…citing weak economy

But I think it’s notable that in one day’s WSJ there were a half dozen mentions of prominent Seattle companies, including the above, and also Costco and Microsoft. 

We have a real economic engines here, which will continue to produce not only jobs, but also gains for a huge group of their shareholders.

Google has just gotten clobbered in the market these past few months — from a high of 747 in November, the stock is down into the mid 400’s.  Well, big news after the market closed today.  Profits up over 30%.  See one article here.  The stock is trading after hours today up 75 points, near 525.  It will be interesting to see what happens tomorrow.

It occurs to me that some of this is obvious.  The dot com boom in 2000 — everyone knew that bust was coming, it was just too “irrationally exuberant.”  A few years ago interest rates were incredibly low; back then we refinanced everything we owned.  We knew those rates wouldn’t last, and it didn’t.  And when housing prices soared, the bubble guys sure called what was coming. 

So now oil’s at 110/barrel…can that last?  Can the bank stocks stay as low as they are now?  It seems like we’re thick headed during both good and bad times and can’t see it coming.  When a situation has deviated so far off the norm…well, swinging back the other way seems nearly always to be a when, not if, question.

There has been much discussion over at Rain City Guide about agents’ commissions (this link is to just one of many posts on that blog). 

Elementary info:  Listing agents generally sign a exclusive listing contract with a seller (the “exclusive” contract is required for participation in the MLS as it binds the seller to pay a fee if the property sells during the contract period.  Standard stuff.)  The fee is negotiated, but is often 6%; however in many cases, if the client is giving him repeat business, the listing agent will suggest or accept a lower fee. 

The listing agent then publishes the listing, offering typically 3% of that total listing commission to a cooperating broker who procures a buyer for the property.  (If the listing fee was 5.5%, for example, we’ll nearly always give the same “full fee” of 3% to the coop broker).  It’s important to keep that “buy side” cooperating broker fee close to whatever the market is paying for the procuring/cooperating buyer’s broker.  To whatever extent, some agents are disincentivized by a “less than market” fee.  It’s easy to see what the market is paying, and it varies based on price range and region.  Your listing agent can easily pull this data and show you.  In Washinton Park, a high priced area in Seattle, the typical “buy side” fee (we use SOC — sales office commission — as an acronym) is 2.5%.  This implies the total commission might be 5% if the listing agent is offering a 50/50 split to the coop broker.  Kary over at Seattle PI’s blog wrote a post on this topic here that was pretty solid, even if the metaphor got a bit mixed up. 

So there is the basic story.  Listing agent (actually, his broker, but as a practical matter the seller works with an indivicual listing agent) has the contract with the seller for a commission.  The contract is not with the buyer.  If the seller’s co-worker, upon learning from the seller that they’re putting the house on the market, says “I’ll buy it!”  then the listing agent should be elated with that.  The contracted commission has already been agreed to, no matter who buys the house or whether or not they have an agent.  Most sellers understand that.  And when that co-worker offers a bit below asking price, the seller should negotiate with the buyer — not with their agent, with whom they ALREADY have a contact.  After all, the listing agent has already put a lot of work into the property — at least according to Ardell here.  The buyer may want the benefit of some savings, by not having their own agent.  Let the buyer and seller negotiate over that sales price, and perhaps the seller and their agent can have the conversation about how much fee might be reasonably reduced to bring the parties together.

As a practical matter in this scenario, will the listing agent “throw in” some of that fee to make it work?  Sure.  Maybe.  Depends.  But it needs to be the agent’s decision, not the buyers.  And not unilaterally the sellers.  It’s a modification of a contract which requires mutual agreement.  Of course, the buyer can certainly go to Redfin, or to his buddy, and get them to write it up and rebate as much of the SOC as they can get.  That’s not the listing agent or the seller’s issue. 

And there are other situations where I have voluntarily given back some of that negotiated fee.  Most recently, we had a buyer balk at the 11th hour on a pending Greenlake listing that had.  Didn’t like the condition of the paint.  Or the hardwoods.  Of course, this was well past the inspection period, but he wanted $5,000 or he was going to default and walk from his $5,000 earnest money.  While my seller was making a nice gain on this from when he bought in ‘01 (selling for $500k, and had paid around $240k), I knew it would give him major gut burn to have to negotiate with this buyer.  And I didn’t want to lose the buyer in this market, at that sales price.  So I reduced my fee by the extortion amount ($5,000) and the thing closed smoothly.  This was a seller I love, with whom we’d done maybe a half dozen deals in the past decade.  So seller’s happy (I didn’t tell him about it for a few months, actually, to avoid any post-traumatic stress); buyer was happy (presumably); and I made a decision that I could live with, that no one asked me to make.  And we have a closed sale.

Used Car Salesmen, Trial Lawyers, and Real Estate Agents

Just posted this in my second post over at the wildly popular Rain City Guide where I’ve become a guest contributor…check ‘er out here

For all the talk the bubbletalk about renting being a better housing choice than buying, for some segments of the population at least, renting is pretty rare.  I clipped this from Tom Kelly’s column this week which was reprinted in the Daily Journal of Commerce:

According to the U.S. Bureau of the Census and the National Center for Health Statistics, the older population — persons 65 years of age and older — numbered 35 million in 2000. While the years since the last census have altered the numbers, it showed the over-65 group represented 12.4 percent of the population — about one in every eight Americans. The census data showed nearly 80 percent of the nation’s seniors own their own homes, and 73 percent are owned free and clear of any mortgages, amounting to nearly $1.9 trillion in home equity.

Wow.  8 out of 10 “seniors” (although a 65 year old is not quite “senior” anymore in my book) own their homes, and the vast majority of those — 73% — have paid them off — free and clear.  No worries about foreclosure there.

I think renting is clearly the preferred alternative for a certain group — those who are transient, moving soon, or otherwise unsure of their plans.  Probably that 21-35 demographic.  But for me, and I think for most of us (clearly for those 65 and up in America), I can’t imagine not having the stability that comes with owning the roof over my family’s head. 

We’ve had clients who have bought when we counseled them not to — due to being newly arrived in Seattle, unsure of their plans, not able to find a house on the market when they got here that suite them.  Those people who bought, only to sell a year or two later, lost money — even in a strong, appreciating market.  They should have waited.  But everyone else who bought and stayed put, they’re happy as clams — even if it might have made better FINANCIAL sense to rent.

There is a great article today by Liz Ann Sonders, Chief Investment Strategist for Charles Schwab, which you can see here, and from which I’ll excerpt in this post.  The title is “Housing:  Glimmer of Hope.”

With so much bad news and piling on from the media on all fronts, I relish any little tidbit that says “the worst is passed” or something that is positive about the national market.  Mind you, I continue to be relatively unconcerned about Seattle, but clearly things are hurtin’ elsewhere in this fine country.  And Ms. Sonders doesn’t say it’s over, but she does say that there are some good signs.

Some tidbits, but there’s a lot there to read, so link off and check her out…

Comparing the Homebuilder’s Index to the Nasdaq:

From peak to trough during the 2000–2002 bear market, the Nasdaq lost 78% of its value. From peak to trough during the recent housing bubble, homebuilding stocks lost … yes, you guessed it … 78%!

Housing Inventory:

Percentage of listed and sold homes which have been or are in foreclosure:

There’s likely still too much complacency about how bad things are, particularly in what had been highly speculative areas of the country. Those borrowers more severely impacted reside in areas where lending standards were the loosest and/or where the local economies were troubled. Tops on the list remain California and Nevada. For instance, about 60% of properties on the market in Las Vegas are in foreclosure. The same is true in parts of California: 46% of homes sold in Sacramento and 31% in San Diego were foreclosure sales in 2007, up dramatically from about 4% for each city a year earlier.

Interesting counter to the fallacy that this whole RE mess was caused by loans which, in a more prudent era, would never have been originated:

Delinquencies and foreclosures are not just a subprime problem. In fact, the statistics for prime mortgages are alarming. To date, over 36% of foreclosures started in this country are prime mortgages (about evenly divided between fixed- and adjustable-rate). That’s certainly lower than the 55% that are subprime, but disquieting nonetheless. In fact, subprime “serious delinquencies” (loans 90 days or more past due plus loans in foreclosure) have not yet topped their 12% record set in 2001, but seriously delinquent loans overall are at a record of just under 3% of all mortgages outstanding. That’s as a result of pressures up the spectrum to prime that are typically not so elevated during housing downturns.

There’s also a record that needs to be set straight. Many assume that mortgage rate resets are driving the elevated readings among adjustable-rate mortgage (ARM) delinquencies and foreclosures, when in fact the majority remain at their teaser rates. In the meantime, the ARM reset story is only just now really kicking into gear. There was about $300 billion in ARM loans that reset in 2007, while that will jump to an estimated $500 billion in 2008. The heart of the problem here is solvency. The Federal Reserve can lower rates all it wants and Congress can drop dollar bills from the sky … but the “cost” of money is one thing, while the “availability” of money is an entirely different thing. The latter is our bigger problem today.

…Especially if you try and price out the damage that waking your sleeping baby causes… 

This is a neat piece of fiction from an agent in Gig Harbor who tells the story of a couple who waited to buy…

http://gigharborundressed.neighborhoodsundressed.com/2008/02/24/how-can-i-trust-you-mr-realtor-it-cant-always-be-a-good-time-to-buy/

Now I’m sure there are stories, but for those who don’t have to sell…I can’t think of anyone I know who regrets their decision to buy. 

I meant to get this post done a month ago, but as I’ve said here before — there will always be an inverse writing to working ratio; it’s been a busy month, so not much posting.  Sales have picked up quite a bit, which leads me to think that at least some of our dismal fall was just a seasonal thing.

For the record, 2007, our 16th year in business, was a great year in sales volume for our brokerage area.   We closed $167.2m, which is just a shade under our best year of 2005, when we closed 168.7m.  However, for transaction “sides,” we were way down from our best year:  271 sides (representing either buyer or seller; when we act as “dual agent” it counts on my books as two sides), down from 283 in 2006 and 354 in that record year, 2005.  I count every deal that we do, on and off market (for example, when we broker an unlisted deal), in my volume figures.

The gorgeous thing about increasing prices, is that despite the decrease in transaction sides, our gross commissions were nearly the highest they have ever been, due to the highest average sales price we’ve had:  $619,845, up from $519,162 (2006), $476,744 (2005), and $428,186 (2004).   It didn’t hurt the average that we listed and sold Zillow CEO Rich Barton’s former house, which closed in mid 2007 for $2.75m, as well as another half dozen $1.2m+ sales. 

 (Rich’s former house, taken from an RC helicopter which we hired to shoot some marketing photos)

Does anyone else remember when $300,000 bought you just about anything you wanted in Seattle?  Now a $1m sale isn’t that unusual, and the buyer and sellers of those homes aren’t always what you’d call rich by most conventional standards (income, wealth other than property).  It’s just that the $1m home today is the $350,000 home of 1995.  Way back in 1989, when I was a fresh faced 23 year old working at MacPherson’s Realtors in the U-District, one of our agents — Greg Haverfield – listed the first > $200,000 house in Wallingford.  He was teased for his ambitious pricing, but it sold quickly.  If memory serves, this is that house:  4101 Woodlawn Ave. N.  By the way, it wasn’t the nicest house in Wallingford then…just the first one to sell for more than $200k.

Back to our stats.  It’s also interesting to me that the percentage we take on each sale has been going down a bit these past few years (consolation: the real dollars on each commission have gone up).  It’s not unusual to offer a client a discount off the “rack” rate when engaging in multiple deals (e.g. selling them a house then listing their existing home), but as a company we believe that there should be some common sense involved when we negotiate our fees.  That is, when we sell a $5m house, we just maybe can charge a lower percentage than when we sell a $500,000 house.  I know some agents say they “never” discount.  I was talking to one notable broker who runs a team here in Seattle, probably doing about 75 transactions a year.  I asked him if they ever discount.  “No, NEVER!”  Really, I said.  What about when you sell your guy a $800,000 house, and in the same week, list his $550,000 property.  “Well, sure, we’ll give something there.”  What about when a client calls you from an open house, you’ve never seen it, you haven’t shown him a thing, and you write and close the deal?  “Well, sure.”  So you never discount, except almost every time??

Summary:  2007 was a good year.  Dismal last quarter, but overall it was a productive year for our company. 

2008:  I think that we’re in for some big market driven challenges in 2008 and moving forward — things like increased market times, contingent deals, maybe some seller financing.  But for anyone who has done this for more than a few years, or in different markets, you quickly realize that what we’ve had in Seattle between 2002 and 2007 is the exception.  The rule is that we, as agents, have to WORK at our vocation.  The era of just popping a sign in the yard and popping the deal, or managing the de facto auction, is gone.  It’s time to sharpen the axe, put on the tool belt, pick your metaphor, and get to work.