Redfin s Home-Buying Class. Portland, OR June 17 th, 2010

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1 Redfin s Home-Buying Class Portland, OR June 17 th, 2010

2 Our Portland Agents Jessica Maxwell Field Agent Tracy Morgan Field Agent Jeff Bale Team Lead Keith McCue Field Agent

3 Agenda Intro to Redfin 6:00 7:00 Market Conditions When to Buy & Why The Market: what s going on? Searching for a home Mortgages Break: 7:00 7:10 Home Buying Process 7:10 8:00 Touring & Finding an Agent Short-sales & Foreclosures Making an Offer Closing the Deal General Q & A 8:00 8:15

4 What Redfin Is All About Redfin is a real estate brokerage that focuses on customer-service and technology to make buying and selling homes better for consumers. The Most Trusted Service Customer focus: client-satisfaction bonuses, not commissions Transparency: public reviews No obligation: sign up online, it s easy to tour The Best Results Service: 97% would recommend us to a friend Consumer Cost Advantage: $7,500

5 To Buy or Not to Buy?

6 Why Buy a Home? You ve got a family, and need room to grow You want deep roots You want creative control You want a type of property that is difficult to rent You re handy, and ready to invest your time You ve saved up a down payment You want the tax savings You ve got an anaconda, a dog, a boat, a camper

7 Why You Shouldn t Buy a Home You can t afford a 10% - 20% down payment You can rent for much less You plan on moving soon Three years minimum Seven years is ideal You re worried about job security Renting allows you to move where jobs are Renting allows you to down-size more easily The most common real estate mistake is viewing a house first as a financial investment and only second as a home. New York Times

Warren Buffett, October 2008 I was seldom able to see an

8 When to Buy A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. Warren Buffett, October 2008 I was seldom able to see an opportunity until it had ceased to be one. Mark Twain, 19 th Century

9 Case-Shiller: Portland Seattle Area v. 20-City -2.8% year-over-year Maximum: July % from maximum Case-Shiller: 20-City Composite -0.5% year-over-year Maximum: July % from maximum July 2003 price levels Portland Area 20-City Composite

10 Median Price in May: $244,220 in Multnomah County $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- -2% Y-o-Y change 0% M o-m change

11 # of Homes Sold in May: 969 in Multnomah County 1,200 1, % Y-o-Y change +7.0% M-o-M change

12 8,000 # of Listings in May: 5,863 in Multnomah County 7,000 6,000 5,000 4,000 3,000 2,000 +5% Y-o-Y change +2% M-o-M change 1,000 -

13 Months of Supply as of May 1st: 7 Months in Multnomah County % Y-o-Y change -4% M-o-M change Multnomah County Months of Supply : it would take 7 months to sell all the inventory if there were no new listings : 10.2 months of supply

26% Nationally 2,075,563 $178,088 0.25% Data source: www.realtytrac.com.

14 Portland-Area Foreclosures: May Area Foreclosures Average Price % of Homes Multnomah County 5,224 $199, % Clackamas County 3,349 $270, % Nationally 2,075,563 $178, % Data source: Based on the number of homes at any point in the foreclosure process in the past month.

15 What Does This Mean For You? Rates are down: 5.07% (week of April 15) Home values have dropped: Nationally: -1% year-over-year -29% since peak April 2006 Portland: -4% year-over-year -21% since peak May 2007 Peak Price/Rate* Portland (-21%) Price $400,000 $312,000 Rate 6.26% 5.07% Payment $2,465 $1,709 The peak represented is for Portland, May 2007 per Case-Shiller, national rate quoted per Freddie Mac

16 What s Most Likely to Happen? Why home prices could continue to decline Unemployment rises Foreclosures impact appraisals Rapid rise in interest rates Why homes prices won t decline Interest rates remain very low Foreclosures released on market in controlled manner

17 Searching for a Home

18 Why Redfin s Search is Better All the homes for sale: 30% more listings You see what the agent sees: 4x the data Real-time market data: photos, details of just-sold homes

19 Searching on Redfin Find open houses Search recent sales Exclude short sales

Doing the Research Yourself Get email alerts See

20 Doing the Research Yourself Get alerts See neighborhood/ city trends & school info Download to Excel

21 Finding Redfin s Forums

22 Mortgages: What Can You Afford?

23 Our Local Recommended Lender *Did you know: Redfin doesn t get kickbacks from our partner lenders.

24 Getting Started: The Basics April Avg Rate for 30-Year Fixed:5.10% Ideal credit score: >740 Down-payment: ranges from % Depends on type of loan program Monthly Payment Amount Range: 28 35% of your monthly income

25 Organize Your Assets Get ready for the down payment Cash accounts (liquid funds) 401(k), stocks, other investments Gift funds? (Max. allowed varies) Move funds around before you start shopping

26 Review Your Debt Pull credit report, look for errors Figure out how much monthly income goes towards paying off debt: 28 33% healthy Pay down balances to 1/3 rd of credit available Don t open any new lines of credit Don t buy any big ticket items Co-borrower will need to do the same

27 Get Pre-Approved Establishes your price ranges & shows you re serious Information needed: W-2, two pay-stubs, tax returns (get them ready), bank statements Time required: 30 minutes Duration: 90 days, depending on lender Ask for a few different amounts Redfin asks that you get pre-approved before your third tour

28 Get Paperwork Ready Gather documentation (you & co-borrower Last two paystubs Last two years W-2s (tax returns if selfemployed) Bank statements (last 60 days) Copy of driver s license Employer information Residence history PDF everything so you re prepared, avoid delays

29 Start Shopping for Loans Banks & credit unions: Mainstream loans (20% Conventional, FHA) Brokers: More options, rate shopping ( niche loans) Mortgage bankers: Lend their own money (flexibility)

30 Comparing GFE Results Gather Good Faith Estimates (loan quotes) A minimum of three, more is better Compare similar loans Program (FHA, conventional) Timeframe (same day) Compare costs side-by-side Discount & origination points Interest rates Insurance premiums (FHA, PMI) APR (interest rates + fees + points + PMI)

31 Make Your Decision When possible, get a loan commitment Lock your interest rate (30-60 days) Make alternative funds liquid (401(k), stock) Good news! Loan payments are made in arrears, so your first loan payment won t be for two months. You ll have one month of no payments.

32 National Average: Graph Reproduced with the permission of

33 8.00% Fixed-Rate Mortgage Trend 7.00% 6.00% 5.00% 4.00% 30-Yr Fixed 3.00% 2.00% 1.00% National Average 30-Year Fixed-Rate Mortgage: +6% Y-o-Y change +2% M-o-M change Average April rate: 5.10% 0.00% Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10

34 Current Average Rates Type of Loan May 6, 2010 May 13, Year Fixed 5.00% 4.93% 15-Year Fixed 4.36% 4.30% 5/1 ARM 3.97% 3.95% 1-Year ARM 4.07% 4.02% Source: Freddie Mac

35 10 Minute Break Eat, drink & talk real estate. Up Next... Working with Redfin 7:10 7:25 Making an Offer 7:25 7:45 Short Sales & Foreclosures 7:45 8:00 General Q&A 8:00

36 Working with Redfin

37 Working With Redfin is Different See all our agents deals & reviews We survey everyone who tours, signs an offer, buys or sells a home Satisfaction measured by a Net Promoter Score Our agents focus on service, not sales No obligation Switch Redfin agents Use another brokerage entirely You get up to 50% commission refund

38 How Touring Works See as many homes as you need Up to six homes per tour in two hour blocks Led by field agent Get advice from an agent first Or just tour without talking to anyone first No commitment See a home through Redfin Buy through another agent if you choose Get pre-approved Redfin can connect you with a lender (no kickbacks) Start shopping for loans

39 Search for Properties Online

40 Find a Home to Tour

41 Schedule a Tour or Add More Homes

42 Fill Out Some Basics

43 You re All Set!

44 Tours: Top-Ten Tips 1. Bring a camera and a notebook 2. Bring a (handy) friend 3. Bring a tape measure 4. Keep your thoughts to yourself 5. Visit during the day 6. Check under oddly placed furniture 7. Check the bathrooms for rot and mold 8. Look for wavy or discolored siding 9. When sharing a wall, make sure it's thick 10. Be wary of signing a guest register Print out our checklist for your next home tour:

45 Submit an Offer Online

46 Input Draft Offer Terms

47 Short-Sales & Bank Owned Properties

48 What is a Short Sale? A home where the owner owes more on the mortgage than the home is worth Usually pre-foreclosure, but not always Listed for less than what s owed to the bank. Requires 1-2 banks approval (usually 2) May have other liens (taxes, utilities, HOA) on the home

49 Redfin Can Help You With A Short Sale Tour short sales with Redfin If you want to buy, we refer you to a short sale specialist partner agent* Get a 15% commission rebate *Did you know: Redfin partner agents work for other brokerages but share our commitment to customer service

50 What is a Bank-Owned Property? Auction fails Bank owns, markets property via broker, MLS Standard sale but: Potential of Long response times Repairs unlikely Legal addenda may require an attorney Limited or no disclosures Also known as Real Estate Owned (REO)

51 REO Quirkiness Homes often winterized (can t test utilities) Banks may use their own contracts Can take weeks to get signed contract Bank can back out any time until they ve signed Contract often requires early release of earnest money

52 Cut to the Chase: Where s the Best Deal? REO s & short-sales often aren t the best deal: Banks are stingy Not a fire sale Your best bet for a good deal: Sellers who own their home outright Sellers who are relocating Estate Sales

53 Making an Offer & Closing the Deal

54 Overview of a Purchase Get pre-approved Tour homes Find dream home Write offer after agent consult Submit offer to seller Negotiations Success! Mutual Acceptance Typically 1-1.5% of sale price Earnest money [Within 3 days] Written loan application [3 days] General Inspection Sewer Inspection Repair addendum Inspection contingency [10 days] Submit Closing Cost Addendum Title Review [5 days] Waiting for loan approval & appraisal 2-3 days prior to closing Get keys Take possession Escrow signing appointment Closing! Complete Redfin survey

55 Pricing Strategy: Bridging the Gap Buyers Resist the urge to lowball Get your facts straight Write a cover letter with your offer Meet in the middle! Sellers Inflated opinion of price Looking at Active Listings Emotionally attached

56 So What Now Make sure it s the right time to buy Research market pricing conditions Get pre-approved & start shopping for mortgages Search for homes & get out on tours Find the right agent Make an offer & close the deal

57 Help Us Improve Our Class Please fill out the survey we ll send tomorrow along with the slide deck. We d love to get your feedback on how the class could improve. If you d like to get in touch with an agent, Just chat with us now or contact us on Redfin.com. Redfin s hiring! Check out our open positions or Sophia Gray at sophia.gray@redfin.com for information about a specific position.

58 Appendix: Glossary of real estate terms How to Conduct Your Own: Comparative Market Analysis Our Favorite Real Estate Websites

59 Common Real Estate Jargon Contingency: Conditions included with an offer on a home that must be fulfilled before the deal can close. If a buyer or seller is unable to satisfy a contingency, then the offer on a home may become void. Deed: A legal document filed with the county that documents the transfer of home ownership. This is a document the buyer signs when her deal closes and she'll receive a copy once the original is recorded by the county. Earnest Money: The money buyers pay one to three business days after agreeing with the seller on a price for the home to show that they're serious about the offer. Usually 1 3% of the purchase price (though sometimes it's a fixed amount), the money is deposited into an escrow account via a cashier's check or money order. Escrow: A neutral third party or attorney that handles the exchange of money and documents once mutual acceptance is reached on an offer. Escrow handles the transfer of the buyer's loan documents and property taxes and works with a buyer's lender and real estate agent to make sure that the title of the home is clear of liens before the transfer of ownership. Title: A legal document listing the history of ownership of the home. Buyers get a preliminary title report from an escrow agent or attorney within a week after they reach mutual acceptance on an offer. See even more definitions in Redfin s Real Estate Glossary!

60 Comparative Market Analysis

61 CMA Standard Criteria Sold properties (within the last three months) Same type (don t mix townhomes with condos) Look no further than ¼ mile radius from home Square footage within 10-15% Same beds & baths Similar style (craftsman, modern, split-level) Lot Size Year built

62 You Want This Home

63 Identify Major Criteria Type: single family residence Square feet: 1,740 (range 1,450 2,000) Lot size: 4,000 square feet (range 3,500 4,500) Year built: 1927 Style: craftsman Beds: 3 Baths: 1.75 Unique: view

64 Search for Homes Sold (zip code or neighborhood)

65 Download Results

66 Filter Out Stuff You Don t Need Delete sale type, home type, city, state

67 Sort Based on Your Criteria Remember: Square feet: 1,740 3 Beds/1.75 baths Year built: 1927 Craftsman

68 Throw Out Outliers Remember: Square feet range: 1,450 2,000 3 Beds/1.75 baths Year built: 1927

69 Scrutinize the Leftovers Use the links from your download Focus on 2-3 solid comparables Use Google street view when available Consider neighboring homes Street type: arterial Always drive by your final selections

70 Determine a Final Price Range Found two solid comparables Price range: $399,950 - $440,000 Asking price: $497,500 (higher than the range) Identify Unique Attributes Remodeled View Finished basement Quality landscaping

71 Next Step: Active Listings Find out what s on the market (competition) Run a CMA on active listings Select a few comparables: Are they similarly priced? What s the price range? Drive by to confirm details, attend open house Review Pending Sales Ask your agent to pull comparable pending sales, photos Establish a final range for homes sold in the last month Use this as a final gut check for your offer price

72 Ask Your Agent How much depreciation has taken place since the sale of your comps? Finally, Compare Results Establish a final range Consult your agent for specifics Adjust the range for unique attributes Submit an offer

Do I make an offer now, or wait? General Rule of Thumb (this ain t gospel) Does it meet the criteria of most of the seven tells? How far below list price are you?

73 Do I make an offer now, or wait? General Rule of Thumb (this ain t gospel) Does it meet the criteria of most of the seven tells? How far below list price are you? 0%-6% : Green Light 7%-12% : Use Discretion 13%-15% : Stop and Evaluate Weigh the Pro s and Con s The price could reduce on it s own (no offers) There s a higher chance of success (days on market) Interest rates could change (up or down) Another party could make an offer (you lose the home) You could jeopardize future negotiations by low balling

Quick & Dirty CMA Using Listing Details 1.

sales Community information Want to know more about CMAs?

74 Quick & Dirty CMA Using Listing Details 1. Find the home you want 2. Click on View Details 3. Scroll down to find: Google street view Property history Median house values Value estimates Similar listings & sales Community information Want to know more about CMAs? Link:

75 Favorite Real Estate Links Property Information PropertyShark: Zoning data, title history, permits, neighborhood data; navigation is clunky Neighborhood Information WalkScore: Proximity to points of interest Terabitz: Custom neighborhood dashboard, pages load slowly and U/I is awkward. Trulia Heat Maps: Median prices across a county

76 Favorite Real Estate Links Listing Search Redfin: MLS + FSBO + REO, updated every 15 minutes, with DOM, price history, Zestimate craigslist: Major FSBO source that Redfin can't crawl HotPads: Foreclosure heat maps, slow to load & the zoom can be funky Brokerage site of the listing agent: sometimes has more photos of the listing RealtyTrac: Foreclosure market detail, subscription required for full reports

77 Favorite Real Estate Links Pricing Data & Tools Case-Shiller Indices: Pricing trends by metropolitan area HouseMath: Compares a housing investment to a stock market investment Altos Research: Median price trends and days on market by city, but some complain data is unreliable MSN Home Affordability Calculator: Based on your income & credit score SmartMoney's Home Buying Worksheet: Similar to the MSN calculator, but requires

78 Favorite Real Estate Links Mortgage Calculators & Loan Information Bankrate: Many ads, but is great for comparing local lenders Zillow's Mortgage Marketplace Help Center: Articles mortgage rates, types of mortgages, credit reports, and a series of mortgage calculators The Mortgage Professor: Bare bones information on mortgages, definitions of common terms, myriad of mortgage calculators

79 Favorite Real Estate Links Loans for First-Time Home-Buyers Federal Housing Administration (FHA) Fannie Mae and Freddy Mac CalHFA: California State agency that helps certain buyers Government Sites Federal Trade Commission: Articles & alerts for home-buyers. Dept. of Justice: Role of competition in real estate

80 Favorite Real Estate Links Remodeling & Renovations DoItYourself.com: A few ads, but a useful clearinghouse of information on remodeling National Association of Home Builders (NAHB): Articles on remodeling your home, most are good What to Look for in an Inspection American Society of Home Inspectors (ASHI): Good consumer FAQ & virtual home inspection

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