What Should I Know BEFORE I Buy a Home in the Seattle Area?
“It is in the buyer’s best interest to work with a Seattle buyers agent who has long term familiarity with the Seattle real estate market and its history.”
In the past six years, we in the Seattle area have experienced a very fast and competitive housing market. Over the past year however, the Seattle real estate market has slowed down and the dynamics of the market have changed. Many buyers had gotten carried away with this market and paid too much. Many sellers think their home is worth much more than it actually is at this time. On the other hand, some buyers paid over the asking price, but in six months looked back and realized what a great deal they received. Every situation is different and needs to be approached accordingly in this ever-changing market.
In order for you to find the right house at the right price there are several things that you, the buyer, should know before you begin the buying process:
Know exactly what you can afford vs. what you want to spend
Know your short (3-5 yr.) and long term (5-10 yr.) goals
Know the current market conditions
Know how listing prices are determined
Know how to deal with the Listing Agent
Know how to find the right agent
Know all your options
We discuss these issues below. The information is taken from our free guide, "Buying in Today's Market" which you can receive by clicking here.
1. Know exactly what you can afford vs. what you want to spend.
As a buyer, one of the very first things you need to do is sit down with a good mortgage broker and determine exactly what you can afford to spend. Not what you want to spend, but what you will qualify for. Then you can work with a Seattle buyers agent to determine what you can get for the money. It is critical that you must establish realistic expectations from the beginning. In almost every situation, however, some compromise is necessary.
2. Know your short (3-5 yr.) and long term (5-10 yr.) goals.
You need to discuss your (or your family's) short- and long-term goals with your seattle real estate agent before the buying process begins. How long will you want to live in the house: three years or 20 years? Will you be having children? What about schools? These sorts of questions can have a very large impact on what you buy. For example, if you plan to move in the next three to five years, then what you pay for you home becomes even more important than if you planned to stay there for 25 years. When you go to sell, selling costs are about 9 percent of the selling price, so you better not overpay for the property. Also, some style homes and some parts of every neighborhood give you better resale value. That should be considered when you buy in the Seattle real estate market. It may be to your advantage to give up some amenities if it will be to your advantage when you sell.
3. Know the current market conditions.
If you are interested in buying in the Seattle Real Estate Market, here's an in-depth look at what forces have recently affected it, and where it's going.
Somewhat like the stock market, the Seattle real estate market changes throughout the year and sometimes even throughout the month. Some months are better for sellers and some are better for buyers. For this reason, it is in the buyer’s best interest to work with a Seattle Buyers Agent who has long-term familiarity with the Seattle real estate market and its history plus a proven tract record.
The Seattle Real Estate Market had been an overall "sellers market" since the spring of 1996 until the late Fall of 2007. There were some periodic fluctuations from time to time but generally a Sellers Market. There was a brief change in the Seattle real estate market in April 2000 for example. Prices had actually adjusted down about 5% to 7% and marketing times have increased from about 5 days to 30+ days and what’s always quite interesting is that the local media usually is behind the market conditions by about 3 to 6 months. This time around, the news of falling home prices in other parts of the country has greatly affected the Seattle Real Estate Market and that has unfortunately affected our market and it’s been somewhat unwarranted.
Lets look at a little history in Seattle Real Estate Market. Starting in about 1987 Seattle Real Estate has seen incredible appreciation when many Californians started selling their homes in California and started buying homes in Seattle. Seattle home prices were about half of what they were throughout California. People would sell their home in LA and buy a home in Seattle for half the cost and put the rest of the money they made in the bank. Demand rose significantly and prices increased rapidly in Seattle. Then in late 1990 the housing boom slowed down. The California boom was over. California (except the bay area) had a sharp downturn in real estate sales and prices fell. Demand for homes in Seattle slowed and prices softened by about 6 -10% depending on the location and the home. Interestingly however, really good homes that were in excellent locations and had great charterer were still selling for top dollar.
From about October 1990 to January 1993 prices stayed pretty flatbut maybe increased about 3% a year from late 1992 to the beginning of 1994. Then 1994 was the start of another“up” cycle and by spring of 1995 the Seattle Real Estate Market was booming again. Inventories of homes were low and demand was strong, resulting in multiple bids on most homes and we were seeing double-digit appreciation of between 10% to 25% per year depending on the location of the home. This robust Sellers market lasted for about 5 years and the “Nay Sayers” were saying that our housing bubble in Seattle was about to burst…it didn’t and prices kept going up. Seattle, in the 1990’s was a much different city however from the Seattle in the 1970’s and 1980’s. Seattle had matured nicely. Trendy restaurants were being opened all over the city, the downtown area was revitalizing with upscale stores. Microsoft and other high tech business were booming and Boeing was no longer the only big business in town. Seattle was consistently ranked as one of the most livable cities in the country by Forbs Magazines, and the 1995 Mariners brought a lot of excitement and press to the city with their heroic late season pennant run (well I’m a baseball fan). Seattle was growing up fast and it had a diverse and growing economy. It is one of the most beautiful cities in the US with mild weather, great views, and so very close to the water and mountains. Microsoft spawned many new support businesses and the biotech business started to emerge in a big way. The Seattle economy was strong and diverse. Traffic however was bad, getting worse, and there wasn’t a really good way to fix it. People saw a huge value living close in and demand for homes in close in neighborhoods was very strong.
Prices kept increasing, bidding wars for a home was the norm and more and more people were moving to the Seattle area from other parts of the country.In the months before April 2000, prices rose so fast -- especially in "close-in" neighborhoods -- both sellers and Seattle Real Estate Agents were able to (and did) push prices up and up. And these bidding wars properties were aggravated and fueled by buyers who felt that if they didn't buy a home the first day it was on the market, it would be gone (and it would have been in many cases). And the reality was that most homes did sell in the first few days they were on the market. Prices in most “close-in” neighborhoods went up 100% or more from 1995 to February 2000. But then in April of 2000, many buyers finally reached the point where they said, "Enough! We are not going to get into a bidding war." The beginning of our long stock market (NASDAC) decline started in April 2000 as well. The Seattle real estate atmosphere slowly changed so that by the end of September 2000 inventories in the Seattle area had increased by about 25% but were still pretty low, and the average marketing time for a home increased from about five days to over 30 days which is still a very short time for a home to sell. Average prices fell by about 6% percent from the beginning of April 2000 to the end of 2000. Then, we had another short spurt in market activity for the first few months of 2001, but mostly in the lower price ranges (under $500,000, and more particularly under $400,000). In the over $500,000 range, the Seattle real estate market remained relativity slow and prices continued to soften some throughout most of 2001.
Then, the Federal Reserve started lowering interest rates and mortgage rates soon followed. That stimulated the Seattle real estate market tremendously. ?The Seattle real estate market in 2002 was exceptionally strong again, even in spite of the slow Seattle economy and the stock market decline. The strong real estate was partly fueled by mortgage rates going record lows, but also because there were so many new people moving to Seattlethe demand was high and supply was low.
What we said at the end of 2002 about the following year (2003) was: “We anticipate that the immediate Seattle real estate market for 2003 will still be reasonably good (for sellers) as long as interest rates remain low. With a slightly higher unemployment rate, we will not see as many new people moving into the area as in the past several years. We are in a “buyers” market today in the over $500,000 price range, and it will remain that way for now. Even so, really good houses that are priced correctly will sell quickly and may even have several offers -- and may even sell for over the asking price. 2003 may be one of the best times we will see in a long time to be a buyer in the Seattle real estate market. This is also one of the very best times we have seen for the move-up buyer. For example, while the owners of a $450,000 home have seen their home increase in value over the past 2 years, the $850,000 home they’ve had their eye on has, at best, stayed flat. With interest rates so unbelievably good, it’s a perfect opportunity for them to make that move -- with the guidance of an experienced Seattle buyer’s agent.” I love it when I’m right!
By the late fall of 2003 we started to see inventories drop again and the Seattle economy was on the mend. Many new companies were coming to Seattle and established companies were expanding. Washington ranks 43rd in the US for producing college BA degrees and Seattle ranks #1 for it’s population being the most educated in the US. A lot of highly educated and well paid people were moving to Seattle to fill these jobs. The Seattle home market was on the upswing again and by 2005 we could say the Seattle Real Estate Market was hot, really hot and in the spring of 2006 it was “white hot” even though there was much talk and news of the housing bubble bursting across the country. Seattle seemed to be immuneto all the housing problems in other parts of the country. But by the fall of 2007 Seattle’s Real Estate Market came to a screeching halt. The mortgage problems and the downturn in the rest of the country finally got to the Seattle buyer. People here just kept hearing all the bad news from around the country and WHAMOO; it finally affected Seattle Real Estate. Money became a lot harder to get and people actually had to now qualify for a mortgage in order to get one. People that were planning on relocating here were not able to sell their homes in other parts of the country so they could not buy here. By late 2007 Seattle’s robust Real Estate Market had a pretty bad cold...but not the flu! Inventories levels increased from about a two week supply in 2005/2006 to a 6 month supply as of June 2008.
However the current Real Estate Market in Seattle offers never seen before risks and opportunities right now. We are in a challenging time to buy or sell real estate in Seattle right now and the buyer and seller need to be “smart” in what they do. And although the market can be difficult, we continue to see incredible opportunities in our current real estate market. However there are some pitfalls that everyone needs to be aware of.
Pricing is key in this market. Homes that are overpriced, and there are a lot of them right now, will not sell unless the buyer is working with an agent that’s new or not from the Seattle market or doesn’t understand pricing. It’s rare that a home will sell for full price today as well, but that does still happen on really special homes that are priced correctly.
Things today are not like they were between 2000 and mid 2007. By early summer 2008,many so called experts believe that we have pretty much bottomed out in Seattle and we are seeing more sales, and we are seeing more buyers out looking to buy. There is even the occasional multiple bids, but those are very rare today. This can be an incredible time to buy however, particularly if you are a move up buyer or if you are an investor. For the move up buyer, if your current home that’s worth $450,000 has gone down by about 7% (and that’s about right for that price range) and that $750,000 home you would love to move up to has gone down by about 9%, (which it has most likely)...and, best of all, you can now write an offer contingent on selling your home you could be getting a great deal. Using the numbers here your $450,000 (as of June 2008) home would now sell for about $31,000 less or about $419,000 but that $750,000 home (as of June 2007) would sell for about $680,000 so you would be saving about $70,000 or twice what you loose ($31,000) on selling your home, so you save about $39,000 and interest rates are still at historic lows.
Seattle, with our current housing pains and even with all the traffic congestion, is still one of the best places to live in the United States. Seattle will continue to see tremendous growth through the end of this decade and well beyond. It’s estimated that another million people will be living in the Seattle area by the end of 2020. If you own a good home in a close-in Seattle neighborhood, it will be one of your very best investments over the long run, and what a great time to buy!
Will escalating property values ever stop? Will the housing downturn across the county affect Seattle’s real estate market over the long run? We believe that Seattle has either reached the bottom or is very close to the bottom of this real estate downturn. How long will it take to completely turn around…maybe a year maybe a little more depending on the national economy and other lender factors? Even though the national economy is very important, the local economy is perhaps more important or at worst case offset the negatives of what happening nationally. The lenders have to feel the pinch of tight lending practices and the pendulum should swing back to more relaxed credit requirements over the short run. We think (and we are not alone) that Seattle will continue to be one of the top cities to live with one of the strongest economies in the county and a very healthy housing market with good appreciation.
4. Know how the listing prices are determined.
How do sellers and real estate agents determine what the listing price of a home will be? Good question. We often ask ourselves, "How did they come up with that price?" Often, the sellers themselves determine the price, and most real estate agents just go along with it. Other times the agent does a CMA (comparative market analysis) to determine value. Agents generally look at what sold in the last six months in the same neighborhood. They then base their price on these comparisons.
Sometimes this comparison can be very difficult and misleading. What if a so-called comparable home recently sold for $50,000 too much because several buyers got into a bidding war? Typically, with bidding wars, ego is the driving force, and ego really doesn't have any valid impact on home values. But "There it is...the best comparable...in the same neighborhood...so this home must be worth the same or very close" is the rationale that the typical seller and agent uses. This is a real danger for buyers today in the Seattle real estate market. The home, if it is a good comparison to the one that sold, is really only worth what the other home started out at, not the $50,000 over the asking price it sold for. Just because someone got carried away when they bought the home doesn't drive up the price of the next similar house unless the home was actually priced $50,000 under market value, which does happen, but not that often.
If you walk into any real estate office and ask five agents to price a property you will most likely get five different prices, and they may vary as much as $100,000. On the other hand, there are agents who really know their business and how to price property and are very accurate in determining market values. However, these agents may run into resistance from the seller and may have to compromise the listing price for two weeks or a month before the seller is willing to lower the price to what it should be. We have been in that situation and, while we've advised our client what the price should be, we sometimes had to put the house on the market for a higher price to satisfy our client. Over priced homes usually end up being a better deal for buyers if they are willing to wait. The longer it stays on the market, the lower the price will go.
5. Know how to deal with the Listing Agent.
The Listing Agent, whether good, ho-hum, or bad, represents only the seller, and tries to get the highest possible price for the seller. The Listing Agent signs an agreement with the seller that stipulates a commission. That commission is usually 6 percent of the selling price and it is split 50/50 between the Selling Agent and the Listing Agent. So the Listing Agent has an agreement with the seller that he will get paid 3 percent of the sales price when the house sells and closes. The job of the Listing Agent is to market the home and represent the seller's best interest. So if a buyer walks into an open house and asks the Listing Agent if the home is priced correctly, even if it's $100,000 over priced, what do you think the Listing Agent will say? "It's a great house and priced really well," is a typical response. And if the buyer wants to work with the Listing Agent, then he may be able to give up some of his commission to help the deal go together and save the buyer some money.
This is a false economy and here's why. If the selling price of the house is $300,000 and the commission is 6 percent, the total commission is $18,000. The Listing Agent will get $9,000 and the Selling Agent will get $9,000. The Listing Agent knows that he will receive $9,000 when this house sells. Now the unsuspecting buyer walks in and uses the listing agent to write up the offer. The listing agent says he will give up $4000 of his commission so the buyer can get the house for $4000 less. So the seller gets $296,000, the listing agent gets his $9,000 for the listing side and $5,000 from the selling side, for a total of $14,000. The buyer saves $4000, the seller gets his full price because the listing agent gives up $4000 in commission, and so the seller's net is the same as if they sold it for $300,000. Every one wins...right! Wrong! The buyer in these situations usually pays too much for the house. The buyer has NO REPRESENTATION. The Listing Agent becomes a Consensual Dual Agent and says that he will represent both parties, but that is just like going into court and telling the judge that you represent both the plaintiff and the defendant...it just doesn't work! The buyer has no one advising him or her whether the house is priced correctly. The buyer has nobody working for him or her during the entire process. The Listing Agent makes $14,000 -- not $9,000. That's $5,000 more then he thought when he listed the property - who do you think he represents? The sellers make everything they wanted to. And the buyer...well the buyer may have paid $20,000, $30,000, perhaps $40,000 too much for the house.
So we strongly suggest: Never ever use the Listing Agent to write up your offer.
Effective Seattle real estate agents possess a very strong sense of the Seattle real estate market and are attuned to its nuances and subtle changes. A good buyers agent’s approach to the clients needs are well thought out and documented. Of course, we think we're great buyers agents, but we realize we may not be right for everyone. You can read about our approach here.
6. Know how to find the right buyers agent.
Good agents possess a very strong sense of the market and are attuned to its nuances and subtle changes. Their approach to their clients needs are well thought out and documented. Of course, we think we're great buyers agents, but we realize we may not be right for everyone. You can read about our approach here.
Here are a few things that we would do if we were to hire an agent: We would only work with agents that have been in the business for at least three to five years and that have some advanced designations, like Associate Broker, GRI, CRS, or ABR. Even if you think you know the right agent, you should interview several agents, at least two or three. We would call the three top companies in the area and talk with the Managing Broker to ask who their top agents are, and who really specializes in Buyer Agency. We think it is important to work with agents who both list properties and represent buyers, because they have a fuller view of the market. We would then interview the agents to choose whom we think best understands our needs and would best represent us. We would probably talk with five or six agents over the phone but actually sit down with only two or at most three. We would also call their references. Finding a good Buyers Agent could be one of the most important decisions you can make. If you were going to invest a large sum of money would you do it without good advice and guidance?
7. Know your options.
Every situation is different. That is what we like about this business, but everyone should be aware of all of his or her options. Your first option is that you don't really have to do anything. Or you can choose to do it all yourself. But to be a well-informed buyer, you should analyze your own situation and analyze all your options.
Send for our Free Report. The information on this page was taken from our 12-page free report "Buying in Today's Market." You can receive a copy of this report by filling in the form below. You can contact us also at 206-283-9100.
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