Lease Option Purchases

One of the conversations that I always find difficult in my job is when a person comes to me wanting to buy, but is unable to because of credit issues. It's frustrating because I can really sympathize with people who are in this position, but unfortunately, I can't give them a lot of good alternatives to solving the problem. The reality is that it takes time to establish a poor credit history, and it takes time to turn things around. But people are always hoping that there is some quick-fix or a secret way to improve their credit, or some way that they can buy a home without having credit history be an issue.

Keep in mind that having poor credit doesn't always mean that a person is totally irresponsible. Sometimes it does, but there are a lot of other reasons why a person can have a low credit score. So, when I am having this conversation, I don't judge and focus mainly on what to work on going forward so that the client can achieve their goal of buying a home.

One of the things that comes up with some frequency is the idea of a lease option purchase. The client may have seen TV commercials or signs up by the road saying things like "Bad or no credit? Let me help you Lease to Own."

Folks with credit issues will ask me if I think this is a good alternative for them. Unfortunately, I have the unenviable task of saying no, given what I know about these kinds of deals.

Why? Well, typically on a lease option purchase you are putting a buyer with credit problems together with a seller who has an overpriced or otherwise unmarketable property. Think about it--if the seller could unload the property today, rather than a year or two from now, why would he choose this route? And if the buyer could buy today, why would they choose go this route either?

While sometimes it can work out, more often it is a recipe for disaster.

Let's look at the seller's side first. Most sellers will only consider doing a lease option if they are unable to sell in a normal-financing transaction. And why would that happen? Because the seller did not price his property at a level where there is market demand--in other words, it's overpriced.

That's one scenario. Another involves a seller who doesn't even try to sell his property in a normally financed transaction. This is the serial lease-option seller, and he is basically hoping that your lease-option purchase falls apart. Here's why.

In a lease-option, the buyer pays an earnest money deposit just like if they were going to buy the property outright. This is usually between $5,000 and $10,000 depending on the purchase amount. This is non-refundable, as compared to the deposit amount on a normal lease, most of which is refundable.

So, the buyer hands over his earnest money, and then pays rent for a year or two while trying to clean up his credit.

If all goes well, at the end of the lease period the buyer gets a loan and buys the home. But very often, this doesn't happen. Frequently, the credit problems are bad enough or the bad credit behavior is ingrained enough, that the buyers are not able to get their credit cleaned up enough in the period of the lease to qualify for a loan they can afford. Or, perhaps the buyer discovers there is a problem with the home and decides not to buy it. If this happens, at the end of the lease the buyer may have to walk away from the transaction. That means they also walk away from their deposit.

At this point, the seller may do another lease option, and collect another deposit from another buyer.

The serial lease option seller can put his property on the market over and over again, collecting $10,000 from each buyer, in addition to rent money. The property is making him money whether the individual buyer is able to close or not.

Sellers can lose out with a lease-option too. Sometimes the buyer decides to back away from a lease-option purchase for other reasons besides credit. If the market happens to be weak at the end of the lease period, the seller may have to put the property back on the market at a lower price. But, if this is the case, at least he has the earnest money amount from the first buyer.

Now, I'm not saying that there is never a time when a lease-option couldn't be the right course of action, and I'm not saying that every one of these transactions fails. What I am saying is that both the buyer and the seller need to control their risk by having their eyes wide open about what they are getting into.

And for buyers with credit issues, the truth is that the best way to resolve those problems and be able to buy a home of your own is to find out what factors are affecting your score negatively, and resolve those issues. This approach takes time, but it is the best and safest way to go.

Everett/Mukilteo Summer Fun

With school FINALLY out and 4th of July right around the corner, I thought this would be a great time to post some community calendar information. Here are some fun summer activities that are going on in or near Mukilteo and Everett during the summer months.


4th of July Celebrations

Everett Community Parade sponsored by the Everett Jaycees: 11 am on Wetmore and Colby Avenues, between Wall and 26th Street.

Family Freedom Fest at the Everett Navy Station: Tour the aircraft carrier Abraham Lincoln, and enjoy all the other fun events! All day.


Thunder By the Bay: 10:15 over Port Gardner. Best viewing is at Naval Station Everett, Grand Avenue Park, Harborview Park, 10th Street Boat Launch, and Legion Memorial Park.


For all the activities the City of Everett has planned on the Fourth, visit their website.

Family Fourth at Lake Union (Seattle)

Fourth of July-Vars (Seattle)



Farmers Markets


Edmonds Farmers Market, Saturdays from 9 to 3 at the 5th and Bell parking lot

Everett Farmers Market, Sundays from 11 to 4 in the Lombardi's parking lot on W. Marine View Drive

Mukilteo Farmers Market, Wednesdays from 3 to 7 at the Rosehill Community Center in Old Town

For a complete list of farmer's markets in the Puget Sound area, check out this link at the King county website.

Garden/Home Tours

Mukilteo Garden and Quilt Tour from 10 - 5, rain or shine, on July 14th.



Arts & Entertainment

Mukilteo Artwalk--last Wednesday of the month in Old Town Mukilteo. See Mukilteo Arts Guild website for more details. Through September.

Open Mike Night--Every Wednesday evening from 6 to 8 pm at Whidbey's Coffee in Old Town Mukilteo, through Sept. 12.

Concerts

Mukilteo Chamber Concerts in the Park--August 4, 2 to 8 pm in the Harbour Pointe Village Center.

Snohomish County in 2040

The Puget Sound Regional Council has released Snohomish County growth projections for the year 2040. The City of Mukilteo is expected to nearly double in size as compared to 2000 census numbers, as is downtown Everett. North Edmonds, on the other hand, is projected to be one of the slowest growing areas in the county.

To see how your Snohomish County neighborhood is expected to change, click here:

HeraldNet: Your Neighborhood in 2040

Mukilteo Multimodal Terminal Stalled

According to the Mukilteo Beacon, The planned Mukilteo Multimodal Transit Station, which was supposed to combine the Mukilteo Ferry terminal with a bus and train station for Sound Transit routes, has run aground. A "significant funding gap" exists, which means that the project is being delayed for an indeterminate amount of time, pending environmental and feasibility studies that could push completion to as late as 2011 or 2013.

Aside from funding, issues also exist with the site currently being proposed, which is prone to liquefaction during an earthquake.

This is unfortunate for Mukilteo's waterfront businesses, residents of the Old Town area, and for Whidbey Island ferry riders, as the current ferry terminal / bus station is unable to handle current and projected traffic levels. On Friday afternoons, it can be extremely difficult to get from South Mukilteo to Old Town and the waterfront due to the amount of ferry traffic using the Speedway from Olympic View Middle School to the turn at Mukilteo Boulevard.

Now, anyone who knows me, knows that I am a girl who believes in public transit. But I would say that currently, public transit really underserves the City of Mukilteo. To use the Sound Transit train means driving either to Everett or Edmonds stations, and then having very few ride times to choose from. Buses serve the area more often, but still provide limited options in terms of routes. And ferry traffic is a nightmare for residents on both sides of the water.

Salesperson or Consultant?

Real estate is a funny business. There are so many different kinds of people involved in it and so many different ways for people to manage their business that I think it can be very difficult for people who are new to the industry to figure out how they can be successful in this business without selling their soul.

The challenge is, if you got more than 5 Realtors or mortgage folks together in a room and asked them what their role/job is, you would probably get 5 different answers.

That said, it really boils down to TWO basic philosophies. You are either a salesperson, or you are a consultant.

The salesperson is the guy or gal who really just wants to get you to sign on the dotted line, and doesn't care what happens after that. They don't care if the house is a piece of crap, or in a declining neighborhood, or what kind of mortgage you've gotten yourself into. All that matters is getting you under contract, and collecting their check. After closing, you will probably never hear from the salesperson again, because he has moved on to greener pastures.

On my "sunny optimist" days, I would like to believe that there are fewer of these people in our industry than the industry's detractors think. On my bad days, I fear that our industry will be destroyed by the "salesperson" attitude, no matter how many or how few of them there might be, simply because when an individual has a bad experience, it has a much stronger power over their actions and perceptions than a good experience. They say that if you have a good experience you will tell three people, and if you have a bad experience, you will tell ten people. So, obviously, the bad experiences have a lot more power over the minds of the average consumer than the great experiences that some individuals may be having.

For this reason, the salesperson is constantly trying to find new clients who haven't heard about his crummy service, rather than cultivating the relationships he already has, and ensuring that each and every client has a positive experience. He can't slow down and take the time to educate and inform his clients, he's too busy looking for the next kill.

The consultant type, on the other hand, is really more focused on making sure that his clients' needs are met--both with regard to the home or mortgage product they buy, and also with regard to the service they receive during the process. The clients' wants are important too. The consultant is interested in helping you solve problems both before and after the sale. The consultant understands that his job is really about relationships. He needs to be able to stand behind whatever he's sold you, so that he can look you in the eye after the sale is over and continue to be the person you choose when you need his services.

The consultant will take responsibility for you, help you understand the pros and cons of whatever choices you may be facing, and generally display a level of caring that goes beyond a simple salesperson/customer relationship. He will refer to you as his client, most likely, rather than as a customer. He sees his role as that of a trusted advisor (the definition of "fiduciary," a concept which the real estate industry is moving away from at its peril). He is focused on the relationship, the experience, and the service, rather than making the sale or cashing the check. He is focused, quite simply, on you.

I got to thinking about this today because of these two posts:

Blown Mortgage: The Responsibility of Mortgage Brokers...

Rain City Guide: Buyer Beware...

In our industry, we have the ability to enhance, or RUIN, people's financial lives, and that is a responsibility that must be taken seriously. I believe that only as a consultant can a Realtor or mortgage broker provide services that reflect the serious nature of the business that is being conducted.

What's Wrong With This Picture?

Yet another new feature of this blog is "What's Wrong With This Picture," which will be where I feature a picture that is just wrong, wrong, wrong, and explain the reasons why.

For the inaugural WWWTP post, I submit the above picture. For the last couple of years I have driven by this business and its sign advertising "Mortgage Loans, Real Estate Services and Quality Auto Sales." Below these bullet points, the sign assures us that these are "Affordable Luxury Cars." In the same location (and presumably run by the same people) is a drive through coffee stand, auto repair shop, and a stereo/audio store.

I know that there are several real estate brokerages that combine the role of the real estate agent with that of the lender. But really, isn't this taking taking things a bit too far? Real estate brokerage, mortgages, used cars, auto repair and a drive through espresso stand all in one location really seems a bit excessive. Lending and real estate are both complicated enough without combining them. And it's bad enough people think of real estate agents as being on par with used car salesmen, do we actually have to BE used car salesmen to boot?

Well, that's what I think is wrong with this picture. If you see a picture that is just wrong, wrong, wrong, send it to me and maybe it can be published here!

Best of Everett/Mukilteo: MidCentury Modern and Northwest Contemporary

Midcentury modern is one of my favorite architectural styles. Though the period of 1945 to 1975 is normally associated with the commodification of architecture--see the great number of split-levels, tri-levels and ranch homes built during the period--there were some very innovative things going on during this time. In 1945 John Entenza, publisher of Arts and Architecture magazine, sponsored the Case Study House program in Los Angeles, which prompted promising young architects to experiment with new designs and ideas. The works created as part of this program influenced an entire generation of architects and builders, and their work continues to be influential today.

Architects and designers such as Richard Neutra, Pierre Koenig, Charles and Ray Eames, and Eero Saarinen, and many others designed homes that emphasized open space, relationship to the outdoors, and the use of economical building materials. Immediately post-war, building materials were somewhat limited leading to a heavy reliance on wood and glass, but as industrial materials developed during the war became available for residential construction, new materials and techniques such as steel frame construction began to be used. This in turn allowed builders to experiment with a variety of angles and rooflines, providing more flexibility to the design.

What differed from pre-war construction methods and architectural styles was that rather than hiding the construction materials being used, they became part of the design itself. The use of exposed metals, concrete, wood and glass showed that this was a new era, with a new aesthetic.

Mid-century modernism continues to influence today's architecture, through its emphasis on the use of natural light and materials, its use of open/flexible spaces in the home, and its whimsical touches that echo the future-looking ethos of the post-war era. Mid-century modern was also about making good design available to the masses, so homes in this style are often not expensive.

Another unique feature of midcentury modern architecture is the way the style was adapted according to the tastes and available building materials in various regions of the country. Here in the Northwest, mid-century modern is the progenitor of our own Northwest Contemporary style, which shares most of the features and aesthetics of mic-century modern, but because of the availability of wood as a building material, and our role internationally as a major lumber exporter, the use of wood as the primary building material is more pronounced. Whereas Neutra might have used exposed industrial steel to frame his glass houses, a Northwest Contemporary home would be framed in exposed cedar, with extensive use of pine, cedar, teak or douglas fir paneling as a design element. Many other design elements remained the same, including low or no-angle rooflines, emphasis on bringing in natural light, and a sense of relationship to a home's outdoor spaces.

Here is my favorite midcentury home currently available on the NWMLS in my area, which includes Mukilteo and Everett. I'll be covering other properties that typify this style, both on the market and not, as I discover them.

1308 Maryland, MLS # 27102852





What makes this such a great example of mid-century modernism? Teak accents including a living room wall paneled in teak, built-in cabinetry throughout the home, doug-fir flooring, Roman brick masonry (oh-so-'50s), floor to ceiling windows to bring in natural light year-round, and original 50's tile bathrooms. There is also a covered patio area that allows you to enjoy outdoor living year-round. The home has more than 2400 interior square feet and an enormous 16,000 square foot lot with mature landscaping. And the price tag, $384,950, makes it a great value, well in keeping with the modernist ideal that great architecture should be within reach of everyone.

Neighborhood Review: Harbour Pointe Village

Another new feature I'm bringing to the blog is "reviews" of different neighborhoods/subdivisions in the areas I serve, i.e., Mukilteo and Everett. I think this is interesting information for anyone considering buying a home in the area, and it helps with the "I don't know what to write!" problem that I have been having. Structure is good, at least it is for me.

The first neighborhood I'm reviewing is called Harbour Pointe Village--it happens to be the neighborhood where I live.

Harbour Pointe Village is a newer subdivision of about 250 homes in the planned community of Harbour Pointe in South Mukilteo. It's rather unique in Mukilteo in that it is the only community of moderately priced homes (under $650,000) that is situated on the Harbour Pointe Golf Course, and it is the only neighborhood in Mukilteo that has adopted some of the principles of New Urbanism, such as Walkability, Connectivity and Increased Density, into its design.

Homes in Harbour Pointe Village range from about 1,800 square feet up to 2,400 square feet, with lot sizes ranging from 3,000 square feet up to about 5,000 square feet. About 25% of the homes face directly onto Harbour Pointe Golf Course, and as you would expect, these homes tend to come in on the upper end of the price range for the neighborhood.

The homes were built between 2000 and 2003, by well-known local builders John F. Buchan Homes and Lozier. Both builders typically build more high-end homes, and therefore the finishes in the subdivision are of a quality you would typically expect to find in a more expensive neighborhood, such as 10 foot ceilings, extensive millwork, high-quality hardwood flooring, etc. The homes built by Lozier tend to be more "modern" on the inside with more flexible floorplans and clean lines throughout, where the Buchan floorplans and finishes tend to be a little more traditional with formal spaces.

One of the most interesting things (at least to me) about the neighborhood is that it is styled in the manner of some of the older Seattle neighborhoods such as Capitol Hill or Queen Anne, with alley access in the rear and home facades facing directly onto the street. This gives the homes a friendlier street feel and encourages more neighborly interaction than the typical suburban home that has a garage in front taking up 2/3 of home's street "face."

Another unique feature of Harbour Pointe Village is the use of public green spaces. Certain of the homes in the neighborhood face onto a "village green" that increases privacy between the homes and counteracts the effects of the smaller lot sizes typical in the neighborhood. If you live on one of the greens, you get the advantages of a large yard, without the responsibility of caring for it, since these spaces are maintained by the Homeowners Association.

I really enjoy living in the neighborhood for several reasons. The design of the homes in the neighborhood is really great, and reminds me of the neighborhoods where I used to live in Seattle. Tudor-, Dutch Colonial-, Federalist- and Craftsman-inspired homes are intermingled with more modern ones, which prevents the neighborhood from having an appearance of "sameness" while still retaining an overall sense of unity.

The neighbors are friendly, which is important, and there is quite a bit of diversity in terms of life-stages and ethnicity. There's a nice mix here of families, dual-income-no-kids couples, and retirees so no matter where you are in life there are other people in the neighborhood who are similar to you. Yet, there is enough diversity to keep things interesting.

Another nice feature is that The Village is walking distance from elementary, middle and high schools, as well as Village Center, a small area with restaurants and shops. This gives residents the ability to get out of their cars and enjoy some of the benefits of a more urban-feeling setting.

Mukilteo Market Stats - May

I am bringing a new feature to this blog, which if nothing else will ensure that I post here at least once a month. I've decided to begin posting market statistics for the city of Mukilteo once a month--I'm starting with the month of May 2007.

In case anyone is wondering, now is a great time to buy real estate. And it's a good time to sell too, as long as you list your home at a reasonable price. By reasonable I do not mean LOW, I simply mean a price that is in line with the market. The reality is, 20% increases in housing prices every year are not sustainable unless we are all getting 20% raises every year, which I would submit we are not. I think we are moving out of that crazy seller's market, which is a good thing, as buyers have been getting the short end of the stick for several years now.

The big difference I am seeing between this year and last is that there is a lot more inventory on the market. Some of it is selling quickly, and some of it is not. Overall however, time on market is definitely up as compared to this time last year. Oddly, sale prices are up as well.

The usual relationship between time on market and sale price is that as time on market increases, sale price decreases, time on market being a pretty good indicator of demand for housing. But that pattern is not what we're seeing this year. We have a lot more supply than last year. But that doesn't necessarily mean oversupply, because if you were paying attention last year, you would have noticed that we had too few homes listed, which was driving prices up. Now we have lots of homes listed, but demand is still healthy enough to prevent any reductions in price. However, buyers definitely have a lot more homes to choose from.

Having more choices means buyers can now be more selective. Homes that aren't in good condition or that are over-priced are now sitting on the market, where a year or two ago, buyers' desperation to get into a home meant that even overpriced, ugly houses weren't too difficult to sell. One thing to note is that 57% of homes in Mukilteo that were on the market in May sold within 30 days. That is still a market where if your home is well-prepared and priced correctly, you are still very likely going to be able to sell it without much difficulty. Note also that Mukilteo has a lot of luxury properties, and those tend to take longer to sell.

By and large we're not seeing prices come down, but as you would expect we are seeing some fairly significant reductions (5% or more) among homes that have been on the market longer than 90 days. I would submit that those homes were overpriced anyway, and the price reductions are bringing them in line with where they should be.

That's my analysis, here's the data. All statistics are courtesy of the NWMLS, and include Mukilteo (in city limits) ONLY for the period May 1, 2007 through May 31, 2007:

Active Listings
Listing Count: 89
Average Time On Market: 90 Days
Median List Price: $582,450
Average $ Square Foot: $264

Under Contract (includes Contingent, Active STI and Pending):
Listing Count: 19
Average Time On Market: 86 Days
Median List Price: $595,845
Average $ Square Foot: $294

Sold Listings
Listing Count: 21
Average Time On Market: 90 Days
Median Sale Price: $434,000
Average $ Square Foot: $247

Here are a couple of statistical charts, courtesy of NWMLS. The first one shows the breakdown of how our inventory in Mukilteo is aging. You can see that even with all the inventory, 57% of listings still sell within 30 days. The second chart shows the relationship between list and sale price, illustrating that price reductions are tied to time on market.

Staging - It Works!

For about two years now, I've been an Accredited Staging Professional Realtor. Staging plays an important role in how I help my listing clients sell their properties quickly, but for some reason I have never blogged about the topic here.

Recently, I had a couple of great opportunities to prove to myself how effective staging is, as far as reducing time on market and attracting top-dollar offers. One listing was a home that had marketed previously without staging, the other listing was my own personal home. I'm not going to get into what we did on our personal home in this post, but will at some point in the future.

The listing I want to talk about was a wonderful home in a nice neighborhood that had been listed and failed to sell. Clients contacted me to find out what my suggestions were. When it had been listed originally, it was sort of oddly furnished and mostly filled with kids' toys, so buyers were having a hard time understanding how to use the spaces of the home. It was in a neighborhood which usually attracts buyers who have sort of upscale aspirations.

It seemed to me the lack of furniture and the confusing use of the rooms was putting buyers off from making an offer, so we determined that we would address these issues.

To do so, we gave the home a thorough cleaning and did some patching of interior paint. Then, we brought in furniture to show how the rooms could be used, and also to attract our "aspirational" buyers. We did some simple decorations using items that I and the seller already owned to make the home as appealing as possible.

When we returned the listing to the market, we received a full price offer in less than 6 days. This was a great result since typically in this neighborhood, it takes upwards of a month to get an offer and the house was listed at the highest per-square-foot price ever in its neighborhood.

Here are some before and after shots.




Here is a "before" shot of the dining room of this home, taken from the stairwell. You can see from this picture that it was not entirely clear what the space should be used for. It was also not a great picture to put on the Multiple Listing Service, because of the way the banister of the stairwell cuts off the bottom of the shot. It makes the room appear oddly shaped.









Here is an after shot of the dining room, showing the furniture and accessories we brought in to show off the use of the space. The professional photography also made a difference because we were able to get an angle on the room that shows how it flows to the rest of the house, and the lighting is better. Brown and neutral tones along with place settings and exotic flowers give the room a warm, modern feel.

Here is a "before" shot of the living room, before staging. You can see that although it appears neat and clean, there are children's toys and no real furniture in the space. The photograph doesn't provide any real feel for the dimensions of the room either.

This is a shot of the living room, after staging. It's a different angle on the room than the before shot, but you can see that we brought in furniture and arranged it to illustrate how the space could be used as a living room. We also took care to take the photograph in a way that illustrated the great open floor plan of the home, and provided an appearance of spaciousness for the MLS listing.