Working at Microsoft and buying in “the Zone”

No matter where you live, there is an “imaginary neighborhood” with “imaginary lines”.  While these neighborhoods only exist in the minds of the residents, and you won’t find them in a book or on a map, they are very real, and greatly impact the value or lack thereof, of real estate.  A good/bad example for those trying to sell their homes, is when you live in the “right zip code, but wrong town” or in the “right school district, but wrong zip code”.

Here on “The Eastside”, some of the people who work at Microsoft, have created a value-based artifical “neighborhood” that I call “The Zone“.  The residents of this “neighborhood” are then, of course, called “The Zonies”.  Zonies being a sub-set, if you will, of “Microsoftees”.  I don’t like the term Microsoftees, though I hear it often, because people who work at Microsoft…are anything BUT soft, for sure.  Property values in “the Zone” are affected greatly by the supply and demand factor of people who work at Microsoft wanting to live near where they work.  Given the number of Microsoft employees, it is pretty safe to say that their actions greatly impact, and to a large extent control, the values in this “zone”.

The primary purpose of this post is to answer this email:

“I saw your post in reply to ‘Sandy’ on the (RainCityGuide) blog. I am taking the liberty of writing directly to you since I had similar questions to the ones Sandy had posted. I hope that is not a problem. I want to clarify first that I am thinking about buying a home in 2007. I dont have an agent as yet. I am trying to understand what is going on now in real estate market here and basically talk to some people who have credible experience and hence my email to you. My questions are below:

1.  I would like to buy a house in Redmond. In the past 2 years I have seen prices climb at almost record levels in Redmond. Since I am planning on buying soon, do you expect prices to fall in the next 2 years in the Redmond area? This would be key question I guess.

2. I do see signs that say the price is reduced now cropping up on some houses. Is that a bad sign for the market?

3. I am also debating new construction versus older home. I find (from my limited search and preferences) that I would prefer a new construction or a relatively new home to a home that is 30 years or so older. I have found some cases of new construction priced in the high 500’s for a 2000 to 2200sqft. Is there room for appreciation in such properties?

4. How can one estimate the property taxes on a new home in Redmond area? How can we estimate home owner’s insurance payments?

5. Is it wise to use the buyer’s agent as the seller’s agent as well? What are the common pitfalls here?”

All good questions, and Sandy and “Pete” are not the only two people out there who have these same questions.   I will answer questions 2 thorough 5 here, and answer question #1 on  “The Ardell Blog”,   

Let’s “begin with the end in mind” by answering the last question, first.  Generally speaking, the answer to

Question #5 is yes.  But limit the listing contract to sixty days.  You can usually save thousands of dollars by negotiating the listing fee on the sale of your current home, if you agree to both buy and sell with the same agent.  So it’s worth a shot to save a lot of money, but give yourself a chance to rethink that after 60 days, if the home you are selling is not yet in escrow.  Other advantage to using the same agent, is they can then best coordinate the two escrows so the money flows from one closing to the other, without the need for a bridge loan.  More savings.  I haven’t had any pitfalls, so can’t name them.  Works for me.

Question #4 – Take 1% of the purchase price, divide by 12 and add that to your monthly payment  It should be a tad high, but better to over estimate, than to under estimate.  Use $75 a month for homeowner’s insurance, unless you buy a house in a flood zone.  Again, that may be a bit high, but $20 one way or the other shouldn’t make much difference.  You can be too exacting regarding monthly payment because interest rates change dramatically, unless you have 20% down.  So don’t try to fine tune it to the nth degree.

Question #3 Know this, just like a new car, a new house will depreciate the minute you live in it, the same as when you drive a new car off the lot.  That being said, in a flat to down market, new construction will suffer more than resale.  That being said, you still have to buy what you want to live in, regardless.  There are a few precautions you can take to better the odds.  Buying new construction is VERY TRICKY!  Don’t get lost in the pick the options and upgrades room.  Factor location within the new community or building first and forements.  This is the biggest mistake people who buy new construction make.  On Resale…location becomes more important and can kill you.  Generally speaking, it’s like going to a sale where there are only two shirts left on the sale table…not likely they are the best the store had to offer, or they wouldn’t be the only ones left…if you catch my drift.

Question #2 Price reductions are not a sign of market strength or weakness.  Price reductions are simply reflecting the fact that the seller over priced the house when it was listed.  If a house would have sold at $550,000 and the seller was asking $659,000, there will need to be a price reduction in order for that house to be sold.  That can happen in any market.  Until you see a house in a good location and in good showing condition, selling for less than the comps, and we are not seeing that here in the Seattle area, price reductions are simply a function of an improperly priced home.

Question #1 is answered HERE, as it is the one most often asked by many.