Seattle is exhibiting seller market characteristics as the supply of available condo properties for sale constrict. Compared to last March, there are 40% fewer properties on the market today and since the peak in 2008, inventory is down 60%.

Demand has risen as homebuyers and investors take advantage of lower condo prices and mortgage interest rates. As a result, buyers are encountering more multiple offer situations and, yes, we’re even beginning to see bidding wars again.

How can buyers best position themselves to have their offer accepted at the best possible price?

Here are “new rules” for buying a Seattle condo in a seller’s market:

• Get your finances in order before venturing out. Work with a condo mortgage lender to get pre-approved, or if you’re a cash buyer, have your proof of funds on hand. You will benefit by knowing how much you can afford and you’ll be in a stronger position when making an offer. Buyer financing is the number one reason why transactions fall apart so sellers give greater weight to cash and pre-approved buyers.

• Know your limit. If you happen to encounter a multiple offer situation, know how high you’re willing to go. This will allow you to present your highest and best offer while keeping you from straying beyond your budget. The last thing you want is being caught up in a bidding situation and paying more than you should.

• Research in advance. Determine the neighborhoods and buildings that best suit your needs and lifestyle – amenities, transportation and commute options, crime rate, market sales activity, price trends and so on. By defining the areas you’d like to live in, you’ll be able to move more readily giving you an edge over the competition when properties become available in your favorite neighborhoods. You will know a good value and the perfect property when you see it.

• Be prepared to act quickly. When a condo that ticks off all the boxes comes on the market, be prepared to act quickly. Condos that are well priced for the market, in good condition and located in desirable neighborhoods are selling faster. Recently, in the hour it took me between setting up a showing with a buyer and arriving at the property the unit went pending. It was on the market less than 24 hours.

• Strengthen your offer position. In a multiple offer situation, consider minimizing contingencies and strengthening the other elements of your offer. This may include a larger down payment or earnest money deposit amount, pre-inspecting the property or being flexible with the contract terms such as the closing date or escrow preference.

Heading into spring, we are moving towards the high season for home purchases. The low cost to finance, better values and warmer weather offer a compelling opportunity for buyers to enter the market, and as they do they are experiencing dwindling inventory supply and greater competition from other buyers. To get the edge buyers need to be aware of the news rules in Seattle’s evolving condo market.

Are you ready to get your condo feet wet?   Contact the SeattleCondosAndLofts.com team at Keller Williams Greater Seattle to get started.

© SeattleCondosAndLofts.com

In looking at the sales price to list price ratios, on average, Seattle condos sell for 90% of the original list price (10% less) and 95% of the last list price (5% less).

Now, this doesn’t necessarily mean that the condo you purchase will sell for 10% below the list price. The amount buyers can negotiate off of the price will depend on a number of factors such as the market environment, the motivation of the seller, inventory level, competition from other buyers and time on market. Nevertheless, the ratios show there is ample pricing flexibility in the market today.

If buyers expect to realize a 20-30% reduction off the price, that’s not very likely. But, not impossible. There are opportunities to realize great values on bank-owned and short sale properties but they only represent 25% of all Seattle condo sales.

The figures above are 12-month averages of the selling price to list price ratios of Seattle condo resales. It includes regular market and distressed sales, but I excluded new construction since the sales data rarely include the actual original list price of new construction units.

>> Search Seattle Condos for Sale

Implementation has been postponed, again, to February 1, 2010. Additionally, some of the changes have been altered since they were first proposed.

FHA has revised its guidelines for condominium mortgages. The new guidelines will take effect with all case numbers assigned on and after February 1, 2010 December 7, 2009 November 2, 2009. (Note: the guidelines were initially scheduled to take effect on October 1, 2009 but have been delayed to February 1st.)

FHA is implementing a new approval process for condominium projects, and with it, the elimination of the “spot approval” process. Spot approvals were used by lenders to qualify an individual buyer’s condo purchase using FHA where the condo project was not previously approved by HUD/FHA. In its place is a new streamlined process, which may affect buyers, sellers/developers and homeowner associations.

With FHA loans becoming more prevalent with its low down payment and flexible eligibility requirements, condo buyers, sellers and their HOAs should keep these changes in mind. For instance, if an HOA has not yet conducted a reserve study, they will now need to do so if owners wish to sell to an FHA buyer, who are becoming an increasingly larger segment of home buyers.

Owner occupancy:
+ Prior to February 1st: 51% of the units must be owner occupied.
+ As of February 1st: 50% must be owner occupied or sold to owners who intend to reside in the unit.

Single owner status:
+ Prior to February 1st: No single entity may own more than 10% of the units.
+ As of February 1st: No more than 10% may be owned by one investor. This applies to builders that subsequently rent vacant and unsold units. This will not only affect the developer who intends to sell their unsold units, but also to existing unit owners in the project. For 2 or 3-unit buildings, no single entity may own more than one unit.

FHA Concentration:
+ Prior to February 1st: For projects over 30 units, no more than 10% may be insured by FHA; for projects with less than 30 units, no more than 20% may be insured by FHA.
+ As of February 1st: For projects with 4 or more units, no more than 50% (temporarily increased through 2011) 30% may be insured by FHA; for 2 or 3 unit projects, only one may be insured with FHA. The change increases the FHA concentration allowing for a greater number of FHA buyers/owners.

Reserve Study:
+ Prior to February 1st: No requirement. However, Washington State law requires homeowner associations to conduct reserve studies, though there is no enforcement provision.
+ As of February 1st: FHA will require that a current reserve study must be performed to assure adequate funds, which must not be more than 12 months old. This is a good change as it’ll incent the HOA to conduct a reserve study.

Insurance:
+ Prior to February 1st: The HOA must provide evidence of appropriate hazard, liability and flood insurance.
+ As of February 1st: The project must be covered by hazard and liability insured, and were applicable, flood insurance.

Other changes include:

Arrears: No more than 15% of the total units may be in arrears of their HOA dues (30 days past due).

Commercial space: Nore more than 25% of the property’s total floor area in a project can be used for commercial purposes.

Conversions: The one year waiting period is eliminated, though the project, including common areas, must be 100% complete.

Endorsement: At least 50% of the units must be sold prior to endorsement of any mortgage on a unit.

Legal phasing: Allows the owner occupancy percentage to be based on release phases.

Recertification: Project approvals will expire two years from the date it was placed on the approved condo list and must be re-certified every two years.

As it is currently written, once the two years are up and condos need to be re-certified, as well as those projects hoping to be approved, may run into an issue with the environmental review section of the guidelines. The guidelines do not allow for projects to be within 1,000 of a highway/freeway, within 3,000 feet of a railroad and within 1 mile of an airport. Potentially, this could affect numerous projects along I-5, Aurora Avenue and throughout Belltown. However, it’s likely the rules may be amended again within the next two years.

This is only intended to provide a high-level overview of the upcoming changes to FHA backed mortgages. For more specific information, including whether FHA is an option for you, please consult with a FHA mortgage specialist.

Sources: HUD Mortgage Letter 2009-19 (WORD download), Guild Mortgage Company, and the Talon Group.

With the credit crunch and constricting mortgage availability, FHA loans have recently become more appealing to buyers. Loan officers at Wells Fargo and Response Mortgage have told me they’ve seen a significant increase in FHA backed loan applications over the last few months. FHA is not a lender so they do not actually provide the funds. Rather, FHA insures loans that meet specific criteria, which is usually a bit more lenient than for conventional loans. As a result, FHA provides homeownership opportunities for people who may not otherwise qualify under conventional guidelines.

Here’s an overview of FHA benefits and requirements. The following is only a summary about the program and should not be considered exhaustive. Although, this provides a good starting point for buyers, for more concise information regarding FHA, please consult your loan officer.

Benefits of FHA loans:

 

• A minimum investment of 3.5%. This can include a combination of borrower paid down payment and closing costs, or gift funds. Most conventional loans today require 5% down or greater, not including closing costs. Some costs are excluded such as discount points, prepaid items, seller paid closing costs, etc.
• Lower minimum FICO requirement, making loans available to those who don’t have high enough FICO scores for a conventional loan. For the 3.5% down payment option, a borrower will need at least a 580 FICO score. For borrowers with a FICO score under 580, a 10% down payment will be required. Many lenders, however, require at least a 620 FICO score.
• More lenient qualifying ratios of 31% front-end (gross income / PITI) and 43% back-end (gross income / PITI + other monthly liabilities). The conventional loan qualifying ratios are 28% and 36%, respectively. FHA allows buyers to use a higher percentage of their income towards housing costs.
• People with bankruptcies may qualify. For Chapter 7, borrowers may be eligible two years from the discharge date. For Chapter 13, borrowers may be eligible while in repayment status.
• Allow for seller concessions and contributions up to 3% of the sales price. This is above and beyond the buyer’s 3.5% contribution. Examples of seller constributions include closing costs, prepaid expenses, discount points and interest rate buy-downs.
• Cash reserves are not required, except for 3 or 4-unit properties.
• Gift funds are acceptable. All funds can come through via a gift; the gifter must be someone close to the buyer such as family, significant other or friends with a justification letter.
• Loans are assumable, provided the prospective buyer qualifies.
• There is no pre-payment penalty.

Specific to FHA:

FHA loans are subject to a maximum amount depending on location. For King, Pierce and Snohomish Counties, the maximum loan amount is $567,500 through September 30, 2011 (as part of the housing stimulus bill). Thereafter, the maximum loan amount will decrease to $506,000.

FHA requires two types of mortgage insurance premiums (MIP) – up-front and annual. The up-front MIP is 1.00% of the base loan amount and can be added to the total loan amount or paid in cash at closing. The annual MIP is termed annual but paid monthly. On a 30-year fixed the premium is 1.15% of the base loan amount, which is applicable for a minimum of 5 years and cancelable when LTV reaches 78%. Two important notes regarding the annual MIP: 1) even if the LTV drops below 78% the buyer must wait 5 years before they can cancel the MIP, and 2) it cannot be canceled for condos.

One loan limitation. FHA only insure loans for principal residences, so buyers are limited to one FHA loan at a time. There are exceptions for relocation, increased family size, divorce and if the borrower is a non-occupant co-borrower.

Who is eligible for FHA?

• U.S. citizens
• Permanent resident aliens
• Non-permanent resident aliens – must have an SSN and hold a valid visa or is eligible to work in the US as evidenced by an EAD issued by the U.S. Customs and Immigration Service. Acceptable visas include H1, L-1, E-1, TN, A Series and G Series.

FHA is not available to non-citizens who do not have lawful residence in the U.S. or individuals with diplomatic immunity.

FHA Enhancements:

As a result of Congressional reform actions this year, several enhancements were made to the FHA program. The FHA appraisal requirements were relaxed, the required $150 seller fee is no longer necessary and processing and underwriting were streamlined and standardized. Other changes include the expanded qualifying ratios, the increase in borrower investment 3.5% and a change in the up-front MIP percentage.

FHA and Condos:

For condominium purchases the condominium development must be approved by HUD in order to be eligible for FHA loans. To view a list of approved condos, click here. In Seattle, there are currently 325 condominiums that are HUD approved, though the list may not be up-to-date. Search for FHA approved Seattle condos.

Fortunately, developers are paying heed. New developments and conversion projects have applied for HUD approval from the onset.

Given the ever constricting conventional mortgage loan availability, FHA is becoming an appealing option for many buyers, particularly here in the Northwest. For more information or questions about FHA, we recommend buyers speak to a mortgage loan officer who has experience with FHA loans. Or, contact us and we’ll put you in touch with our FHA loan specialists.

Here’s a few recent FHA resources from the ‘net:
– Let FHA Loans Help You, the official HUD/FHA website
– A Solution for FHA Buyers Searching for a Down Payment, The Mortgage Porter
– FHA is waiting to give you a loan, The Seattle PI