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Arlington Is Running Out Of Homes For Sale

Question: We have been searching for a home for over 6 months and have expanded both our criteria and budget, but still not finding something we like. We have heard that the housing supply is low, is that true for Arlington?

Answer: The housing supply shortage in Arlington is a big problem and it’s not just Arlington that is feeling the pain, it’s most of Northern VA and the greater DC Metro (nationwide as well).

You’re not alone in your experience either, we have a handful of clients who have been looking for the better part of a year while also expanding their search area and budget, but unhappy with what’s available.

So, is the housing shortage mostly anecdotal and buyers are just too picky or to cheap? Nope… here are some charts that highlight the alarmingly low housing inventory in Arlington:

Eight Consecutive Quarters of Fewer Homes For Sale, Year over Year (YoY)

After seven straight quarters of YoY decreases in the number of homes for sale, Q1 2018 brought us the largest drop in YoY homes for sale with 21.1% fewer homes for sale than Q1 2017, which was already 7.2% lower than the number of homes for sale in Q1 2016. The chart below represents all homes for sale in Arlington.

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Existing Housing Supply Would Only Last 1.5 Months

Months of supply measures how long the existing housing inventory would last given the last 6 months of demands (absorption). Most economists say that 4-6 months of supply represents a well balance housing market and Arlington has hovered around 1.5 months of supply for the last 6 months.

I broke out the chart below by housing type (detached, townhouse, and condo) to highlight the fact that the problem exists across all housing types, but town-homes have historically been the least supplied type of housing in Arlington.

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Good Homes Are Selling Much Faster

This chart shows the YoY change in the number of homes sold within the first 10 days on market, which has increased the last six quarters in a row. There was an impressive 53.4% YoY increase from Q1 2016 to Q1 2017, followed by yet another double digit increase in homes sold within the first 10 days from Q1 2017 to Q1 2018.

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The $1M+ Home Market Is Healthy

The only sub-market in Arlington with a healthy supply are homes listed for over $1M, with around four months of supply, while everything priced from $300k-$800k is under one month of supply.

However, the $1M+ sub-market is only “healthy” on paper, take a deeper look and you’ll see two major problems (cue comments that the problem with $1M+ homes is that they are $1M+). First, most of those homes are actually $1.5M-$2M and second, most of those homes are tear down/new construction with very similar size and design, leaving wealthy buyers who don’t like new construction with very few options.

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Tips For Buyers

Here are some tips for buyers searching for hard-to-find homes in a tough market:

  • There are few, if any, great deals in an under-supplied market. In this market, good value is finding a home that meets most of your criteria, that you’ll be happy in, that you can afford.
  • If you want to negotiate, your best bet is to find something that has been on market for at least 2-3 weeks otherwise you’ll accumulate more rejected offers than homes currently on the market
  • Put in the time early in your search to understand the market so you can recognize the right home when it comes on market
  • Base your offer on what the home is worth to you, not just the asking price
  • Understand how Escalation Clauses work and use them to your advantage
  • Find out if there are offer deadlines (usually the Monday or Tuesday following the first day on market)
  • Understand the cost-benefit of contingencies (inspection, financing, appraisal are the standard contingencies) and how you can maximize the strength of your offer with limited risk exposure
  • Consider doing a pre-inspection — a home inspection before you make your offer
  • Have a strong financing approval letter from a reputable lender

A lot of readers have reservations about the value real estate agents provide in buying or selling homes, but without coming off as too much of a salesman for my industry, difficult markets like this are where having a strong agent makes a big difference. Not just somebody to open doors for you and draft a contract, but somebody who understands your needs that you trust to advise you on making the right offer, at the right time.

If you have an agent you trust, rely on them. If you’re looking for somebody, I’m available every day of the week to talk or meet, just send me an email at Eli@EliResidential.com and I’ll be happy to help.

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Business Improvement Districts (BIDs) Play Critical Role In Arlington

Question: What is the role of Business Improvement Districts in Arlington?

Answer: The Business Improvement Districts (BID) of RosslynBallston and Crystal Citydeserve much of the credit for turning these neighborhoods from convenient places to work to lively, family-friendly places to live.

Funded primarily by businesses located in the neighborhoods they represent, BIDs are an important bridge between residents, businesses and local government. Homeowners located in or near any of these BIDs can thank their leadership teams for increasing the value of their homes.

 

As a long-time Rosslyn resident, I have watched as Mary-Claire Burick and her team at the Rosslyn BID have transformed Rosslyn over the last five years.

I reached out to her for an interview to answer some questions about the role of BIDs in the community and how residents can take advantage of their influence on local government and business investment. Thank you Mary-Claire!

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What is the role of a BID, and what role does the Rosslyn BID play in the community?

Business Improvement Districts are nimble organizations that wear a lot of different hats. In Rosslyn, we work on urban planning, transportation and business and community engagement, just to name a few.

But I think one of the most important roles that we play is that of a convener who brings together the perspectives of various stakeholders in our neighborhood –including residents, businesses and county officials — to advance initiatives that will help our community continue to thrive.

We are in constant conversation with folks on the street, in our restaurants and in our business community to better understand not only what they love about Rosslyn but also what they want to see improved.

How does the Rosslyn BID engage with residents and visitors? 

As I mentioned, community engagement is one of our top priorities.

Probably our most visible presence on a daily basis is our Rosslyn Ambassadors Program. Our team is out on the street five days a week helping residents and visitors with directions and working to ensure our sidewalk and public areas are safe and clean. Be sure to say hello when you see them around the neighborhood in their purple shirts.

Our events are another important way that we connect and engage with area residents. In 2017, around 40,000 people attended more than 160 events that we hosted ranging from our popular Rosslyn Jazz Fest and Rosslyn Cinema series to lunchtime fitness sessions and pop-up concerts. Each one of these events represents a touch point for our team to engage with residents and employees in our region, and for interaction between these groups.

It’s that sense of community that these events help build that makes them so impactful.

What have been some of the BID’s most successful events?

Last year’s Rosslyn Jazz Fest was an incredible experience.

That event alone brought nearly 10,000 people to Gateway Park on one day, which was a record for us. The Rosslyn Cinema has long been a neighborhood favorite. Last summer, more than 20,000 people came out to catch their favorite movie. And it may surprise you, but Rosslyn is the largest pit stop for Bike to Work Day in all of D.C., Maryland and Virginia.

In 2018, we will continue to host these popular events, but are also introducing new activities and expanding others.

One example is the Rosslyn Farmers’ Market, which occurs weekly during the summer in Central Place Plaza. We’ve worked with FRESHFARM to introduce a new FRESHFARM Share program, similar to a community supported agriculture (CSA) program, to help bring more healthy food to Rosslyn residents and businesses.

I’d also like to point out that these events have a wider purpose and impact. They help bring thousands of visitors to Rosslyn who could one day be residents or tenants. And there’s an economic impact–restaurants and retail in Rosslyn usually see a boost in sales and exposure.

Some of the other local BIDs are Crystal City, Ballston and Georgetown. What are some of the most significant benefits of a community having a BID? Does a BID make sense for every community? 

From my perspective, there are a lot of benefits that a community can realize from having a BID. But simply having a BID alone isn’t enough. It’s important for all of the stakeholders to have a clear vision for what they want to accomplish, and to ensure a BID has the resources and buy-in to help realize that vision.

A BID with a distinct mission can be a leading driver of change for a community, serving as a liaison between government, businesses and residents. Residents, in particular, have a real opportunity to utilize BIDs to help create a viable, economically sustainable community that reflects their vision of the neighborhood.

How have new restaurants and retail spaces helped change Rosslyn? Are there any openings you are particularly excited about?

Restaurants and retail have been a critical part of Rosslyn’s transformation from a commercial area to a more vibrant, urban, mixed-use area. Between 2015 and 2017, 17 new restaurants opened in Rosslyn, adding to the more than 65 restaurants, cafés and markets within a ten-minute walk of the Rosslyn Metro. We’ve also seen more restaurants and bars staying open later, like Barley Mac, Quinn’s on the Corner and Continental.

This year, we’re looking forward to the continued evolution of Central Place, which is bringing multiple new restaurant offerings to the heart of Rosslyn. I think folks are going to be really excited to hear what they have in the pipeline.

We are also excited for the Central Place Observation Deck, opening this summer. This 12,000 square-foot-space will offer an unparalleled view of the Mall and the U.S. Capitol. Offering snacks and light fare, the Observation Deck will be the perfect place to bring out-of-town friends, a date or a colleague for an after work drink.

How can residents get involved with their local BID? 

Residents should utilize their local BIDs to advocate for what they would like to see in their community. Remember, a BID is there to serve the needs of a neighborhood’s residents as well as its businesses and visitors.

Residents can also get involved with their local BID by attending events, participating in community meetings and providing feedback on BID activities. Depending on an individual’s local BID, there may be opportunities to volunteer or be a community ambassador.

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Arlington Single-Family Home Rental Market

Question: Can you follow-up on last week’s column about condo/townhouse rentals with an analysis on the single-family home rental market in Arlington?

Answer: Thank you to ARLnow commenter Southy4Life for requesting that I follow-up last week’s analysis of the condo/townhouse rental market with a similar analysis of the single-family home (SFH) rental market.

The good news for those looking closely at the rental stats in Arlington is that the majority of SFH rentals are represented in the MLS data presented below, as opposed to a large percentage of condo/apartment rentals not represented in my data last week because most are handled outside of the MLS (commercial rentals, direct landlord-to-tenant).

Five Year Trends

Just like the condo rental market, there has been very little appreciation in rental rates in Arlington’s SFH home rates, until 2017, which saw a noticeable jump led by 22207, 22205 and 22203.

This doesn’t correlate to what we saw in the sales market from 2016 to 2017 so admittedly I don’t know why these three zip codes saw substantial rental growth, while the rest of the Arlington market remained relatively unchanged.

Below is a summary of the average cost of renting a SFH in each Arlington zip code over the last five years. 22206 and 22209 were removed for lack of SFH rental data points.

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Bedroom Breakdown

Below is a table of all 3-5 bedroom SFH rentals in Arlington since 2016, broken out by bedroom count and zip code, with rentals in 22206 and 22209 removed for lack of data points.

Key Findings:

  • The most expensive home rented was a 7BR/7+BA home on Arlington Ridge Rd for $12,000/mon and the least expensive home rented was a 2BR/1BA home in Columbia Forest for $1,595/mon
  • It costs about 20% more to go from three bedrooms to four, 25% more to jump from four bedrooms to five
  • If you’re renting a SFH in Arlington, expect to take 5-6 weeks to find your tenant and be prepared to discount your rate by 2-3% from what you’re asking
  • For families looking to rent a home in some of Arlington’s top-rated schools, the 22205 zip code is a great value
  • 75% of SFH offered for rent allowed pets, but only 28 had fully fenced yards
  • On average SFH for rent were built in 1950 and the average lot size was just over 10,000sqft (1/4 acre)
  • Only 49 SFH homes offered for rent were built in the last ten years
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Our team is happy to assist you with rentals, whether you’re a renter or landlord, so feel free to reach out if you need assistance with either! We are happy to put together more specific, personalized data tables for your as well.

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Arlington Rental Market

Question: I am moving to Arlington from out of town and not yet ready to buy. I’ve heard the rental market is high in the DC area and wondering approximately how much it costs per bedroom to rent in Arlington.

Answer: I spend a lot of time in this column talking about buying and selling homes in Arlington, but about 54% of the County is renters, so as we head into the busiest rental months, I thought it’d be appropriate to share some helpful statistics on the cost of renting in Arlington.

For the most part, renters tend to be more focused on functional space to meet immediate needs, so I like the idea of using cost per bedroom on rentals more than I do for ownership.

The good news for renters is that developers have added thousands of new rental units over the last 5 years, particularly 1-2 bedroom units in the popular metro areas of the Rosslyn-Ballston corridor and Crystal/Pentagon City. While the cost of these newer units has increased, it’s kept the cost of renting condos and townhouses from owners pretty stable (or down).

The data I pulled below is primarily made up of non-commercial rental units (condos and townhouses owned by individuals) and restricted to units leased through the MLS (agent database), so only included a portion of the total rental activity in Arlington. I also excluded single family homes from the dataset.

Key Findings:

  • It costs about 40% more to rent a third bedroom than it does to rent a second bedroom
  • Rents have not gone up for one bedroom units, and have only increased about $100/month for two and three bedroom units
  • Most rental units are on the market for 6-7 weeks before being rented
  • There’s not nearly as much negotiating on rentals as there is purchases, with only about 1% or less negotiated off the asking price, on average
  • The least expensive rentals are in the 22204 zip code because there are not any walkable metro stations and the housing inventory tends to be substantially older
  • 22204 is the only zip code where the average rent of a two bedroom is under $2,000/mon and one of only two zip codes (22206) with an average rent under $3,000 for a three bedroom
  • 22209 is the most expensive zip code to rent by a wide margin due to the fact that it hosts two of the most expensive buildings in the DC Metro in Turnberry Tower and Waterview, as well as a host of other high-end buildings. It claims this top spot, despite also hosting one of the least expensive communities in Arlington, River Place.

 

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One tip I’m happy to share with renters is that there’s rarely a better deal in the market than the deal you get being the first person to rent a unit in a new commercial rental building. The incentives they offer on the first lease usually include 1-2 months free rent, a period of free parking, and sometimes other fees discounted or removed (e.g. pet fee, move-in fee, etc). However, you should prepare for rents to increase substantially if you want to continue renting after your original lease expires.

Our team is happy to assist you with rentals, whether you’re a renter or landlord, so feel free to reach out if you need assistance with either!

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Impact Of Lower GreatSchools Rankings On Your Home Value

Question: Do you think the recent changes to the rankings of Arlington schools on GreatSchools.org will have an impact on home values?

Answer: Sometime in the last few months, GreatSchools.org quietly changed their school ranking criteria, which resulted in a drop in every high school and middle school in Arlington by 1-2 points (10 point scale).

The two biggest K-12 public school ranking websites in the US are Niche.com and GreatSchools.org with about 6M and 4M monthly visits, respectively (SchoolDigger is a distant third with about 500k).

In my experience, buyers in the DC Metro rely more heavily on GreatSchools because Niche lacks differentiation between schools (everybody is a winner). The change in Arlington County Public Schools rankings on GreatSchools is worth noting and I suspect that it will have a negative impact on the housing market.

GreatSchools’ Explanation

In the About section of GreatSchools, they explain the changes in their grading criteria with the following: “In the past, the overall GreatSchools Rating in most states was based on test scores.

In some states*, the GreatSchools Rating was also based on student progress (or “growth”) and college readiness data (SAT/ACT participation and/or performance and/or graduation rates).

Our school profiles now include important information in addition to test scores — factors that make a big difference in how children experience school, such as how much a school helps students improve academically, how well a school supports students from different socioeconomic, racial and ethnic groups, and whether or not some groups of students are disproportionately affected by the school’s discipline and attendance policies.

Many of these important themes now have their own rating, and these themed ratings are incorporated into the school’s overall GreatSchools Summary Rating.”

Old vs New Rankings

Below is a table showing the before and after scores for all Arlington County middle and high schools, as well as a limited set of Fairfax County/Falls Church middle and high schools (the ones I had documented scores for before the change).

All “old” scores are as of Fall 2017. Note that my request to GreatSchools for the “old” scores for all Northern VA/DC Metro schools was denied.

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Why It Does/Doesn’t Matter

I’d be lying if I told you I knew what the impact will be to Arlington home prices and demand, but I think a negative impact will be felt to some degree.

Schools are at the top of many buyers’ criteria list and most of those buyers, whether they’re local or relocating into the area, set a minimum score for the school boundaries they’ll purchase a home in and rely on GreatSchools for their data.

Below are some points I came up with for why it may or may not have an impact on the housing market:

  • It Doesn’t: It appears the majority of public schools in Northern VA were reduced by 1-2 points on GreatSchools, so buyers are still as likely to choose Arlington as they have always been. The alternatives have not improved.
  • It Does: While the reduction of most school scores in Northern VA may not change where or what people buy, the lower scores may decrease overall demand in Northern VA housing and result in less motivated buyers.
  • It Does: I don’ know if Montgomery County and Northwest DC public schools saw similar changes, but if they did not, we may lose buyers to those jurisdictions because their relative value has increased.
  • It Doesn’t: Arlington County Public Schools are still ranked the #1 school system in the state.
  • It Doesn’t: It doesn’t appear that Niche.com has introduced any changes and Yorktown and Washington-Lee are ranked an A+ and Wakefield is ranked an A on that site.
  • It Does: Could the fact that Arlington’s highest ranking high school is now a 5 impact the decisions of employers considering a move to the DC Metro?

I have no doubt that over the course of 2018 I will have local and out-of-town buyers tell me they do not want to purchase a home in Arlington because it has poorly rated (high) schools.

For me and my colleagues who know Arlington, we will point them towards resources that show how great the entire ACPS system is. However, if you recall from my column in July 2017, about half of the agents who closed a deal in Arlington only had one or two transactions here, meaning that agents who don’t know Arlington well are unlikely to have the appropriate background to give their clients better guidance about our schools.

What To Do?

GreatSchools.org wields a lot of power over home values across the country and the drop in our ratings is frustrating, but just like a bad Yelp review for a restaurant, we have to acknowledge the change and find ways to offset it by making it easy for buyers to find more favorable information.

I’d love to hear from readers in the comment section who purchased or are in the process of buying a home in Arlington, who placed a lot of weight in the GreatSchools rankings – how would these changes have impacted your decision when you bought or how are these changes impacting your current purchase strategy?

If you would like to discuss how the new GreatSchool rankings impact your upcoming plans to purchase or sell a home in Arlington, feel free to reach out to me at Eli@EliResidential.com to set-up some time to meet.

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Arlington Condo Becomes First To Ban Smoking

I am very excited to share with the readers that the Hyde Park Condominium at 4141 N. Henderson Rd, just a few blocks south of the Ballston Metro, successfully voted to change the by-laws to ban smoking in units and on balconies, as well as the already established ban in common areas!

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In July 2016, I wrote an article about banning smoking in condos and the reaction from readers both in the comment section and in email exchanges afterwards clearly showed how many condo owners wanted to ban smoking in their buildings.

It is a challenge that only a few Boards have taken on and none have been successful in the way Hyde Park has.

I’d like to congratulate the Hyde Park Board and its residents on a job well done and hopefully paving the way for many more buildings to ban smoking inside and outside of private units in the near future. I firmly believe that this type of ban in condos will increase property values both near and long term.

I’d like to thank Greg Hunter Esq, a local attorney and the Hyde Park Covenants Chair who led the ban, for agreeing to write a column explaining how they accomplished the ban, lessons learned, and other experiences over the last few years.

Below is what Greg wanted to share with the ARLnow readers. It is not intended to be an official statement from Hyde Park.

Hyde Park Smoking Ban, Greg Hunter Esq.

The owners of the Hyde Park Condominium recently passed a bylaw amendment to ban smoking in every part of the property, including private units and balconies.

With over 300 residential units and several ground-level commercial suites, Hyde Park is the first condominium in Arlington to successfully amend their bylaws to go smoke-free.

With the new bylaw, smoking is now banned in every part of Hyde Park, including outdoor areas, private homes and on balconies. There is a limited and non-transferable right for current unit owners to continue to smoke in their own units (grandfather clause), but not on their balconies.

Why A Bylaw Amendment?

Passing a bylaw amendment was not our original goal.

In an ideal world, everyone could live as they wish; any one of us could, if we so desired, smoke cigarettes or rehearse with our metal band or keep peacocks on the balcony and it wouldn’t bother anyone else.

At Hyde Park however, and I suspect every other condominium in the world, one person’s right to enjoy herself does not allow her to annoy her neighbors. We tried a lot of things to solve the problem without a bylaw amendment, including banning smoking in common areas and improving the ventilation systems, but in the end the only effective option we had was a bylaw amendment.

How Did Hyde Park Get There?

After hearing complaints about smoking for years we took a poll in 2014, asking all residents — owners and renters — to answer a few questions about their attitudes toward smoking.

We put a short poll card in every mail box and got a tremendous response, with over 80% of our residents responding. Our results were interesting — an overwhelming majority of residents reported that they really didn’t like second hand smoke and only a few residents reported having one or more smokers living in their unit, but the only thing a majority would support was a new rule to ban smoking in all common areas; only about 20% of residents supported passing a bylaw at the time.

Since smoking had long since been banned in all of the indoor common areas, we passed a new rule in 2015 to ban smoking in all of the outdoor common areas. “No Smoking” signs went up in the garage and around the property.

At the same time, our engineer and maintenance staff made improvements and repairs to the HVAC system and used a lot of sealants to try and keep air from passing from one unit to another, with little success preventing smoke from traveling between units.

The most important development from those early efforts was educational — nearly everyone at Hyde Park was against having second-hand smoke waft into their unit, but very few of us understood just how many of our neighbors felt the same way until we saw the poll results.

After about a year with the new rule, more and more residents asked about passing a bylaw at each monthly board meeting, so we took another poll in 2016. Knowing that we would need an affirmative vote from more than 66.67% of the total ownership, we only polled unit owners, the people who could actually vote.

Once again we got a tremendous response, with about 60% of resident and non-resident owners returning a poll card; about 80% of the resident owners and 75% of the non-resident owners expressed support for a bylaw. With strong grass-roots support, and little success from anything else we tried, we held several meetings and drafted a bylaw amendment proposal.

Over the winter and spring of 2017, we held public meetings, answered every question we heard and edited our draft amendment to reflect what a majority of the ownership wanted. Our draft amendment went to the Association’s counsel, back to us for review, back to counsel and finally to the Board.

They voted to approve the text of the proposed bylaw amendment and set a voting schedule for later in the year. A package was prepared for every unit owner with a letter from the President of the Association, a copy of the proposed amendment (a “consent form”), and answers to nearly every question we got in our three years of meetings.

The Board gave us 90 days to get the vote in and we managed to get over 68% of the ownership – about 220 units – to sign their forms before New Year’s Eve. From there, the consent forms went to our counsel for review, and within a few days our President was able to file the bylaw amendment with the Arlington County Circuit Court.

Questions And Advice?

Polling is important. Without the poll results many unit owners will not be comfortable with the idea of voting for a bylaw amendment, and without strong support there is no reason to take on all of the work.

It’s not a vote in the traditional sense. The law requires that at least 66.67% of the total ownership sign documents that show their consent to the amendment, and the votes are weighted by each owner’s percentage of the total ownership – this is a property record your neighbors are going to be able to see.

While you have to do what you can to preserve owners’ privacy, there’s no hiding from the results. Eventually any unit owner can know how anyone else voted, pro or con.

It’s also not an election in the traditional sense. There’s no question that smokers are a small minority in Arlington, especially in expensive condominiums.

We live in a county where smoking is illegal in every shop, office, store, restaurant, bar, classroom, theater, museum, bus station, airport, subway train, taxicab and outdoor parks, with little complaint. A strong majority of your ownership is going to support this, and very few people will be against it. T

he real question is whether you can get more than 2/3 of the ownership to sign the paper. It’s really more of a bookkeeping exercise. It’s also important to note that a an abstention or non-vote has the same effect as a “no” vote. 2/3 of the ownership must actually vote “yes” for the bylaw amendment to pass.

To some people, it will look like you’re piling on. To get the votes we needed, we tried everything we could think of. Small groups of supporters set up a table in the lobby several times to try and get a few votes, individual unit owners recruited and cajoled friends and neighbors around the building, personal notes were sent to every unit owner who hadn’t yet voted and more than a few nerves were frayed.

Having done this once it’s clear to all of us at Hyde Park just how burdensome the 66.67% requirement is; if you’re serious about this you’re going to have to do everything you can to get votes in, and some people are going to be perturbed.

There is a generational difference in how people view smoking. We have younger smokers who voted in favor of the amendment because they understand how offensive and toxic second-hand smoke is and they don’t want to impose on their neighbors or deal with anyone else’s smoke.

At the same time, we have older residents who don’t smoke (and non-resident owners who don’t allow their renters to smoke) who grew up in a world where smoking was allowed nearly everywhere and thought the bylaw amendment was a terrible idea.

One of our residents did some research that was very helpful in our efforts. The 2010 Census reflects that the number of Americans who smoke continues to decline and that Arlingtonians smoke at a much lower rate than the national average.

All of the Realtors we spoke with agreed that non-smokers outnumber smokers in the condominium market by an even larger margin, maybe as high as 19 to 1. At the same time, even as the number of rental buildings and condominium communities goes up each year, the number of rental apartments and condominiums where smoking is allowed actually shrinks.

There were approximately 32,000 rental units in Arlington County when we started this process, with about 8,000 of those units in condominiums. As commercial landlords like JBG Smith and Equity continue to ban smoking in their properties the smokers looking for apartments have to rent in condominiums.

And as new condominium communities are either LEED-certified or start out with smoke-free covenants, both renters and condominium buyers who smoke have to look to existing condominium communities rather than new buildings. Smokers may be less than 10% of the people looking to buy or rent a condo in Arlington, but if they can’t rent in commercial properties or buy in new buildings the existing condominiums are going to have more smokers looking to move in.

Hyde Park was the first condominium community in Arlington to ban smoking with a bylaw, but we’re not going to be the last.

Greg, thank you very much for such an informative write-up on the smoking ban. If anybody would like to follow-up with Greg to learn more about his experience over the last 3+ years leading this effort, please reach out to me at Eli@EliResidential.com, and I’d be happy to make an introduction.

I would also encourage other condo owners and Board members to use the comments section to share how smoking bans have been discussed within your communities and whether Hyde Park’s success may help your Board move forward with a similar effort.

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Is The Market Off to a Hot Start?

Question: I’ve submitted two offers on home this year and both times lost to multiple offers. Is this normal or is the market more competitive this year?

Answer: 2018 has been a good year for sellers and a frustrating one for buyers already. Generally, I don’t start seeing multiple offer deals until late February/early March, when it starts to warm up and days get longer.

However, about 80% of the listing and purchase deals I’ve been on this year have ended up with multiple offers. I even had a listing that had been on market for three months receive three offers in one weekend. My colleagues who work in new construction and generally have the best pulse on market pace have also been surprised by the amount of activity this early.

Here are some numbers in Arlington from January to back up the anecdotal evidence of a hot market:

  • Supply Down, Demand Up: Monthly of supply measures how long it would take to sell all existing inventory at the current market pace (supply and demand) is down 21% YoY and at its lowest levels (1.31 months of supply) since March 2013 (1.22 months of supply)
  • More Homes Under Contract: Over 200 homes went under contract in January (215) for the first time since 2012 (219)
  • Homes Under Contract Faster: Of the 119 homes that were listed and went under contract in January 2018, 69% went under contract within one week. Over the last five years, 49% of homes listed and under contract in January went under contract within one week.
  • Average Number Of New Listings: The amount of new homes listed on market in January 2018 (234) is about average for what we’ve seen over the last decade
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Advice For Buyers

Periods of low inventory and high demand can be frustrating for buyers, so here are a few tips for buyers to create leverage for themselves without simply paying more:

  • Quality Of Lender: Have a pre-approval letter from a strong local lender who has review all relevant documents, not just somebody who checks credit score and asks for basic financial information. A strong lender letter gives the seller confidence you will close on the home on time, without complications.
  • Contingencies: Consider giving up your right to request repairs and credits after the home inspection and using a Pass/Fail contingency instead. This shows that you’re not interested in nickel and diming a seller, but just want to make sure there are no major issues. You can also offer to cover up to a certain dollar amount in the event of a low appraisal, if you are offering to pay above the asking price.
  • Close Faster: Most homeowners want to close as quickly as possible. A good lender can have you ready to close in 20 days vs the more common 30-40 day close.
  • Don’t Play Games: We all want to negotiate a great deal, but oftentimes a great deal is actually having your offer accepted not saving a few thousand dollars. When a seller has multiple similar offers, they often put more weight in who they think is most likely to close with the least complications. In that scenario it pays off to make it clear how much you love/want the home instead of acting like you could take it or leave in an attempt to negotiate a lower price.
  • Days On Market: The number of days a property has been on market should dictate how you approach an offer. You won’t have much leverage in the first few weeks or after a major price reduction.

The spring market can be a great time for buyers who are prepared for competition because you’ll see a significant increase in inventory, so that illusive 2 bedroom + den or half acre yard with a deck is more likely to materialize.

If you’re not prepared to make a strong offer, the spring can be frustrating and defeating because you may watch your dream home(s) go to other buyers who have made smarter, but not necessarily higher offers.

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How New Homes Are Toppling Long-Term Values

Question: A big reason I chose to live in North Arlington and pay the premium that comes with it is because most of the neighborhoods were full of large, mature trees.

I’ve watched over the last 5-10 years as so many beautiful trees have been removed to make room for large new homes, only to be replaced by small trees that don’t survive or aren’t fit for this area. What can we do to educate homeowners about the value trees have in the community and on home values?

Answer: Thank you so much for this question, especially on the heals of a terrific study on Arlington’s tree canopy. It’s one that I don’t think gets nearly enough attention from homeowners, my colleagues in the real estate industry and local government.

The loss of our tree canopy resulting from reckless tree removal by builders who are more concerned with maximizing profit on a single lot than promoting long-term growth of our communities is a major problem for Arlington. In 2017, I wrote an article highlighting the financial benefits to developers who actively work to keep the existing mature trees on a lot so if we can show both short-term and long-term benefits to builders and developers, what do we do?

Don’t Wait On Local Government

For starters, we can’t rely on government policy, but need to work within our communities at a Civic Association level to promote education and understanding. Not every homeowner is concerned about the tree canopy, but everybody is concerned about the long-term value of their home, so we need to educate everybody that the two are not mutually exclusive.

We are never going to stop the replacement of old homes with new ones, but we can support builders who take steps towards tree preservation and discourage residents from working with builders who have no regard for our neighborhoods.

Over the past couple of years, I’ve worked with some fantastic Civic Associations (residents of Williamsburg should be proud of their community leaders!) and the Arlingtonians For A Clean Environment to brainstorm ways to protect our tree canopy and I encourage anybody who has an interest to get involved.

An Education For Homeowners and Builders

I will continue this discussion through my column on ARLnow until we see progress. I hope that readers with an interest in getting involved can share ideas and connect via the comments section.

To kick things off, I want to introduce Heath Baumann, an ISA Certified Arborist with Bartlett Tree Experts, to provide education for homeowners and builders on tree preservation, tree replacement and tree care. Take it away Heath…

Preface

One of the most overlooked assets on a property is often the trees.

Trees not only improve quality of life with shade and beauty, mature trees can affect property value. As Northern Virginia continues to infill and urbanize, trees will face greater amounts of environmental stresses. Larger homes, less permeable surface area, soil compaction and heat island effects can stress both new and mature trees in your landscape.

Your home is comprised of multiple systems such as HVAC, plumbing and electrical. It helps to think of trees in the same manner. Routine maintenance performed by a licensed professional is affordable and extends the life of your trees.

Tree Preservation During Construction

Constructions projects can severely affect the health of trees. Physical stability, water and nutrient collection are vital functions of the root system. Here are some Do’s and Don’ts to preserving trees during construction projects:

Do’s

  • Develop a Tree Preservation Plan. Contractors and Consulting Arborists can develop this during the planning phase of your project.
  • Avoid intrusion into the critical root zone. Create a physical barrier with construction fencing to reduce soil compaction and physical damage to the tree by heavy equipment.
  • Have a licensed tree care provider perform any required root pruning.
  • Develop a tree care plan for affected trees. Certified Arborists can help the tree compensate for root loss and stress from construction activities.

Don’ts

  • Do not use heavy equipment to cut roots. Heavy equipment will cause extensive damage and compact the soil.
  • Do not allow construction materials, debris or chemicals to be stored around trees. Tree preservation zones are enticing areas for temporary storage. Soil compaction, chemical runoff and physical damage are all possible.
  • Do not use construction tools to perform pruning. Arborists’ tools are designed to make proper cuts reducing the impact on trees.

Replacing or Planting New Trees After Construction

Planting a tree is a wonderful feeling. A relatively simple activity can turn into a lifetime of enjoyment and an investment for future generations. The best part about planting trees is that nearly everyone is capable of doing it. It generally only requires a few tools that are available at your local hardware store or garden center. A few basic guidelines will help improve our success when replacing removed trees or adding to your landscape.

Do’s

  • Purchase your trees from a respected nursery or garden center. These businesses offer warranties, have higher quality nursery stock and have knowledgeable staff that can help you make the right selection.
  • Select the right tree for the location. Height, spread, shade tolerance and growth rate are all things to consider. A full sun tree will not thrive in an already shady landscape and vice versa.
  • Have your soil tested. The soil’s pH affects the nutrient availability for a tree. The Virginia Tech extension service and certified tree care companies can perform soil tests for a nominal fee. Use this information to select the tree or to build a soil care program with your tree care company.
  • Dig the correct hole. The hole for your tree should be 3 times as wide as the root ball. If possible, rototill an area 5 times the root ball to help root production. The bottom of the hole should remain intact.
  • Have your trees structurally pruned. Some tree species have growth tendencies that can lead to structural failure or root issues. An ISA Certified Arborist can show you how a few well-place structural pruning cuts can help your tree develop its ideal form.

Don’ts

  • Do not plant trees too deep. This is the most common mistake I see on landscapes. Ideally, the transition zone between the trunk and the roots should be slightly above soil grade.
  • Do not mound mulch. Mulch mounds, along with deep planting, can cause the roots to encircle the trunk of the tree forming a tourniquet that strangles the tree.
  • Do not leave the tree in the container. If the tree is in plastic container, remove the tree and loosen the soil and roots before planting. If the tree is in a wire encased burlap bundle, cut away the wire basket and remove the burlap from the sides of the root ball after placing it in the hole.
  • Do not overwater your tree. Infrequent, slow saturations with a soaker hose will help good root development. Frequent shallow watering will develop shallow, unstable roots. Constant soil saturation will lead to root diseases. If the soil at finger depth (4 inches) is dry, it is time to water.

Tree Care Basics

The majority of my clients are established homeowners who are concerned about the health of their trees. Sometimes it is a large, prominent oak or a bright, flowering ornamental tree. Here a few simple Do’s and Don’ts that home owners can follow to help their trees:

Do’s

  • Keep a mulch ring around the tree. This aides in temperature and moisture regulation while adding organic matter to the soil.
  • When watering use a soaker hose for infrequent, heavy saturations. This will ensure adequate soil moisture and help in root development.
  • Routinely look at your trees. The earlier an issue is caught, the better the odds of helping the tree.
  • Consult a professional. Certified arborists can work with you to develop a tree care plan based on your needs and budget.

Don’ts

  • Do not allow mulch to mound up at the base of the tree. Mulch can hold moisture against the trunk that can cause decay, increase stress and invite pests.
  • Avoid heavy application of lime or other lawn products. Lime and other lawn produces can affect the soil, making it unsuitable for trees.
  • Do not park or drive your vehicle over the root zone. This can lead to soil compaction.
  • Avoid damaging the tree with mowers and string trimmers.
  • Avoid employing a non-certified person or company to perform tree care. Improper pruning can lead to tree mortality and expose you to risks.

Even in ideal conditions, pests and diseases can attack trees. Fortunately, treatments exist for many of the common maladies in our area. If you are concerned about a tree, always contact an ISA Certified Arborist for a consultation.

Heath Baumann is an ISA Certified Arborist with Bartlett Tree Experts. If you wish to schedule a consultation with a Bartlett Arborist Representative, please call (703)550-6900.

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Home Values 10% Higher Than Assessed Tax Values

Question: My property taxes didn’t change much this year, but the County announced that residential home prices increased 3.9%. Are the County’s tax assessments a good way of determining the market value of my home?

Answer: Tax assessments are not a good way of establishing the market value of your home. In fact, if Arlington homeowners used their tax assessment to determine their asking price, on average they’d be undervaluing their home by 10%!

Also, just because the County saw appreciation of 3-4% this year doesn’t mean that will be applied to all homes. Tax assessments are adjusted on a much more localized level based on neighborhood, number of bedrooms, square footage and other factors specific to your home. I would also advise that just because your tax assessment did not increase, doesn’t mean the market value of your home did not increase (and vice versa).

Market Values Higher Than Assessed Values

The following table compares the average sold price (market value) with the average 2017 tax assessment for all homes sold in 2017. I cleaned up the data a bit by removing Co-op sales (River Place), Ballston’s Senior Living Community, new construction (new tax assessments may take a year to catch-up) and a handful of sales that didn’t have a tax assessment available.

Notable Findings:

  • The average Arlington home has a market value 10% higher than its tax assessment
  • Only 14% of homes sold in 2017 sold for less than their 2017 tax assessment
  • The County struggles the most assessing the value of detached homes in Arlington, likely because of how difficult it is to assess land value with due to the proliferation of tear-downs being bought for land only
  • The most under-assessed zip codes were 22213, 22205 and 22204 with homes selling for 12% or more above the assessed value
  • The most accurately assessed zip code was 22201, with assessments coming in within 7.4% of the average market prices

 

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Appealing Your Assessment

For the 2017 tax year, Arlingtonians will pay .996% of their assessed value in real estate taxes, up from .991% in 2016. Every year you have an opportunity to appeal your assessment and yes, it has worked, but the burden of proof is on the homeowner, not the County. Arlington provides an informative website on the appeal process.

Quick hits on the appeal process:

  • You should have received your 2017 tax assessment in the mail some time this month
  • Your first appeal with the Dept of Real Estate Assessments must be filed by March 1, 2018
  • Step 1: Call (703)228-3920 for information on how your assessment was determined
  • Step 2: File your appeal online here (First Level)
  • Step 3: An assessor will visit your home and you can provide relevant info to make your case
  • Step 4: If you’re not satisfied with the decision or have not received written notice by April 1, file your second appeal with the Board of Equalization online here (Second Level) by April 15
  • Step 5: If you’re not satisfied with the decision, your final option for appeal is with the Circuit Court, which will likely require you to hire an attorney

If you’re considering appealing your tax assessment, feel free to reach out to me to discuss building a case. I have access to micro and macro market data that can help you determine if your property is over-assessed and can help you create a clear report supporting your appeal.

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How The Tax Bill Changes Real Estate

Question: What were the real estate related changes in the new tax plan and how will those changes impact our local real estate market?

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Answer: Spending an hour every week working on my taxes in QuickBooks doesn’t qualify me as a tax expert, so before I provide my take, I’d like to introduce local tax expert Molly Sobhani, CPA of Klausner & Company, located in Rosslyn, to break-down the key changes in the new tax plan that will effect how buyers and homeowners make real estate decisions. Following Molly’s explanation, I will provide my personal thoughts and stats, which stand in contrast to most of the opinions I’ve read.

If you would like to follow-up with Molly about the tax bill or any other tax questions, she can be reached directly at msobhani@klausner-cpa.com or (571) 620-0159. Take it away Molly…

After weeks of confusing, convoluted and contradicting proposals introduced by the House and Senate, the Tax Cuts & Jobs Act (TCJA) was signed into law on December 22 by President Donald J. Trump. As the dust continues to settle on TCJA, taxpayers across the country are wading through the tax reform bill and the impact of those changes.

With increases to the standard deduction, changes to the deductibility of mortgage interest and limits on property tax deductions, current homeowners and potential homebuyers have a lot to think about. The housing market will undoubtedly be impacted but how – exactly – is still a big question mark.

Summary of Major Tax Law Changes Impacting Residential Home Ownership

  1. Interest will only be deductible on mortgage debts used to acquire your principal residence or a second home of up to $750,000 (or $375,000 for a married couples filing separately). The phase-out of deductible interest begins after the loan balance exceeds $750,000. This new debt limit applies to all loans incurred after December 15, 2017.
  2. Interest on home equity debt (also known as Home Equity Lines of Credit or HELOCs) will no longer be deductible. This is true regardless of when the home equity debt was incurred.
  3. State and local taxes (also known as SALT deductions) will be limited to $10,000 per year. This category of deductions also includes property taxes paid on homes.
  4. The Standard Deduction has increased substantially from $12,700 for joint filers ($6,350 for single filers) in 2017 to $24,000 for joint filers ($12,000 for single filers) in 2018.

One provision that did not change is related to the capital gain exclusion of up to $500,000 for joint filers ($250,000 for single filers) on the sale of a primary residence. You still must use the home as your primary residence for at least two of the last five years in order to be eligible for the full exclusion.

So why do these new tax provisions make homeownership a trickier decision? The incentives for being a homeowner have now been substantially diminished by the new laws for many taxpayers.

A Hypothetical Scenario

A married couple earns $150,000/year in wages and is looking to buy a home in Arlington, VA. Their total state income taxes are $8,625 (5.75% of their $150,000 wages.) They have no other deductions to itemize in 2017 so they will take the $12,700 standard deduction.

In January 2018, they buy a condo for $425,000. They put down 20% and borrow $340,000 at 4%. They are under the $750,000 mortgage debt cap so they are eligible to deduct all of the interest they pay on their loan each year. In the first year, their total interest expense totals $13,491. Their property taxes are $4,233 based on Arlington’s 2017 rates for a $425,000 assessment. Our married couple has a brand new home and all these brand new deductions, right?

But wait! After we add the new property tax deduction of $4,233 to the $8,625 they already pay in state income taxes, they are over the $10,000 limit for SALT deductions. In this example, $2,858 of their property taxes are not deductible.

Fine. Let’s look at their total deductions then: they have the maximum $10,000 SALT deductions and $13,491 of mortgage interest, totaling $23,491. Under the old tax laws, they would itemize their deductions and see a reduction in their Federal and state taxes for these additional expenses.

But we’re not working under the old laws anymore, are we? Under TCJA, even after spending all this money on buying a new home, paying the interest on their mortgage and paying their property taxes, they are actually still better off taking the standard deduction of $24,000.

Why Bother?

As you can see from the example above, by increasing the standard deduction to $24,000 for a married couple filing jointly, many taxpayers who otherwise would have itemized may now benefit more from the standard deduction. This essentially takes away the tax benefit of owning a house for some people. And the question that many potential homebuyers may consider is: “Why bother?” More and more, they may delay the decision to buy in favor of renting.

Other Potential Effects on Housing Markets

Home values may be impacted, too, by the change in tax laws. If mortgage interest is limited to $750,000, houses that are listed at prices over $937,500 (assuming a buyer puts 20% down) may not be as appealing to new buyers as lower-priced homes.

Another consideration is how the disparity in state income and state property tax rates may drive homebuyers into lower tax rate states. In high tax states, there could be multiple scenarios in which taxpayers lose 100% of the tax benefit of paying property taxes.

Conclusion

Of course, there are other (wonderful) reasons to buy a home and other (wonderful) reasons to buy a home in certain neighborhoods. The upsides generated from the Tax Cuts & Jobs Act, though, are severely lacking.

Eli’s Closing Stats and Thoughts

According to The Washington Post, Moodys Analytics predicts that home values in Arlington will drop 2.3% as a result of the new tax bill, with drops of 2% in DC, 2.5% in Montgomery County, 2.6% in Loudon County and 4% nationally. Of course, this analysis is limited to the impact of the tax bill and doesn’t take any other growth factors into consideration. In other words, if Arlington continues its growth from 2017 (3.1%), we wouldn’t see actual losses, but stunted growth.

The change in SALT deductions and increase in the Standard Deduction will reduce the benefit of homeownership for many Arlington residents, but let’s take a look at how many homeowners are likely to be impacted by the reduction of the mortgage interest deduction limit to $750,000. Of the 3,100+ homes sold in Arlington in 2017, just over 400 were bought with loans exceeding $750,000. Approximately 30% of detached homes in Arlington (350 of 1,150 sales) had a loan exceeding the new limit. Keep in mind, however, that homeowners with loans over $750,000 will still be able to deduct interest on the first $750,000.

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I Don’t Believe The Market Will Suffer

While these stats and Moodys’ analysis are great, they fail to capture how homebuyers actually make decisions in the real world. The majority of buyers decide to purchase a home because of a major life event (marriage, kids, job change, etc) and once they’ve decided to purchase a home, their budget is based on how much they have saved for a down payment and how much they can afford each month in housing costs.

Their monthly budget is primarily based on income and the sum of mortgage payments, property taxes, any HOA fees, insurance and maintenance. SALT and mortgage interest deductions don’t factor into any of the core considerations for most homebuyers.

Let’s Be Realistic

Let’s be honest, for most people, taxes are a once-a-year afterthought and tax planning is mostly crossing their fingers, hoping for a few dollars back. For those who do pay close attention to their tax exposure and who stand to lose out on the benefits of the mortgage interest and SALT deductions, I question how much it actually matters.

Previously, the mortgage interest was capped at $1M and there were just 163 (5%) homes purchased in 2017 with a loan of $1M or more who will be “fully” effected by the change to a $750,000 cap. In the first year, the interest paid on that difference of $250,000 is about $10,000 (drops each year), so for somebody with an effective tax rate of 30%, that’s a $3,000 change to their bottom line from last year.

Adding the change in SALT deduction increases that for many people and $3,000+ is nothing to sneeze at, but we’re talking about the wealthiest homebuyers with incomes exceeding $250,000/year. I’d bet that for those who are conscious of the net effect on their bottom line, they’re more likely to find ways to save this money somewhere else than their home purchase.

Plus, the tax plan provides substantial benefits to wealthy Americans and may very well have a net positive effect on their bottom line anyway. Also, does anybody really think that somebody negotiating on a $1.5M+ home they plan to live in for 15+ years will pay $5,000 less because that’s the calculated net impact from mortgage interest and SALT on their 2019 taxes under the new tax bill? No way.

Let’s be realistic about the psychology of home buying and what determines buying power because that’s what impacts home prices, not expensive studies funded by special interest groups (yes, I’m kind of calling out the National Association of REALTORS for fear mongering).

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