Currently, the base Washington state excise tax rate is 1.28%, with each county adding on their own percentage for a total that fluctuates somewhat by area. Snohomish and King County excise taxes (in most areas) are at a .50 rate,  bringing the grand total to 1.78% of the purchase price.

An obvious question if you’re a distressed home seller would be, “who exactly pays this tax in the event of a short sale?”  In most cases, the burden falls to the bank that is carrying the mortgage to ‘eat’ that cost, along with the other costs associated with selling a home.

For a brief time at the beginning of 2009, some sellers were required to pay excise tax on the amount of the shortage (the difference between what they owed, and what they were able to sell their property for in a declining market). Sellers in this category may now be eligible for a refund of excise taxes. Use the following link to download the required excise tax refund application form.

Should you have detailed questions about Real Estate Excise Tax (aka REET) or short sales, we will happily refer you to a CPA and/or attorney who can further assist you. Give us a ring, or send us an email for a referral list to professionals who specialize in these issues.

Related Posts

1. The anatomy of a short sale
2. All the things short sales are. And those that they are not.
3. The New, Improved, (and extended) $8,000 Tax Credit

One of the most frustrating forms of a real estate transaction of late is the “short sale.” We’ve had a lot of questions lately about this kind of sale, so I want to address some of the primary questions and myths.

1) A boy named Sue: There are a lot of misconceptions about short sales, starting with their name. A “short sale” is not a denotation of time – short sales actually take a long time to close. A short sale is a real estate transaction where the seller owes more for the property than the property is currently worth. In other words, the seller doesn’t have any equity and in order to sell, the bank is going to have to agree to accepting less than what they’re owed. For example, John Doe bought a property in 2007 for $380,000. It’s now 2010, and the local real estate market has tumbled. In a “choose-your-own-adventure” twist, let’s say that John (1) got divorced, (2) lost his job, (3) is transferred out of state, (4) develops a medical condition that forces a move, or (5) simply can’t afford his home anymore. John’s house is now worth $340,000, and since closing costs for most sellers run about 9% of the purchase price, if he was able to sell his home for $340,000 his net proceeds would be $340,000 (sales price) – $30,600 (closing costs), or $309,400. John owes the bank $380,000, so in order to sell, either John has to come up with $70,600 (which he doesn’t have), or (more likely) the bank is going to have to accept $70,600 less than what they are owed. The bank is going to end up short – so, this is a short sale.

2) Mr. & Mrs. Scott Free…: For a seller, deciding to sell your home as a short sale is not an easy one, and so we are always going to encourage our clients to consult with a bankruptcy attorney and their financial adviser. The primary benefits of a short sale to a seller will be reflected in their credit report – if they want to buy a home again in the next 2-3 years, then a short sale will be less damaging to their credit than a foreclosure and/or bankruptcy. The other benefit is simply timing – due to the overwhelming amount of short sales in recent history, the government has instituted The Mortgage Forgiveness Debt Relief Act which runs through 2012. Under the provisions of this act, sellers that short sale their home will be forgiven the potential tax burden that would otherwise occur because of debt forgiveness. For example, if the bank forgave John Doe (in the example above) a debt of $70,000, the IRS would normally treat that as taxable income, and now John Doe owes taxes on the amount the bank forgave. Because of The Mortgage Forgiveness Debt Relief Act, this forgiven debt will not be taxed, and John won’t owe taxes because of it. There are exceptions to this act, which is why we encourage our clients to speak to their lawyer and their financial adviser. Still – the primary benefit of selling a home as a short sale is that it can be less damaging to your credit.

3) …or not? Why wouldn’t I sell my home as a short sale? While the bank may agree to accept less to get the property sold, this doesn’t always leave the seller off the hook for the remainder of the balance. Indeed, there are cases where foreclosure is a better option for clients than a short sale (in short, talk to a lawyer and your financial adviser). If the bank (or banks) has agreed to a short sale, they’ll often forgive most of the debt, and may ask the the seller to sign a promissory note for a lesser amount, perhaps in the form of an interest-free or low-interest long-term loan. In a short sale the seller may not get off completely scott-free, and may have remaining debt after the sale of the home. Still, this debt will generally be much less than the amount forgiven.

4) I want to sell my home as a short sale – what should I know and do? Contact a bankruptcy attorney and discuss your options (if you don’t currently have a bankruptcy attorney, call us for a referral to one). It might cost a couple of hundred dollars, but it could save your credit and a lot of pain and suffering. Contact a financial adviser to see how a short sale or bankruptcy would affect your assets and the future of your assets. Contact a listing agent that has experience marketing short sale properties, and make sure that they work with an experienced negotiator that is going to negotiate on your behalf with the bank. Be prepared – this is usually a long and frustrating process, but working with a team of capable people will save you some suffering. We have enough experience to know what banks will and won’t pay for, and which banks are going to take a long time (national franchise banks) and those that might respond more quickly (local banks).

5) Who pays the real estate agents? And the excise tax? We don’t work for free (not on purpose anyway), and the State of Washington is going to want their 1.78% excise tax on the sale of your home, so a lot of people wonder how these get paid in a short sale transaction. For the most part the bank pays these fees. They usually negotiate these fees down, so the real estate agents might make a little less, and the buyer might have to kick in a little money to get the bank to move forward to closing. The State of Washington doesn’t forgive excise tax easily, so the banks have to pay excise tax if they’ve agreed to a short sale.

6) I’ve heard buying a short sale can be a great value. They can be, but for a buyer, there’s nothing short about a short sale. The process can take 6 weeks or 6 months (even longer – one of our short sales took 2 years!). The seller doesn’t have any money, so the properties usually aren’t in great condition and they aren’t going to be paying for any repairs. Yes – there is value to be had, but only for the patient. If you’re looking for a real value, focus on bank-owned properties. There’s a reason banks agree to short sales – on average short sale properties cost the bank about 15% less than if they were to take that same property through the entire foreclosure process.

Moral of the story: if you’re thinking about selling your home as a short sale (or if you’re a buyer thinking of purchasing a short sale property), you need to call us. Everyone’s situation is different, so the internet won’t give you the answers you need. Let us sit down with you and go over your options. We’re happy to help even if we don’t end up listing your property. Leave us a message at (425) 502-5397 or email us at info(at)pickettstreet.com.

Related Posts

1. All the things short sales are. And those that they are not.
2. Paying the Governor’s Share: Excise Tax & Short Sales
3. Housing: swimming in info, searching for the bottom
4. NEW LISTING: Marysville Rambler Short Sale
5. NEW LISTING: Phinney Ridge Bungalow Short Sale

I say this as a Realtor and a home owner. No one knows better than myself the sweat and coin that I poured into my home, which my wife and I bought as a foreclosure. We had to rehab the septic system, replace the windows (all 15 of them), hang cellular blinds throughout, replace the attic insulation, sheet and replace the roof, update the kitchen, paint the exterior…well, you get the idea. Knowinig how much time and expense we put into our home, and staying aware of the neghborhood values and the lack of updates in many of those homes, it’s easy for me as a home owner to assume that our home would warrant at least 6-8% more than the market average. As a Realtor, my experience tells me that I’m not objective, and my lack of objectivity might cost me money in the long run.

What do I mean? Citing a collegiate study of the real estate market in California, an article published in Forbes magazine references a couple of statistics that prove a concept that’s counter-intuitive to most sellers: list your home for too much, and it could cost you more money than if you had listed it for less to begin with.

A mispriced home sits on the market longer, and eventually sells for less than a similar, correctly priced home. So found John R. Knight, a professor at University of the Pacific. In his 2002 study, “Listing Price, Time on Market, and Ultimate Selling Price,” he examined 3,490 Stockton, Calif., homes and found that sellers who didn’t reduce their prices sold for 97% of the initial list price. Homes with a price reduction sold for 88% of initial list price.

Let’s break this down to brass tacks: let’s imagine a home that is priced in-line with the market at $400,000 (assuming exhaustive work on behalf of the real estate agent using comparables in the neighborhood). Let’s then say that a comparable neighboring home goes on the market for $425,000, or 6.25% higher (in my experience a scenario not unlike this one isn’t uncommon at all).

As you can see in the image above, based on the statistics derived from the University of Pacific’s study, the over-priced home sells for less money. Over-pricing a home leads to more days on market, more days on market leads to less traffic, less traffic leads to lower prices and even lower offers. There are few things as difficult as explaining this to a seller with unrealistic expectations, but citing a college professor doesn’t hurt!

Our own experiences support these ideas. If you’re thinking of selling, regardless of whether or not you want a “quick” sale, think long and hard before pricing your home above the market averages in your neighborhood. Oh – and call a Pickett Street team member and we’ll make it that much easier for you!

Link to original Forbes Article

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As a reminder, 2006 was a pretty good year for Pickett Street and the real estate market in general. Take a look at the stats below as a refresher:

Closed Sales, King County 2006: 37,528 (down 10.48% from 2005)
Closed Sales, Sno. County 2006: 16,475 (down 5.06% from 2005)
Median Home Price, King County 2006: $381,463
Median Home Price, Sno. County 2006: $325,000

Overall sales in 2006 were down from 2005, but the median price was way up (almost 14% in King County, over 16% in Snohomish County). The market was stable, and there were many that reaped the benefits of this (especially sellers). The market in 2006 was conducive to Realtors as well – listed homes weren’t on the market long, and were selling at or above list price. The average time on market for a Pickett Street listing in 2006 was only 30 days (13 days better than the NWMLS average of 43 in King and Snohomish County), and our average % of list price received was 102.2% (2% better than the NWMLS average of 100.28% for King and Snohomish County). We whooped, we hollered, we hurrayed! 2006 was something to celebrate.

In contrast, 2007 was not without its challenges, and unless you commute in a car without a radio, live in a home without internet access and are clinically allergic to newspaper, you might have read a headline or heard a soundbite about the mortgage crisis and it’s over-reaching effect on the real estate market. That said, we expected our stats to suffer as well.

To put it in perspective, let’s look at the market stats:

Closed Sales, King County 2007: 33,210 (down 11.5% from 2006)
Closes Sales, Sno. County 2007: 12,940 (down 21.45% from 2006)
Median Home Price, King County 2007: $400,000
Median Home Price, Sno. County 2007: $349,500

Overall sales in 2007 were down drastically from 2006, but the median price continued its rise (4.63% in King County, 7.53% in Snohomish County). The average time on market (King and Snohomish Counties combined) was 57.5 days – 14.5 days longer than the year before. For Snohomish County the percentage of list price received was 99.09%.

The statistics show that the market has softened to a noticeable degree – not to the apocalyptic degree that the media would have you believe, but in all, things changed enough in 2007 that everyone began to take notice. The shift would mean that sellers would have to be more discriminating in their selection of a real estate agent, and real estate agents would have to be more aggressive in marketing their listings to get them sold. In short, the days of putting a sign in the ground and a listing on the MLS to get a sale are over.

Fortunately we had perfectly positioned ourselves for a slower market. Our listing program already incorporates exhaustive print and internet marketing, not to mention staging consultation, professional photography, and professional graphic design. The slower market has actually allowed us to differentiate ourselves from the competition – not only in the services provided, but in results as well.
(Cue drumroll…)

With that, we’re happy to post the Pickett Street team’s listing stats. One stat that we’re especially proud of is our time on market for 2007. Of our listings that sold that year, on average our sellers only had to wait 29 days to have a signed-around contract – which is almost half the time of the market average, and actually an improvement over our time in 2006, which was a stronger year by all accounts.* We’re also proud to report that homes listed by the Pickett Street team sell for more money: Pickett Street listings in 2007 sold for 99.86% of list price – 0.77% better than the market average. This stat is better relayed in dollars: with these stats as our basis, a home listed for $400,000 would sell for more than $3,000 above the NWMLS average.

We said it last year, and we’ll say it again: these numbers really don’t get to the heart of what we feel separates us from the crowd, but it’s encouraging to step back and see the effectiveness of our strategies.

Thanks to all of our clients in the communities that we served in 2007, including Seattle, Renton, Parkland, Bellevue, Kenmore, Woodinville, Mountlake Terrace, Bothell, Mill Creek, Lynnwood, Everett, Snohomish, Monroe, Lake Stevens, Stanwood, Arlington, Marysville, and Camano Island.

* The NWMLS does not compute days on market from the time that a contract is mutually agreed upon, though we don’t understand why. The NWMLS reports the average time on market for our listings in 2007 at 42 days – almost two weeks less than the market average. Our records show that those same properties were only on the market for 29 days before they were under contract.

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Wanting to have all the latest status info, your agent contacts the listing agent, who reveals that she has a buying client of her own, who is viewing the subject property for a 2nd time, and considering making an offer. What to do? The listing agent, under Washington state law, and according to current MLS rules, has the legal right to “represent” both sides of a transaction. Now my question: Is it ethically, physically, and humanly possible for one person to effectively represent both sides of any transaction?

What would you do? If, as a responsible agent, you recommend that your clients submit an offer prior to the listing agent’s clients, you know the listing agent’s competing offer will win, regardless of how strong your clients come in, unless the competing offer is significantly weaker in several fronts. If the offers are even close to comparable (and it’s reasonable to assume they will be), the listing agent has the undeniable advantage of inside information – both with respect to the seller and their buying clients, and is free to adjust the offer accordingly.

While as a buyer this might suggest you should rush to the closest greedy double agent you can find, offer in hand, the fly in the ointment is that your “representation” is exactly as valuable as the paper it’s written on. And ultimately, representation is what “agency” is all about. Then again, maybe I’m just being cynical and naïve.

However, to put it another way, would you feel comfortable entrusting your defense in a court of law to the prosecution’s attorney? Could you ever be certain they were on your side? If something goes wrong, what is your recourse? In a recent transaction I learned of second hand, a double agent recommended that his seller return ½ of the earnest money that was legitimately collected when the buyer backed out of the deal. As a direct result of that, the agent was able to keep the buyer as a client. Now, can you really believe that agent was acting in the best interests of his seller?

We heard of another example where a buyer’s agent called the listing agent to let them know that they would be submitting an offer that afternoon. What the listing agent didn’t disclose was that he had a buyer waiting in the wings – once he told his buyer that another offer was coming in they wrote up an offer and presented it before the competing offer arrived. Everyone was happy at the time: the seller was happy to have their house under contract, the buyer got the house they wanted, and the listing agent was making more money. The catch? The other offer came in a few hours later $12,000 over list! Because the seller had agreed to dual-agency, and because the listing agent acted in their interest and not in the interest of their client, the listing agent made twice as much for netting their seller $12,000 less.

In my estimation, an agent/realtor who willfully pursues double agency is not executing the fiduciary responsibility of their position, which I believe contributes to the negative perceptions of my chosen profession: the money-grubbing, backroom dealing, cigar chomping good-old boys network of crusty agents.

Jesse and I have made a professional choice to avoid the legal, ethical, and moral quagmire of dual agency- we won’t do it – ever. It’s part of the mission statement on the opening paragraph of our website – “Home realization through effective representation” And we mean Representation, not “representation”. Now, as I mentioned at the outset, double agency is legal and supported by our laws and our Multiple Listing Service. As an old codger I know would say, “That don’t make it right!”

Several states and MLS’s across the country have eliminated this practice, recognizing the negative associations stemming from it, and the enormous potential for abuse. Another argument I feel has not seen enough exposure is with regard to the effect it can have on a local housing market where the practice is widespread. It is the real estate double-whammy equivalent of price-fixing and insider trading. We know the pressures our local housing market is experiencing, with the CAO (critical areas ordinance), double-digit appreciation, and a significant affordability gap. When you add the subtle, but substantive twist of double-agency (for you laymen, the official euphemism is ‘dual agency’) to a statistically significant number of transactions, one can only wonder what the economic impact has been, and continues to be, on our market.

Ask your agent if they practice dual agency – if they do, you might want to find someone who’ll represent your interests before theirs. “Impossible!” you say? Not at Pickett Street

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For prospective home buyers, it’s a great day to look at open houses. As a Realtor, it’s less than ideal. I think I would rather sit an open in the rain than in the sun, knowing that professional obligations aside, the weather would keep me from doing something more personally fulfilling. I can’t help but feel a little jealous working on a day like today – my clients, meanwhile, are taking their daughter to the park to play while they soak up the sun under the shade of a good book. I’m more envious of those that are chasing a little white ball on manicured greens, and I can’t help but think that many of these Columbia-clad golfers are my peers, who merely chose their 9-iron over sitting an open.

I haven’t noticed that my traffic goes up on nice days anyway. I think that the people that are hungry for a new home are looking no matter the weather – nice weather might only lure away the passive buyer to less socially intimidating options. I was a first-time homebuyer once – and I remember being nosed like chum at every open that I went to. Many buyers share that same feeling, and I still can’t help but see an a-board for an open house and think of it as leading to the feeding pool for the sharks.

I think it’s the memory of that feeling that keeps my inner-shark at bay. I know that many Realtors require visitors to sign a registration before entering the home, or employ any one of a hundred other methods to pry information from visiting buyers in the home to expand their call-list. Not me. The door to my listing is open, the music is playing softly in the background, and I’ll rise when someone enters, offer my name and my help and then tell the buyer to take their time walking throughout the house. Other agents must think I’m crazy, but there’s a rhyme to my reason…

I work today – this glorious, sun-filled day – for the benefit of my seller. Open houses can be (and have been) a wonderful way for me to meet new clients, but ultimately the reason I’m here instead of on the golf course is because of a promise I made to my seller to sell their home. Assaulting buyers at the door doesn’t aid this cause – an obnoxious agent will only rush a prospective buyer toward the nearest exit. I would think that my seller would want them to linger, to find at least a moment’s peace within this structure that they call “home.”

So here I sit. Waiting for the next buyer to come through, when I’ll offer my name and my help and then tell the buyer to take their time. Perhaps because of my silence they’ll hear the birds chirping, notice the blooms budding, and think to themselves what a beautiful day it is – a beautiful day to look at open houses.

P.S. The next potential buyer to come through was a friend of Phil Mickelson’s – scouting for Phil before his visit next week. Come on by Phil, I’d be happy to represent you!

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When all is said and done, I stand back with the seller and peruse the fruits of our labor: the floors are clean, the rooms are uncluttered and tastefully decorated, unsightly blemishes have been covered with designer paint, and the home even smells inviting. I look toward the seller with a smile, satisfied that we’re finally ready for market, and then they say the inevitable: “Why didn’t it always look this good? I want to live HERE!”

It’s true – I’ve seen it happen on almost every listing I’ve had, and still, I can see our own home creeping toward this same realization. As homeowners we attack our home with zeal after the initial purchase, ready to implement the changes we envisioned when we first walked through our eventual domicile. Over time this zeal fades and we become more sedentary – leaving things within easy reach rather than putting things away – compiling until they’re categorized into piles, where (over time) they become part of the floor plan. Eventually a relative threatens a visit, and we’re forced into stashing our piles into corners of the house that we consider “hidden.” In reality, every corner of our house is already utilized, so closets become unmanageable and rooms become impassable.

I usually see people on both ends of this process: from the wide-eyed potential-laden looks of my buyers to the bittersweet look of regret I see in my sellers once their house is reborn. The remorse of re-discovering their home’s potential is partially my fault, in that I hire professionals that do their job well. The maid service is good at their job, as are the carpet cleaners, the stagers, the handymen, and the photographers. All of them lend their support to make the home appealing to the most discriminating eye. Sadly, the only person in a position to appreciate the transformation is the seller, and when faced with what could have been, their reaction is nothing short of regret.

“Why didn’t it always look this good?” Words and phrases like these are the best indications from my seller that their home is ready to go on the market. Sadly, it’s also a powerful reminder that we should all live like we were selling. Still, it’s some consolation that the few days that their home is on the market are some of the most enjoyable for my sellers – for those few days they relish their home with the same zeal they had when they moved in.

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Words matter. Wars have started over them. Civilizations have collapsed because of them. And it appears the speed with which a house sells might be determined by them.As listings grow old on the vine in this flush-with-inventory market and frustrated sellers reach for the slightest edge, the findings of several academics might offer guidance.

For example, a Canadian professor, as part of a broader study on real-estate sales patterns, found that homes where the seller was “motivated” took 15 percent longer to sell, while houses listed as “handyman specials” flew off the market in half the average time. FULL STORY

 

As I reflect on the story, I realize from my own experience how much sense this makes. Most home buyers make emotional decisions, not logical ones. Sure, they’ll buy in an area that makes sense, within a range that makes sense, but when given the opportunity to buy a beautiful home or a value (both within their criteria), most buyers will pay more for the home that captures their heart.

It just goes to show that you have to pay attention – from the words that you use to the agent you choose.

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One of our responsibilities after getting a lead on an expired property involves researching the previous agent. I won’t say what agency this agent worked for (other than to say it wasn’t RE/Max, nor was he a Realtor©), but his work was shoddy at best. He hadn’t taken any photos of the property, nor had he taken any time to develop any outside marketing for the property. Sadly, like so many agents are perceived, he was merely hoping that sticking a sign in the ground and putting the property on the Multiple Listing Service would be enough. Looking over his productivity for the year, it was interesting to see how his listings fared:

33% Expired
11% Cancelled
56% Sold

Essentially, anyone that chose to list their homes with this agent had a 56% chance of their home selling at all. Researching these properties further, we found that of those that sold, they were on the market for an average of 62 days, and they were selling for 99.88% of the asking price.

This prompted Dennis and I to take a look at our productivity over 2006 – if for no other reason than to show the seller how we compared to their previous agent. Of all of our listings for 2006, 100% of them sold. None of them expired, and none of them were cancelled. Homes listed with us averaged 30 days on market, with a selling price of 102.2% of the asking price.

None of these numbers really get to the heart of what we feel separates us from the crowd, but it’s encouraging to step back and see the effectiveness of our strategies. This year our real estate enterprises incorporated business on Camano Island, Lake Stevens, Bothell, Woodinville, Kenmore, Brier, Redmond, Everett, Sedro Woolley, Edmonds, Marysville, Lynnwood, Seattle, Mukilteo, West Seattle, Snohomish, and Mill Creek. While we aren’t looking to expand our radius of influence (Seattle and Camano are far enough don’t you think?), we are looking to expand our influence in the communities we serve.

100% sold. 102% of asking price. We have ambitious goals for 2007, but please pardon us if we think it might be hard to improve on those numbers. Instead, we’ll work on bringing those results to more people.

Pickett Street – where real estate is more than sticking a sign in the ground.

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