SEattle REal estate NEws - SERENE™

On June 12, the Washington State “Distressed Properties Law” took effect. That’s House Bill - HB 2791 If you have the time to plow through the bill, here’s the whole official mess as a PDF file. If you have a shorter attention span, read the June 6 Press Release from the Washington Attorney General.

So, what’s the big deal, you ask.

Big deal because you, too, are a “Potential Distressed Home Owner” if you

1. Are at risk of loss for non-payment of property taxes,
2. in default under a mortgage,
3. 30 days behind on mortgage - OR
4. believe that you could default on your mortgage within 4 months and tell your lawyer, real estate agent, lender, mortgage or credit counselor, etc.

The bill has many flaws,

such as point 4 in the list above, vague wording, and sweeping definitions, but there are two major flaws worth noting. To be a Potential Distressed Homeowner you must be

1. occupying the property,
2. the property must be your primary residence, and
3. this property has from 1 to 4 residential units

Anything missing here?

Yep, the Distressed Property Law does not cover any building with more than 4 units, which excludes almost every condominium complex.

What makes this an important flaw, you ask? Well, the purpose of HB 2791 is to protect residential property owners in Washington from those shady characters who are preying on the distressed home owner. It is to protect them from con artist who “skim equity” and “steal homes”.

Since a good number of first-time-buyers buy condos and since some of them financed their dream with questionable mortgages this leaves a whole lot of targets for the scam artists to pursue.

The other major flaw

of the bill is that it does not exempt real estate agents. (In other states that passed similar legislation, real estate agents are exempt,) It is not that real estate agents are necessarily better than the average person, but they are already covered under other legislation, namely RCW 18.86 which governs real estate practice.

The bill creates a whole new profession: the “Distressed Home Consultant.” That new label was meant to apply to legitimate foreclosure specialists and scam artists. It now also applies to real estate agents. The bill does exempt others equally likely involved in real estate transactions: lenders, mortgage brokers and lawyers.

These two flaws may be major but this one beats both.

Each bill that becomes legislation includes a “Fiscal Note” which states the estimated Fiscal Impact of the bill - that’s the impact on the budget, I suppose. And since that budget is paid for by our taxes that means the fiscal impact on you and me. According to the math wizards in Olympia, the Distressed Property is estimated to have “No Fiscal Impact.”

No Fiscal Impact? Let me count the ways.

The bill has resulted in numerous rewritten and newly printed real estate transaction forms. It has already created and will create more confusion and waste of time for anyone involved in buying and selling a home. That includes all the aforementioned potential distressed home owners. The worst and most costly impact of this bill will be this: Every sane real estate agent will stay miles away from anybody suspected of harboring thoughts of being a potentially distressed home owner. The potential liability to be sued is simply too great. Ultimately, this bill may achieve the opposite results of what was intended: more foreclosures and more bankruptcies. The shady characters meant to be deterred by this bill will find other ways to ply their trade. Most condo owners remain unprotected and should watch out.

Much has and will be written about this law.

Here’s how a real estate foreclosure specialist (now becoming my Distressed Home Consultant colleague) views this bill. Your comments are welcome.

This is a great time to buy homes in and around Seattle, especially if you do not have to sell. Two of my first-time buyers are taking advantage of the local buyers’ market. One young couple will close in two weeks on their first home in Monroe, the other just started looking with their eyes set on homes in the Issaquah Highlands.

Ready and Qualified to Buy their First Home

Both couples share a trait that is becoming rare these days: save before you buy and then buy less than what you could afford. Needless to say, it is a treat to negotiate a deal for buyers like that.

What and Where?

Having determined the basic minimum specifications - 3 bed, 2 bath, 1,500 sq ft, 2 stories, small yard - and what was comfortably affordable and with pre-approval in hand, we started the search online. To help in choosing the right Seattle eastside neighborhood I suggested that they imagine a work day and a weekend - getting up in the morning, commuting to work, taking a toddler to day care, taking a walk, doing errands, going out to dinner, having friends over, etc.

Old or New, the Prices are Down

Before setting off for the Highlands we looked at a home south of downtown Issaquah. Built in the early 80s, vacant and on the market for months, the best property feature was the size of the lot with a sizable, mature back yard. We decided that any offer would be at least $35,000 below the asking price; money needed to upgrade the kitchen, bathrooms and remove the popcorn ceilings.

To save gas we left one car in downtown Issaquah and drove across 1-90 at exit 18 and up Highland Drive. Over the course of two hours we saw the eight homes on our list and two more we came across by chance. Seven of the eight homes were priced between $480,000 and just below $500,000; only one was listed close to $525,000. Looking at the homes’ listing histories, it was clear that $500,000 had become the “high water mark” - five of the eight homes had once been listed over $500,000 before being reduced below that mark. The most extreme was a home that was reduced over the course of 140 days by 11.1%, from $540,000 to $480,000. The Zillow.com chart above illustrates the one-year price trend for Issaquah and the 98029 zip code which includes the Issaquah Highlands.

Keeping Count and Picking the Winner

Looking at several homes in short succession can become confusing. My method to keep them apart and memorable is to give each home a name, usually a distinctive feature. In our case, we named the three favorites “Stairs in the Back,” “Buy Three, get Four,” and “Secret Garden.”

In my opinion, Secret Garden is the clear winner. At $254.40 per square foot the least expensive, by location it is in the quietest neighborhood, yet closest to the Park & Ride. Built in 1999, it is the oldest of the three. But how else can you get such a beautiful garden with roses and clematis and enjoy your barbecue hidden from view by mature vegetation?

Looking for Alternatives

I searched the Northwest Multiple Listing Service website for homes in Redmond, Bellevue, Kirkland and Sammamish with matching criteria: built between 1999 and 2008, 3 or 4 bedrooms, up to 3 bathrooms, between 1,900 and 2,000 sq ft, 2-stories, minimum of 4,500 sq ft lot, and 2-car, attached garage. The result: zero.

Expanding the age of the homes back to 1995 made no difference. Eliminating the lot size specification entirely and reducing the required square footage to a minimum of 1,500 sq ft resulted in nine properties, three on the Redmond Ridge and six in Sammamish. The least expensive is a $424,950 Sammamish home with 1,550 square feet. However, languishing 138 days on the market and located deep in the heart of the Sammamish plateau it is a tough commute and perhaps not such a good deal.

That “For-Sale-By-Owner” Sign may be an Invitation to Complete Strangers.

If you consider selling your home on your own, envision this scenario: A friendly, well-spoken stranger wants to see your home. You invite her in. She compliments you on your home and asks to take some photos so her husband, away on business, can see the pictures online. You are flattered and have no objections. In fact, the prospective buyer has just taken pictures of some your most valuable possessions. If you have a security system, she may have taken a picture of the motion detectors and the security key pad in preparation for another, perhaps less well-intentioned visit.

Safety is always on the mind of a real estate professional. Alerts are posted on the Multiple Listing Service member website which reports suspicious activites. Thanks to these alerts, several suspects have been identified by police before more damage was done.

For Sale By Owner Sellers (FSBO) may be ignoring safety risks.

The FSBO seller likely lacks formal training in personal safety and is not experienced in dealing with complete strangers. Seemingly innocent questions by a “potential buyer” may be designed to find out who is at home and when the home may stand empty. The contents of the home can be at risk and, worse, so can be loved-ones, including children.

What’s the best protection for the FSBO? First, don’t be “home alone” when the stranger comes calling. If that’s not possible let someone else know when you will be showing your home. Have the visitor sign a guest book and ask to see identification. Equally important: don’t advertise the home as “vacant.” Other safety precautions include removing prescription drugs and valuables, such as jewelry. Eliminate evidence of personal contacts, such as which school your children are attending. Remove those photos and notes from the refrigerator door! Visit the National Association of Realtors website for more information on safety for home sellers.

Safety is KEY

Licensed real estate agents and their clients benefit from the security system managed by the Northwest Multiple Listing Service. The system records every entry and identifies all agents who have entered a property. A critical element of the system is the daily update of the agent’s access code on a GE Supra DisplayKEY™ or similar device which opens the lockbox via infrared signal. If not updated, the code that allowed entrance into a home yesterday will not work today. The lockbox, located near the entrance of a home, can be programmed by the listing agent to suit the home owner’s schedule.

Every time the lockbox is unlocked and the house key(s) become available the safety system records the agent’s identity and time of entry. The listing agent can access the information to confirm this information not only for safety reasons but to gain valuable marketing information which allows immediate feed-back from all agents that have visited the home for preview or with their clients.

The Northwest Multiple Listing Service (NWMLS) Takes Safety Seriously.

The keybox safety system protects real estate agents, home sellers and buyers. Through their listing agent sellers will know exactly who’s been to their home and when.

A $5,000 Fine

The NWMLS takes safety serious. Using another agent’s Supra DisplayKEY™ or Supra eKEY™ key to gain entry to a property is a violation that carries a $5,000.00 fine.

Almost as inevitable as death and taxes, the Washington Seller Disclosure Statement is a sure thing when it comes to selling residential property in Washington State. Form 17, as it is also called, looms large and larger.

Getting more complex over time.

The state legislature keeps adding and changing Form 17. The last major change was in 2003. Subsequent effective dates and changes/additions pertained to:

• January, 2005: sex offender in area
• June, 2005: proximity to farms
• June, 2006: farm proximity language changed
• June, 2007: environmental section added plus other major changes

Major changes include:

• Definition and destinction between improved and unimproved residential property
• Amends the existing Form 17 used for “improved” property
• New Seller Disclosure Statement to be provided to buyer of “unimproved” property zoned for residential use
• Limits a Buyer’s ability to waive receipt of either form

Changes to sections of the form include:

• Section 6 – title of section changed from “Common Interests” to “Homeowners’ Association/Common Interests”.
• Section 7 – title of section changed from “General” to “Environmental”. This section must be provided to the Buyer, and receipt of this section cannot be waived by the Buyer, if the answer to any question in the section is “yes”.
• Section 7(D) – replaces old questions related to flooding with new question asking about existence of shorelines, wetlands, floodplains, and critical areas on the property.

Who must provide Form 17?

The requirement is getting tougher. Not having occupied the premises is likely no longer a valid excuse. One exception remains: when the owner has passed away.

What if the Seller does not provide Form 17?

The buyer can walk away from the purchase just before closing and get the earnest money back.

What’s the role of the real estate agent?

The agent can not assist the seller in filling out the form. The buyer acknowledges this by signing below a statement that reads: “…the disclosures made herein are those of the seller only, and not of any real estate licensee or other third party.”

Must agents disclose what they learn from Form 17?

Once the Form 17 has been provided to the buyer the answers become known to the real estate licensees representing the seller and the buyer. Having learned of material facts through Form 17, the real estate licensees must disclose them.

I am not using an agent to sell my home. Do I need to provide Form 17?

Absolutely.

If you are interested in the details of the new content and rationale behind the changes to the Washington State Seller Disclosure Statement, visit the Washington State legislature website (pdf file).

Condo conversions remain an attractive choice for first-time buyers.

(Note: this is an update of an article I wrote more than a year ago for my website GNADE.com .)

Although the Seattle real estate market has cooled off since 2006, condo conversions are still an attractive option for first-time home buyers. With good reason because often it’s the only affordable option.

Over the past four years, developers have plucked one eastside apartment complex after another from the Seattle eastside landscape and created new real estate for sale. Some of the more recent conversions are in or near downtown Redmond, such as the Riverwalk at Redmond - built originally in 1983, The Boulder (1985), and the Bella Vista (1981). A conversion in progress is the Champagne (1969) in Bellevue near 148th on NE 8th Street.

Option packages and earnest money

First, the dollar figure advertised is usually just the “base price.” Option packages can add anywhere from three to ten percent. Some sellers ask for half of the option package price to be paid at the time the buyer and the seller have a “signed-around” purchase and sale agreement . This option package down payment is often not refundable. The earnest money itself can be steep, especially at the beginning of a conversion project.

Potential hurdles

The tenants (lessee) rights are protected by their lease contract and they will usually vacate the premises at the end of the lease. This means that a complex is not necessarily being converted in the most logical fashion.

In the current credit market it is hard enough to find a lender. The number of lenders for conversions is already limited because the condos are "non-warrantable" with the Department of Housing and Urban Development (HUD). Often, the seller advertises a preferred lender and, in addition, offers other financial incentives for buyers using that lender.

Find out the details; then get involved.

The conversion usually involves the gutting of the interiors, new flooring, new interior build-out, new doors, painting, trim, finishes, fixtures and appliances. Because in a condominium complex a buyer also buys a percentage of the common areas , it’s important to know exactly what’s being improved or converted .

I recommend to my clients to join the Board of the Home Owners Association at least for the first year. That way they can play a role in revising the initial rules of the association, such as allowing pets and designating visitor parking.

Buyer Beware!

Given the special circumstances of condo conversions is precisely why a buyer should be represented by an agent . In the more buyer friendly market of 2008, some developers/sellers are now advertising "agent friendly," meaning we "need you to bring the buyers."

Investing in conversion condos

The many condo conversions have contributed to increasing rents in the Seattle area . So buying a unit in a condominium conversion project with the idea of renting it out may be a sound investment. The number of non-owner occupied is usually limited; so it pays to check first.

Clients and friends keep asking me: what do you think of the Seattle housing market?

From personal observations and experience I know that Seattle area homes are selling if they are:

• competitively priced,
• well prepared for sale
• offered by a motivated seller, and
• marketed aggressively

I’ve listed and sold two Seattle properties in March which met these four criteria. During the same time I’ve also helped two buyers purchase homes.

Buyers have plenty of choice and will buy when the above criteria are met. Obviously, buyers are up against tougher lending standards. Still, first-time buyers with good credit, steady income and savings for a sizable down payment have the pick of the litter - if they can afford it.

The problem with Seattle residential real estate is affordability.

Currently, the average Seattle area home price is $414,518, just about double the national average of $207,272.

Why’s that?

• More people are moving to Seattle than are leaving.
• Seattle companies are still hiring and opening offices here, such as Google.
• The local government curtails land use.
• The local geography fosters exclusivity.

Take a look at a Seattle area map and what you see are bodies of water dissecting the land. What you get is an abundance of highly desirable waterfront properties. Add the undulating hills that rise from these waters and you get desirable view properties. Waterfront and views sell for a premium.

The solution for many first-time buyers is to “go condo” or to buy further out and settle for a longer commute. In the meantime, prices on some Seattle area homes are coming down. One example is Kirkland condos, especially those at the higher end. The highest foreclosure rates are south and north in cities like Burien and Monroe. These foreclosures came about through the combination of easy credit, lofty expectations of appreciation, and perhaps optimistic assessment of increased personal income.

What the Experts say about the Seattle housing market.

PMI Corporation, the company that provides private mortgage insurance, looked at the risk of home prices declining over the next two years (pdf file). Seattle ranks in the least risky group. Speaking to the status quo, The Wall Street Journal shows the Seattle area in 197th place out of 200 when it comes to mortgage payment delinquencies (by value) of 30 days or more.

Another measure of the same table is the current price level when compared to the peak of the US housing market which the WSJ determined to be the fourth quarter of 2005. Compared to that peak (being 100%) the national average price level is now at 91.9 percent - a drop of 8.1 percent. Seattle home prices, however, have still risen further since then to 117 percent.

This would suggest that it’s about time for Seattle home prices to cool down further. Foreclosures excluded, what I see is a stand-off between sellers and buyers. Seattle home sellers can’t believe prices are coming down, buyers are wondering by how much.

Being on the Bellevue and Kirkland condo prowl with one of my valued clients, I was reminded again how difficult it can be to find out all the facts before making an offer. One of the listing mentions some “possible future assessment” and the listing agent professes not to know anything more specific.

What to do?

Call the management company. I am still waiting for a call back but I’m not holding my breath. Scour the web, looking for “name of condo + lawsuit” or similar, but to no avail.

You want the information? Make an offer!

To get this elusive information the buyer must make an offer and the seller needs to accept the offer - i.e., the two parties must reach mutual agreement. Only then will the buyer receive the RESALE CERTIFICATE (from the condominium association or authorized agent) The buyer will have a specified number of days to review it. Based on the review the buyer can decline to move forward with the purchase (and get the earnest money back).

What is a Resale Certificate?

Contrary to what some condo owners, condo associations and even condo management companies believe, the Resale Certificate is much more than a form consisting of a few questions and statements. According to the Revised Code of Washington (RCW 64.34.425), it is to include among other information:

“A statement setting forth the amount of the monthly common expense assessment and any unpaid common expense or special assessment currently due and payable from the selling unit owner and a statement of any special assessments that have been levied against the unit which have not been paid even though not yet due…”

“A statement of any anticipated repair or replacement cost in excess of five percent of the annual budget of the association that has been approved by the board of directors…”

“A statement of any unsatisfied judgments against the association and the status of any pending suits or legal proceedings in which the association is a plaintiff or defendant;”

For my clients and your convenience I’ve prepared a PDF file of the complete Resale Certificate requirements as published on the Washington State website. Answers about condominium laws and rules and much more can be found on this Washington State Labor and Industries website.

Two days ago I received an email that said:
I think you have a very informative and interactive Website with plenty of pictures. What I think is missing are the sample floor plans. Someone like me would want to see the pictures (which you have) then look at the floor plans. Just a friendly comment.

I wish I had those floor plans.
In fact, I wish there would be floor plans not just for condos but for all homes. The only floor plans for the resale of homes I’ve seen were the architect’s plans for a custom-built home and another set for a planned remodel. In the resale of condos the documentation that comes with the Resale Certificate may include floor plans but the quality of the reproduction often leaves much to be desired. So do the floor plans created by appraisers which are meant to establish only basic dimensions and lack detail.

Floor plans are common when they are a necessary part of marketing. When the new condo complex exists only on paper or is still under construction, the “showroom” sales office displays 3d-models and the brochures include floor plans. So do the websites such as the one for the Gallery in Seattle’s Belltown neighborhood where one of my clients purchased a one-bedroom unit. (I’ve started a file with new condo and home brochures to have the floor plans for re-sales down the road.)

Manuals for appliances and cars but not for homes
If I remember correctly, in Germany, were I grew up, the purchase of a home included all plans with every addition and alteration. In any case, this is how it should be. It would make everything easier: inspections, appraisals, say nothing of planning a move and deciding what piece of furniture should go where.

This isn’t asking too much. When I sold a 1984 Mazda the new and fourth owner received the car with a detailed manual and a complete record of all repairs. When I was looking to buy a similar-vintage stereo system on craigslist the owner offered a complete manual in pdf format. In fact, there are several websites dedicated to product manuals dating back several decades.

Plans on a Stick
Considering that homes cost much more than most cars and a multiple of any appliance it’s amazing how little about them is documented. In the age of digital communications it isn’t asking too much for the builders of new condos and homes to hand each new owner the keys on a key ring that includes a USB stick with all floor plans and specifications.

Hard to believe: the Portsmith condominium building is a decade old. It occupies one of the best spots in downtown Kirkland and still is one of the most desirable places to call home. All but two of the 150 units have either one or two bedrooms and many have views of Lake Washington, Seattle and the Olympic Mountains.

Selling at a rate of about 10 per Year.
Today, one of my clients asked me about two of the six condos currently for sale. What did they sell for three or four years ago? How long have they been on the market? I looked at the numbers from 2004 to the present. Surprisingly, the number of condos sold per year does not vary much by year: 8 in 2004, 11 in 2005, and 10 each in 2006 and 2007. There may have been a few more, but those are the ones listed at the Northwest Multiple Listing Service (NWMLS) which was my source for all the data presented here.

Today, They Take Much Longer to Sell.
The greatest difference from year to year has been the average number of days it took to sell. The chart below makes that clear. (I should add that for this chart and the average price graph I did not count the sale of the penthouse unit in 2004 because the 1.5 million selling price and the 250 days on market skewed the statistics disproportionately.)

The currently active listings (six) average 150 days since first listed for sale. That’s about three times as long as it took to sell the 10 condos each in 2007 and 2006.

While prices are still going up the rate of increase has slowed down considerably.

What Sellers Ask and What They Get.
Perhaps most telling about the current market is the difference between Original Listing Price, Reduced Listing Price, and Selling Price. In 2004, only one of the eight homes that sold, was moderately reduced in price. The average actual selling price was 1% above list price. In 2005 that statistic changed slightly in favor of the buyer. In 2006, the average Reduced Sales Price was 3.5% less than the Original Sales Price and the Selling Price another 1.6% less for a total of 5.1%. In 2007, the sellers did worse, selling their condos on average for 5.4% less than originally listed. The trend continues into 2008: the currently listed six condos have already been reduced by an average of 5.2% which means that they will probably sell for 8 to 9 percent below original listing price.

The Portsmith condos are still desirable but sellers need to get more realistic about pricing. Buyers, especially those that are financially healthy, have the edge.

Let’s take the 12-month bar graphs of Kirkland condos sold in 2007 and compare them to how many Kirkland condos were for sale on January 2, 2008 at 9 am. Again, we do this separately for zip codes 98033 and 98034.

98033 Zip Code: Condos Sold (2007) and For Sale (01/02/2008)

Starting at twelve-o-clock, the green segment represents the 124 active listings as of January 2, 2008 at 9 am; and the following lavender segment the 28 homes “in Escrow” (Subject to Inspection, Pending) at the same time. Starting with the orange segment begins the year 2007 with 29 homes sold in January.

The idea behind this pie-chart is to examine the “absorption rate,” i.e., how long will it take to absorb (sell) the homes currently for sale. Taking a look back it would take about three months to sell all but 10 of the homes for sale at the beginning of 2008. That’s if we assume the same number of sales as in the first three months of 2007 (114 homes sold).

Declining condo sales in the last three months of any year are normal. Usually condo sales pick up again after the new year. Will 2008 repeat that pattern? What if the drop in sales toward the fall and winter of 2007 continues in to the first months of 2008? Then it will take nearly five months to sell those same 124 condos.

98034 Zip Code: Condos Sold (2007) and For Sale (01/02/2008)

The 2007 Kirkland condo sales pattern for the 98034 zip code is similar to the 98033 zip. And, it represents the same question? Will we see the same January-sold jump as in 2007?

Note: the source for these graphs and related bar graphs is the Northwest Multiple Listing Service (NWLS). The translation of the data to graphs is mine and so are any errors.