Short Sales – The Long Explanation

Short Sales account for 16% of all homes for sale in King County.  Depending on the neighborhood and the price point, that number can be as high as 50%.  Buyers are often drawn to the short sale properties since they can typically sell for three to ten percent less than comparable properties that are not distressed.  Lured in by the potential price savings, buyers often fall in love with short sale properties.  Only to have their heart later broken by the endless waiting and confusion.

What is a short sale?  As defined by Wikipedia, it is a real estate transaction where the proceeds from the sale are less than are owed to the debtor(s).  In more understandable terms, a short sale is the sale of a home where the sale price is less than the amount of money owed to the mortgage company or companies.  An example would be:  Mark and Sarah can no longer afford the monthly mortgage payments on their home since Mark lost his job last year.  They bought the home in 2007 for $400,000, and took out a mortgage for $370,000  Since the housing market is not as robust as it was when they bought their home in 2007, the house is now only worth $325,000.  They owe $45,000 more than the home is currently worth.

Since Mark and Sarah want to do the right thing and avoid foreclosure, they decide to attempt a short sale.   Mark and Sarah put the house on the market with the help of their favorite real estate agent.  In just one short week, Mark and Sarah accept an offer on their house for $320,000.  Now the “Short Sale” madness begins.  IF this was a traditional, non-distressed sale, Mark and Sarah would be handing over the keys to the new owners in thirty to forty-five days.   But this is no traditional sale.  What happens after the sellers accept the offer is that the bank now gets involved.  The sellers must submit the purchase and sale agreement, all of their financial information and often are required to write a hardship letter.  The bank requires all of this documentation to help prove that the sellers are indeed distressed.

Once the banks have all the requested documentation, then the seemingly endless process of waiting begins.  Depending on the bank, the skill level of the listing agent, and the cooperative nature of the sellers, the waiting process can take forever.  And by forever, I mean best case scenario of three months, worse case scenario a year.  Or never.  Every time one of my sweet buyers asks me about short sales, I try to prepare them for an eternal wait.  And it is more than just waiting.  The banks are not easy to contact and they do not do a whole lot of communicating.  Months can go by without a peep from the bank, even if the listing agent were to call twice a week to ask for an update.  Imagine how heartbreaking it is to fall in love with a home and wait for months on end to hear news if and when you will be able to buy your dream home.

Another scary thing about short sales?  After waiting three or four or twelve months, the bank can just reject your offer.  Or they can go back with a price that is higher than the price that you and the sellers agreed on.  Or they could accept the offer.  It’s a gamble anyway you swing it.  In the case of Mark and Sarah, the sale went fairly smoothly.  After all the documents were submitted to the bank, the bank came back with an approval (after 118 days of waiting) for the sale price of $330,000 .  The original offer was for $320,000, but luckily the buyers had enough money and loved the house enough to pay the additional $10,000 over their offer price.  From that moment of “lender consent”, the buyers had 30 days to do the traditional inspection and loan approval process.  Luckily, everything went smoothly and they closed in 30 days.  To put that in perspective, if the today was the day that the buyers had submitted the original offer to the sellers, they wouldn’t be getting the keys to their new home until March 10th, 2013.  And that is a best case scenario situation.

I am in no way opposed to Short Sales.  They help the sellers avoid total financial devastation and they allow buyers to get a house at a more affordable price.  As long as the buyers understand the implication of waiting, and that all that waiting does not guarantee the bank will agree to sell the home, or will agree to the amount in the original contract, then Short Sales can be the right choice for some people.  A good rule of thumb to remember is that it will likely be at least six months from offer to keys.  Six.  Months.  If you can swallow that pill, than a short sale just might be right for you.

 

 


Happy Homeowners – The Egees!

Congratulations to The Egees!  This amazing couple got the keys to their brand new home last week.  The Egees had a particularly long and hard road to finding the perfect house, but in the end it worked out better than any of us could have hoped for.

The Egees (Drew and Kalee) are the modern day version of Ward and June Cleaver.  They are the couple that all other couples aspire to be like.  They love each other, enjoy nothing more than spending time together, and never say a bad word about anyone.  They have two kitties, Tom Spencer and RhinoBat, that make even this cat skeptic fall in love with them.  All in all, Drew and Kalee are two of the most wonderful people I have ever met.

We started our house hunt in the middle of cold and dark January.  After seeing only five condos, the Egees found the perfect condo in Eastlake and promptly wrote an offer.  The offer was just as quickly accepted as it was offered, and we were thrilled to be on the way to getting them into their first home.  Except for one small fact — the condo the Egees fell in love with was a short sale.  I could write a novel on the heartache and headache that this short sale caused us.  Long story short, after waiting eight months to get lender consent and never hearing a single word from the banks, the Egees decided to start looking again for a home to call their own.

We must have seen twenty homes and gone out looking four or five different days.  Just as we were starting to lose faith, we decided to look one more time.  And then we found it.  The perfect house!  A big house in Greenwood with designer upgrades and an amazing floor plan.  This house has everything the Egees ever wanted and more.  From the dining room that is perfect for their antique table, to the oversized master suite with a reading nook, to the fireplaces (one gas, one wood burning) to the double shower heads in the master bath, we knew this was the place that the Egees would call home.  We submitted an offer, that offer was accepted the same day, and thirty-one days later, The Egees moved into their new home.   A perfect home for the perfect couple.  To make the experience even more amazing, the sellers left a handwritten note for the Egees sharing with them the best local spots to eat, drink and enjoy.  The sellers even left two beers in the fridge so the Egees could celebrate their first night in the home.  It just doesn’t get any better than that!

Stay tuned for stories and photos of the housewarming party.

 


Earnest Money Demystified

What exactly is earnest money? This seems to be a question that is front of mind for a lot of first time home buyers.  The simple answer is this: Earnest money is a check presented to the sellers (usually within 2 days of mutual acceptance) that shows you are serious about buying the home.  The earnest money is most often a personal check and is for an amount of 1% – 3% of the purchase price.

Why?  The earnest money has several functions.  It shows the seller that you are serious about buying the property.  It also provides the seller with a promise of funds (the amount of the earnest money that does not exceed 5% of the purchase price) should the buyer default on the purchase.  Stated simply, if the buyer does not go through with the purchase of the home for reasons that are not covered by contingencies in the purchase and sale agreement, the seller gets to keep the earnest money.

Real life example:

Doug and Daisy put in an offer on a $300,000 home.  They love the home and want to make the best possible impression on the seller.  With the purchase and sale documents, they offer the seller $8,000 earnest money.  Once the buyers and sellers come to a final agreement on the terms of the purchase (called mutual acceptance), the buyer gives the earnest money check to the closing agent and the check is deposited into an account with Escrow.

IF: Everything goes smoothly, and Doug and Daisy buy the house.  The $8,000 earnest money check is applied to the amount they need for the down payment and the house becomes theirs.

IF: Doug and Daisy decide, three days before closing, that they don’t want to buy the house and are going to pull out of the deal at the last minute.  Since they are contractually obligated to buy the house at this point, they lose their earnest money.  The seller keeps the $8,000 earnest money check and puts the house back on the market.

Buyers are often fearful that they will somehow “lose” the earnest money.  In most contracts, the buyer has several contingencies (such as an inspection) that allow them to back out of the contract without forfeiting the earnest money.  The earnest money is only kept by the seller if the buyer fails to complete the transaction under all terms of the contract.


Is That a Houseboat? Different Styles of Liveaboards Defined.

As most of you know, I live on a boat.  I have been living aboard on Lake Union for 6 years, and I have two other houseboats that I rent out as little floating apartments.  I love life on the lake!  I have been lucky enough to have several clients recently that are thinking about embarking on the liveaboard lifestyle, and it has become clear to me that it can be difficult to understand the three different styles of homes that float.  Here is a breakdown of the three styles of liveaboard vessels, as defined by the City of Seattle.  (See official DPD document here.)

The Floating Home: Think of the Sleepless in Seattle boat.  These are homes that are built on a floating hull.  These homes are required to adhere to the traditional building codes of homes on land.  These floating homes are permanently connected to city water and sewer and must be moored in an approved floating home marina.  These floating dwellings are most like real houses inside.  They have real toilets, standard appliances and feel like the houses you grew up with.  There are only 500 floating homes in Seattle, and the scarcity of these homes is a driving factor in the high prices to purchase, but on the same side of that coin, they hold their resale value.  The floating home pays property tax, but it is immune to paying vessel registration fees.  These homes are also the only homes on water that qualify for traditional 30 year mortgages.

Floating Home

 

House Barges: These are the rarest of the liveaboard vessels.  There are only 33 (as of today) of these types of vessels on the lake, and no more will ever be permitted.  Seattle changed the laws around barges in the 1990’s and at that time, only existing barges were grandfathered in.   If an existing barge sinks. or is no longer used as a liveaboard, it loses its barge designation and no new barge can be built to replace it.  The barge is a vessel built primarily as a place of residence, but has the ability to navigate waters but has no means of self propulsion. That is a long winded way of saying that barges can act like boats, but they have no motors and need to be towed to get around on the lake.  Barges are not connected to City water and sewer, but are still required to pay property tax.  The good news is that Barges do not have to pay sales tax or vessel registration fees and can qualify for financing much easier than Houseboats.

Barge

 

Houseboats:   These are the most common types of liveaboards on Lake Union (and the type of boat that I live on).  A houseboat is an actual boat that is used as a residence.  These types of boats come in all shapes and sizes.  From motor boats, to sail boats to luxury yacht cruisers and everything in-between.  Houseboats are defined as being designed and used for navigation, have a seaworthy hull, and are able to navigate under their own power in open waters.  In short, they have to be able to withstand navigation on the lake and do so under their own power.   The DPD and the City of Seattle are in the final stages of refining the definition and regulations surrounding houseboats, so stay tuned for updates once the law revisions are final and published.  Buying a houseboat is a lot like buying a car.  When you purchase your houseboat, you pay sales tax and a vessel registration fee (and that fee has to be paid annually as long as you own the boat).  Houseboats are not subject to property tax.

Houseboat Cream Cheese

As you can see, life on the lake comes in many shapes and sizes.  Us liveaboards trade square footage for million dollar views.  We forgo some of the conveniences of life of land (like a driveway and a yard) for the privilege of  having mother nature rock us to sleep at night.  We spend more time on the outside spaces of our boat than we do inside.  We know our neighbors, we respect the amazing nature we so closely share space with and we know that the little moments in life are often the most amazing.  If you want to know more about this funny little lifestyle, feel free to contact me.  I would love to show you some liveaboard vessels, or just have you over to my humble houseboat for lemonade and to watch the sunset.

 


Three mistakes buyers make in a “hot” market

Home prices in Seattle are up over 7% from July of last year.  And the number of homes for sale is down 38% from last year (more details and stats from the Seattle Times article here).  I could drown you in data to prove this, but I respect your time and my sanity, so I will get to the point.  We are currently in a “hot market”.  There are more buyers than there are people willing to sell their houses.  Homes come on the market and are gone pending in just days, if not hours.  This kind of frenzy can cause home buyers, especially first time buyers, to make mistakes.  If I can save one home buyer from making a bad decision, than my job here is done.

1) Hesitation.  Buying a home is a huge decision.  And it can be a scary one.  But in this fast paced, sold as quick as it’s listed environment time is not always on your side.  I have had several clients who have let an amazing home slip through their fingers.  In four cases, I have sent listings to my clients within hours of that listing hitting the market, only to have my buyers tell me they would love to see it on Saturday (and today is Tuesday!).  Our experience has been that 75% of the time, that listing has gone pending long before Saturday, and the my clients never even got a chance to get in the doors to see the home.  If your Realtor suggests that you really need to see a home TODAY, it might be in your best interest to make time in your schedule to see it.  It may be gone tomorrow.

2) Making snap decisions under pressure.  Just because this market is moving quickly, it doesn’t mean you have to make an offer on the first house that seems “okay”.  I have seen clients totally overwhelmed by the frenzy of multiple offers and try to avoid the situation by jumping to put in an offer on a home they didn’t even really love.  I WILL NOT let anyone put an offer in on a house unless I see the “I love this place!” look on their faces.    Yes, the market moves fast.  And so should you when you get the nudge from your agent to go see a new listing TODAY.  But remember to take time to be sure that you have found the right home.  Go get a cup of coffee and talk it over.  Sleep on it.  It is much worse to buy a home you don’t love than to miss out on a home that could have been “the one”.  As my Dad always told me, “Houses are like buses.  If you miss one, another will show up eventually”.

3) Overpay for a home.  This one is easy to do.  You have been looking forever for the perfect home.  You may have a had a few get away (if you were hesitating) or lost a few in a multiple offer situation.  And all that stress can cause you to throw money at a problem just to make sure you don’t lose out on yet another house.  But don’t overpay!  It can harm you in several ways.  First of all, the best way to make money from real estate is to buy at the right price. You may not be thinking about selling your place now, but someday, the odds are that you will sell it and then you will be happy you got the home for such a smart price.  Secondly, if you overpay for a house, and you are buying the home with a loan, the appraisal may not come in at the price you offered.  If an appraisal comes back with a price that is different than the price you are paying for the home, it causes trouble.  Let’s say that you put in an offer for $450,000 on a house, and that the appraisers report came back with a stated value of $430,000.  The lender will not loan the purchase price of $450,000.  If you have the financial means, you can increase your down payment by the $20,000 difference.  If you are not in the financial position to do that, you will likely have your loan fall through and will be unable to buy the house.  Talk about a heartbreak AND a headache!

I don’t tell you these things to scare you or pressure you.  I tell you so that you can be informed about the realities of the real estate market today.  For even more tips on avoiding Buyers Mistakes, check out this article from Trulia.