SEattle Real Estate NEws - SERENE™

Facts and Fantasies

According to the Zillow Q2 Homeowner Confidence Survey 62% of homeowners believe their home’s value has increased or stayed the same in the past year yet 77% of U.S. homes actually declined in value.

This contrast of reality and wishful thinking is less pronounced in the West, perhaps because in parts of California and Arizona the signs of the downturn are just too prominent to be ignored. As always, the Northwest is lumped in with the rest of the West, so the company that conducted the poll for Zillow provides no data for our corner of the USA.

Signs of Denial in the Seattle Real Estate Market

To find signs of this denial let’s take a look at the Property History of the listings in the data base of the Northwest Multiple Listing Service (NWMLS). The Property History captures the price trend of every property from when it was listed to when it was sold - if and when and how often and by how much the price was reduced. What is used in many published statistics is the spread between the listing price (at the time of the offer) and the purchase price. However, that tells only part of the story. The listing price at the time of the offer is often lower than the original listing price (first day of listing). Another price factor - not reflected in the selling price - is other seller concessions, such as the seller paying part or all of the buyer’s closing costs. Let’s look at a typical example:

Some numbers tell only part of the story.
The media will report statistics that reflect the difference between the listing price and the selling price. The real story, however, is told by the difference between the original listing price and the selling price. This real story tells the difference between a seller’s hopes (unrealistic expectations) and the reality of the market. In the example above the seller reduced the price of the home by 3.3% and then sold it 2.5% below the reduced price, making for a total price reduction of 5.8% since the original listing. If the seller paid $6,000 of the buyer’s closing cost then the total price reduction was 7.1% (difference between $450,000 and $418,000). Such seller concessions and these kind of price reductions are representative of what is currently happening in the Seattle real estate market.

Only Motivated Sellers Need Apply
As a real estate agent it is my job to sell your home at the highest possible price. Some would add: “in the shortest possible period of time” but that depends on the circumstances. Still, if you do not want to sell quickly as possible why do you want to sell at all? This is no time to “test the market” just to see what you could get. I know of a street with three similar homes for sale. One of them is priced about 35% lower than the other two. One of the overpriced homes is listed with a comment by the agent: “price set by seller.” In other words: don’t blame me.

The price of the “inexpensive” home reflects the market. After 30 days it is listed as “Pending Sale BU” which means Backup Offers Requested. I don’t know what the offer price is but it is a safe bet that someone spotted a good value and is now trying to get an even better deal.

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.

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).

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.