Some say this is a great time to buy.

Not so fast, I say. It’s an OK time to buy if you do not have to sell first. It’s a good time to buy if you don’t have to sell first and have good credit. It’s a great time to buy if you don’t have to sell, have good credit and have saved up for this very purpose.

If you are young, have a well-paying job and would find another job in greater Seat­tle with rel­a­tive ease, this is your day to go house hunt­ing — eh, make that condo hunting.

Know what you want; then make a list.

Condo hunt­ing — that’s just what I did with a young man who fits the above pro­file. Begin­ning about a month ago, we started to look around, first online, then in the real world. Shawn had a pretty good idea of what he wanted. He made a list for me:

1. Must Have (max­i­mum 25-minute no-transfer bus ride to work),
2. Would Like (lots of light, neigh­bor­hood feel),
3. Don’t Need (ameni­ties like pool, gym) and
4. Can­not Have (pre­vi­ous owner with pet — allergic).

Do your­self and your real estate agent a favor and make your own list. In the end, we found a condo that met 3 of the 4 cri­te­ria. The seller has a dog but there are no car­pets; just hard­wood floors and a cen­tral vac­uum sys­tem. We made an offer and, after some back and forth, we arrived at a mutual agree­ment on price and conditions.

Imag­ine a day in your life.

What I tell all my buy­ing clients is to imag­ine how they spent their time. What do you do after work? Cud­dle up with a book or go bar hop­ping? Do you like to have friends over for meals or rather go to a restau­rant? What do you do on week­ends? In Shawn’s case one such lifestyle con­sid­er­a­tion was where his friends lived. Some live on the east­side some south of down­town Seat­tle. The cho­sen condo put him right in the middle.

East­side or Seattle?

We started on the east­side at the south­ern edge of Both­ell with lots of con­dos within walk­ing dis­tance to the Brick­yard Park & Ride. Shawn took the bus from work in Seat­tle to meet me there — the com­mut­ing test. We saw about half-a-dozen con­dos that late after­noon and early evening. In the fol­low­ing week I picked up Shawn with my car after work and we looked at con­dos in sev­eral Seat­tle neigh­bor­hoods — Fre­mont, Maple Leaf, Sand­point, Lake City to name a few.

If you are won­der­ing about the num­ber of con­dos cur­rently on the mar­ket, here’s the count from the North­west Mul­ti­ple List­ing Ser­vice (NWMLS).

1-bedroom con­dos between $150,000 and $200,000

• Seat­tle (city lim­its): 67
• Ken­more, Both­ell, Mount­lake Ter­race, Mill Creek: 33
• Kirk­land, Belle­vue, Red­mond: 24

2-bedroom con­dos between $200,000 and $250,000

• Seat­tle (city lim­its): 64
• Ken­more, Both­ell, Mount­lake Ter­race, Mill Creek: 48
• Kirk­land, Belle­vue, Red­mond: 42

Online real estate is like read­ing a menu; you can’t “taste the place.”

What Shawn learned from look­ing at over a dozen con­dos was that you can’t tell by the pic­tures what a place is really like. What I learned again is that pric­ing real estate is at least as much art as it is sci­ence. Too much depends on the owner’s moti­va­tion to sell. Res­i­den­tial real estate is not entirely ratio­nal. The web is full of infor­ma­tion but the smell of a place is some­thing else altogether.

What’s your take?

What’s hold­ing you back from own­ing your own place? What’s your idea of the ideal condo? What’s your pre­ferred neigh­bor­hood and why? Have ris­ing gas prices changed your mind as to where you would like to live? Your thoughts and com­ments are welcome.

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.

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.

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.

As we enter 2008, let’s take a quick peek in the rear view mir­ror, specif­i­cally at Kirk­land con­dos by two zip codes: 98033 (down­town Kirk­land and mostly west of I-405) and 98034 (fur­ther north, like Juanita area and east of I-405, like Kings­gate area).

98033 Zip Code Kirk­land Condo Sales

Sales in this more expen­sive and, thus more pres­ti­gious, of the two zip codes peaked in March and dropped off con­sid­er­ably after July. This is not abnor­mal but the arrival of the first bad news about the sub-prime mort­gage surely played a role in the rate of the drop in sales.

98034 Zip Code Kirk­land Condo Sales

In the 98034 zip code, sales show an unusual three 4-month cycle with the first peak in March (nor­mal) and a sec­ond peak in Augusts — per­haps the “last hur­rah” for the year. After Sep­tem­ber, the mort­gage malaise, real or imag­ined, put sales in a steeper than usual decline.

More of the same for Kirk­land Sin­gle Fam­ily Homes to follow.