Downtown Seattle Condos | Blog & Reviews by Wendy & Marco

Seattle Condo Market Update: Soft Landing for the Winter

November 2012 data are in.  Here's some key takeaways and of course, the charts.

• After several year-over-year thumpings of monthly 2011 sales, November 2012 was higher than November 2011...but only by ~15% (versus the ~30% advantages we saw in September and October year-over-year comparisons).  Perhaps the we're finally settling in for our winter hibernation.
• Median prices for Seattle overall saw a soft landing, slightly higher than November 2011 but considerably lower than the banner October 2012 numbers ($245K versus $275K).
• At the neighborhood level Belltown/Downtown remains the most solid overall with sales almost as high as October 2012, median prices up 10% month over month, and inventory still tight.   

 

Client Question of the Week: Is the VA Loan Program Available for Condos?

This week, new clients of mine wondered what their options were for a downtown condo that would qualify for the VA loan program. The Department of Veteran Affairs loan program is available to those military veterans and active duty personnel that have accumulated enough service time to be eligible for the favorable terms afforded by this loan program.  Benefits over conventional loan programs include market interest rates, reduced down payment requirements, no monthly mortgage insurance, as well as more flexibility with debt to income ratios and closing costs.

What’s the catch? Condominium buildings must go through the VA's condo project approval process.  Similar to the FHA approval process, an HOA would need to provide supporting documents verifying the eligibility of the condominium community as a whole.  No longer can an individual condo owner seek VA approval if they are either refinancing or selling their condo.  It's all or nothing.  VA looks at things such as overall financial health of the HOA, percentage of rental units, percentage of units that are delinquent on dues, and level of insurance protection, to name a few.  Currently, very few VA approved condominium buildings exist in the downtown core of Seattle.  Newer condo projects in the Downtown, Belltown, Midtown and South Lake Union area especially, lack this VA approval.  So it can be challenging for those wanting to use the VA loan program to find options in our already low inventory market.

Client Question of the Week: My condo's tax assessed value went down, does that mean my condo value decreased?

Recently a client emailed me a great question that we felt many people would benefit from knowing the answer to.

“Marco, I recently received a tax assessment notice in the mail and it showed my condo value has gone down since I bought it earlier this year. But I'm seeing condo prices in the area are increasing. Should I appeal to the tax assessor’s office to increase my tax assessment to be more in line with recent market sales, as I'm afraid this might hurt my condo's value now and in the future? I realize this might mean my annual taxes may go up, but I'm just not sure what is best.”

Great question!

To Sell or Not to Sell...That is the Seattle Condo Question.

As the market is showing a little bit more buying activity and inventory is reaching new lows, many owners can't help but wonder if now is finally a good time to unload their properties.  This is especially true for those who have been renting out their condo where the current tenant is moving out in a few months.  

To sell or not to sell...  

Recently, a client of mine who owns an one bedroom, 850 square foot condo in Belltown in a fairly new building was contemplating this very same decision. He is an out-of-state owner with a tenant moving out in the summer. Unlike some sellers who bought during the peak and are carrying two mortgages on their condo, he only has one mortgage.  So even if the value still has not returned to his original purchasing price, if he sells it, he doesn't need to bring any cash to the closing table. 

So, it comes down whether he should continue renting it or selling it and moving onto something else. Let's look at some hypothetical numbers for his case. 

Investing in Seattle Condos? Six Things to Consider Beforehand.

The year of the Dragon has definitely spurred more buying activities compared to last year. More investors are getting off the fence and feeling a little bit more confident.  Every now and then, I will come across some first time investors interested in the Seattle condo market. If you are one of those first time investors who plan to buy and rent it out, there are a couple of things that you might want to consider before venturing out on your first condo search:

 

• Consult your financial planner (If you have one): How is the rental property going to fit into your whole investment portfolio? Is it going to be long or short term?  These questions may have impact on your investment goals whether you're are looking at medium term capital appreciation or as part of your long term portfolio.
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• Consult your tax account- In most cases, there are some tax benefits when you own an investment property.  You could deduct your mortgage interest, taxes, insurance, and expenses associated with owning the rental property.  If you are experiencing rental loss, you might even be able to write that off but they are subject to some income limitations.  So, talk to your tax account to find out if you're eligible for those tax benefits.
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• Get pre-approved! Unlike during the condo boom years when you can easily get a pre-approval letter within hours after giving out some basis information over the phone, these days, it takes a little bit more work. Lenders are much more stringent about giving a pre-approval letter. Besides running a credit check, most lenders may need you to provide your pay stub, W2, and bank account statements. Depending on your individual circumstance, (employed, self employed,etc.) the documents required may also vary with different lenders.
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• Are you ready to be a landlord? Are you going to manage the rental property or have someone do it for you?  If you are newbies, you may feel excited with your first investment and wanted to manage it yourself.  There's paperwork, time and energy needed to manage a rental property.  So, if this is something you don't feel up for, you might want to hire a management company to deal with it.
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• Run all your numbers. After getting pre-approved and narrowing down the price range that you're comfortable with, run the numbers.  This is where an experienced realtor can come in and help you figure out the high level calcs.  The costs for buying and selling the rental property, the rental rates, vacancy rates, maintenance/repair costs, cost of hiring a management company and other expenses associated with owning an investment condo should all be considered.
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• Be open minded. I once had a client who thought distressed properties are usually not in good condition and did not even want to consider looking at them. However, majority of the condos that I have come across are usually in pretty good shape or only require minimal work to make it rentable.  Since this is an investment property, be open minded about looking at distressed properties (short sales and bank owned).  After all, these properties are generally priced 5-20% below market value which will give you a good start and more head room for appreciation down the road.

By Wendy Leung with Seattle Condo Review. A guide to Seattle condos exclusively for buyers and sellers.

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