Seattle’s Waterfront Local Improvement District (LID)

     On June 14^th the Seattle City Council finalized the Special Assessments for property owners in the downtown area for the new Waterfront Local Improvement District (LID).  The $174,380,000 million dollars will pay a portion of the overall cost of $737,000,000 for;

• Waterfront Promenade
• Waterfront Overlook Walk

• Pioneer Square Street Improvements

• Union Street Pedestrian Connection

• Pike/Pine Streetscape Improvements

• Waterfront Park

     Every landowner of vacant lots, office buildings, hotels, commercial buildings, apartment buildings, condominium buildings, etc., has a new Special Assessment owed to the City of Seattle for these improvements.  The City Council’s reasoning is these property owners will be the beneficiaries of the $174,380,000 improvements.  CLICK HERE to see what the Special Assessments are for each building/property owner.

     Please help me understand what the great benefits are to;

1. Youth Care (Homeless Shelter) at 1305 Denny Way for $3,134.

• Catholic Seamans Club at 2330 1^st Avenue for $6,661.

• Edward P., Unit owner at the Pomeroy Condominiums for $2,085.

• Mark H., Unit owner at the Florentine Condominiums for $3,851.

     In my opinion, the entire $737,000,000 should be paid for by Federal, State, County and City revenue.  Why is Youth Care paying for street improvements in Pioneer Square and the Pike/Pine Corridor?  Why are condo and business owners paying for the Waterfront Promenade?

Waterfront Local Improvement District (LID)

     On June 14^th the Seattle City Council finalized the Special Assessments for all property owners in the downtown area for the new Waterfront Local Improvement District (LID).  The $174,380,000 million dollars will pay a portion of the overall cost of $737,000,000 for;

1. Waterfront Promenade

• Waterfront Overlook Walk

• Pioneer Square Street Improvements

• Union Street Pedestrian Connection to the Waterfront

• Pike/Pine Streetscape Improvements

• Waterfront Park

     Every landowner, whether it’s a vacant lot, office building, hotel, other commercial building, apartment building, condominium building, etc., has a new Special Assessment owed to the City of Seattle for these improvements.  The City Council’s reasoning is these property owners will be the beneficiaries of the $174,380,000 improvements.  CLICK HERE to see what the Special Assessments are for each building/property owner.

     If you can, please help me understand what the great benefits are to;

1. Youth Care (Homeless Shelter) at 1305 Denny Way for $3,134.

• Catholic Seamans Club at 2330 1^st Avenue for $6,661.

• Edward P., Unit owner at the Pomeroy Condominiums for $2,085.

• Mark H., Unit owner at the Florentine Condominiums for $3,851.

     In my opinion, the entire $737,000,000 should be paid for by Federal, State, County and City revenue.  Why is Youth Care paying for street improvements in Pioneer Square and the Pike/Pine Corridor?  Why are condo and business owners paying for the Waterfront Promenade?

Seattle’s “Eviction Moratorium” of Renters

The City of Seattle Eviction Moratorium has been extended to September 30^th of this year.  The rules and regulations are complex and, I advise you to seek legal council if you’re a landlord or tenant to navigate these regulations.

Until the Eviction Moratorium expires, I believe the regulations against evictions include;

1. A landlord cannot evict a tenant for the nonpayment of rent.

• A landlord cannot charge any late fees for the nonpayment of rent.

• A landlord cannot threaten the tenants with charging late fees for nonpayment of rent.

• A landlord cannot increase the rental rate.

• The landlord must attempt to negotiate a repayment plan with the tenant prior to seeking an eviction of the tenant.

• But, a landlord can evict a tenant if they violate the health and safety of others.  This will be incredibly hard to prove.  Please seek the advice of an attorney.  

Once the Eviction Moratorium expires, there will still be landlord restrictions on evicting tenants.  Here are some examples;

1. If a family has children attending school during the school year, landlords are not allowed to evict the tenant during the school year.

• The tenant has the “First Right of Refusal” to continue leasing their home, if they choose to.

• If a tenant claims financial hardship due to Covid-19, the landlord will not be allowed to evict the tenant.

Apparently, the federal government is setting up programs to reimburse landlords for back rent not paid by their tenants and providing attorneys, for free, to defend tenants against evictions.  My questions is, if the tenant was collecting the boost-up unemployment compensation during this time period and yet, wasn’t paying their rent, will the federal investigate whether the tenant has the ability to pay their back rent prior to providing financial assistance? 

• Rental Housing Association of Washington: 

https://www.rhawa.org/

• Rental Registration and Inspection Ordinance

       https://www.seattle.gov/sdci/codes/licensing-and-registration/rental-registration-and-  inspection-ordinance

• Washington Residential Landlord Tenant Act
• https://app.leg.wa.gov/RCW/default.aspx?cite=59.18

• City of Seattle / Responsibilities of Landlord and Tenant

https://www.seattle.gov/housing/renters/know-the-law#rentersrightsresponsibilities

Delayed Possession

     Several weeks ago, I attended a continuing education program sponsored by the Washington Realtors Association titled “Legal Symposium” where some of the top attorneys in the State presented various topics important to realtors.  One session was taught by an economist with one of the largest real estate firms in the country who’s presentation included some of the terms and conditions included in Offers to Purchase in various parts of the United States.  Not surprisingly, because how competitive the market is in Seattle, buyers in this market must submit some of the most aggressive Offers in the United States to be accepted by our local sellers.  Selecting a top real estate agent to draft an Offer to Purchase that is acceptable in this market is imperative.  And yet, the best terms and conditions may still be not enough.

     Before I get to Delayed Possession, let me tell you about the current status of the terms and conditions that are being negotiated in the Seattle market.  Approximately 30% of the Offers are all-cash, the buyer has cash in his/her accounts to purchase this property outright.  There are many Offers do not have financing contingencies but, request the ability to have the home appraised.    They’re actually financing a portion of the purchase price but, effectively have waived their financing contingency.  Most Offers do not have an inspection contingency.  They either have a copy of an inspection performed by the seller, do a pre-inspection prior to submitting an Offer or, assume the risks if the property requires future repairs.  Offers do not include Title Contingencies.  Many purchasers are making large non-refundable earnest money deposits upon Mutual Acceptance of the Offer or, within 24-48 hours of Mutual Acceptance.  Most Offers today include Escalation Clauses which increases the buyers original purchase price, if there is a competing Offer.  The list prices are usually increased by 5% to 15% in this market.

     Now, let’s get to Delayed Possession.  Because most sellers are also in the market to purchase another home, and the supply of inventory is so low, buyers are offering to purchase their home and allow the seller 30 to 60 days to stay in the home while they search for their next home.  If I’m a seller and I don’t currently have a home under contract, this allows me time to find something I like.  This scenario could be very problematic for the buyer.  I advise buyers to seek legal council to understand the pitfalls of Delayed Possession.  Seattle has some of the most tenant friendly regulations and it may take many, many months to evict someone currently occupying the home.

Class Action Lawsuits

     In early 2019 there were three class action lawsuits filed against the National Association of Realtors (NAR), large real estate firms and, several multiple listing services (MLS’s) seeking punitive damages on behalf of owners of homes who sold their homes through brokerage firms affiliated with NAR and the MLS’s.  In early 2021 there have been two class action lawsuits filed seeking punitive damages from NAR, large real estate firms, and several MLS’s seeking punitive damages on behalf of buyers of homes who purchased through those brokerage firms affiliated with NAR and those MLS’s.

      In the cases of the owners of homes, the suits were filed against these entities for “conspiring to require home sellers to pay the brokers representing the buyer, a buyers brokerage commission and, to pay an inflated amount.  They also contend that if the sellers negotiate a lower commission for the buyer’s agent, that agent may not show their homes to their buyers.  The plaintiff further contends that because the buyer engages their broker to represent them, the buyers should pay their broker.  This all stems from a NAR rule that requires brokerages affiliated with NAR and MLS’s to offer compensation to the buyers agent under what’s been termed the “Buyer Broker Commission Rule”.

     In the case of buyer of homes, the suits allege that buyers haven’t been informed of the commission amount their buyer’s agent would be receiving as part of the transaction and in some cases, because the seller pays the commission, buyers agents have told buyers that their services are free.

Seattle Rental Market

     Some landlords have been struggling over the last year as their tenants have become unemployed during the pandemic and unable to pay their rent.  The federal government along with many cities, including Seattle, have restricted landlords from evicting tenants for non-payment of rent.  At the same time, I don’t believe the banks have suspended the payment of the mortgage obligations by the owner nor have the cities and municipalities suspended the payment of real estate taxes.

     The rental housing market has softened in the Seattle Area in the last six months.  As leases have expired, some tenants have elected to move back home or consolidate their housing needs with friends and acquaintances.  I’ve seen more “For Rent” signs in the neighborhoods than I’ve ever seen before.  I personally know seven people, all renters, who recently moved or, are moving within the next 30 days.  And rental rates are dropping.  This may change as the economy improves but, as landlords struggle to collect rent while still paying their mortgages and taxes and rental rates drop, it’s likely that some of these properties will be sold in the coming months.

     I have an acquaintance who owns multiple rental properties around the University of Washington.  This past year has been devastating to him.  As you know, a large percentage of students have been learning from their parents’ homes and not returned to campus housing.  I expect there will be a fair number of students who adopt remote learning opportunities decreasing the number who return to campuses around the country.  Not only will this affect the housing market but, it’ll also affect the retailers who previously catered to the college students around campuses.

WA State Real Estate Forms

     Although somewhat boring in nature, the Northwest Multiple Listing Service (NWMLS) came out with some significate changes to the real estate forms brokers are required to utilize with their buyers and sellers.  Buyers and sellers in Washington rarely hire attorneys to review real estate contracts and rely on the expertise of their agents.  The recent changes to the forms makes it that much more important to engage the best real estate broker the buyers and sellers can find.  Don’t just engage your brother-in-law or, acquaintance to assist you with your purchase or sale.  Hire the best.

      Here’s one example:  If there is an escalation clause that increases the purchase price, the listing broker must present the competing offer along with the fully executed offer to purchase back to the buyer to reach mutual acceptance.  If the competing offer has been altered in any way or, the listing agent fails to include the competing offer, the purchase price will automatically be the original purchase price presented by the buyer, without any escalations.

     Here’s a second example:  If the buyer conducts an inspection and seeks to request repairs by the seller and communicates that by sending the inspection report to the seller without written permission, the buyer effectively has waived their inspection and cannot request seller to make any repairs.  If the buyer terminates the transaction because of the inspection, the buyer will lose their earnest money deposit.

     Here’s a third example:  If the seller fails to provide the buyer with a specific form, even though that form is not considered a part of the purchase and sale agreement, the buyer can terminate the transaction all the way up until closing and their earnest money will be returned to the buyer.

     There are many more changes to the real estate forms that could impact the buyers and sellers in a transaction.  Broker needs to be competent enough to understand those changes and use them properly to protect their clients, both buyers and sellers.

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

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

2021 Housing Predictions

     In an attempt to understand what the housing market may look like in 2021, I’ve viewed presentations from Matthew Gardner a regional residential economist, Gary Keller, the founder of the largest residential firm in the United States, and Barry Habib, a national residential economist. 

     Although each of these experts varied slightly, they all predicted a very competitive residential real estate market in 2021 and possibly, 2022.  They projected continued favorable interest rates for buyers and a lack of new inventory on the market.  These predictions are for the overall US housing market with exceptions in some hyper-local markets.  The overall belief is there will be somewhere around a 6% appreciation rate in 2021, which will be lower than 2020.

     The “Demand” for homes will remain high for several reasons.  First, household formations among Millennials has grown over the last few years, and will continue to do so, as that population reaches their early 30’s.  It’s estimated that 80% of Millennials with one or more children will be in the market to purchase their first home.  While the pandemic has seen a spike in unemployment, those over 35 years old had the lowest unemployment rate during this time period at just 6.8% and purchased 72% of the homes in 2020.  Second, interest rates are expected to go up slightly in mid-2021 and then drop back down again towards the end of the year.  If it hovers around 3.0%, there will continue to be a lot of buyers in the market.  Third, with companies requiring, or allowing, employees to “work from home” during the pandemic, and being productive, some employees are hoping to make this either permanent or part-time and are looking for a larger home to accommodate this additional workspace.

     The “Supply” of homes, the inventory of homes, will remain low in 2021 and 2022 resulting in escalating prices, why?  First, following the housing crisis of 2008-2009, many builders and skilled trades people got out of the business of building new homes.  Even though there has been solid demand in the market for new homes in the last several years, those builders who remained in the market, can’t keep up with the demand.  Most of the builders are building higher priced homes and not the smaller homes for the first-time home buyers.  Second, in 2020, during the pandemic, those older people who may have sold their homes and moved into congregate care facilities elected to stay in their homes and secured in-home assistance, when needed.  Third, because of the pandemic in 2020, there was a huge drop in housing permit applications around the country.  This means even fewer homes will be completed in 2020 and 2021 than anticipated.

Additional Down Payment

     Because of the low inventory and high demand for single-family homes in the Puget Sound Area we’re seeing a lot of homes being bid-up by buyers to well above the original list prices.  Last week, one of my agents lost out on a home that was listed for $800,000 and went under contract for $1.1M.  That’s 37% above list price.  One problem we’re having in the Puget Sound Area is that appraisers aren’t finding enough comparable sales to justify the high prices.  Sometimes their appraisals are coming in lower than the agreed purchase price.

     In the above example, if the appraised value came in at $950,000, the buyer could; (a) Terminate the Purchase and Sales Agreement, (b) Negotiate a new price with the seller and bring in the additional cash above the appraised value at Closing or just, (c) Bring the additional $150,000 in cash at Closing ($1.1M minus the $950,000 appraised value).  In this scenario, there are too many opportunities for either the buyer or seller to terminate the transaction.

     In Washington, we have an opportunity to negotiate, up-front, the additional dollar amount the buyer will bring in at Closing, if the appraised value is below the purchase price.  In the above scenario, if the buyer agrees to bring to Closing up to an additional $75,000, the seller may feel comfortable.  Sure, they only received $1.025M instead of the  $1.1M but, it’s likely the next buyer will also face the lower appraisal amount and the seller will then have to negotiate with the second buyer.

     If you would to learn how to incorporate this technique into your Offer to Purchase, contact me at smeyers@kw.com or (206) 972-3328.

Sale Price to List Price and Absorption Rates

In residential real estate you frequently find two calculations when looking at the health of the market.  The first calculation is the actual Sales Price (SP) divided by the List Price (LP).  The Northwest Multiple Listing Service (NWMLS) uses the most recent List Price in their calculation versus the original List Price.  I would content that the calculation should use the original List Price.  Here’s an example; the Sales Price was $500,000, the most recent List Price was $525,000, the original List Price was $575,000.  The NWMLS shows the Sales Price of $500,000 divided by the most recent List Price of $525,000.  The result would be a SP to LP ratio of 95.23%.  If you used the Sales Price of $500,000 and the original List Price of $575,000 the ratio would be 86.96%.  To me, the 86.96% is more accurate measure of the health of the market, assuming the Owner and Listing Agent properly priced the home when it was first listed.

If you’re following the residential real estate market in the Puget Sound Area you’ve heard stories about how single-family homes are flying off the shelf with multiple offers and selling above the List Price.  I attended a virtual meeting last week with Matthew Gardner, one of the top real estate economists in the Pacific Northwest, where he indicated the Puget Sound Area will continue to see competition in the single-family housing market.  Last weeks’ Weekly Newsletter by Kyle Bergquist, one of the leading residential lenders in the  Seattle Area, was title “Fasten Your Seatbelts”.  He goes on to state that single-family homes are selling 22.64% faster than this time last year and, inventory is 13.57% lower than this time last year.

The information above is for single-family homes.  Let me share some research I completed this morning about the condominium market in the Seattle Area, which is quite the opposite of the single-family home market.  In downtown Seattle (Area 701) there is 5.37 months of inventory available.  That means, at the current rate of absorption, without any new listings coming on the market, it’ll take 5.27 months to sell the current inventory. On Capital Hill (Area 390) there is 4.12 months of inventory available, On Queen Anne (Area 700) there is 3.92 months of inventory. In Ballard/Fremont (Area 705) there is 2.76 months of inventory.  These are higher than anyone has seen in 5 to 10 years.

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