Condo: the affordable first-time home owner option

The downturn in real estate has hurt Seattle area condos more than single family homes. Because of the shared ownership of the “common” areas, condos have always been more difficult to finance than homes.  At the same time, condos were, and still are, the affordable entry level to first-time home ownership.

Condos and the changing FHA loan process

The low down payment requirement — currently 3.5 — make FHA insured mortgages the favorite forms of financing for first-time buyers.  Lenders bear less risk because FHA will pay the lender if a homeowner defaults on the loan. However, borrowers must meet specific FHA requirements to qualify for FHA insurance.  For condo buyers there is another hurdle:  the condo complex has to be FHA approved.

Until recently a lender could obtain a so-called “spot approval” for a specific condominium unit in an otherwise not FHA approved condominium complex.  The criteria for such an approval were complex and the outcome uncertain. Still, it could be done.  Now, new rules are in place.

What’s HRAP/DELRAP?

HRAP stands for HUD Review and Approval Process,  DELRAP for Direct Endorsement Lender Review and Approval Process.  In short,  either process requires that a condominium project must be approved before applications for FHA mortgage insurance can be processed for individual units.

Luckily, there is an official  HUD website where you can find out if a condo qualifies for FHA insured mortages.  Click on the help link to learn about how to use the online form.

Strangely, the site does not operate 24/7.  “Your request could not be processed at this time. Please try again later.  Normal hours of operation are from 8 am to 9 pm Eastern time Monday through Friday.”  (Dont forget to turn off the the web site!)

Good news for Kirkland Springs condo sellers and buyers.

Using the form during the hours of operations I found out that Kirland Springs in Juanita is now an FHA approved condo complex (since January 8, 2010).  More good news is that my condo listing there has found a new buyer. We have reached mutual ageement. Unlike the first two buyers who qualified for financing under the old spot approval FHA rules and ultimately were unable to purchase, this  one is using conventional financing.

Final Call for $8,000 and $6,500 buyer tax credits

The deadline for the buyer tax credit program (first-time and repeat buyers) is fast approaching. The transaction must close by April 30, 2010 to qualify.  Go to my website for the details and get moving.

Web statistics include the terms people use to search on my websites. Through the first 36 hours of December 2009, the search terms which brought people to GNAde.com were:

1. washington state rodent disclosure buy home
2. stairs near the living room
3. home sellers disclosure form washington state
4. first time home buyer tax credit seattle
5. dining room with skylight lighting room design
6. mountlake terrace
7. real estate attorney northgate washington
8. customer testimonials examples real estate
9. form 17.doc washington
10. real estate laws for washington state
11. understand form 17 seller disclosure
12. bed master room door out
13. failure to provide resale certificate wa
14. example of home buyers form 17
15. the living end 1998
16. brick tudor homes
17. first time home buyer seattle
18. form 17 washington state law
19. declaration statement real estate washington
20. washington state form 17
21. real estate seattle area
22. property dealer — testimonial by clients
23. 8000 tax credit flyer

Six of the 23 terms deal with seller disclosure or mention directly Form 17, the Washington Seller Disclosure Statement which I have called “form fatale.” Two are looking for information about the which has not only been extended for tax credit for first-time buyers but also expanded to include tax credits for current home buyers.

Five search terms deal with specific locations (Mountlake Terrace and Northgate ) and home style or features (brick tudor, stair location, skylights). The latter where likely image searches.

The one seach term on the list that has me baffled is “the living end 1998.”

I am a Realist and a Realtor®

Before comparing the two articles, let me say that I’m a realist. Home prices are still coming down in Seattle land but they are not “crashing down” as they have in parts of Florida, Arizona and California. I’m a realist who makes his daily living in this business and I have every reason to keep in touch with reality.

The National Story and the Local Story

Hyperbole cuts Both Ways.

The reality includes naively optimistic and boring advertising by the National Association of Realtors (NAR) on one side (I’m a member) and on the other side justifiably negative media reports about the country’s financial affairs in general and in particular the housing market. The problem is that some of these negative national reports are manipulated to give the impression that they are written and produced for the local market.

Accidental or Intentional Misrepresentation?

The question is if this impression is accidental or intentional. Judging by the edited “reprint” of the WSJ article in The Seattle Times (ST) I can only conclude that the ST did everything possible to give the impression that this story was about the Seattle real estate market.

Selling Doom

The most obvious difference is in the headline. The WSJ headline describes the story’s content, while the local headline is meant to shock. Not enough, the ST editor added an intoductory paragraph lifted from the body of the article and reworded it so it would appear more negative and look as if it described the Seattle real estate market.

Stupidity or Blatant Manipulation?

Below the small-print “byline” that identifies the WSJ writer of the story, the first paragraph shows additonal editing to give the impression of this being a local story. The WSJ states “House prices have crashed more than 35% in some parts of the country.” (emphasis mine) which the ST editor changed to “…in some areas.” What areas are we talking about here? Some areas of Seattle, the eastside, King, Pierce or Snohomish county?

Irresponsible Journalism

There’s nothing wrong with editing to make a story relevant to the local readership or shorten it to fit the available space. (The Seattle Times reprint left out several paragraphs from the original WSJ article.) However, when a local newspaper manipulates a thoughtful, even-handed story from a national paper so as to frighten the locals into buying the local newspaper, that’s simply irresponsible.

Make Your Home Stand Out

But what if you have to sell?
First, be clear about one thing: it’s not what you need to sell your home for but what somebody else will pay for it. Second, make it the most attractive home in the neighborhood.

Don’t D-I-Y (Do-It-Yourself).
In a declining market that favors buyers you need all the help you can get. Get an agent and get a good one. Interview a few on the phone and describe your situation. Ask for two referrals from recent clients and call them. Then ask two or three agents to come to your home and present their plans to sell your home. If you have a hard time deciding between two agents based on their qualifications and plans pick the one you like better. You’ll be spending some time together.

You and your agent are a team.
Regardless how good your agent is, your input and cooperation are essential. Don’t hide anything from your agent. If you disagree, speak up.

Do your homework.
What other homes are for sale in your neighborhood? How long have they been on the market? Have your agent show you the homes for sale. Look at the competing homes as if you were a buyer. Then go home with that mindset.

Check the record.
What is publicly known about your home? Check the county records. If the data is wrong correct it. Your latest room addition is not there? Still saying septic tank when you’ve connected to public sewer line?  You can correct this online via a request to the county.  Also, check and see what Zillow.com “thinks” your home is worth. You may disagree but that’s what the public sees.

Make lists.
There is nothing your agent should not know about your home. When someone calls and asks about the age of the water heater or the nearest daycare center the answer should never be “I don’t know” and rarely “let me check.” Make lists about the home top to bottom and by time line of ownership. Collect all receipts for repairs and improvements. Make lists about the neighborhood facilities. Know driving distances to everyday conveniences and the nearest bus stop. Bookmark all related websites.

Clean up.
Prepare the place as if you where going to invite a potential buyer tomorrow. Don’t just clean but make it spotless. Touch up, repair, paint, air out. Get rid of the clutter, including in closets. Rent a storage place for everything you can’t part with (yet). Move or remove furniture when there’s a chance to bump into it. (Do the “penguin walk” test, swaying side to side.) If you have a pet plan ahead of how best to make yor dog or cat “invisible” to visiting agents and buyers.

Be patient.
Don’t put your home on the market before you and your agent are ready to sell. A first bad impression is hard to correct.

Know what your agent sees and does.
Once your home is listed for sale have your agent show you in print or online whatever and wherevever your home appears as being for sale. Print a copy and check it for mistakes. Remember, you are a team. Make suggestions for improving the presentation. There’s a difference in what other agents can see and what the public sees about your home. You need to see both.

Ask to see the stats.
There is an agent hit counter on the MLS and sites like Zillow.com and Trulia.com let you know how many people have viewed your home online. Same is true for your home’s special website that your agent has created.

“Google” your home.
Pretend you live on the East Coast or abroad and you are looking for a home like the one you have to sell. Forgive your agent if it doesn’t show up on page one for “Seattle homes” but ask him why it doesn’t show up for a more specific neighborhood term like, for example, “Redmond homes near Microsoft.”

Prepare to drop the price.
You’ve agreed with your agent on the initial listing price. That price is realistic and reflects your motivation to sell (which only you and your agent should know). You should have agreed at the same time on the next lower price and the reasons and timing for lowering the price. Have your agent prepare at the outset “Seller Net Proceeds Estimates” for several price points.

Leave the lights on.
Make it easy to see your home. Be ready to leave on a moments (30 minutes) notice. Leave the lights on and perhaps the radio on at low volume (you are not trying to cover up external noise). Make sure there are enough flyers inside and outside. If there’s something noteworthy directional or feature cards on the walls should guide the visitor  — “Bonus Room above Garage” or “Brand New Furnace”.

Bur wait, there’s more!
Yes, there always is. This is not an exhaustive list by any means but it should get you start thinking and checking in case you have to sell now. One final thought: stay positive; don’t let the negative news get you down. If you believe in prayer, do pray. Remember, you may have to sell, but there are also buyers who have to buy.

The success of your opne house depends on several factors, including:

• marketing
• location
• pricing
• timing
• the seller
• the agent
• the weather and other events.

Marketing

Don’t just rely on the neighbors and local gawkers. Get the word out ahead of time. In print and on line. Your agent has two audiences: other agents and the general public. Other agents get the word through inter-office email and the Multiple Listing Service where they can find open houses by date and location. The public gets the word via the internet at real estate portals like Zillow and Trulia, the agent’s and/or broker’s website, and through specially timed ads on craigslist; in print the public is informed through ads in the local papers and the notice at the local market. Putting stickers on the listing flyers ahead of time and adding an “Open House” rider with date to the lawn sign helps but reaches fewer people. Internet marketing has an unbeatable edge: mapping and directions.

Location

How easy will it be to find your home? Often, that depends how easy it will be to give directions. Regional and local Seattle area sign ordinances have become stricter and there’s been some controversy as this blog post in the Seattle Times points out.  It’s easier to direct people to a home in a suburban neighborhood in, let’s say  Redmond or Woodinville than to a condo in the Belltown neighborhood of Seattle. The harder it is to help finding a home with signage the more important is the pre-open-house marketing, especially maps and directions. Thankfully, open house seekers guided by GPS devices are becoming more common.

Pricing

The pricing factor is closely tied to location. Very expensive homes don’t lend themselves to open houses and the neighbors in exclusive neighborhoods may not want the attention of strangers. An aggressively priced and well promoted home may attract a large crowd. There are risks involved in holding an open house. You do not want to have two or three parties show up at the same time and traps about your house unsupervised. To handle that kind of traffic your agent will need to have additional personnel.

Days on Market

Timing can be everything. The earlier after first listed the better but not too soon. Your agent should have stirred the pot and know the online traffic stats to gage interest and timing. I try to list on a Wednesday or Thursday and wait until the second weekend to hold an open house. Another timing factor for having an open house (or a second one) is after a change in the listing, such as a price drop or when the owners have moved out, when the clutter is gone and the home can be staged advantageously.

The Seller

You and your agent have to work as a team. Your agent should consult you first as to the date of the open house. You may have dinner guest on the evening of the day. You or a family member may be sick or have a birthday. Then there’s the preparation. Some things only you can do; like cleaning out the litter box or telling your teenage son to tidy up his mess. Also, put all prescription medicine safely away. Leave nothing dangerous in plain sight, such as that set of Victorinox knifes. Anything really small and valuable should not be within easy grasp. Call your agent about 15 minutes after the end of the open house to make sure the coast is clear for your return. Ideally, you want your agent to stay until you come back to discuss what’s happened. A fresh memory supported by good notes will help evaluate the event.

The Agent

You’ve probably experienced this. You go to an open house and the agent showing the home is not the listing agent. You ask questions and the agent can’t answer the one of greatest importance to you. The industry wisdom is that this other agent will be interested in finding the buyer among the open house visitors and represent that buyer in the transaction. At the least, the “house sitting” agent, often a more junior agent, gets the opportunity to meet some potential clients and hand out business cards. However, in my opinion there is nobody better equipped to hold your open house than your listing agent.. Your listing agent knows you and your home the best. Your listing agent represents you and your interests the best. Your open house should not be the seen chiefly as an occasion for client prospecting -.not by your listing agent and certainly not by another agent.

The Weather and Other Events

Sunny or at least dry days are usually better. Rain and snow keeps people away, and if they come anyway their mood can be as cark as the skies and the mud they drag in even darker. (Keep those booties handy.) You can, within reason, take the weather into account but don’t let it dictate your event. Speaking of events, this is were you and your agent should check the calendar ahead of time. Don’t try to compete with the local home coming weekend, the World Series or Superbowl. Also, if your home is in an urban neighborhood and parking is at a premium don’t schedule your open house at the same day as the annual culinary event held by Greek Orthodox church around the corner. On the other hand, a special sign announcing your open house on the following weekend may get more attention than usual.

What Makes an Open House Special?

It is the only opportunity for anybody to see a broker-listed property at their convenience on their own. It gives your listing agent and you a chance for unique feedback. A skilled listing agent will be able to read a visitor’s silent reactions. Finally, the visitor’s questions should be viewed as opportunities to improve the listing, which means improving the presentation of your home in print and, most importantly, on the internet.

Open houses are great learning opportunities.

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

Sellers and buyers do not see the same 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.

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.

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.

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).

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.