Client Question of the Week: “I'm considering selling in the new year but I am seeing long market times in some newer buildings and that concerns me, I thought things were picking up and getting better for condo sellers in Seattle?”
Dear Scared To Sell:
This is a common question these days, and it comes down to a condo unit's ability to be purchased and the risks associated with its purchase. Condo ownership is a wonderful thing, but like any real estate purchase (house, townhome, land, floating home, etc.) there are risks to that investment. The newer buildings you are seeing with long market times likely are those in the middle of their warranty investigations or those in the various phases of litigation with their developers.
Unfortunately, this is common with new construction condominiums. Due to the Washington Condominium Act, which was intended, I think, to protect the condo buyer in new construction, developers of new condo buildings have to provide a warranty for certain aspects of a building's construction against defects. Sounds like a great thing right? Well, since our condo buildings are built by humans, none of them are built perfectly. So things do come up that need to be repaired, replaced, fixed etc. There are limits to how long an HOA can hold a builder/developer accountable for certain construction defects. I'm not an attorney so my specific knowledge is limited to the exact terms of the state statute, but basically what this results in with nearly every new condo building in our city, is that something in a building will result in a dispute on whose role or responsibility it is to fix it. If the HOA and the developer do not agree, a motion is filed by the HOA to protect their right to sue if they can't come to agreement.
Issues can range from water intrusion (leaks) into the building through windows or exterior vent louvers, to heating and air condition system issues, building ventilation, plumbing fittings and on and on. It happens in concrete and steel buildings, and it happens in wood framed condo buildings. It happens in tall ones and short ones, ones in Belltown, ones in South Lake Union, even ones in Capitol Hill, those with curtain wall exteriors, rain screen panels, or stucco type exteriors. I’m not an architect so forgive me if those exact terms are not technically correct, but you all get the idea, no building is really exempt.
Why longer market times in these buildings? Well, mortgage lenders avoid loans in buildings with pending litigation. This means that buyers wanting to purchase in buildings currently in litigation or in process of undergoing major repair after such litigation, either have to pay all cash, or find a lender willing to grant an exception which often means a substantial down payment of 20-30%. The majority of buyers do not have such funds, or they do not wish to purchase due to the unknown factors that surround the pending litigation, or they fear the building "wrap" that might be coming and the nuisance and inconvenience that goes along with that.
When you have fewer buyers able to put large chunks of money down or fewer buyers that are willing to buy because of the inconvenience and risk, then that equals longer market times in some buildings in my opinion.
Buildings currently in various states of either warranty investigation or pending litigation in Seattle are numerous. So we are seeing artificially heightened market times, in my opinion, in several buildings constructed since 2006. Buildings older than that have, for the most part, already gone through this. Once litigation in these post 2006 buildings is settled (which I hope for, for everyone's sake including the HOAs, the owners and the developers) you will see more inventory coming to the market place I believe, and likely if inventory levels are still low, you will see them move a bit quicker than they are now due to the factors above. There are many condo owners who need to sell for various reasons who will finally be able to do so once litigation and repairs are settled.
Additionally, it’s my belief, that since we are already in a low inventory market for condos in Seattle, buildings that are in litigation are further limiting supply. Therefore, in the meantime, if you are not in a building with this issue, it is quite possibly a great time to get on the market. From what I'm experiencing with both seller and buyer clients, there is limited competition if you are a condo seller, and lots of buyers looking and having a hard time finding condos that work for them. If pricing is appropriate, sellers are realistic, and the condo is presented and prepped well, units are indeed moving and competition for those units can be stiff because rates are still amazingly low and prices are still more affordable than they were pre-recession. There are a lot of people are trying to buy, even during this Holliday season.
So to answer the question asked by Mr. Scared to Sell is go for it, the market likely wants to see your condo in the New Year.
Stay tuned for more information for those considering selling in the New Year.
By Marco Kronen with Seattle Condo Review: A guide to Seattle Condos exclusively for buyers and sellers