Archive for September 23, 2011

Price vs. Value.

Many first time home buyers these days are looking for great deals, and rightly should be.  Depending on the market you are dealing with, you may be able to pay less for a house than it is actually worth.  However, the most common mistake first time home buyers make, is judging a great deal based on price as opposed to value.  What I mean by this, is often buyers make statements like, “If I can’t buy a house for 80 cents on the dollar, then I would never buy it”.  If your desire is to get a great deal, then to pay 80% or less than fair market value may be a good strategy.  However, for this to be valid, you want to compare the price your paying to the value NOT the asking price.

For instance, if your strategy is to offer 80% of the asking price when presenting an offer, this is how it could potentially play out.  Lets say you find a house you like that is listed for $300,000.  Based on the fact that its been on the market and needs some repairs, you employ your 80% tactic and offer $240,000.  And guess what, the seller accepts! Hurray, you just paid 80 cents on the dollar!!!…But wait, what if based on similar properties that have recently sold in the area, the property is only worth $220,000?!?!  You just potentially paid $20,000 more than you should have to purchase it at fair market value.  Furthermore, you may have paid $64,000 more than you should have under your 80% rule.

On the other hand, what if you offered $240,000 for this property but were beat out by another buyer offering full price?  On the surface you might say, “What a joker.  They actually paid full price in this market??”  But what if the property was actually underpriced by about 20% and the appraisal came back at $350,000?  Would the buyer really have made a poor financial decision by offering full price? Of course not.  Under this scenario they still would have purchased the property for 80% of fair market value.

In this market, there are still plenty of overpriced homes on the market.  That being said, we have really started to see a transition of underpriced homes as well.  This may be because of homeowners getting more realistic about what it takes to sell in this market, paired with more bank owned properties where the asset manager just wants to get the property off the banks books and therefore prices it accordingly.  It is true, that at the end of the day a house is only worth what someone is willing to pay for it.  But whatever the situation, it will probably fair better for you to consider the price your paying in comparison to market value as opposed to asking price.  If you would like more information about buying a home in this current market, please go to our Calendar page and register for one of our FREE seminars.


Is Buying a Short-Sale Really Worth It?

The general consensus within the current buyer pool seems to be that purchasing short-sales are the best way to get a good deal.  A lot of this seems to stem from the fact that people like the idea that they can buy a property for two-thirds or maybe even half of what it may have sold for several years ago.  However, how much a property has dropped in price may not always be a very good indicator of how good a deal is.  A better indicator is how much below CURRENT market value a property is priced.  It is true that some short-sales are priced below fair market value and can be very good deals…as long as you’re prepared to weather the storm that comes with them.

Short-sales are called such, because the homeowner owes more on the house, than the house is actually worth.  So even though technically they are the owner on title, they still have to get bank approval in order to sell the house at a loss, because usually in the end it is the bank that takes that loss.  The bank does reserve the right in many situations to attach an unsecured deficiency judgment to the homeowners credit report, and does so in many cases.  This is important for the buyer to know, because if the homeowner/seller isn’t aware of this risk upfront, it could kill the deal in the eleventh hour.  Once they get to closing and are presented with a document from the bank stating that the bank reserves the right to pursue the homeowner for this deficiency, the homeowner may decide to refuse to sign the closing docs.  Which ultimately means the buyer does not get the house.

Some of the other items that could arise during a short-sale are unpaid utilities, unpaid Home Owners Dues (for condos), negotiation fees, repairs and timelines.  Unpaid utilities and HOD’s, can usually be assessed up front.  A call to the city and the homeowners association will usually reveal whether or not both items are paid current.  Negotiation fees should also be stated up front.  This is the fee that is paid to the negotiator representing the homeowner.  Granted, on the surface it may seem odd that the buyer would have to pay this.  However, typically for a homeowner to be approved for a short-sale in the first place, they have to prove that they can no longer make their payment because they are insolvent.  The bank will generally not pay for it as it is paying for the representative that is negotiating against them.  So the fee is typically passed on to the buyer.  In some instances you may ask for the homeowner to give a seller credit, which in turn can be used to pay for the negotiation fee.  However, lenders will typically not allow a buyer to receive more than 3% of the purchase price in the form of seller concessions.  So if you were planning on using that 3% towards your closing costs, there may not be enough left over to cover the negotiation fee.

Repairs and timelines can often be the items that are harder to account for on the front end, before actually getting into contract.  From a buyers perspective, it is usually a good idea to plan on not being able to ask for any repairs on inspection.  As I stated before, the seller is insolvent and typically cannot afford to make any repairs.  They also don’t stand to take any money away from the table, so they don’t really have much of a vested interest in making repairs to the property.  The bank is not actually party to the contract, so they also will not make any repairs to the property as they have no authority to do so.  This may not be an issue for you, as long as you’re aware of it going into the situation.  The other item that can be hard to pin down is when is the transaction actually going to close.  It often can take the bank 3-6 months to approve a property for short-sale.  Once they do approve the transaction they usually want to see it close within 30 days.  So if considering a short-sale, it is beneficial to be in a month to month rental situation so that you can move at a moments notice.

These are only some of the things to be aware of when purchasing a short-sale.  All of these situations may not occur simultaneously, however one or two of them often coincide together.  If you’re thinking about buying a short-sale, or just buying in general, go to our Calendar page and sign up for one of our FREE seminars.


What Era of Home Should I Buy?

Last week I blogged about different eras of homes in “Is New Construction My Best Option?”.  I briefly mentioned the pros and cons between pre-war (before 1939), mid-century (1940-1979) and newer construction homes (1980 and newer).  In this blog I will discuss in which areas these eras of homes predominantly exist.  The easiest way to think about it, is to look at downtown Seattle as the core and all other Seattle neighborhoods radiating outward from it.  So if you look at neighborhoods such as Capitol Hill or Queen Anne you will find the majority of inventory being pre-war.  As you move south into Beacon Hill and Mount Baker, or north into Wallingford or Green Lake you will start to see a transition from pre-war into mid-century.  As you move farther south into Rainer Beach, or farther north into Broadview you will see a transition from mid-century into newer construction.

Older homes eventually get torn down and replaced by newer homes.  So regardless of which neighborhoods you are looking to buy your first home in, you will most likely find a range of construction eras.  But because different neighborhoods may typically tend to be predominantly one construction era over another, you will want to know the numbers before starting your search.  If you want to live in Wallingford, but have no interest in pre-war construction and are only willing to consider newer homes, your options may be limited.  In August of this year, 14 residential properties sold in the Wallingford neighborhood, of which 11 were pre-war construction.  So if newer construction is the only construction era that interests you, you may have to make concessions in other areas such as square footage, number of bedrooms, school districts, etc.  Also, much of the newer construction is being built to larger specifications.  So if you’re looking for a newer construction 2 bedroom/1 bath residence, your only option may be a townhouse or condo.  Of the 3 remaining properties that sold in Wallingford in August, all were newer construction and either condos or townhomes.  There are alot of great options for housing in the greater Seattle area.  However, the more information you can gather up front, the more time you will save yourself throughout the process, and avoid looking for a property that doesn’t actually exist.  If you’d like more information on buying your first home, go to our Calendar page and sign up for one of our FREE First Time Home Buyer seminars.


Is New Construction My Best Option?

In the Seattle area, generally speaking there are three eras of homes. These eras include pre-war construction, mid-century construction and newer construction. We don’t see much construction earlier than about 1890, due to the Great Seattle Fire of 1889. Pre-war construction is generally thought of as 1939 and older (before World War II); mid-century runs from the 1940′s up to the 1970′s; and I consider newer construction from the 1980′s on up.

Each of these eras can have different connotations for first time home buyers. Many people appreciate pre-war construction for the quality of construction and all their period details. Although they are generally built exceptionally well, the systems are often close to a hundred years old and include things like knob and tube wiring, galvanized plumbing and coal heating systems. Sometimes these systems have been maintained impeccably, however often they need to be completely replaced. This may be quite a large undertaking for a first time home buyer.

Mid-century construction was also generally very well built, but the systems are only half as old as their pre-war counterparts. Especially once you get into the 1960′s and 1970′s homes, you will often see newer romex wiring, copper plumbing and electric furnaces. These homes have withstood the test of time, while still having systems that may not need to be replaced right away if maintained properly. Therefore, mid-century inventory may be a more affordable option for first time home buyers in the short-term.

Newer construction is often preferred by first time home buyers, because they have the newest systems of all. Often these include romex wiring, plastic plumbing, and gas or radiant heating systems. It is true that the systems may need to be replaced a lot less sooner than pre-war, or mid-century inventory, however in the late 1980′s many construction materials took a turn for the worse. Materials like old growth wood started to become harder to come by and more expensive, so other more affordable alternatives came to market. Some of these materials such as OSB siding have shown that they are not the dependable construction materials they claimed to be. Because of this it is possible that newer construction overall may not last nearly as long as other options.

The fact of the matter is, every era of home comes with pros and cons. It just depends on what your priorities are and what types of projects you are willing to undertake. Also, there are always exceptions to the rules. So just because a certain era of home is typically built well, it doesn’t mean that every single home from that time period was well built. Furthermore, if a home was built well but poorly maintained, the house may not be worth trying to salvage. Especially if it is your first home and there are major rot, mildew or other types of moisture problems that have arisen from neglect. Quite often it comes down to a case by case analysis. You have to look at every home on an individual basis, and then compare it to your overall options.

If you’re thinking about buying your first home in the Greater Seattle area and would like to gather more helpful information before making your decision, please go to our Calendar page and register for one of our FREE First Time Home Buyer seminars.