Sellers Who Think They Can Build the Empire State Building on their Property
Couple zoning changes triggered by comprehensive plan updates, plus middle housing initiatives introduced in Washington last year, and add onto that sellers' already inflated idea of their own property's potential and some seller expectations are being set too high.
Sellers usually have an inflated idea of the potential of their property, especially when it comes to price. Couple that with zoning changes brought on by comprehensive plan updates and middle housing initiatives introduced by Washington State House Bill 1110 and what we have are thousands of homeowners who have no idea what their property is worth now, what it may be worth when these changes are implemented locally, but they are sure that the new highest and best use of their property means they can retire and move to the Bahamas.
How do you as a real estate agent navigate these changes? It was bad enough having to discuss price with an unrealistic seller, but it wasn’t too difficult to show a seller where their home fit in with the market. We can easily provide examples of comparable properties that only need a few adjustments to determine a reasonable listing price – perhaps the comparable property had an updated kitchen, and the subject property was on a larger lot. Although our comparable properties over the last few years have been more difficult to come by due to lack of listing inventory, they could still be found. Comparing existing structures to existing structures is something we as real estate agents are comfortable with. Creating a Comparable Market Analysis (CMA) for that type of product using tried-and-true methods is not a challenge.
Today's Market Has Changed
Fast-forward to today and we are about to have a much-more-challenging situation on our hands in Washington State. There are 77 cities in Washington that fall under HB 1110’s new definition of Tier 1, Tier 2, or Tier 3 cities based on population. Depending on the Tier and location, we will have the potential to build duplexes, triplexes, fourplexes, fiveplexes, or even sixplexes, townhomes, cottages, etc on most residential lots. Of course, there may also be requirements for parking (or not), pervious surface requirements, setbacks, height requirements, and more which will dictate just how much structure can be added to a property, so not all properties will support all those quantities.
However, as a real estate agent, if you are called by a potential seller to list a property, how are you going to approach solving this problem? The property may have a livable structure on it which would appeal to a potential buyer. But what if the property has an older structure on it, it is in an area with many older homes in various stages of repair, and is in an area that is starting to see some redevelopment? How are you even going to start to approach determining value?
What Should you Do?
The key is you will need to provide two different CMAs – a standard CMA for a typical buyer and one that evaluates building potential value based on potential volume – not just square footage, but how many stories will the height limit allow.
We have an entire video in our Middle Housing Resource Center that addresses valuing properties with this type of potential. There are a few resources YOU are going to need at the ready to begin to dive in and we suggest beginning to get those together now:
- What cities in your area fall into the HB 1110 umbrella and what tier?
- What are those cities doing to implement HB 1110 into their building codes?
- What changes are proposed to zoning maps?
- When are those changes likely to be implemented?
- How can you determine the potential building volume of a property?
The cities and counties in Washington State that are planning under the Growth Management Act are updating their Comprehensive Plans while updating these codes. These changes will be affecting our market, our valuations, our inventory, our housing densities, will provide a wider range of available housing to your buyers and sellers, and agents need to be at the forefront of this information for their local housing industries.
Middle housing is causing change throughout our industry. Learn its many forms, how to price, where it can be built, rental value, design, condoization, investment aspects, and much more at the new Middle Housing Resource Center!
A Challenge... and an Opportunity
These new changes will be challenging you as real estate agents, but this is absolutely an opportunity for real estate agents who know the information and can explain how a property’s potential will affect price.
Unless you are representing a seller with a property in a populous downtown area with no building height requirement, you won’t likely have a seller with a property that can house the equivalent of the Empire State Building. However, you will need to have pricing tools at the ready to address a sellers’ lofty pricing goals based on their perceived property’s potential.
Get ready. Change is coming.
By Denise Lones CSP, CMP, M.I.R.M.
The founding partner of The Lones Group, Denise Lones has over three decades of experience in the real estate industry. With agent/broker coaching, expertise in branding, lead generation, strategic marketing, business analysis, new home project planning, product development and more, Denise is nationally recognized as the source for all things real estate. With a passion for improvement, Denise has helped thousands of real estate agents, brokers, and managers build their business to unprecedented levels of success, while helping them maintain balance and quality of life.