How to buy a home in Seattle area’s Goldilocks market

Charming Craftsman bungalows dot Seattle’s beloved Green Lake neighborhood. One house for sale there is a delightful 1917 example of the form with a low-pitched gabled roof and white wooden columns embracing a small front porch.

The house is also directly across the street from Interstate 5, on the other side of the freeway’s sound barrier wall. But that didn’t stop 14 people from making offers to buy the bungalow. The 1,400-square-foot home sold this month for $908,000 — well over the $800,000 asking price.

About 2 miles west of that bungalow, there is a 1940s house in Fremont that is not getting that kind of love. It has advantages over the hot home: more square footage plus a noise level that is not “extreme” as the King County assessor describes the Green Lake bungalow. But the Fremont house wasn’t stem-to-stern remodeled. It sat for a month and sold for almost $30,000 under its $925,000 list price.

In Issaquah, a Northwest contemporary got 12 offers and sold for $155,000 over the $1.4 million list price, and buyers waived every contingency.

In Maple Valley, another Northwest contemporary on a one-third-acre lot backing up the Cedar River Trail was listed for $625,000 in August and was still for sale in February.

What’s going on? We talked to people who are in the trenches right now — buyers, real estate agents, economists and mortgage brokers from around the Seattle area — to help house hunters get a bead on today’s murky and mercurial market.

Cold market heating up?

Last spring when mortgage rates began to climb, a standoff started between sellers who want yesterday’s prices and buyers who want yesterday’s interest rates. Almost all sales stopped.

“In April last year, home sales peaked, but rates were already rising. Between May and October home values in Seattle went down 10%,” said Taylor Marr, Redfin deputy chief economist.

Marr said January 2023 was another inflection point. Mortgage rates were coming down: The average rate fell to a five-month low, inching down to 6% in February, according to Freddie Mac.

“Now buyers are coming out,” Marr said. “If a home is priced conservatively, there are many offers.”

The challenge for buyers is a lack of homes for sale. The inventory was already tight before sellers got what Marr called “mortgage lock.” For now, potential sellers with 3% fixed rates are staying put.

Get a grip on your finances

Still interested in house hunting? The first thing you will need to buy a house in Bellevue or Bothell or Ballard is a big pile of cash. This is for the down payment and closing costs.

There are programs that allow you to put as little as 0% down, and we’ll talk about those later. But for the most sought-after single-family homes in popular neighborhoods, sellers want to see bigger down payments.

The median buyer in Seattle-Bellevue-Tacoma during the third quarter of 2022 paid 17% of the home price for a down payment, or roughly $121,000, according to mortgage tracking company ATTOM Data Solutions.

In the olden days, which is to say the 1990s, $120,000 could buy you a whole house. (In 1993, the $908,000 bungalow sold for $121,000!)

Where do folks come up with that chunk of change for a down payment? Many have cash from a prior home sale, others rely on gifts from family, and tech workers have raided their vested stock stockpile. However, Marr said that’s happening to a lesser extent lately since the value of tech stocks has dropped dramatically.

Find an experienced local mortgage broker

If you find yourself in a bidding war, a local mortgage broker (as opposed to a big bank) can make all the difference, according to Bellevue Windermere real estate broker Erin Hoppe. But they must be good.

“When an offer comes with a prequalification letter from a lender with a bad reputation, that has made me pause and share that info with the seller,” Hoppe said. “The seller wants to accept the offer that has a high probability of closing without issues.”

Jeff Bell, president of Upwell Mortgage in Bellevue, recommended that “noncash buyers go through the full approval process before seriously shopping for a home.” And yes, that’s about as fun as it sounds.

“This means they would complete an application and provide supporting income and asset documentation. With that information, the lender can provide the buyer numbers they can rely upon when shopping,” Bell said.

As much as we all love to dream, Bell said, this step “helps ensure neither the agent nor the borrower are wasting time looking in the wrong price range.”

Look beyond the avocado shag

Twenty years ago, when Amber Bills started selling real estate in Maple Valley, most homes weren’t shined up and staged, she said. Now we expect camera-ready perfection.

“Buyers have become pickier. We say in our office, ‘Where is the picky meter now?’ Buyers have become more selective. But if they are only looking at homes that are completely remodeled, they are missing opportunities.”

Ingrid and Stuart McPeak had been watching Maple Valley real estate since 2020 when a job transfer forced them to move away from the community their whole family loved.

“Maple Valley is one of those secrets,” Ingrid said. “One of those places where the community is watching out for each other, and kids can play outside.”

When they started looking at houses again, the couple found prices had gone up. They considered building. Those prices were higher. Then Bills showed them a 1997 home in their perfect neighborhood. The well-cared-for three-bedroom contemporary wasn’t professionally staged, was all original and had been sitting since August. The McPeaks stepped into the void and bought the house for a bit under its $625,000 asking price.

Get a buyer’s agent

When it comes to finding an agent, Seattle broker Christopher Cornett with Coldwell Banker Bain said house hunters should interview at least three candidates and ask if they are familiar with the neighborhood where they want to buy.

“It’s a red flag if agents say they are experts on every neighborhood from Seattle to Redmond,” Cornett said. “That isn’t possible.”

Who is going to pay for local expertise? The standard practice is that the seller pays the commission of both the listing agent and the buyer’s agent.

Find the deals

Looking for value? Try this. Go to Zillow or Redfin and draw a line around all of Seattle and the Eastside. Go to the “more” tab and choose homes that have been listed for 12 months. What pops up are properties that are lingering: most are new construction, especially townhomes and condos — in particular downtown and in Belltown.

“Condos are a huge pocket of value right now,” said Seattle Redfin agent Shoshana Godwin. “Offices haven’t opened up fully. As that changes, condo prices will go up.”

You also have options all over the Seattle area, where town houses and detached box houses that were once under construction are finished now. And there are more about to hit the market.

“In Kirkland, a new construction home listed for $1.6 million sold for $1.4 million,” said Marr, adding that the builder kicked in $80,000 in closing costs. “For builders with inventory sitting there, they need to come up with deals.”
That is especially true when it comes to town houses, according to real estate agent Godwin.

“Town houses — that’s the only thing we are building. The way they are built on odd-sized lots, like Tetris pieces, it’s sometimes challenging for buyers to find what fits them. But there is room for negotiation and value there.”

Help for first-time buyers

An FHA loan is insured by the federal government and has more flexible underwriting standards than conventional loans. For a first-time buyer, the FHA allows you to put 3.5% down. Veterans may qualify for VA-backed loans with no down payment. But that may not be enough to prevail when a house has competition.

For assistance with a substantial down payment, check out the Washington State Housing Finance Commission, which offers down payment loans that average about $10,000 for families who make $180,000 a year or less, have a credit score of at least 620 and use the commission’s mortgage programs. The loans are deferred, meaning you don’t have to repay until your mortgage is paid off — or you sell.

The Seattle Down Payment Assistance Program allows up to $55,000 in down payment assistance for qualified borrowers purchasing within the city limits.
For people of limited means, a community land trust like Homestead in Seattle develops housing that is much more affordable than the open market, but also controls the price a homeowner can ask for when they sell. There is a community land trust in San Juan County, the most unaffordable place in Washington, that barged in homes that were going to be torn down in Victoria, B.C., to become affordable housing.

Sit this one out?

Does all this strategizing and economic uncertainty make you want to press pause on the home hunt? Or at least take a nap? You have validation on high from Steven Bourassa, director of the Washington Center for Real Estate Research at the University of Washington.

“The current trend is downwards,” Bourassa said. “Do you want to buy a house when prices are going down? Probably not.”

This may be a four-letter word in an article focused on buying a house, but you could continue to rent. In the greater Seattle-Tacoma-Bellevue metro area, the cost to own is roughly 20% higher than renting as of November 2022 according to the U.S. News Housing Market Index

“Let’s say you could afford to buy or to rent. If you buy, you put all your money into the house,” Bourassa said. “If you rent you put some of your cash toward rent and invest the rest. You come out better if you rent in Seattle.”

Ingrid McPeak has another viewpoint, one that is more than dollars and cents. She isn’t worried about whether the home she and her husband are buying loses value in the short term. Because they’re going to be in Maple Valley for a while.

“The location is fantastic backing up to the Cedar River Trail,” Ingrid said. “This is my retirement home. When I can’t drive anymore, I’m going to go out in my walker on the trail.”

This story was updated to clarify that Amber Bills started her real estate career not her company 20 years ago.

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