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.

Price has been reduced from $199,950 to $182,500. Home Owner Dues are $255/mo. See details on this website. Or see this Kirkland condo on YouTube.

Update:  pending sale since March 9.

I followed up with all these agents. The replies by two most recent who sent me feedback included these comments: The unit shows very nicely and it is priced right for sure. and I loved the condo…  Sould sell soon.

It should have sold twice.

Two buyers, two offers, two mutual agreements
With an agent visiting this Kirkland condo every third day there should have been an offer, right?  There were two. There were two offers and two mutual agreements.

Two buyers unable to pay
What happened? Buyer number one, pre-approved by his lender at time of offer did no longer qualify for  financing 10 days before closing.  Buyer number two, also pre-approved by lender at time of offer,  allegedly forged his income documentation and the transaction was cancelled three days before closing. This time, my client got to keep the earnest money.

Have we learned nothing?
There is a saying in this business that “buyers are liars.”  That’s perhaps a bit strongly worded. The reality is that some buyers don’t reveal all they should to their agents and lenders because  sometimes the desire to own may be greater than the desire to own up to financial realities. That this is still happening in the current market is truly astonishing.

The two failed transactions have hurt the seller. Potential buyers searching the web and the average agent are wondering why this condo is stilll on the market.

Government “help” can hurt
The second factor which hurt this condo and many other likely first-time buyer properties was the extension of the first time  home buyer tax credit. Scheduled to expire at the end of  November 2009, the extension until April 30th took away the sense of urgency. As a result, agent visits to the property dropped dramatically in November.

Timeline and events

	Aug ’09	Sept	Oct	Nov	Dec	Jan ’10	Feb
Agent Visits	10 (start Aug. 13)	11	12	3	15	12	9 (thru Feb 11)
Listing Price	$217,500	$217,500	$217,500	$209,000 (Nov.12)	$199,950 (Dec.03)
Offers Net		$207,800	$209,000
Listing Status	Active Aug. 13	Pending Sept. 14	Active Oct. 02 Pending Oct. 17	Active Nov. 12	Active	Active	Active

Short sales change market
The third reason this condo  is still on the market are an increasing number of  short sales of similar properties. There were no 2-bed short sales in this condominium complex in 2009. Now there are two.

Looking at the bright side
Throughout these six months, my clients have been helpful in every way a seller can be helpful. I would call them my friends although we’ve never met in person. They searched for “Kirkland Condo” on the web. They found me and liked what they saw. We were all so close twice to selling this condo. The third time will be a charm.

Although some potential buyers don’t like being on the ground floor or wish they could bring their dog (only cats allowed), there’s  nothing “wrong” with this condo.

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.”

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The Mystery of Capitalism by Hernando De Soto.

I posted a blog about this book on SERENE™ back in January 2007 which is worth repeating in part:

Hernando De Soto, makes a very good case for private ownership of property as the engine of any economy. Without having documented proof of property ownership entrepreneurship would be impossible. Over 80 percent of all businesses in this country are started because the home served as collateral.  He says:

This wasn’t always possible. After the California gold rush there were about 800 separate property jurisdictions, each with its own laws. Outside each jurisdiction a property did not “exist”. It was without value. The earlier squatters who occupied land did so outside the formal legal system. It took several decades to create the nation-wide formal legal ownership of property that can be documented through title.

I’ve bolded in the above the word “documented” to emphasize the missing characteristic of the newly-minted financial instruments known as derivatives — mortgage-backed securities, collateralized debt obligations, and credit default swaps.

Not surprisingly, De Soto’s commentary in the WSJ picks up where his book leaves off:

These derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them. Thus, there is widespread fear that potential borrowers and recipients of capital with too many nonperforming derivatives will be unable to repay their loans. As trust in property paper breaks down it sets off a chain reaction, paralyzing credit and investment, which shrinks transactions and leads to a catastrophic drop in employment and in the value of everyone’titles property.

In other words, what has taken us centuries to develop, which is the documentation and categorising and registering of ownership of real property (title) has been willfully ignored by the people who’ve invented these derivatives.

In De Soto’s own words, his WSJ article says:

Ever since humans started trading, lending and investing beyond the confines of the family and the tribe, we have depended on legally authenticated written statements to get the facts about things of value. Over the past 200 years, that legal authority has matured into a global consensus on the procedures, standards and principles required to document facts in a way that everyone can easily understand and trust.

The result is a formidable property system with rules and recording mechanisms that fix on paper the facts that allow us to hold, transfer, transform and use everything we own, from stocks to screenplays. The only paper representing an asset that is not centrally recorded, standardized and easily tracked are derivatives.

(Emphasis mine).

De Soto does not believe the solution to the current crisis lies in “clinging to the hope that the existing market will eventually sort things out.” What is the market to sort out if the market does not know who owns it, much less what “it” is worth?

“Modern markets only work if the paper is reliable,” De Soto concludes.

As a Realtor® I know this only too well. Documentation of ownership and value are critical to every real estate transaction. Cloud on title is a bad thing.

The cloud that darkens most of these derivatives needs to be lifted before we can see our way out ot this mess.

When we started our collaborative search via the Web, the young family had their eyes set on Seattle neighborhoods,  specifically the Queen Ann and Green Lake areas.  As it turned out the two most attractive homes we saw after their arrival were one in the Wallingford neighborhood and one in Queen Anne — the latter chiefly because of a wonderful view of the city.  But there were drawbacks with all these homes:  too far to walk to everyday conveniences, restrictive parking and heavy local traffic.

What these newcomers to Seattle liked were trees, parks, and open spaces. That’s what they liked about the eastside neighborhoods. Not having a car initially and intending to buy just one car, the proximity to public transport was critical. Surprisingly, some best eastside neighborhoods offered greater convenience than some of the Seattle locations. Finally, the quality of  pre-school facilities made the South Bellevue home nearly ideal.

Because executing a lease can be done fairly quickly I educate my clients about landlord and tenant law at the outset.  I will give them a standard lease to review before the time comes to fill it out, date and sign.

Finding the right rental home is a good thing.  Renting that home the right way will make the stay enjoyable.

P.S.

To the uninitiated, the process of renting  a home would appear to be simple. After all, there is no financing, no title issues, no escrow.  In fact, an inexperienced single-family home landlord and a less than qualified renter can get into plenty of trouble.  That’s why many home rentals are handled by real estate agents or, even better, by property management companies. They know how to qualify a renter with credit and background checks, they use rental contracts designed to eliminate misunderstandings and are in compliance with the law. Their service includes a walk-through with a detailed check list that captures defects before move-in. They know to give the renter required information on the dangers of lead paint and mold. They will de-commision that hot tub to avoid an accident and eliminate unnecessary liabilty.

Black sheep are found in every profession. They seem to multiply when opportunites to cheat are on the rise. However, opportunity tempts not only professionals but amateurs. And there are more amateurs than professionals.

When Seattle real estate was hot in 2005 and 2006 (it started to simmer down in August 2007) I missed out on a lot of business. Who needs an agent to sell a home when an ad on craigslist will bring crowds to the seller’s door? How many For-Sale-By-Owner deals went down with no real estate agent representation for the buyer? How many buyers went straight to the listing agent in the hope of saving some money?

How many more buyers used a relative or friend with a real estate license just a few weeks old? How many people got a real estate license just to buy for themselves and go into the flipping homes business?

How many of these do-it-yourself artists are now facing foreclosure?

Too bad there are no statistics on this.

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.