Wednesday, September 20, 2017

The Crazy Seattle Housing Market

I just bet $20,000 that a house has nothing seriously wrong with it, based on nothing more than a 10 minute walk-though by myself and my wife. Although I enjoy going to Las Vegas, I’m not usually one to make such large bets. Seattle forced me to.

This Market Is So F-ing Crazy!

Housing markets vary across the country. In Arizona, when we sold our house a month ago, the market was fairly depressed. Prices had rebounded some from their all-time lows, but it was still considered a buyer’s market. There were more people looking to sell their homes than people wanting to buy one. This put downward pressure on prices, as any student of supply and demand can explain.

The Seattle area, on the other hand, is completely the opposite. Partly due to the many large tech companies headquartered here offering high paying jobs, many people are moving here and housing is scarce. There is not much un-developed land to build new houses on and what contractors are doing is buying up blocks of 5 to 10 existing houses, tearing them down, and building new ones in their place. Even existing homes are sold usually with a week. They could be sold in days, but most sellers wait for a week to get all offers and then choose the highest one. Basically, every home on the market is sold at a silent auction.

The New Home Process Turned Us Off

When my family first moved here, we were looked at buying a newly built home. New developments usually consisted of 10-20 homes or fewer. The builder would release the homes for sale one at time, usually at the rate of one every two or three weeks. If you wanted one of these houses, you needed to jump through a bunch of hoops. First, you had to apply for a loan using the builder’s lender. You didn’t have to end up using them, but you had to go through the whole pre-approval process with them, presumably so the builder knew you could afford to buy the house. Then, you had to get on an email list and be prepared to make an offer at a moment’s notice.  This is how the process works:

When a new home goes up for sale, people on the mailing list receive notice of the sale at 5 PM the day before. You then had to reply to the email with your offer before 9 AM the following day, telling the builder how much you will pay. The builder picks the highest offer.

Yes, the selling price is only a suggestion. The market is so crazy here, people are paying MORE than the asking price, even for new construction.

Did I mention most of these new houses don’t even have models built? You’re buying based on drawings.

If your offer was not accepted, you get to wait for the builder to release the next house. You can bet the next asking price will be $50,000 or more higher than the one for the last house you bid on, and that’s not counting how much people will bid over the asking price.

Used home sales are even crazier

If you want to buy a used home, you have the same general auction-like process. Most homes go up for sale and there is an open house the first weekend it is listed. The agent then collects all the offers for one week and, at the end of the week, the buyer selects the one they like the best. But for existing homes, there are some added twists.

In a normal market, a bid for a home usually includes a clause stating that you can get a home inspection and if the inspection turns up something wrong with the property that the seller refuses to correct, you can cancel the contract and get your deposit back. Not here. In order for your offer to be considered, you have to waive your right to cancel based on the inspection results. Or rather, you waive your right to get your earnest money deposit back if you cancel.

In a normal market, a bid for a home usually includes a clause stating that if you can’t obtain financing, you can cancel the contract and get your earnest money back. Not here. Don’t even bother considering to submit a bid unless you are pre-approved. Not pre-qualified. Pre-approved.

In a normal market, if the appraisal comes back lower than the sales price and your bank refuses to loan you more than the appraised price, you can cancel your contract. Not here. In order for your offer to be considered, you have to waive your right to cancel based on the appraisal. This means if your appraisal comes back $50,000 less than the sales price and your lender won’t let you borrow that extra $50,000, you have to come up with that $50,000 yourself. Or cancel the contract and forfeit your earnest money deposit.

In a normal market, an earnest money deposit is normally $1,000. It’s typically just a token, yet somewhat substantial, amount to indicate you are serious. When I sold my house in Arizona, the buyer put up $10,000 in earnest money, which I thought was a huge amount.  Up here, the typical earnest money deposit is $20,000 or more. Non-refundable upon contract acceptance. If the sellers accept your offer and you cancel for any reason, kiss that money goodbye.

Oh, and another thing. Your earnest money isn’t held until the sale is complete and escrow closes. For your offer to even be considered, you need to not only make the earnest money non-refundable, but also specify that it can be released to the seller within 5 days of contract acceptance.

And finally, your offer better include an escalation clause, or in layman’s terms, your silent auction clause. This clause says something to the effect of “we’re offering x dollars for your home, but we’ll actually pay up to y dollars if someone bids more than us and we will beat the other higher offer by z dollars.” Might was well shop for a house on eBay.

In this ultra-seller’s market, you basically give up all your rights to a refund of your sizeable earnest money deposit. And then you hope someone else doesn’t come in with an all-cash offer.

Our experience

When we heard about the crazy way new homes were being sold, we decided to ignore new homes altogether. The whole process just reeked of those Black Friday Christmas sales that start at 4 PM on Thanksgiving where people get trampled to death. The fact that each new home was priced at least $50,000 more than the last also turned us off.

So we turned to used homes. We found one we liked priced at $600,000 that had just come on the market. We made an offer with all the “must-haves:”

  • A $15,000, non-refundable earnest money deposit. 
  • The money would be released to the sellers 5 days after escrow opened.
  • We offered $625,000 and stated we would beat any higher offers by $5,000 up to a maximum price of $685,000.
  • We waived our rights to an inspection and waived the financing contingency.
  • We also offered to let the sellers live in the house up to 3 months after closing, rent free, while their new house was finished being built.
  • At the advice of our agent, we also included a personal letter saying how much we loved the house and hoped to live there. Tugging at the ol’ heartstrings can’t hurt.

We thought that was a pretty solid offer. Nope.  We did not get the house. There were 19 offers total (after only being on the market 1 week).  Final sales price: $750,000

Yes, the house sold for $150,000 MORE than the asking price.


This market is unsustainable. A crash has to be coming.

The Part Where We Prevail

We were quite depressed after losing out on our first offer. Things looked bleak and I wasn’t sure how we were ever going to buy a place. A week or two later, another property came on the market that we liked. It was an older home, priced at $595,000 and smaller than the other homes we looked at.

We put in an offer and were hopeful for a variety of reasons. There were not a ton of people at the open house. The house also did not have some of the features most people seemed to look for in a house these days: The two guest bedrooms were a bit on the small side, so I figured it might not suit the needs of many people. Because our daughter will be heading off to college in 5 years, we felt we could make do with the smaller rooms. The master bathroom and closet were small. If we got the house, we were planning on remodeling those areas in time, so we’d live with it until then.

On the positive side, the kitchen was newly remodeled and pretty nice. The backyard was also very nice. It wasn’t huge, but it was tiered with nice gardens.

Our offer was:
  •  $620,000 and we’d beat higher offers by $5,000 up to a max of $663,000
  • We waive all the financing and inspections again. 
  • Our earnest money deposit was $20,000, non-refundable and available to the sellers after 5 days.
  • We also included another letter saying how much we loved the house.

The seller was accepting offers until Monday at 10 AM, when they would make a decision. My agent kept pestering the selling agent to gauge what the interest was. The Friday before offers were due, there had been none received. Wow. Our hopes rose.

We submitted our offer on Sunday and, at that point, there were still no other offers. This was looking good, although now I was starting to wonder if there was some fatal flaw others had seen that I had missed.

Ten AM Monday came and went without a word. At noon, my agent called theirs and was told there were a total of three offers and their agent was on her way to meet the sellers now to go over them. Their agent confided that she thought ours was the best offer.

Wow. Only three offers. I liked those odds.

Hours more went by, still with no word. It was not until around 5 PM that we finally heard back. We got the house! And at our initial offering price of $620,000! Their agent did say that the sellers liked our little note about the house. They were a couple in their 70s and I think they wanted to know their house would be going to a family that appreciated it.

As of this writing, we’re still in escrow and all is looking well. Once we own the house, we’ll get an inspection to see what all needs to be fixed. We’ll also re-carpet and paint and then move in.

It's Not Impossible. You Just Have To Be Different Than Everyone Else.

So there you have it. Even though this is a really tough market to buy a house in, we managed to get our second offer accepted. I think the secret was to be willing to accept a slightly non-typical house and try to make a personal connection to the seller. We still had to pay $30,000 over the asking price, but in the current environment, I’m fine with that.

Wednesday, September 6, 2017

Goal Update: End of August 2017

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of August, 2017
Current value: $33,865
Change from last month: +$1,583
Percent of Goal:  31.14%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

I saw an increase of just over $1,500 this month. Net income from my online courses was $113.03. No new income from my ebooks, but I will have some next month.

Apart from my regular savings contributions, the only income in August came from my selling cash-backed naked puts, as I talked about two weeks ago. This trade is looking like it will turn out to be a good one. I sold 5 put contracts on Realty Income at 55, expiring Sept. 15. With less than 2 weeks before expiration, the stock is currently trading at 58. Assuming it stays over 55, it looks like I will be able to keep the premium I collected ($266.70) and repeat this process next month.

Relocation Update

My family and I are now officially Washington residents! My house in AZ sold and we are living in the Evergreen State. Last week, despite the crazy real estate market here, we found a house we liked and managed to get our offer accepted. This was no small feat! More details on that in an upcoming post. Suffice it to say that it is such a seller's market here, I had to do things I never would do in any other type of market.

We close escrow on our new house at the end of the month!

Net Worth Update 

Our net worth took a dive this month, at least according to We show a drop of $48,440! Yikes! But all is not doom and gloom. We put a $20,000 earnest money deposit on our new house. Because we don't actually own it yet, that property does not show up in the net worth calculations, but the drop in cash does. So we're really only down $28,440. Gee. I feel so much better.

Some of the rest of the drop can be explained by a couple of things. My 401(k) provider changed their website, so Mint can't yet get current data from it. It's about $2,000 below what it really is.

We also paid for half of our moving expenses in August. As I mentioned back in the February 2017 update, my wife got a relocation bonus and we're using that to pay for our move. Our net worth has been artificially inflated the past couple of months as we held on to that money. Now it's time to spend it, so our net worth will be dropping. We'll pay the second half of the moving costs after we get into our new house and the movers deliver our stuff. That should be sometime in October, if all goes as planned.

July 2017August 2017
Note: categorizes our HELOC as a credit card debt, not a loan, hence the apparently high credit card balance. No more HELOC so I can finally get rid of this note!

Take a good look at that Loans figure - ZERO DOLLARS! It won't be that for another 30 years! Cash is also at an all time high due to the money we received from selling our Arizona house.

If you have any questions or suggestions for topics, please drop me a line in the comments section!