Wendy Leung's Seattle Condo Blog

Guest Post: First Time Home Buyer Credit

Post contributed by Ryan Niles with Cornerstone Home Lending.

With rising interest rates and tighter underwriting guidelines, I have been noticing that many people are starting to get less bang for their buck when it comes to buying a home.  There is a resource catered to first time home buyers that drew my attention about 12 months ago and it is an option to consider as you buy your first home. This tax credit has been around since 1984 but fell out of popularity during the housing boom of the 90’s and in the wake of the 2009 first time home buyer $8k tax credit.   

The product is called MCC (stands for Mortgage Credit Certificate) and it’s a 20% tax credit.  Key benefits include:

• Creates a tax credit or rebate of 20% of a buyer’s annual mortgage interest
• Not a one-time tax credit.  Tax credit will be paid every year that the buyer lives in the property (could be 30 years)
• Amount of tax credit can be deducted from qualifying payment for sake of qualifying       
• Expands homebuyer’s maximum qualifying loan amount by an average of 8%
• MCC is NOT a loan program.  May be used with FHA, VA, USDA and conventional (Fannie/Freddie) financing
• Seller approval not required, and does not need to be addressed in original offer

 So who qualifies for this product?

• 1st time buyers—Cannot have owned a primary residences in the last 3 years
• Earn less than $90,000 per year for 1-2 person household.  $97,000 per year for 3 or more. 
• Maximum purchase price is $450,000 in Seattle.
• Complete 1st time home buyer training course 
• Apply for a mortgage through participating approved MCC lender  

This is another option to consider if you're looking for your first home but there is a “sweet spot” for it to benefit you. You can’t make too much money and if you don’t make enough money you can’t benefit from the 20% tax credit. 

Wendy: Additional notes (There is a $650 nonrefundable MCC fee collected at the time of closing. MCC tax credit is consider as a federal government subsidy. You may be subject to federal "recapture tax" if (1) you sell your home within nine years of purchase, (2) you sell your home at a gain, and (3) your income increases above a specified level. You should consult your tax accountant before applying for an MCC in order to determine the potential benefits an MCC may provide for your specific tax situation.) 

Ryan is with Cornerstone Home lending, a MCC approved lender and he teaches the weekly 1st time home buyer training course.  If you have more questions, Ryan can be reached at rniles@houseloan.com.

Olive 8 Reset Pricing?

There has been some discussion among buyers and realtors on the recent Olive 8's reset pricing.   When the video were announced two weeks ago, many were anticipating that the new pricing will be close to the auction prices.  So, I decided to look up the numbers and make some comparisons on the reset prices versus the pre-auction closed homes and auction closed home.  Here is a sample on the homes that I used for comparison:

As you can see, the reset pricing is between 13-23% lower than the previous listing prices but are still considerably higher than auction prices.  If we look at the reset pricing versus the pre-auction closed homes, the prices are about the same if not slightly lower.

Related posts:

Olive 8's Video & Reset Pricing
Olive 8's New Pricing 
Olive 8 Auction Results
Olive 8 & 5th and Madison Update
Olive 8 going Auction

Seattle Rental Market

Let's face it. With the exception of the high end of the market, the mainstream downtown condo mid-market is not really moving. In fact, increasing numbers of patient home buyers are worried prices will retreat further the moment after they buy. As a result, more and more sellers are tired of waiting for a buyer and opting to become these waiting buyers' landlords rather than raise the white flag and make huge price reductions. 

Moreover, those sellers who have experimented with dropping selling prices aren't seeing much change in buyer activity anyway. Much of the market is on lock-down mode and it seems most buyers have made up their minds that they're not getting in this year regardless of the numbers. It would appear as though there have only been 2 speeds in downtown Seattle condos for the last few years, fast and stop.  As an example, only one 2BR condo less than $500K was sold in Belltown in September and another one in October.

The optimistic owners are quietly taking their units off MLS and hoping buyers return to the market at the same time in the Spring to compete against each other for the most desirable units next year (probably in May/June). In fact, 15% of those who took the recent SCR poll as of the time of this post believed prices will rise in the Spring and another 15% believed prices will be steady but inventory will move more quickly.

Pre-Construction Purchasing

With the magnitude of post-construction condo profits no longer a sure thing, some folks may want to take some more time to fully evaluate whether it's right for them. 

Here are some things to keep in mind when buying a condo as you drive past a construction site:

• What is the builder's track record at completing projects on spec and on time?
• What is the marketing company's track record at communicating with buyers throughout the sales process and before closing?
• What will the unit feel like?  How can you evaluate the floor plan as realistically as possible?
• What upgrades are appropriate and how are they priced?
• Should you lock your interest rate? Lock it sooner and pay for the costs or lock it later when the construction is closer to completion or not lock it at all?
• How is the unit priced in light of a market trends and other projects in the pipeline?
• How will you time selling your current property and close on the new one?
• How prepared are you for the project finishing 6 months late?
• What is the developer's reputation for handling pre-closing punch list and post-construction defects?

Hope this helps!

-Wendy

Technorati Tags: Seattle condos, Seattle real estate, Pre-construction condos advice, pre-sale advice, Real estate 101

How much did they pay for it?

Some of my buyer clients occasionally fixate on how much the seller of a property paid for that property.  Most economists will tell you what any asset was sold for in the past has absolutely nothing to do with what it is worth today. 

In most cases, this is true.  Let's imagine you're competing for a condo with other buyers and the condo is worth $500k.  Even if the seller bought it for $300k, some other buyers will likely offer $500k since that's what it's worth to them and what they'd need to pay for similar properties on the market.  Thus, if you make an offer of $400k (what you perhaps insisted was a more than "fair profit" for the seller); it will be summarily ignored.

Of course, there are exceptions.  One exception is when the seller is happily living in his condo which has not appreciated since he bought the place -- perhaps he even paid a hefty premium for it and the market has since slowed down a bit.  In this case, even if the market price is $500k, if the owner paid $525k for it, it's very possible the seller would turn down a fair offer of $500k, perhaps even $510k.  What may happen in this case is the seller doesn't get what considers to be a good offer or he promises himself he will at least break even and takes the property off the market to try again next year.

Another exception is the case where the seller has a property that has appreciated substantially but hasn't gotten any offers (perhaps it's off season, it's not being marketed well, or there just aren't a lot of good fit buyers).  In this case, even if the seller receives an offer below market value (say market value is $650k and he paid $400k for it), the seller might accept an offer for $625k thinking he deserves $650k but doesn't want to risk the market turning on him or doesn't want to continue paying for mortgage and marketing of the property.

So the moral of the story?  Generally, properties sell for market price, especially for highly sought after condos in popular buildings.  However, if the property owner is taking a loss, he may be more inclined to reject legitimate offers.  If the owner is about to enjoy healthy profits on a less sought after condo, he may be inclined to accept a discount off the market rate. 

Hope this helps.

-Wendy

Technorati Tags: Condo pricing, condo evaluation, Seattle condos, fair market value, fair market price

Condo Purchasing Dynamics

Working with condo buyers and sellers over the years has allowed me to see a lot of the interesting dynamics that occur between buyers and sellers.  I thought it would be helpful for SCR readers to outline a few of the scenarios I've seen most frequently. 

Keep in mind every situation is different and depends on knowing the real market conditions, particulars of the property in question, and dynamics between your Realtor and the other party's Realtor.  In other words, what may be a perfect strategy in once instance may be a disaster in another so strategize carefully. 

Caveats aside, familiarizing yourself with some common scenarios is a step in the right direction.

Example Scenarios

• Smart Low Ball Offer
  
  Seller has a property that's been on the market for a long time and the price has not been lowered since listing, the unit is vacant, and there's some imminent external conditions which will make it even hard for the seller in the future (e.g. major siding repairs, new construction blocking existing view, possible pending assessment, public fears of price declines, etc.). 
  
  In this case, the buyer is often well advised to submit and offer below asking price -- especially if the buyer is not in love with the unit or in no hurry to move.  The seller will usually counter and the buyer has room to be picky at inspection time.

• Unrealistic Low Ball Offer
  
  Seller has hot property recently listed, priced consistent or slightly higher than recent sales, and in high demand with no major limitations.
  
  In this case, the buyer who submits a below asking price offer will likely be outbid by another buyer.  Sometimes even more frustrating, the two parties enter a series of bad faith counter offers ending up at a higher closing price than had the orignal offer been more reasonable.  Even worse, this often also involves increasingly unyielding post sales agreement negotiations (e.g. inspection repairs, closing extentions, rent back agreements, etc.).
  
  This was a very common occurence late last year when many frustrated buyers were worried about a softening market and butted heads with more confident sellers.

• Full asking price offer
  
  Seller has a good property, not super hot and not super cold.  Property has been on the market for a reasonable period (again, not too long or short) and is priced consistently with sold comparables. 
  
  In this case, the buyer can usually submit a single offer at the full asking price, the buyer's Realtor makes it clear this is a final and fair offer, the seller accepts and good will remains for reasonable inspection repairs.

-Wendy

Technorati Tags: seattle condos, condo pricing, real estate negotiations

What is a balcony's value?

Someone asked me today how much a balcony affects the price of a condo.

Of course, like more valuation questions, it really depends. Furthermore, valuation is a highly subjective art and science. That said, most will probably agree that a balcony is considered a nice to have feature for a condo. As for the question on how much value it will add to the unit, I would put it around 1-3% (with some exceptions). A lot depends on:

• The size of the balcony

• Its general usefulness

If the balcony adds a materially big amount of square footage, buyers will obviously perceive more value than a smaller balcony. If the balcony is big but faces another building, the value is naturally less than a big balcony facing the Sound.

If there are two units with an equally good view and one of them comes with a balcony, the value can increase as much as 3% even at the high end. It will be hard to imagine someone paying for more than a 4% premium for a balcony.

In summary, the lowest value blaony is one that has no view and is small (this will yield a small 1% premium, if any).The highest value balcony is the one that is big and has a view which can possibly fetch as much as a 3-4% premium.

-Wendy

Technorati Tags: Seattle condos, condo balcony, home valuation, seattle realtor

Is Lumen the Canlis of sales centers?

Recently, one of my clients told me he wasn't interested in a particular  new condo project for a very interesting reason.  He said he felt the sales staff made him feel uncomfortable.  When I mentioned that the building had a lot of good resale potential due to its location as well as a few other unique attributes, he said he had a bad vibe about the place after spending only a few minutes in the sales center and wanted to look at other places.

It's interesting how the sales center is becoming an increasingly important element of the condo buying process for many of my clients even though in pure economic terms, the sales center is quite insignificant.  Once you buy the new condo, you will hardly ever deal with the sales center again.  Certainly, when it comes time to resale, the original sales center will be a distant memory and it's former offices will be most likely occupied by an antique or high end furniture store.

So why does the sales center matter more these days?  My sense is that with the explosion of new projects all over the Seattle, buyers have more and more choices that are starting to look awfully similar.  Thus, the "vibe" buyers get at a sales center can often be enough to differentiate one project from another.  Just glance at the comments on my Lumen versus Mosler post and you'll see what I mean.  Much like the plethora of restaurants in Belltown, if you can get your pan seared halibut in a place where the staff are courteous make you feel welcome, that can make all the difference.  Similarly, when faced with so many concrete and steel, extra large windows, granite counter topped projects, the sales center experience is one of the things buyers are paying more attention to these days.

So what should buyers expect from a condo sales center?  That's pretty subjective but as a Realtor who spends a lot of time working on behalf of my clients doing research, putting in offers, and evaluating units, here's my two cents:

• You should be treated with warm, sincere, professional service the moment you walk in the door.  Good sales centers feel like Canlis, super high quality and high service without high attitude.

• You should be given straight, comprehensive, fact-based answers to your questions.  Especially for first-time home buyers, you should feel comfortable to ask basic questions and not made to feel like you're asking for a favor by asking a question.

• All the data you need to make your decision should be readily available: floor plans, prices, known future changes around adjoining areas, upgrade costs, etc.

Those are the bare minimums.  Clearly, every sales center has its own feel and personality -- much like all the restaurants in Belltown.   Some people even go so far as to think the sales center impacts the type of buyers which ultimately affects the vibe of the condo community years later.  E.g., if a sales center has a really warm, laid back feel, it might attract that kind of buyer who will be your future neighbors in the building.   

What places give a great buyer experience?  Some sales centers which I think have done a really great job of providing a warm and welcoming buyers experience are Lumen, Trio, and Parc.  Lumen, in particular, does a fine job of giving you a very positive vibe and at the moment, might be the Canlis of condo sales centers :-)

-Wendy

Technorati Tags: seattle condos, condo buying, wendy leung, lumen, parc, trio

Picking and working with a Realtor

In my previous post here, I described why it's in a buyer's best interest to work with a Realtor.  Now, I will offer some tips on picking and managing your Realtor relationship.  This isn't an exhaustive list but should be useful nonetheless.

Picking a Realtor:

• Check references, better yet, ask friends and family if they know of an outstanding Realtor
• Ask for examples of specific value-added services they provided previous buyers
• Ask about what they expect from their buyers
• Ask what makes them different from other Realtors

Using a Realtor:

• Work with one Realtor, if you don't like him or her, tell him and stop working with him and change Realtors.  Working with more than one Realtor at a time -- especially on the sly -- can often backfire and result in lower quality service and sometimes legal problems.
• Be crystal clear about your expectations, if you're not happy, tell them and be prepared to change Realtors.
• Be realistic and be prepared to make tradeoff's.  You will rarely find a property that meets 100% of your criteria.  Furthermore, your Realtor's time is not limitless so if you're looking for a $300k condo and he or she has taken you to see 30 or more units, they're definitely gonna lose money on the deal.  Moreover, you risk them suddenly dropping you as a client and needing to find and build momentum with another Realtor from scratch.  (One way to mitigate this is to go to lots of open houses on your own.) 

Hope this helps!

-Wendy

Technorati Tags: seattle realtor, realtors, seattle condos, belltown realtors, Queen Anne realtors, Capitol Hill realtors, Belltown condos, Queen Anne condos, Capitol Hill condos

Do you really need a buyer's agent?

It seems like there are a few people who are buying new condos "naked" (without an agent to represent them) direct from the project's salespeople.  Many people do this successfully -- especially agents themselves who are investing in property or professional real estate investors.

For most people however, using a buyer's agent makes a lot of sense.  Full disclosure: I am a full time Realtor so obviously, I'm a big fan of people using agents :-) 

That said, there are a number of good reasons to use a buyer's agent; here are some of them:

• First and foremost, it doesn't cost you anything.  The prices you pay at the sales center are the same if you are buying a place with or without agent representation.  Many people think that they can get a better price without an agent -- this is almost never the case since most sellers want to create a win-win relationship with the thousands of Realtors and their clients.

• Second, having an independent buyer's agent protects you from being pressured into any one particular condominium project.  Remember, the sales center staff are employed by that project's developer and are compensated for selling through that project's inventory.  Your buyer's agent, on the other hand, gets paid regardless of which development you buy so advice and analysis of comparables and other buildings will be much more objective.

• Thirdly, a buyer's agent can do a lot of the heavy analytical work before you make your decision.  Buyer's agents answer questions like what's a fair price per square foot, what are the comparables in the market now, what new listings are on the horizon, is this a building all the agents are talking about as investments for themselves, how would this specific unit and layout appeal to future buyers, etc.

• Lastly, a buyer's agent is also a project manager.  When it comes time to iron out the inevitable wrinkles with the upgrades, managing the closing process, or negotiating for incentives, your agent can be a real life saver -- especially since most buyers have day jobs and don't have time for chasing down the details ;-)

These are some of the reasons a buyer's agent can help you make the right decision and manage the entire home buying process.  Here's a post on what to look for in an agent if you haven't picked your representative yet.

-Wendy

Technorati Tags: seattle condos, realtor, buyer's agent, real estate agent, seattle realtors, seattle property investments, seattle condominiums 

Economics of Remodeling Your Condo

I came across this good article in Remodeling Online which looks at the cost recovery of remodeling projects.

The big takeaway is that most do not yield a positive ROI when you exclude the enhanced quality of life the owner/resident benefits from after the remodel is done and before the property is sold.  An excerpt of the Top 3 ROI remodeling projects are below -- notice the ROI is less than 5% not including cost of capital and inconvenience factor.  For the whole list of other remodel efforts, check it out here.

Project	Job Cost	Value at sale	% Cost Recovered	2005 Rank	2004 Rank	2003 Rank
Siding Replacement - Upscale	$10,393	$10,771	103.6%	1	n/a	n/a
Bathroom Remodel - Mid-Range	$10,499	$10,727	102.2%	2	5	6
Minor Kitch. Remod - Mid-Range	$14,913	$14,691	98.5%	3	2	n/a

-Wendy

Technorati Tags: condo remodel, condo rennovation, home improvement roi

Tribeca - lessons learned

With all the new and innovative urban living projects in Seattle, looking at the history of the Tribeca is an interesting excercise.  When it was put on the market back in late 2003, it was really one of the earlier thought-leading experiments in mixed use construction in Seattle.  Concrete and steel and built to commercial standards atop a Safeway in Queen Anne with a fairly low supply of total units, many investors and buyers considered this an ideal project and one that would rise in value like a rocket ship. 

In practice , it actually took some time to sell through and the builder went through two marketing firms.  Certainly, the property is wonderful and owners have definitely made gains.  However, what's thought provoking is that on paper, this was and continues to be an almost perfect property that some anticipated to do even better than it has thus far.  Location, construction, limited direct competition in immediate vicinity, uniqueness, etc. all pointed to a bidding war property. Nevertheless, many units did take a little while to sell -- even while the real estate market was white hot.

What lessons can be inferred?  It's ok to pay a premium for premium property -- just understand that regardless of how much you feel it in your gut, there's always a risk that future buyers may not always have the same intensity of appetitite as you do.   How do you make sure your enthusiasm and that of the sales center are calibrated for future demand?  That's definitely an art as much as a science. 

Some things that I always make sure I do with my clients and you should ask from your own realtor:

• Look at comparables from a product as well as a price point of view (I call this a backwards and forwards CMA)

• Research any potential yellow flags that might create resale friction (e.g., litigation, new projects planned nearby, crime, builder track record, design flaws, new zoning discussions, etc.); these are rarely easy to find but can often be critical to avoiding future headaches

• Pick the right unit and right layout -- sometimes it's better to have a great unit in a good building than a good unit in a great building

• Look at historical sales data for that building as well as its neighbors,

• Consider the local economic drivers within a few square blocks of the property, etc. 

• Get a good, unbiased buyer's representative.  Remember, the sales center works first and foremost for the seller.

• Make sure your realtor knows the lay of the land and does his or her homework.

There are a number of other things to keep in mind but the ones above should get you off to a good start.  Also, every buyer and realtor are different so consider this post all personal opinion and I'll be the first to admit there are a lot of ways to skin a cat.  There's no guarantee you'll pick a winner but I think these are some good pointers to mitigate your risk.  Hope this helps!

-Wendy

Technorati Tags: seattle condos, tribeca, queen anne condos, williams marketing, condo investments, seattle realtor, seattle property investments

Dude, what's a co-op?

So recently I was helping one of my clients to sell his co-op in Capitol Hill. I received tons of phone calls during the first few days it was on the market. The same question keeps coming up. What is the difference between purchasing a co-op and a condo? Well, when someone purchases a condo/house, they are actually buying specific property. As for a co-op, you are buying shares in the cooperative corporation which owns the building and the land on which the apartment is located.  Instead of a deed you receive when you buy a house/condo, with a co-op you get a stock certificate and a proprietary lease or occupancy agreement.

Does this mean that you won’t have the freedom to change the unit like repainting it? No, it doesn’t.  You can easily make simple changes like repainting or installing shelves. As a cooperative owner, you have freedom to decorate and change the unit provided the change is not a major remodeling (of the kitchen or bathroom etc..); that would require the approval of the homeowner association similar to the approval required for a condo.

When you get a mortgage to buy a condo or house, the property is collateral for the mortgage. As for a co-op, since you are not buying a real property, you are not getting a regular type of mortgage. You will be getting a loan to buy the shares and a proprietary lease to live in the co-op unit. Your shares and proprietary lease are the collateral for the mortgage. The State of Washington does not consider buying a co-op a real estate transaction and therefore there is no excise tax levy when you are selling it.

A co-op is a very different type of home purchase. Most co-ops require interviewing the applicant. The homeowners will then decide if the applicant is a good match with the co-op. This can viewed as good or bad for someone buying a co-op.  The intention for the interview is to screen out any undesirable tenants for the building. In a co-op where pets are allowed in the building, the home owner’s association sometimes will interview the pet as well. The co-op does have the right to reject an applicant if they feel that it is not a good match.

Banks view co-ops as higher risk loans because they can’t be sold or disposed of as easily as a house/condo. The co-op’s board of directors may put conditions on the sale of its shares. So why do some home buyer still consider co-op as a home purchase? Here are the advantages and disadvantages for buyer, seller and lender.

Homeowner Advantages         
*  Most co-ops will interview applicant to screen out undesirable tenants. Most of them do not allow renting of the unit. This will preserve the condition of the building better.

Homeowner Disadvantages   
* Appeals to a smaller pool of buyers.

Buyer Advantages         
*  Tax inclusive in dues, usually lower tax compared to condos

*  No exercise tax when selling the shares.

Buyer Disadvantages    
*  Fewer lender options

*  Sometimes investors can’t buy it as a cash flow investment

*  Usually involves more procedures than condo purchase

* Own share of the building rather than ownership of  unit.

Financial Disadvantages    
*  Lender may have difficulty to sell because of the first right of refusal.

* More restrictions and thus higher risks for the lender.

At the end of the day, you need to ask yourself a few questions: are you looking for a home that has strong community living that has the old world charm and the condition is well preserved to call it a home or are you looking for a property that is easier to market to a bigger group of home buyers.

(NOTE: This is a blog, not legal advice and I am not a lawyer.  The posts on this weblog are provided "AS IS" with no warranties, and confer no rights.  Consult your attorney if making decisions based on the legal implications of condos and co-ops.)

-Wendy

Technorati Tags: Seattle Condominiums, Seattle Co-op, Seattle Realtor, Seattle Real Estate, Capitol Hill condos