Seller Disclosure Statement

by Steve Meyers

My 29th, 2017

The Seller Disclosure Statement is a document required to be transmitted to buyers in every real estate transaction in the State of Washington, except if a court appoints an executor of an estate, who has no knowledge of the property.

The seller must answer every question on the Seller Disclosure Statement correctly.  If any question is left blank, the document is not complete and the contract is voidable by the buyer up until the Closing of the transaction and, the earnest money may be returned to the buyer.  The seller must not only answer every question but, some of the answers may require detailed explanation of their response.

The Listing Agent is required to review the Seller Disclosure Statement in detail.  The Listing Agent should assure that every question is answered properly.  Questions that need additional comments should be attached to the Seller Disclosure Statement.  If you, as the Listing Agent, knows an answer to be incorrect, you should ask the seller to make the correction.  If the seller refuses, you can allow the document to be released but, you’re required by Washington State Statutes to communicate your concerns to each buyer as soon as possible regarding that issue if it may be a “Material Fact” or “Material Defect” of the property.  “Material Facts” and “Material Defects” are defined in the RCW’s (Revised Codes of Washington).

Disclaimer:  I’m not an attorney or accountant.  I advise you to seek the advice of an attorney and/or an accountant to review and evaluate the Seller Disclosure Statement and provide you with their professional opinion.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

Dealing with a Low Appraisal

by Steve Meyers

April 26th, 2017

In this period of escalating prices in the Seattle Area along with the low number of transactions, appraisers are sometimes finding it difficult to locate comparable sales to substantiate the escalated price, as a true market value for the lenders.  When an appraisal comes back that is lower than the agreed purchase price the buyer and seller have 4 options.  First, the buyer can pay for a second appraisal that, if it comes in at the purchase price, the lender must agree to accept as the best appraisal (this very rarely happens).  Second, the seller can reduce the purchase price to the appraised value.  Third, the seller and buyer can agree on a price above the appraised value but below the original purchase price and, the buyer brings in the additional cash.  Forth, the seller rejects the appraisal and the buyer must then bring in the additional cash between the appraised value and the agreed purchase price.  If the buyer and seller cannot agree, the buyer can terminate the transaction and receive the Earnest Money back.

One tactic that buyers are currently employing in this market is to submit a Form 22AD with their Offer to Purchase that states the buyer will agree to pay a specific dollar amount above the appraised value, if it comes in below the agreed purchase price.  An example would be the buyer submits a Form 22AD which states they will pay $25,000 above the appraised value, up to the agreed upon purchase price.  This is a win-win for the seller because if the appraised value comes in below the purchase price, the seller knows the buyer will pay $25,000 above the appraised value.  It may still be below the original purchase price but, it locks the buyer into a specific dollar amount.

This may seem like a small matter but, it’s causing a lot of sellers to accept Offers to Purchase with this agreement attached.  I would encourage agents and buyers to utilize this Form 22AD to strengthen their Offers.  Buyers should confirm with their agent and lender they have the additional cash on hand to close the transaction.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

Escalation Clauses

by Steve Meyers

March 29th, 2017

In this market where buyers are waiving inspections, presenting Offers without financing contingencies and, signing-off on their review of the Re-Sale Certificates without questions (condominiums), we’re also seeing “Escalation Clauses” that increase their Offers far above the List Price.  I attended a presentation of four of the top residential real estate attorneys last week where they unanimously disliked the “Escalation Clause” because it is fraught with potential for errors and miscalculations. There suggestions were to seek the highest and best Offer from the top two buyers based upon the “Escalation Clauses” but, then cross-off the “Escalation Clause” from the Offer and write-in the agreed upon purchase price on line 6 of Form 21 – Residential Real Estate Purchase and Sale Agreement and, have all parties initial the new purchase price.

The attorneys are seeing more and more disputes with the “Escalation Clauses” and recommend eliminating the Form from the Offer to Purchase, if possible.  A couple of suggestions were to present the “Escalation Clause” from the secondary buyer to the agent for the primary buyer to substantiate the higher price for them to submit / change the existing Offer.  Either cross-off the “Escalation Clause” on the front of Form 21 or Form 28 and then insert the new price with initials by all parties.  An alternative would be to submit a Form 34 with the appropriate language or, the Form 36 – Counter Offer.  However, any changes to the initial Offer to Purchase would be considered a Counter-Offer and would allow that buyer to not proceed with their initial Offer to Purchase.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

Understanding your Resale Certificate

by Steve Meyers

February 27th, 2017

As the seller of a condominium in Washington State, you’re required to supply the buyer with a resale certificate and all supporting documentation shortly after you enter into a purchase and sales agreement with the buyer.  The HOA’s professional management company will produce these documents for you and you’ll sign to attest to their accuracy.

There will be numerous items in the resale certificate which may cause the buyer to terminate the agreement.  It’s best to learn about these items prior to listing your condominium for sale with a real estate agent and disclosing those items in the listing information on the multiple listing service.  Those items will include whether there is a “Rental Cap”, any special assessments, the minutes of the general HOA and specific B of D meetings, the minimum rental period, pet policy, the amount in the capital reserve account, information in the most recent reserve study, delinquent assessments, FHA approvals, controlling interests, assigned parking and storage, etc.

Buyers want to know if there’s a “Rental Cap” in the building in the event they’re transferred with their company to another area or, they seek employment in a different location.  There are many scenarios for how to qualify for renting your unit so you should understand these may limit the number of buyers submitting Offer to Purchase.

The biggest issue with buyers will be the amount of capital reserves and the information in the most recent reserve study.  Buyers want to know of any additional financial obligations they may have if the current capital reserve account will not pay for all of the repairs and maintenance items that come up in the future.  Low HOA Dues may result in a poorly funded capital reserve account and high HOA Dues may indicate there’s a significant financial obligation in the near future.

Recently, VRBO’s (vacation rentals by owners) and AirBnB’s (air bed and breakfasts) have become popular.  Some condominium Declarations, Bylaws and CC&R’s address the minimum rental periods within buildings but, there are some buildings without restrictions.  Surveys have found that short-term rentals in condominium buildings have a negative effect on condominium values and are an overall negative impact to the community of owners.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

Blocked FHA Mortgage Insurance Cut

by Steve Meyers

January 28th, 2017

The new Trump Administration halted the previously announced FHA mortgage insurance rate cut from 0.85% to 0.60%.  What does this all mean?  Let me give you a little historical perspective and then discuss the Pros and Cons.

One of the missions of the FHA (Federal Housing Authority) is to provide mortgage insurance on loans to low and moderate income families with modest credit scores, to allow them the opportunity to purchase homes.  These families can borrow up to 96.5% of a homes’ value and have a credit score of 580.  Mortgage loans greater than 80% of the purchase price require either FHA mortgage insurance or mortgage insurance from a private company like MGIC before they can be bundled and sold on the Capital Markets.

Following the housing bust in 2008, the FHA experienced an unexpected number of borrowers who went into default and they ultimately had to foreclose on their loans.  The FHA’s capital reserved of 2.0% of their entire portfolio, as required by congress, was severely diminished.  The Obama Administration raised the FHA’s mortgage interest rate 4 times since 2010 to increase the capital reserves back to its’ required 2.0%.  To help the Agency, the Federal Government had to infuse 1.7 billion dollars into the Agency in 2013.  That was the only time in the 79 year history of the FHA that Congress had to bail out the Agency.  In fiscal 2015, the FHA finally reached its’ required reserve of 2.0% of its’ portfolio.

In late 2016, the Obama Administration made the decision to reduce the current FHA mortgage interest rate from 0.85% to 0.60% to allow more low and moderate home buyers to purchase homes and, to reduce the monthly insurance payments for over 700,000 existing borrowers by 0.25% of their outstanding loan amounts.

So, what is the biggest advantage in halting the announced plan to reduce the mortgage interest rate?  Housing prices throughout the country are growing at historically higher rates than normal.  This cannot continue and there is sure to be a correction in the market.  If the FHA reduces their mortgage insurance rates and the bubble bursts again as it did in 2008, the FHA should increase its’ capital reserves today so Congress does not have to bail it out for its’ second time in a decade.

What are some of the disadvantages in halting the reduction of the mortgage interest rate?  As mentioned earlier, roughly 700,000 current home owners will not receive a reduction in their interest rates and between 30,000 and 40,000 potential new home buyers will not qualify to purchase a home.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

Winning with Multiple Offers

Ways to Increase Your Chances in a Multiple Offer Situation
by Steve Meyers
October 12, 2016

Listed below are the things we can do to make your offer as enticing as possible.

– Building rapport with the listing agent and seller. Early and often. “What do we need to do to make you look good to your seller?” & “What besides money are the terms you are looking for in a perfect offer?”
– Perfect closing date for the seller that might include closing plus 3 days before buyer’s possession or rent back situation at $10/week. Ask the Listing Agent.
– Earnest Money: Should be 2-3%. At 2% at $675,000 is $13,500.00, which is low for a multiple offer situation. 3% looks standard in a competitive market. 5% looks strong.
– Use Seller’s Title & Escrow preferred company
– Down payment: As high as possible or explain loan structure to selling agent and why
– Reduce 10 days (twice) to 1 hour on neighborhood review on pg. 5, paragraph X on the Purchase and Sale agreement. Or strike out altogether.
– Completed a pre-inspection, and waived inspection on the Form 35P.
– Waive Form 17: “right to revoke offer” based upon form 17. Form 17 is the seller’s disclosure.
– Financing addendum (22A): Paragraph 2, A. Decrease the number of days from 30 to a low amount of around 14 days.
– Big escalation increments if includes an escalation addendum.
– Start purchase price above listing price.
– Having our lender call the listing agent to talk the buyer up and why they are the best buyers.
– Include your love letter as part of the offer.
– Submit the offer via email with a well written recap of the offer within the email message
– Make sure the offer is well written, all of the pages in correct order. Everything correct.

Here are some things that are required in the current market if multiple pre-inspections are completed.

– Waiving appraisal – need to understand the risks as the buyer
– Having no or very few ways for the buyer to back out of the agreement once selected
– Waiver of payment of utilities – know what this means
– Pay SELLER’s Title & Escrow Charge

Here are the additional items available to you that we have seen from other agents who have won the offers, but we don’t typically encourage

1) Immediately releasing earnest money directly to seller as non-refundable
2) Writing a check for additional money directly to seller
3) Final & Best without an escalation addendum

Condominium Loan Changes

Condominium Loan Changes
by Steve Meyers
August 29th, 2016

There have been some changes in the policies which govern condominium loans that are insured by Fannie Mae and Freddie Mac.

a.) The most significant change in policy allows for a loan to an owner-occupant, or condominium purchased as a second home (vacation home) to be insured by Fannie Mae and Freddie Mac if more than 50% of the units in the building are non-owner occupied units (rentals). Before this change, Fannie Mae and Freedie Mac would not insure loans if 50% or more of the units were rentals. However, a loan to an investor still requires fewer than 50% of the units to be rentals.

b.) Historically, if there were any litigation matters against the condominium association or the builder, neither Fannie Mae nor Freddie Mac would insure the loan. In general, this meant the borrower would have to seek a non-conventional loan for their purchase which would cost significantly more. Fannie Mae and Freddie Mac have changed their guidelines and now allow “Minor Litigation Matters”.

They still will not allow litigation involving safety, structural soundness, functional use, or habitability.

They will allow some “Minor Litigation Matters” where:

1.)The HOA is the plaintiff in litigation for past due HOA assessments.

2.)The result of the litigation will have an insignificant impact on the financial status of the condominium project.

3.)The litigation does not involve monetary consideration.

4.)The litigation involves a “Claim Amount” that is currently known by all parties, the insurance carrier has agreed to defend the “Claim” and, the HOA General Liability Insurance will cover the “Claim”.

c.) For buildings and complexes with more than 21 units, Fannie Mae and Freddie Mac will now allow a single owner to own up to 30% of the total number of units. Prior to this change a single owner could only own up to 10% of the units.

d.) The amount of commercial space in the building / complex can now be up to 30% of the total square footage in the building. Previously, it was limited to 25% of the total square footage.

e.) These agencies are now allowing the loan underwriter to sign off on a completed HOA Questionnaire without reviewing detailed Budget, Reserves, Minutes, etc. for borrowers of primary residences who put 10% as a down payment and borrowers on their second homes (vacation homes) who put 25% down as a down payment. For investors, Fannie Mae and Freddie Mac still requires the underwriters to perform a “Full Review” of the Resale Certificate and the supporting documents.

 

 

 



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