Real Estate appraisers are required to indicate on their appraisals whether the subject property is located in a declining market.  And we have a few in the area, particularly in South King County and Tacoma.

Declining real estate markets are rated Categories 1-5, just like a hurricane.  Categories 1-3 indicate a moderately declining market.  A category 4 or 5 is sort of like Hurricane Katrina.  We do not have any category 4 or 5 neighborhoods in our area so far, but we do have some 3′s.

If a property is declared to be in a declining category, the lender may reduce the maximum financing available by 5%.  That means a borrower who was planning on a 5% down payment may find out at the last minute that he needs to make a 10% down payment instead!

As loan officers, we are usually the bearers of bad news, and must spend quite a bit of time educating buyers, sellers and refinancers that the market is not where it was a year ago, or even six months ago.

Will our real estate market recover?  I think so.  But it could get a bit worse before it gets better.

This updated and funky 1 bedroom, 1 bath unit in Magnolia will have you feeling like you’re in Morocco or Thailand instead of Seattle, except for the stunning view from the full length picture window reminding you that you’re surrounded by trees and mountains instead of sand.  Beautiful stainless steel appliance upgrades including a stylishly sculptured kitchen hood.  Durable Marmoleum flooring in the kitchen and a rich stained bamboo floating floor in the dining, living, and bedroom areas. Gorgeous new lighting with antiqued bronze finish and an earthy, yet warm, update to the bathroom including gorgeous tile work in the shower.  Add to all this lovely living  space a dual access deck (with a storage unit) where you can sit and enjoy beautiful sunsets on warm summer evenings – inside you’ll enjoy those same colors of warm oranges, pinks, and reds all year round.  -  Price point is expected to be below $300,000

Located on the east side of Magnolia this condo has easy access to downtown Seattle, Ballard, Fremont, South Lake Union and Queen Anne.  Not to mention proximity to one of Seattle’s great parks – Discovery Park on the bluffs of Magnolia. Nearby eateries include Red Mill Burgers (yum!), Mulleady’s Irish Pub, Chinooks, and more.

Next year, over a Trillion dollars of Intermediate-term adjustable rate mortgage will have their initial interest rates adjust! Is now the time to cut off your arm? Maybe, but maybe not.

The key to this question is finding out exactly what your arm will do when it adjusts.

To help determine this, a few definitions are in order:

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• Index: This is the basis for determining the interest rate. The most common indices are the 1-year Treasury Index, Libor Index, Cost of Funds Index and MTA (monthly treasury index).
• Margin: The margin is a percentage added to the Index to determine your interest rate. Index + Margin = Interest Rate.
• First Adjustment Cap: This cap limits the amount the interest rate can change at it’s very first adjustment.
• Annual Rate Cap: This limits how much the rate change year over year, after the first adjustment.
• Lifetime Rate Cap: This limits how much the rate can change over the life of the loan.

When your arm rate adjusts, it will be based on the index + margin, subject to the caps. For example, say you have a 5/1 arm adjusting next year. You have been locked-in at a phenomenal 4% rate over the past five years. Your loan has a Libor Index with a 2.25% margin, a 2% first-adjustment cap and a 2% annual cap. If the Libor index were around 5% at the time of adjustment, your new rate after adjustment would only be 6%! That’s lower than today’s prevailing 30 year fixed rates.<!–[if !supportLists]–><!–[endif]–><!–[if !supportLists]–><!–[if !supportLists]–><!–[if !supportLists]–><!–[endif]–>

Huh? Let me explain:

Your rate is the sum of the Index + Margin, subject to caps. So a Libor index of 5% plus 2.25% = 7.25%. But in this example, your loan has a 2% first adjustment cap. So if the initial rate were 4%, the highest the rate could go at the first adjustment is 6% because it is limited by the 2% cap.

But what if your loan had a first-adjustment cap of 5% (as many do)? Then your rate would adjust to 7.25% (Index of 5% + 2.25% margin).

Should I refinance now? I would say that depends on how much your first-adjustment cap is. If you have a 2% cap, you’re probably not in any immediate danger of a whopping jump. But if your first-adjustment cap is higher, you may want to step up the process.

If I let my rate adjust, how is my payment calculated? When your rate adjusts, your new monthly payment will be calculated on the new rate, the remaining term of the loan, and the remaining balance of your loan. If you have paid down the principal balance on your loan, your payment may not jump as much as you think!

Eric’s Rate Forecast: All of the turbulence in the financial markets may have a silver lining. The slowdown in the national real estate market combined with market instability has increased the possibility of an economic slowdown or even a recession next year. Interest rate follow the economy, so there is a growing probability that we will see interest rates decrease over the next year.

If we’re lucky, rates will look very favorable at just about the time you need to decide whether to refinance or to hang on to your arm.

So take a closer look at your arm. It may not be broken after all!

I found out the hard way that there are times when a tenant, former owner, or contractor might use a key to get into a property to steal. My last trip to Wichita, KS included a theft (actually 2) from my apartment.

The stumping part was the question of “who did it?”  I had put a contractor keybox on the property to facilitate a plumber and an electrician getting access to the building so as not to bother my brother (local property manager for me) with constant trips out to the property.  I’d commented to both contractors that I wanted to make sure their staff didn’t get lazy about changing the code on the keybox daily.  Reason being, I’ve been to too many work sites where keyboxes are left on the key code which makes for some very easy work for a thief.  Well, that may have been exactly what happened and I believe it was a possible tenant I am in a dispute with that used the key to access my unit when they knew I wasn’t home.  There also is a long history of criminal behavior with this tenant’s boyfriend.  I lost a briefcase, a checkbook, some personal photos, CDs and a wallet.  Believe me, it’s been a pain dealing with the aftermath along with the fear at the time I wouldn’t be able to get on my flight home since my ID was taken.

One of the contractors did tell me, when I asked, that on one of the days they were at my place they did come to work and find the keybox on the code, so it’s very possible that what I believe happened really did.  Plus, there was no forced entry into my unit – and there is no other access besides the doors and windows (some people imagined a break-in through the crawl space or attic).

Anyhow, when I reported the thefts to the police the officer I spoke to encouraged me to go get a new lock immediately.  I did and it was installed immediately.  Having never changed a lock before on my own I was a little concerned about screwing it up but I think I did okay.  However, if I’d had Chris Weissman available I would have had him come to re-key my whole building.  Chris and I were introduced when he and his girlfriend bought a house through me last year.  Chris has his own locksmith business and you can find him at his new website: http://www.wiselocks.com/  Chris can do standard locks as well as high security locks; he has also worked with many commercial accounts as well.  Check him out.  We’ve had him on our Team Reba site for a while as a resource but the website is new.

If you’re buying a home or a rental property I highly recommend that you get into the habit of changing locks.  If you have several rental properties you can hold onto swapped out locks and after a time begin cycling them through various properties. My parents have done this for years with the multiple properties they’ve owned and it’s been a successful move on their part.

In fact, Washington has just recently passed an offender re-entry housing law under HB 6157 that will impact landlord’s liability for renting property to past offenders.

Sections of this bill show the potential of liability being removed from the landlord BUT ONLY IF the landlord follows certain procedures.  The full details are in the RHA newsletter publication dated in August 2007, Vol XXI, No. 8, Section A but I’ll paraphrase here by saying that basically you have to disclose to residents in your building that you have a policy of renting to offenders and that you must take steps to report or halt any criminal activity you have knowledge of on your property premises.  You can contact Alice Bartley of RHA (publications@rha-ps.com) to see if she has extra copies of this newsletter available.

One way you can opt out of some of this potential for liability is to have a “no felony” policy as part of your rental screening process.  There are several ways that you can screen prospective tenants and one of them is to do a background check for criminal history. In the Puget Sound area you can sign up as a member of Rental Housing Association of Puget Sound (www.RHA-PS.com) and get access to their tenant screening services which can include background as well as credit checks.  You can also check for sex offenders online at this website.  Even if you don’t sign up for RHA, it’s worth your time and money to do some research, but I HIGHLY recommend people get involved in organizations like RHA because they keep you informed and they also lobby regularly on behalf of landlord rights.

In Wichita, KS you can go online to this website for the KASPER search they have available.  (KASPER stands for Kansas Adult Supervised Population Electronic Repository.)  Apparently it is the “friendly ghost” for landlords and perhaps anyone meeting and dating online.   I found the boyfriend of one of my KS tenants on this website – she’s been letting him stay at my property (this started prior to my purchase of the building) but they are moving out as of the end of this month.  Good.  And Goodbye.

If you are a person looking to buy rental property I would recommend that you ask the seller if they have ALL the records for the tenant screening processes that they’ve used in the past to provide during your inspection process and not just the lease records. You will want to know if there are known felons living on the premises especially if you’ll be responsible for possible liabilities due to a tenant’s bad behavior and a new owner must meet the terms of a lease agreement if it is still in place when buying a property.

Another area where I wonder how it will play out over time is that in residential units (1-4 in WA) the State’s required Seller Disclosure Form has a notice stating that sellers need not disclose if there are sex offenders living near their home.  If the home is used as rental property, and a known sex offender is renting at the property, will the seller need to disclose it?

 I see three levels of possible improvement:

1. Basic Techniques
2. Intermediate Techniques
3. Just Hire a Professional

1. Basic techniques include putting your camera on a tripod.  Not only does this keep the camera steady so you can use longer exposures (and not use flash), but it slows you down so you can look more closely at what you are taking a picture of and ask yourself if it’s the best shot. 

Almost as important is using a basic leveling device.  I use the sliding part of a combination square that includes a level.  It has the ability to level the camera horizontally as well as vertically.  Leveling your camera keeps all the lines in the picture straight up-and-down and improves the perspective of the image.

 2. Intermediate techniques would include moving up to a Digital SLR (DSLR) with a wider range of lenses.  Small point-and-shoot cameras have a max wide angle at about 22-30 mm.  This isn’t enough to get decent shots of small spaces like bathrooms.  Most DSLR models have an imaging sensor that is smaller than a standard 35mm film frame.  Because of this a lens made for 35mm film won’t give the same angle-of-view on most DSLR’s.  There are many lenses now made for the small format sensors so be sure you know what you have and what you are buying.

After a DSLR would be off-camera flashes.  You could get one or multiple and position them around the room to better illuminate the space. 

Then there is always software.  Taking multiple exposures and merging them together in a photo-editing package can produce some truly nice results.

 3. Just hire a professional.  This is where I come in. I bring the first two levels and then some to the table.  I throw in powerful studio-flash units when needed, light modification devices and advanced Photoshop techniques.   Of course I have a full-frame DSLR and special lenses that can shift the image in my camera up or down depending on the situation.  This is especially handy for exteriors of tall buildings or getting interesting down-angles in a room without having to compromise the vertical lines in the image.

 The first level is very cheap and easy to attain and anyone can do that.  The second level takes a little more cash and does have a steeper learning curve.  The third level is going to be more expensive, but you can focus on selling rather than photography.

 Scott Chytil   http://www.chytilphoto.com

I got a notice the other day, and I’ve had a client receive one before too, asking me to check the model and serial number on my dishwasher to see if it might be one of those that has had problems.

“What is the problem they are concerned with”, you ask?  Well, it seems that some liquid rinse-aid products build up a residue on the wires inside the door which can degrade the insulation of the wiring. This in turn has caused electrical shorts and fires in some of their products.

My client’s dishwasher ended up not being one of those on the recall list.  However, my was.  The good news for me is that I don’t use any rinse-aid products so the recall won’t necessarily apply to me.  It does put me on notice that I shouldn’t use the rinse-aid in the future though.

I’m wondering how people are supposed to notify purchasers of their homes about product recalls like this when they sell?  The notice from GE says that if you’re the owner of one of these dishwashers and you cannot attest to whether or not the former owner used rinse-aids, then you should repair or replace the dishwasher. 

Anyone else have comments on how they would do it?  For my own home, I’m thinking about taping a copy of the notice inside the cabinet under my kitchen sink and making a note that I don’t use rinse-aids and then perhaps keeping a copy with all of my other appliance manuals.

If you’ve got rentals with dishwashers you should be sure to check them as well as your own home’s dishwasher.

What happens during the actual process is this:

1.  A listing agent might order a “preliminary title policy” which allows the listing agent and the seller to review what items are noted that affect the property from a title aspect.  Hopefully these people will actually review the document and make sure there are no outstanding items or at the very least begin to work on clearing any issues.

2. When an offer is secured on the property then either one of the agents (listing or buying) will update the title to show the buyer’s info and the sale amount. Title policy prices are based on the value of the property and not just on the type of coverage supplied. By updating the title, this will trigger the title company to send out a copy of the title report, and hopefully any underlying documents that may be part of the title report, to the buyer’s agent and their buyer client.

I’ve noticed that a lot of people, including some agents, don’t know how to read these documents when they arrive.  In fact, I’ve had the odd experience in my broker’s office once of saying to the staff, “oh, good, the title report’s here” only to be told that this was a shocking statement.  I asked what people normally did with these reports and was told that most agents just throw them away. YIPES!  Over time I’ve also found that some title companies are better about sending copies of the reports directly to the buyer client than others.  We always ask for a report to be sent to me and one to my clients but this is often missed.  Regardless of a title contingency element being in a contract you still want to review the report to make sure no items may come up that will affect “marketable title” since it is still a contractual element for closing.

3. If items are noted that are of concern then, if a title contingency is in place, the buyer may make a formal request to have certain items removed or cleared from title.  Even if there isn’t a contingency any items impacting the title need to be cleared by closing (as noted above).

What are some typical items you might see?

mechanic’s liens (workman or construction place a lien for payment of a bill)

utility or tax liens (could be from non-payment or deferred payments if a senior discount was given)

if it’s an estate, perhaps payment of medical care that was provided by the state or there may be other claims on the home from other family members.

easements (be careful with some of these – I had one bite me in the butt with a neighbor who tore up my yard during his house sale) – it’s always best to read what the easement is for and who is responsible for paying the costs of upkeep, replacement, etc.

Covenants, conditions & restrictions (aka CC&Rs) – usually when the property is part of homeowner association and can affect single family homes, townhomes, and condos.

This list isn’t exhaustive but can begin to help you understand that you need to be aware of the issues involved.  When you have questions always feel free to call your agent or the title company for help in understanding what you’re reading and how it affects you, if at all.

The area of possible goat-munching possibilities is an area where the City of Seattle owns the land, it’s a dead-end street in Phinney Ridge, but they don’t do any maintenance on it.  My longtime neighbor who has been cutting back the blackberry bushes for the past 30 years is selling his house now and I am concerned that the brush, morning glories, and other weeds will take over permanently and become too much for us to handle if the new potential owners aren’t as into yard work as this neighbor was. My partner, Michael, went out 2 weekends ago and cut back a 3 foot swath (but over many feet long) so that our own plantings wouldn’t be obscured and wiped out, but I’m sure that it will grow back quickly.

The Seattle Times had an article in Sunday’s paper showing the UW maintenance crew using Rent-A-Ruminant to clear out ivy and blackberries from areas of campus that would be too difficult for humans to do safely. I’ve gotta get me one of those goats!   There is plenty to eat for a few days down in that gully.  You can find Rent-A-Ruminant and other grazing alternatives in several states at this website.