By Jason Cruz
Northwest Asian Weekly
It is a seller’s market in the city of Seattle, meaning that the housing market is great for those wishing to sell their home. If you are buying, the market to purchase a home will be competitive. Overall, bargains in Seattle are scarce, but there are ways to maximize your chances of landing your dream house.
The reason for the competitive pricing is the low inventory in the Seattle housing market.
“There is less than a month of inventory available in Seattle, based on the data of the latest Multiple Listings Service (MLS),” explained Christopher Cruz, a real estate broker with John L. Scott Real Estate.
That means that if no one else in the city of Seattle put their homes up for sale, it would take less than a month for all homes currently on the market to be sold.
“The typical healthy average inventory (homes on sale in the market) is 5 to 6 months,” Cruz said.
Despite the belief that Seattle is such a rainy place, Cruz says that people seek to relocate here due to the mild winters and beautiful summers. There is also the booming tech industry with major hubs of business calling Seattle home, including Microsoft, Amazon, Facebook, and Nintendo. Cruz also said that foreign investors are interested in purchasing real estate in the Pacific Northwest. Apartment rentals have increased, which has made renters look into buying.
“There’s very limited inventory today and because of that, it affects the rental rates of apartments,” said Michael Jelcz, a loan officer with KeyBank. Rent has dramatically increased in Seattle. Five years ago, rent was 15-20 percent of monthly income. Now, it is about 30 percent, the same as if you were making a mortgage payment. In these types of situations, individuals look to putting their money into a home they own rather than pay rent. Residential property is not only a home, but also an investment as opposed to renting an apartment where there is no return.
If you’re thinking of buying, the first question is whether you can afford it. The standard down payment for a single-family residence is 20 percent of the purchase price of the home. Seattle area median purchase prices range from $700,000 to $800,000, depending on what neighborhood you target. According to Redfin, the median price for homes as of April 2018 (the most recent data) in metro Seattle is $732,000. Thus, prospective homeowners would need a little over $146,000 up front. This could be hard, especially for those first-time homeowners and those starting families.
“Try to get a gift,” said Jelcz, who referenced parents as potential sources. “Some people don’t have parents that gift
them the money.” In those instances, prospective buyers
could put down as low as 3 percent of the purchase price. However, they would have to purchase mortgage insurance (PMI). This insurance secures lenders in the event that homeowners are unable to make house payments.
In most cases, potential buyers will need to seek a mortgage to purchase a home. The latest interest rates for borrowing are at 4.6 percent for a 30-year fixed-rate loan. Although there is a likelihood that mortgage interest rates will increase in the near future, they are still affordable compared to prior decades.
“They (mortgage interest rates) are still at a historically all-time low,” said Cruz. In the 1980s, the interest rates hovered in the double-digits.
He recalls when he was in the market for a home in 2002, the interest rate was 7.5 percent for a 30-year fixed-rate mortgage.
Cruz stated that mortgage interest rates should not be a primary concern if you are considering purchasing a home. He indicated that homes typically appreciate in value and that there is a possibility of refinancing the loan if/when rates fall, and you could pay off the original mortgage.
Buyers find themselves in a market where sellers are receiving multiple offers for homes. As a result, Jelcz indicated that using an escalation clause may help. Escalation clauses are included in written offers, which specify how much a buyer is willing to raise their initial offer in the event that the first offer is less than subsequent offers. These types of clauses work in instances where a seller has a deadline for all offers to be submitted. But there are some pitfalls in these clauses.
“Escalation clauses can be dangerous,” said Cruz. “I give the option, but I approach what is best for the seller. But that’s where working with the right agent will help you minimize the risk. I have used them, but for me, it’s best to get to know both sides (buyer and seller).” There may be other considerations, including closing quicker or extending the close.
Cruz suggested that sometimes sellers want to rent back the home so that they have more time to move and/or find another home. He suggests that prospective buyers should be ready to make an offer if they find a home they like. Also, a personal touch may help you land your dream home. Cruz says writing a letter to the seller may help you stand out in a field of offers. “The more they know about you and what you love about the home, the more that will reassure them that you are the perfect new owners.”
In addition, seeking out legal assistance might protect the potential buyer and seller from unseen pitfalls.
“What I’ve been noticing is that people are going with what the market tells them,” said real estate attorney Kim Sandher, an attorney at Pivotal Law Group in Seattle. “They (buyers) are willing to waive everything.” Sellers, desperate to find a home are waiving portions of the contract that may slow the transaction from going through, and to make the deal more attractive to a seller. However, this could prove to be a problem down the road. Sandher, whose practice includes representing buyers and sellers in real estate, advised to never waive provisions in the real estate contract, such as financing contingencies, home inspection, and appraisal.
“If they (prospective home buyers) come to me early enough, I can draft a real estate contract with its own terms.” In general, the contract used is a standard form issued by the MLS. However, according to Sandher, the MLS form favors the seller. For instance, the standard form contract does not address any contingencies in the event that the seller backs out of the sale.
Prospective homeowners looking for their dream home within the city of Seattle will likely compete with other buyers eyeing the same properties. With prices continuing to rise, it is helpful to find professionals in the real estate industry who can help guide you through the process.
Jason can be reached at firstname.lastname@example.org.