Seattle Housing Buzz

Last week the state legislature overwhelming approved bill 2778 reforming the licensure of real estate agents. The bill now heads to the governor’s desk for signing. The bill, which strengthens consumer protections and professional accountability, received widespread support within the industry.

The core reforms include:

• Elimination of the real estate salesperson classification, leaving broker, managing broker and designated broker classifications.
• Amends the licensing and educational requirements for brokers to 90 hours. Essentially, the “new” broker designation replaces the “salesperson” classification which only required 60 clock-hours of education.
• Implements greater oversight of licensees.
• Requires a background check by the Washington State Patrol.

Once signed by the governor the bill will become effective July 1, 2010.

Personally, I’m all for this bill even though it should be tougher. There is a definite need to increase the educational and licensing requirements of real estate professionals in Washington State. The changes will help to assure consumers that individuals practicing real estate are qualified, above board, full-time business persons. It’ll eliminate the plethora of agents who aren’t committed to improving their own skill sets or who treat real estate as a hobby or second job.

Tags: Housing Legislation, Real Estate Legislation, Real Estate Licensing, Seattle Real Estate

1. Condo Conversion Bill, Senate Bill 6411

Per the Senate’s listserv notification I received, the February 5th Public Meeting on the bill was cancelled. It is not currently on the agenda for this coming week.

2. Reserve Accounts & Studies for Condominiums, House Subsitute Bill 2541, Senate Bill 6215

Authorizes condominium associations to conduct reserve studies and to establish a reserve fund. The bills have passed their respective houses and now move to the opposite house for consideration. A public hearing of the Senate’s version will be heard in the House on February 20th while a public hearing of the House’s version will be heard in the Senate on February 21st.

House Subsitute version summary:

• Requires a residential condominium association, unless doing so would impose an unreasonable hardship, to (1) prepare an initial reserve study based upon a visual site inspection conducted by a reserve study professional; (2) update the study annually; and (3) arrange for a visual site inspection every three years by a reserve study professional.
• Encourages, but does not require, a residential condominium association to establish a reserve account, supplemental to the association’s annual operating budget, to fund major maintenance, repair, and replacement of common elements.
• Requires a condominium public offering statement or resale certificate to include (1) a copy of the current reserve study, or (2) a disclosure to the potential buyer stating that the association does not have a reserve study.

Senate version summary:

• Condominium associations (association) are encouraged to establish a reserve fund account to pay for major repairs or replacement of common elements. An association may withdraw funds from the reserve account for unforeseen expenses, as long as notice is given to unit owners, and a repayment schedule is set up.
• Associations must conduct and update reserve studies annually. The initial study and the study done each third-year thereafter must be conducted by a reserve study professional. Reserve studies must include detailed information on projected expenditures and current reserve account information.
• If an association has not conducted a reserve study prepared by a professional in the past three years, one may be demanded if 20 percent or more of the unit owners agree. An association may refuse the demand if conducting the study would impose an unreasonable economic hardship on the association. An unreasonable hardship exists if preparing the study would cost more than 10 percent of the association’s annual budget.
• Public offering statements and seller’s disclosures must include either: (1) a copy of the association’s current reserve study; or (2) a disclosure informing the buyer that there is no current reserve study and the possible risks that the buyer faces because of the lack of a current study.

3. Seller’s Disclosure Statement Revision, House Bill 2894

The bill amends the Seller’s Disclosure Statement, Form 17, to include wood burning appliances. The bill passed the House and has moved to the Senate. A public hearing as been scheduled in the Senate on February 22nd.

Tags: Condo Conversion, Condo Reserve Study, Housing Legislation, Real Estate Legislation, Seller Disclosure Form

The Seattle PI reported that Governor Gregoire signed into law a $1.5 million bill that’ll provide counseling to at-risk homeowners.

The money will go to agencies that counsel people facing foreclosures, as the governor tries to curtail effects of the mortgage loan crisis hitting the nation and the state. The bill signed Monday also will pay for a free number for people to call for help. The number, 1-877-894-HOME, will be operating in about two weeks.

Tags: Foreclosure, Foreclosure Counseling

This morning the State House convened to review the condo conversion bill (HB 2014) which passed its third reading by a vote of 94 to 1. The House version of the bill:

• Extends the notification period from 90 days to 120 days.
• Authorizes a city or county government to require developers to provide relocation assistance to low-income tenants in an amount to be determined by the city or county government. Currently, the state requires a $500 relocation assistance payment to low-income tenants.
• Prohibits construction within the 120 day notification. Though, construction may begin earlier provided the developer waits at least 12 hours after the last tenant vacates.
• Authorizes cities & counties to restrict the number of conversions.

On the other side of the aisle the State Senate will hold a public hearing on Tuesday, February 5th at 1:30 PM at 1:30 PM on January 22nd. The senate’s version (SB6411):

• Extends the notification period from 90 days to 180 days.
• Provides that notice of any county or city relocation assistance programs must be expressly stated to tenants.
• Requires developers to pay relocation assistance in an amount determined by city or county ordinance.
• Provides that the amount of relocation assistance may be adjusted annually.
• Allow developers to begin limited construction/remodeling within the 180 day notification period only if all tenants have vacated or if they provide written waivers to the developer.
• Authorizes cities & counties to restrict the number of conversions.

I have been in favor of some sort of change to the current requirements - 90 days notice and $500 towards low-income tenants - which is hardly anything. The cost to move and secure a new place to live is considerably more than $500. And, if you’re not low-income, you get nothing. But, I’m a little skeptical about placing limits on conversions. I’m a firm believer that the market will self-correct and adjust accordingly. And, it has.

1. “Repartmenting”

In the past six months, the slowing condo market has taken its toll in Seattle. At least three heavily promoted conversion projects have reverted, or repartmented, back to apartments. These include the Max in Greenwood as well as the Strata and Gables in West Seattle.

2. Repurposing

Another trend that we’re now seeing in Seattle is the repurposing of condominium projects to apartments. The most recent example was Expo62 in lower Queen Anne. However, it wasn’t the only one. The Landes on First Hill and the Chloe on Capitol Hill, both originally planned as condos, will be developed at apartments.

Also, there is speculation that more are on the way such as the recent announcement that the Domaine project on Queen Anne is currently up for sale as an apartment complex.

3. Constructing

Often overlooked is the new apartment boom that’s occurring in the Emerald City. Several high-rise apartment buildings are presently under construction or in development in downtown. These include The Olivian at 8th and Olive, Kinects on Minor at Stewart, the Aspira at Stewart & Terry as well as three additional high-rises on 2nd & Virginia and 3rd & Virginia, a twin-tower development at 6th & Lenora, and the massive 500+ unit 1200 Stewart project.

A number of smaller apartment projects are under construction around the Seattle Center including The Borealis (Denny & Dexter), Taylor 28 (Taylor & Denny) and the Bernard (Warren & John).

In the north end, The Tyee is currently under construction across from Green Lake, which joins the large apartment projects planned for the old Vitamilk (The Park 71) and Albertson’s (Alexan Green Lake) lots. And, in Greenwood, the old Leilani Lanes parcel is expected to be developed as apartments as well.

Capitol Hill will also see new rental inventory with the Packard (12th & Pine), The Pearl (15th & Madison) and the Agnes Lofts (12th & Pike). Additionally, two large apartment projects are planned on Broadway at Pine Street and the old QFC lot.

4. Fundless
The mortgage meltown and the evolving housing market have combined to dry up funding for conversions. Many developers, as reported by the Daily Journal of Commerce, are finding it difficult to obtain financing for conversions. Lenders are realizing that conversions are now too risky to fund. The heyday of mass conversions that we’ve experienced between 2005 and 2007 has passed.

The heart of the bills are necessary, namely the parts that softens the stress of displacement and provides relocation assistance for tenants. Though, artificially constricting conversions, which provide first-time homeownership opportunities, on the basis of a declining rental stock is simply unnecessary. Clearly, the market has adjusted as witnessed by the more than 1,000+ new apartment homes being built. The new apartments aren’t just for the wealthy, either. A number of projects are aimed towards the affordable apartment housing market.

Tags: Apartments, Condo Conversion, Seattle, Seattle Condos

The condo conversion bill that was given a last chance two weeks ago in the Senate has finally met its end…at least for this legislative session. Supporters of the bill, including both the Senate and House, should use the off season to plan a concerted effort for the next legislative session.

Related SHB Articles:

• Condo Conversion Bill Reprieve
• Compromise Be Damned
• Condo Conversion Makeover

What seemed dead a few weeks ago is being given a second chance. The Senate has attached the condo conversion bill to another affordable housing measure. If passed, it will go into House-Senate reconciliation as the House’s version of the affordable housing measure does not include the conversion bill.

However, the Senate’s version of the the condo conversion bill (SB 5031) is far more restrictive than the earlier compromised bill in the House (SHB 2014). Under the Senate’s bill:

• Eliminates the $500 cap on relocation assistance, allowing municipalities to set their own limits
• Requires a 120 day notice to tenants (currently 90 days)
• Developers many not begin construction during the 120 notice period or until the last tenant moves out

The bill does not include a conversion cap which the bill’s sponsor and tenant advocates were pushing for.

I, for one, am relieved the conversion cap was not included. You don’t fix one issue (tenant displacement) by hampering another (reducing the availability of affordable housing with a cap). Conversions, as a whole, have provided many first-time buyers the opportunity for homeownership. This is a good thing.

Now, I don’t work with conversion developers, but the restriction on construction seems draconian. I can understand it adds to the stress of the current tenants but it only serves to ultimately impact the cost of the conversion, and thus, increasing the sales price for buyers, many of whom are first-time homebuyers.

I’m not unsympathetic to tenants. In fact, I applaud the legislature in taking action. I’ve been a tenant far longer than I’ve been a homeowner.

I was displaced by a landlord who only gave me one-month’s rent worth of relocation assistance (he sold the property). Not enough to cover the costs of moving and acquiring another rental. I also lived in an apartment that was converted to condos. These things are part of life. And, that provided me the impetus to take matters into my own hands and become a homeowner.

Though, there is a need to help those who don’t have many options. Increasing the relocation assistance amount as well as helping tenants relocate, I think, are more useful remedies than placing a cap on conversions or limiting developers from beginning construction work.

The vote for the condo-conversion bill, with support from various stakeholders, did not come to be. Frank Chopp, Speaker of the House, wouldn’t allow the bill to come to the floor for a vote, per the PI. Apparently, it didn’t make the cut off date to pass legislation. Read the full article - Efforts to protect tenants fail.

Recently, Seattle and much of the its Puget Sound neighbors have seen a proliferation of condo conversions. This has been a boon to first-time home buyers as conversions have been among the most, if not only, affordable in-city housing available.

The media, of course, focuses on the negative aspects of conversions - the displacement of tenants, particularly the elderly and low-income tenants. And, they have a point. Current laws only require developers to provide a 90 day notice, and for low-income tenants, $500 towards moving costs.

That imagery and special interest groups help get several bills into the legislature this year. I favor more compensation to displaced tenants but the early version of the bills were drastic - increased assistance payments to $2,500, implemented conversion caps, increased the notification period to 120 days, and banned construction work during the 120 day notification period.

According to the Seattle PI, the legislature and community interests have come to a compromise on legislation to place restrictions on condo conversions. The compromised version is watered down from the initial bills but still provides more assistance to dislocated tenants. Some of the changes include:

• Caps required payments to no more than 3 months rent (currently $500)
• Allows certain cities & counties to cap conversions if rental vacancy rates fall below 5% & with a net loss of rentals the previous 12 months
• Allows cities & counties to increase required payments to elderly & special needs tenants

For more info: Substitue House Bill 2014 & Substitute Senate Bill 5031

Related post: Cost of Conversions

The Washington State Office of the Insurance Commissioner (OIC) released a report on the use of inducements and incentives by Title Insurance companies operating in Washington. The OIC’s investigation found a number of Title companies that use these methods to steer business to their respective companies. The beneficiaries of these inducements are, for the most part, real estate agents.

The full report can be found on the OIC’s website or clicking here (PDF). Under state law, companies may provide incentives up to $25 per person per year. The report found, however, that several companies routinely exceed this amount, sometimes by thousands of dollars. Unfortunately, per an OIC press release, the OIC will not pursue enforcement or punishment of the wrong doers. Instead, they will implement an educational campaign. I think that’s a wrong decision. Certainly, addressing the problems and educating Title company personnel is the right step forward, but blanket forgiving serious violators sends the wrong message. Without enforcement the rules are meaningless.

Fortunately, these types of inducements are also regulated and enforced on the federal level via the Real Estate Settlement Procedures Act (RESPA). RESPA has teeth and resources that the OIC lacks, so I would hope that they would look into the violations identified by the OIC and issue appropriate remedies.

The question, then, as an agent, have I benefited through such incentives and inducements? I have never received a kickback, a free lunch, a trip or tickets to a sporting event. But, there has been occassions where a title company representative provided bagels at a staff meeting or bought a cup of joe. In that respects, then, yes I’ve benefited, but they’ve been well under the $25 limit.

John L. Scott, along with a few other real estate companies share ownership in a title company, however, I do not include that company when providing clients a list of suggested title companies. When requested, I provide clients with recommendations for mortgage lenders, escrow and title services. However, I base my recommendations on the professionalism of those individuals, their knowledge and their ability to manage & close the transaction smoothly. That, to me, is far more valuable than a double tall mocha.

Kickbacks, rebates, incentives and inducements are serious issues in this industry. Violations increase negative perceptions which hurts the industry as a whole and provides unfair competition, especially when a few agents receive substantial subsidies at the expense of consumers. To that end, I support any steps that’ll clean up this practice.

A while back I wrote a post about the human cost of conversions with the new owner/developers only needing to provide 90 days notice and $500 to displaced tenants. It looks like the increasing number of conversions, and thus, more displaced tenants, who undoubtedly are unable to afford to purchase the snazzy conversions, are getting noticed by the politicos. From the PI’s Forced Out Tenants article:

(State Senator) Fairley’s plan would ban construction, remodeling or repairs during the required advance notice period for conversion or until at least 12 hours after the last tenant moved out. It also would increase the minimum payment to $2,500, then adjust it each year for inflation.

It would allow cities to cap the number of apartments that could be converted to condos each year and extend the notice period from 90 to 120 days.

I personally don’t fully support the current proposal, but I applaud steps to protect tenants and to fairly compensate them when they’re displaced due to a conversion. Conversions, after all, is a business venture so it does need to be economically feasible to the developer and to provide needed housing units for would-be home owners.