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    First Time Home Buyers Guide

    The Seattle real estate market has certainly been on a wild roller coaster ride over the last ten years.  We saw as much as 15% appreciation in a year to 25% to 35% depreciation from 2007 through 2010.  So the idea of home ownership being a safe investment has certainly been challenged since 2008. 

    Today however housing in Seattle are the most affordable they have been in decades if you are taking advantage of today record low mortgage rates and home prices that are back at about 2004 levels.  This does not mean however that buying the right home at the right price is a slam-dunk.

    For the first time homebuyer the following are 10 things that you need to consider before you buy:

    1. Know actually what you can afford vs. what you qualify for.
    2. Determine a short-term plan (5 years) and a long-term plan (10 years).
    3. Find the right Seattle real estate agent to represent you in the transaction.
    4. Understand what is the best neighborhood or the top three or four Seattle neighborhoods that will work best for you.
    5. Find the best mortgage consultant that not only has good mortgage rates but excellent customer service as well.
    6. Make a list of what you want vs. what you actually need.
    7. Understand that you will always need to make some compromises in what you want vs. what you need and determine which things you may be willing to give up.
    8. You need to understand the currant real estate market conditions. Remember that the news media is usually three month behind what is actually happening.
    9. Set realistic expectations for yourself.
    10. Be patient; remember that finding the right home can take time, sometimes several months. So don’t just go out and buy the best available if it’s not the right home.

    #1 Know actually what you can afford vs. what you qualify for.

    Mortgage rates are at historic lows today but you can be sure they will rise eventually. This impending rise in mortgage rates may not happen for another 6-8 months or until the housing market strengthens more across the country. It’s important to understand that what you can afford may not always be what you are comfortable with paying. If you are married you may want to see what both individuals qualify for on just one persons income then compare what you can buy at both mortgage levels. It is critical that you establish realistic expectations from the beginning of the buying process and it can be quite a process, especially for the first time home buyer. In almost every situation, however, some compromise is necessary.

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    #2 Determine a short-term plan (5 years) and a long-term plan (10 years).

    You’ll 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 would be wise not to overpay for the property. Also, some style of homes and some parts of every neighborhood will give you better resale value. Things like this 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.

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    #3 Find the right Seattle real estate agent to represent you in the transaction.

    Good agents possess a very strong sense of the Seattle real estate market and are attuned to its nuances and subtle changes. Their approach to their clients needs are well thought out and documented. Of course, I think I’m a great buyers agents, but I also realize I may not be right for everyone.

    Here are a few things that I would do if I were to hire an agent: I would only work with agents that have been in the business for at least seven to 10 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. I would call the three top companies in the area and talk with the Designated Broker to ask who their top agents are, and who really specializes in buyer agency. I think it is important to work with agents who both list properties and represent buyers, because they have a fuller view of the market. I would then interview the agents to choose whom we think best understands my needs and who would best represent me. And if I were a first time buyer, I would choose an agent that was patient and really understands the buying process for the first time buyer, as it is very different from someone that is buying his or her third or fourth home. I would also want an agent that understand all the various Seattle neighborhoods and has a track record of selling homes all over the city. I believe that the agent that is the neighborhood specialist isn’t the best for the first time homebuyer. Many times a buyer will find the right home in one of three or four areas that work for them. I 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 very large sum of money would you do it without good honest advice and guidance?

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    #4 Understand what is the best neighborhood or the top three or four Seattle neighborhoods that will work best for you.

    First time home buyers and buyers from out of the area many times research Seattle neighborhoods and sometime make decisions on where they want to live base on what they have read on the internet. While sometimes this is the case many other times people end up buying in a neighborhood that initially rule out. What I have found over the many years of working with buyers is that there can be several neighborhoods that may work for a buyer. Therefore I believe it very important to understand the total Seattle/Bellevue market not just a portion of it. Also when you are selling a home it’s important for your agent to look at comparable homes in other similar neighborhoods as part of the pricing formula.

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    #5 Find the best mortgage consultant that not only has good mortgage rates but excellent customer service as well.

    Finding a good lender is an important part of the buyer team you assemble. Most top buyer agents have two or three quality lenders they work with regularly. I prefer what are called correspondent lenders. A correspondent lender actually funds the loan with their own money and they sell the loan after the sale closes. Some banks also do home loans that they portfolio, meaning they keep the loan in house instead of selling it. I use two correspondent lenders and one major bank that I work with most often. What a buyer needs to be cautious of are some internet lenders. While I have had some very good experiences with Internet lenders there are as many nightmare stories.

    One big misunderstanding about lenders is that current interest rates they may quote can change. Mortgage rates can and do change daily or even hourly so a quote you get from one company in the morning may not be the same as a quote you get from another company later in the day or week. In the end most rates are pretty close so it’s important to work with a lender that will give you excellent service.

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    #6 Make a list of what you want vs. what you actually need.

    #7 Understand that you will always need to make some compromises in what you want vs. what you need and determine which things you may be willing to give up.

    This is a great exercise to do even if this is the 5th house you are buying. What I have found over the many years of working with buyers is that there is always a compromise regardless of the price range. I’ve sold 5 million dollar homes and $130, 000 condos, and there are always things you don’t get that you thought you wanted. Start out by making a list of things that you absolutely need and can’t live without and be realistic. Then make a list of the things that you would like. Your agent should be able to show you homes so that you will get a very good idea of what those things will cost in a home. Then sometimes I find that it’s better to give up a few things that you would like in order to get a better location for example.

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    #8 You need to understand the currant real estate market conditions. Remember that the news media is usually three month behind what is actually happening.

    Understand the current real estate market at the time you are planning on buying can be critical to your success in finding the right home. For example after the real estate bubble burst in Seattle in 2007 we have seen falling home prices. Then in the last year 2010-2011 the media has been telling us the median home prices in King county are still falling. For some areas that is true but for most of the close-in Seattle and Bellevue neighborhoods prices have actually been very stable. Then all of a sudden in the 2012 we started seeing multiple offers on homes brought on by very low home inventories. So as the bidding wars started to be published by the media many people got the idea that prices were actually going up and going up fast. That was not the case however. We have seen moderate price increases or appreciation in 2012 but not really that much. Lets look at an example that I hope will illustrate exactly what I’m saying: I just sold a home on the Eastside and there were 6 offers on a $500,000 home. Now in 2005, 2006 and for most of 2007 this home would have been bid up by as much as $75,000. Today the winning bid was just $15,000 over asking. If you work with a agent that doesn’t understand the market extremely well you stand the chance of not getting the perfect home or paying too much for it.

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    #9 Set realistic expectations for yourself.

    Being realistic from the beginning will make the buying process not only successful, but less stressful, actually a lot of fun, and a great learning experience. Find out what you can afford and what you are comfortable paying a month. Then understand what kind of home you can buy for that money and in which neighborhoods. Then don’t go out and look at homes that are way over your price range or expect to buy a $700,000 home for $500,000…it’s not going to happen.

    Also, be careful of the lure of a short sale which some buyers think, “we can get those for a lot less.” That’s not necessarily true. First of all, only about 50% of short sales in our region actually close and it usually takes about 4 months to find out that the bank won’t accept your offer. Banks have a good idea of what fair market value is for the home, and a short sale offer needs to be very close to the market value in order for the bank to accept the offer and go to closing. Short sales in 2008 and 2009 could be purchased at a fairly good price, unfortunately that isn’t the case very often in today’s market.

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    #10 Be patient; remember that finding the right home can take time, sometimes several months. So don’t just go out and buy the best available if it’s not the right home.

    Be patient. Something I learned in my past life while running several offices across the country was to never just hire the best person of the 4 or 5 I interviewed unless they were the right person. The same is even more true for buying homes. In Seattle today we have very low inventory levels. What I have told many of my clients is that for every 10 listings, there may be only one or two good homes to buy. First time homebuyers, you need to understand what I call the “bones” of a home, and how well a home was originally built. This is very important as many homes are nicely fixed up but are only cosmetically appealing and lack good structure or “bones.” These homes do not usually live well; they don’t resell as well and don’t hold their value very well and usually need more maintenance and are sometime very hard or more expensive to remodel. A good buyers agent will show you what to look for in a home to know if it’s a good home and a good investment.

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