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 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.
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.
Although the Seattle area had been in an overall "sellers market" since the spring of 1996, the Seattle real estate market began to change in April 2000. Interestingly, most people were not aware it had changed until six months later in October 2000. Prices had actually adjusted down about 5% to 7% since then, and marketing times have increased from about 5 days to 30+ days.
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) keep pushing prices up and up. Bidding wars on most properties were aggravated 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 most cases, 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. Then in April 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 decline was 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%, and the average marketing time for a home increased from about five days to over 30 days. Average prices fell by about 6% percent from 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 slow and prices continued to soften throughout 2001. Then, the Federal Reserve started lowering interest rates and mortgage rates soon followed. That stimulated the market for Seattle real estate tremendously.
The Seattle real estate market in 2002 was exceptionally strong, given our local economic situation and the stock market decline. This was fueled by mortgage rates going to 30 and 40 year lows. But the strongest segment of the Seattle real estate market was the lower end properties under $500,000, with the under $400,000 being the strongest. Higher end properties (over $500,000) continued selling, but the marketing time was much longer and prices remained soft. 2002 was a good market, but it had also changed into a “buyers market.”
We anticipate that the immediate Seattle real estate market for 2003 will still be reasonably good as long as interest rates remain low. With the 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, and it will remain that way for now. Even so, really good houses that are priced correctly will still 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 buyers agent.
One of the dangers we are watching out for in our Seattle real estate market is if the national economy improves at a faster rate than the Seattle economy. Interest rates will go up and mortgage rates will lead the way. If this happens, and a sluggish Seattle economy is lagging behind the rest of the country, it will have a short term impact on the Seattle real estate market. We will most likely see a downturn in all price ranges. But, all indicators suggest that it would only be a short term situation. In the long run, we believe, as most real estate and financial professionals do, that the Seattle real estate market will continue to be very strong and continue to appreciate faster than in most markets of the country. Seattle, while experiencing growth pains with traffic and congestion, is still one of the best places to live in the United States. Seattle boasts homes with spectacular views, easy access to Puget Sound and some of the best boating anywhere, and mountain snow skiing just a hour’s drive away. Our downtown area is vibrant with world class restaurant and shopping, and host to all the major sports at fantastic new stadiums. Seattle is also home to a thriving arts and entertainment community and a nationally renowned university. It would be hard, if not impossible, to find all this together in any other city.
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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