$2,000,000 Isn’t What It Used To Be

Question: Is it just me or have there been a lot more $2,000,000+ homes for sale this year than in the past?

Answer: The $2,000,000 mark used to represent a significant resistance point for homes in Arlington, reserved only for the best-of-the-best and difficult to sell, but we’ve seen a surge of $2,000,000+ homes for sale in Arlington this year and demand to absorb it.

One of the more interesting differences between Arlington’s real estate market and other expensive markets is that while a huge percentage of our homes sell for over $1M, we have very few homes that sell over $3M (link to previous article). For some context, there have been 82 single-family homes listed for sale for $2M-$3M in Arlington in 2020, but just 19 listed for sale/sold since 2010 for over $3M (four of them are currently for sale).

Below is a chart showing the number of single-family homes sold that were listed for $2M-$3M since 2010. 2020 also includes homes currently for sale or under contract that are listed for $2M-$3M (and we still have 5 weeks left in the year for more homes to be listed).

Here are some interesting details about the $2M-$3M single-family home price point:

  • The average sold price to original asking price from 2015-2019 was nearly identical, ranging from 94.1%-94.7%, but this year that average shot up to 96.5%. Also, from 2015-2019, the average days on market was 93 days, but in 2020 it dropped to 58 days. Both of these changes indicate a much stronger appetite from buyers for $2M+ homes.
  • Since 2010, 92.3% of homes were/are located in the 22201 (20.1%) and 22207 (70.2%) zip codes
  • I was surprised that only about half of the sales are new construction. I would have expected new construction to make up a much higher percentage of these high-price sales.
  • Prior to 2019, a $2M+ home usually meant at least 1/3 of an acre, but in 2020 it brings an average of just ¼ of an acre
  • Bedroom/Bathroom count has remained pretty consistent over the years, with an average of 5-6 bedrooms, five full bathrooms, and one half bathrooms
  • If you’d like to click through the $2M-$3M single-family homes since 2010, here’s a link!

If you’re as curious as I was about what the chart for $1M-$1.999M single-family homes looks like, it’s quite different. Enjoy!

If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.

What Joe Biden’s Tax Plan Means for Real Estate

Question: What are the key tax changes Joe Biden is proposing that will impact real estate?

Answer: Joe Biden’s proposed tax plan is full of interesting details and so I reached out to the tax experts at Bormel, Grice & Huyett, P.A. for their input on the details that would have the most direct impact on real estate. Below, Matt Bormel (301-953-3259), shares the two biggest changes that President-elect Joe Biden will likely champion as part of his overhaul of the current tax code. Take it away Matt!

President-elect Joe Biden has proposed a number of policies that would affect taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. Biden would enact tax changes on corporations by raising the corporate income tax rate and imposing a corporate minimum tax.

Biden’s plan includes all sorts of changes and updates to the payroll tax, individual income tax, estate and gift tax changes, but two particular changes stand out for the real estate industry.

Elimination of 1031 Exchanges

The President-elect has detailed many updates and additions, but one of the tax provisions he wants to eliminate would have a major impact on real estate.

Biden’s proposed tax plan would eliminate the ability to defer capital gains on the sale of real property in a like-kind exchange. A like-kind exchange – sometimes referred to as a “1031” exchange – allows real estate investors to swap one real estate investment property for another and reduce or eliminate the capital gains tax on the sold property. It’s very popular among investors and developers.

The IRS has recently issued new regulations that specifically outline what constitutes real estate property in order to determine eligibility for Section 1031 like-kind exchanges.  However, those provisions would be moot if your ability to make a Section 1031 exchange is eliminated or you’re unable to get your exchange done before that elimination takes place.

With that being said, it would be prudent to consider taking advantage of Section 1031 exchange breaks before a Biden tax plan could potentially eliminate it.

First-Time Home Buyer Assistance

According to Joe Biden’s campaign website, Biden has also pledged to “provide financial assistance to help hard-working Americans buy or rent quality housing.”

Part of a Joe Biden tax change would re-establish the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s updated homebuyers’ credit, referred to as “First Down Payment Tax Credit” would provide up to $15,000 for first-time homebuyers.

Building off of a temporary tax credit expanded as part of the Recovery Act, this tax credit will be permanent and advanceable, meaning that homebuyers receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.

Proposed, but Not Guaranteed

A new Administration often comes with a major overhaul to tax regulations, but it is worth noting that the President can’t raise or lower taxes on his own.  Congress has to pass legislation to adjust taxes and then send the Bill to the President for signature.  If the Senate remains in Republican control, getting new tax legislation passed without many compromises may be difficult to achieve.

As more updates become available, you can count on the experienced tax professionals at Bormel, Grice & Huyett, P.A. to provide thorough updates and guidance on how to proceed.

Five Years of Ask Eli, Thank You!

My first Ask Eli column was published on November 10 2015 (I introduced myself and explained the Escalation Addendum), exactly five years ago! Since then I’ve accumulated 416 pages in Microsoft Word, nearly 170,000 words, and over 840,000 characters typed!

I want to take a moment to express my appreciation for Scott (Founder), Jordan, Lene, Turquiose and everybody else on the ALRnow/Local New Now team for creating and maintaining such an incredible platform for local news and community discussion. Thank you!

I also want to thank all of the amazing readers and commenters who have made the last five years of writing about Arlington/DMV real estate so rewarding for me. Your feedback, comments, critiques, and questions let me know that I’m not talking into an online abyss  Please continue sending me topics or ideas that you’d like me to cover!

For those of you who may have missed my post last week because it was Election Day, I shared a cool interactive chart showing how Arlington real estate has appreciated in value since 2010. You can check out that chart here.

Thank you everybody for following along. Hopefully I’ll get to write a similar ten-year post in November 2025!

10-Year Real Estate Appreciation in Arlington (Interactive Chart)

Question: Do you have any data available on how Arlington real estate has performed over the last ten years?

Answer: A lot has changed in Arlington since 2010. We’re less reliant on the Federal Government for jobs, you can find something to do after 6PM outside of Clarendon, and $1,000,000 definitely doesn’t go as far as it used to. BUT we still don’t have a Rosslyn-Georgetown Gondola or a boathouse; maybe in 2030…

I thought it would be cool to create an interactive chart for everybody to play around with to show how real estate values in Arlington and different Arlington sub-markets have changed from 2010 to 2020. Click on the image below to get to a page on my website that will allow you to see 2010 vs 2020 price changes based on things like zip code, bedroom count, new builds/resale, and more.

Now stop reading and go vote if you haven’t already!

Advice on Home Inspection Negotiations

Question: We just finished out home inspection and are a bit overwhelmed by the list of recommended repairs. How do we know what to ask for and what’s reasonable to expect from the seller?

Answer: As we head into the colder months and the market slows down a bit, buyers will start picking up more leverage to include home inspection contingencies with the right to negotiate, not just the right to void. I thought it would be helpful timing to revisit some tips, applicable for buyers and sellers, on home inspection negotiations.

Inspection negotiations can be frustrating for both parties so it’s helpful to establish some ground-rules heading into negotiations. Unless you’re buying a new home, you should expect the inspection to turn up at least a handful of items and you’ll need to quickly and reasonably determine which items are the responsibility of the seller or buyer.

What Is A Home Inspection?

After ratifying (signed by both parties) a contract to purchase a home, most buyers will hire a home inspector to inspect the entire home and produce a report of any issues/risks, from foundation cracks to missing door stops.

Depending on the contract terms, the buyer usually has the right to negotiate for repairs or credits, based on the results of the inspection, and the right to void if an agreement can’t be reached OR no negotiation period, just a right to void (aka a Pass/Fail Inspection). In either case, if the buyer voids under the terms of the inspection contingency, they will receive their full deposit back.

What Should You Look For?

In my opinion, the goal of an inspection is to ensure that the property is in the condition both sides expected while negotiating the purchase price. Items that have a material impact on the value of the home should be on the table for negotiation.

Generally, you can divide findings into big-ticket items that impact the value of the home and must be addressed and smaller punch-list items that are good housekeeping practices. The big-ticket items I look for during an inspection are:

  • Structural Flaws
  • Water Penetration
  • Safety Hazards
  • Inoperability (e.g. AC not working)
System Life Expectancy

You should also determine the age of major systems like the roof, windows, appliances, HVAC, and water heater prior to making your offer, and verify these are accurate during the inspection. Make sure you’re clear on the projected life expectancy of these systems while you’re negotiating the purchase price and factor this information into your offer. You’ll have a tough time convincing most sellers they’re on the hook for crediting you the cost of a 17-year-old water heater if that information was made available prior to your offer, assuming the system is working.

What Can You Ask For?

Negotiations can include all sorts of solutions, but most frequently the conversation is about whether a seller will handle the repairs or provide the buyer a credit (against closing costs) instead. Often times an inspection agreement includes both – a credit for some items and a request to fix/replace others. Sellers must use licensed contractors and provide works receipts for any work they do.

In general, if something you’re asking for involves personal preference or you want to have control over the quality of the result, it’s best to ask for a credit and handle it yourself. For example, if the deck is falling apart and needs to be replaced, you don’t want the seller managing the design and construction of a new deck so ask for a credit for the replacement cost and make sure you’re getting the deck you want.

Inspections Don’t Need To Be Contentious

Inspections are one of the most common points of contention between buyers and sellers, but with the right preparation and expectations going in, it can be a smooth process that both sides are happy with. Like the negotiations you had on the sale contract, the inspection period is also a negotiation that requires both parties to be understanding and reasonable to reach a win/win.

Starting Your 2021 Home Search

Question: We are looking forward to buying our first home in 2021. Do you have any recommendations on how we should start the home buying process?

Answer: Google “home buyer tips” or “what to know before buying a home” and you’ll find plenty of advice on the topic, so I’ll include some suggestions I don’t see on most of those lists and also put my own spin on others that you have heard before.

 

Weighted Criteria

It’s easy to come up with 3-5 things that are most important to you, but challenge yourself early to come up with 12-15 things that are important to you. Then give yourself 100 points and allocate points to each based on how important they are to you and you’ll end up with a weighted criteria list to help you focus your search and objectively compare properties.

If you want to take it to the next level, bring your weighted criteria list with you on showings and score each house out of the total points allocated to it.

 

Length of Ownership

This is one of the most important conversations to have with yourself/your partner. You should focus on the following:

  1. Likely length of ownership
  2. Difference in criteria for a 3-5 year house vs a 10-12+ year house
  3. Difference in budget requirements for a 3-5 year house vs a 10-12+ year house

 

Appreciation is not guaranteed and difficult to predict, but the value of longer ownership periods is undisputed. One way longer ownership adds value is the potential for eliminating one or more real estate transactions, and the associated costs (fees, taxes, moving expenses, new furniture, etc) and stress that comes with moving, over the course of your lifetime.

If you have an opportunity to significantly increase your length of ownership by stretching your budget, it’s often justifiable. On the other hand, if your budget or future plans restrict you to housing that’s likely to be suitable for just 3-4 years (and buying now still makes sense), it’s generally better to stay under budget.

 

Influencers (not the Instagram ones)

Family, friends, colleagues…they’re all happy to offer opinions and contribute to your home buying process, but the input can be overwhelming and unproductive if you don’t set boundaries. Try to determine up-front who you want involved in the process and how you’d like them to be involved.

Think about how you’ve made other major decisions in life – what college to attend, what kind of car to buy, where to get married, whether to change jobs – and if you’re the type of person who likes input from your friends and family, you’ll likely do the same when buying a house. Plan ahead with those influencers so their input is productive.

 

Does Your House Exist?

Before jumping too far into the search process, spend a little bit of time searching For Sale and Sold homes on your favorite real estate search website/app to see if the homes selling in the area you want and within 10% of your upper budget are at least close to what you’re looking for. If not, spend some time adjusting price, location, and non-critical criteria to figure out what high-level compromises you’ll need to make and then compare those compromises to your current living situation and/or continuing to rent.

 

Know Your Market

We’re in a strong seller’s market for single-family and townhouses right now with low supply, high demand, and increasing prices, but the condo market is becoming more favorable for buyers.

Each sub-market behaves a bit differently and comes with its own unique set of challenges and opportunities, so take time early on to understand the sub-market(s) you’ll be involved in and what you’re likely to experience. This is something your agent should be able to assist with.

 

Pre-Approval & Budget

There is a lot of value in working with a lender early on in the search process. For starters, you’ll have somebody who can provide real rates and advice based on your specific financial situation/needs. A lender can only do this if they’ve reviewed your financial documents and credit. The more you put in, the more you get out.

You’ll need to have a lender pre-approval to submit an offer (seller has to know you qualify for the purchase you’re offering to make) so if you have to do it anyway, why not doing it early on so you get the most value out of your lender? It also means that you’ll be prepared to make an offer if you find the right home before you expect to be ready.

Given how competitive the Arlington/Northern VA/DMV real estate market is, the quality of your pre-approval can make a big difference when you make an offer. You should strongly consider partnering with a local lender with a great reputation to give yourself an advantage (or not put you at a disadvantage) when making an offer. Pre-approval letters from big banks and online lenders don’t go over as well in our market. If you’re looking for a recommendation, consider Jake Ryon of First Home Mortgage (JRyon@firsthome.com).

 

Find an Agent

The least surprising suggestion on this list! Agents come in many different forms and finding somebody who suits your personality and goals is important. Ask friends, colleagues, and family for referrals and meet with multiple people until you find the right fit.

The worst thing you can do is choose your agent based on whoever responds to an online showing request faster. A good agent can provide a ton of value being involved in your buying process 3-6+ months before you’re ready to buy. Be wary of anybody who wants you to “wait until you’re ready” before working with you.

 

If you’re considering buying (or selling) in the DMV in 2021 and would like to meet, feel free to email me at Eli@EliResidential.com!

Housing Market Update, Condo Slide Continues

Question: Last month you wrote about troubling signs in the condo market. Do you see things leveling off or getting worse?

Answer: The trends I wrote about last month – shifting demand in single-family housing out west and troubling signs in the Arlington/DC condo market – continued through September with the developing changes in the condo market being the most noticeable. Let’s take a look at what we’re seeing in the housing market through September…

Arlington/DC Condo Inventory Piling Up

The number of condos listed for sale in Arlington during September (261) ranks as the 2nd most in any month over the last 10+ years, trailing a record-setting April 2016 volume (268) by just seven. The last time we had this much active condo inventory on the market in Arlington was September 2017 and you have to go back to September 2016 for a month with higher Months of Supply (measure of supply and demand).

Our neighbors in DC blew past all-time highs over the last 10+ years with 969 condos listed for sale, well above the record set this past July (863). Three of the four months with 750+ condo listings in DC have taken place in the last three months. You have to go back to June 2011 for a month with more active condo inventory in DC and July 2012 for a month with higher Months of Supply.

Fairfax and Loudoun County Condos Doing Fine/Better

While Fairfax and Loudoun County condo markets are seeing a similar late-season surge in listings, those markets are doing a better job of absorbing the inventory, so Months of Supply measures are still much more favorable for sellers with Fairfax County getting only slightly worse in 2020 and Loudoun County actually getting even more competitive.

Arlington Single-Family Market Stable

Arlington’s single-family market remains stable and is more reflective of the slight slowdown we expect around this time of the year, especially one month from an election. Single-family homes are still selling at peak prices, albeit sometimes with slightly higher days on market and fewer offers than earlier in the year.

We’re experiencing unusually high listing volume for this time of year, but that was expected given how little inventory was listed this spring/early summer. The number of single-family homes listed for sale in the 3rd Quarter of 2020 is up 42.5% over Q3 2019, but active listings are up just 2.1% for the same period, suggesting that the market has had no problems absorbing the extra inventory…and higher prices.

Sellers have not missed the memo that prices and demand are up in Arlington for single-family homes. September is the first month in 2020 that the median asking price of active single-family listings dropped below $1.5M.

I hope you’ve found this market overview interesting and/or helpful. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com. Call me directly at (703) 539-2529.

ROI On Pre-Listing Home Improvements

Question: We are planning to put our townhouse on the market this spring and wondering if you have any advice on how we should choose what improvements we should or should not make prior to listing.

Answer: The decisions you make on what money you do or do not spend improving your home prior to a sale often influence your bottom line more than any other decision you make during the sale process. They’re also the decisions you’re most in control of, so take your time and take them seriously.

Remodeling.com publishes an annual report showing the resale return of specific remodeling jobs, based on region of the country. Unfortunately, I can’t share the DC-area report here because of copyright issues, but it’s worth going to the link (you have to provide them some basic info) to take a look yourself. The findings of their report show that the majority of projects, done individually, return just 50-80% of the cost. I have seen another study by Zillow that shows similar projections.

Note that I said when “done individually” most projects return well below 100% of the money spent, but when you combine the right improvements you can create value/profit that can add to your bottom line.

Tier Your Improvements

After you prepare a full list of potential improvements, it’s important to bucket them into tiers and analyze each tier for cost, project timeline, and impact on the expected resale value to determine which improvements make the most sense. At a high level, these tiers generally fall into three categories:

  • Clean-out, Clean-up: This focuses on the low cost, high return items to make a home more presentable such painting, deep cleaning, repairs, light landscaping, etc
  • Bring up to par: Investing in one/some more expensive projects to bring them up to par with the rest of the home. For example, improving a dated kitchen if the rest of the home is updated so that the kitchen doesn’t drag down the value of the other improvements or replacing damaged hardwood floors.
  • Remodel/Homeowner Flip: Similar to what an investor might do to a dated home in an expensive neighborhood, a homeowner might choose to make a major investment into updates and benefit from a significant profit
Consider All Costs

The cost of doing improvements goes beyond the cost of the labor and materials. Don’t forget to consider things like:

  • Your time managing the work
  • Inconvenience of having work done while you’re living in the home
  • Carrying cost while work is being done, if the home is vacant
  • Risk of something going wrong during the work (applies more to larger projects)
100%+ ROI

There’s no doubt that remodeling your bathroom will generate a higher sale price, but it’s rarely advisable to invest money into improvements if you won’t return more than 100% on the investment. Herein lies the challenge and strategy in planning your improvements. Understanding the profile of your likely buyers and what they value is crucial to making investments that generate profit, not just a higher price.

If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com.

Condo Smoking Ban Update

Question: Do you have any updates on how smoking bans are going in Arlington condo buildings?

Answer: In 2016, I wrote a column on condo smoking bans as my fellow 1800 Wilson Board members and I explored a smoking ban within our community. Since then, I’ve had the pleasure of meeting members of our condo communities that have been instrumental in clearing the path for healthier, more welcoming condo buildings by navigating the complex rules and challenges of banning smoking in condo units and on private balconies (banning smoking in common areas is easy).

The process of implementing a smoking ban is long, difficult, and time-consuming for those involved, but it is possible. I’m aware of at least 10 buildings in Arlington and Alexandria that have already passed, or are in the process of passing, amendments to their by-laws to ban smoking inside units and on balconies. Some of those communities I know of off-hand are (I know I’m missing a few):

  • Hyde Park (Ballston)
  • Wentworth Place (Virginia Square)
  • Carlyle House (Columbia Pike)
  • Lyon Pointe (Lyon Village)
  • Horizon House (Pentagon City) *I believe they’re in process
  • Carlyle Towers (Alexandria)
  • The Towers (NW DC)

For those of you interested in pursuing a smoking ban within your condo community, I recorded the panel discussion I hosted last year and you can watch it on YouTube here. It’s a long video (almost two hours), but it provides a highly detailed roadmap and great lessons learned from members of the community who have gone through the process already. I also have some materials from the meeting that I would be more than happy to email to anybody who wants it. Just email me at Eli@EliResidential.com.

For those of you considering a smoking ban effort, it’s important to understand a few things before you get started:

  • It usually takes 18-24+ months
  • It requires a by-law change, which usually requires at least 2/3 “yes” votes (non-votes are the same as “no” votes)
  • Start with an informal survey of the community to see if you have enough support to reach 2/3
  • Documentation and organization are critical
  • Prepare to have an attorney involved throughout the process
  • Some communities must compromise on a Grandfather Clause in order to get the necessary votes, but Grandfather Clauses are not required

I love hearing from people in communities who are making progress towards a smoke-free building, so please reach out to share your successes and frustrations!

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local Real Estate, please send an email to Eli@EliResidential.com.

Single-Family Demand Shifting From City to Suburb

Question: Have you seen a shift in single-family home preferences away from DC/Arlington further out into Northern VA?

Answer: Last week, I wrote about a clear shift in Arlington’s (and DC’s) condo market as historically high volumes of inventory have come to market and demand has tapered off. I received some follow-up questions about how the single-family market compares so this week we’ll take a look at some of the trends in single-family detached (SFD) homes in DC, Arlington, Fairfax County, and Loudon County.

Across all markets, demand and competition for SFD homes is high, but there is a clear shift in preferences for SFD housing further away from the city that we’ve never seen before. Both Fairfax County and Loudon County have reached all-time highs in absorption and all-time low months of supply.

Suburban Absorption Rate Sky-Rockets

The absorption rate, a strong metric for demand, has almost always been higher in DC and Arlington than in Fairfax and Loudon Counties. An absorption rate of 1.0 equal one home under contract for every home listed for sale and great than 1.0 means homes are going off the market faster than they’re being put in the market.

The first chart shows a dramatic increase in the absorption rate in Fairfax and Loudon Counties since June, far outpacing the DC and Arlington markets. Loudon County, the furthest/least densely populated of the four markets was on fire in August, with an already high absorption rate increasing nearly 50% over July.

Check out the difference between the Arlington County and Loudon County 10-year Absorption Rate in the second and third charts below.

Listing Volume Up Seasonally

One of the trends that stood out in last week’s condo analysis is the historically high volume of listings that came to market in July and August, ranking among the highest of any month in the last 10+ years. While the volume of SFD listings is up in July and August compared to past summer months, volume is still well below peak spring listing volume.

The year-over-year change in SFD listing volume in Arlington for July and August is pretty extreme (see second chart below) simply because of how low volume was in 2019 due to the Amazon HQ2 announcement, but the numbers still fall well below a normal spring market.

Historically Low Months of Supply in Suburbs

Months of Supply, a great supply/demand metric, is something I watch closely to predict price movement. The lower the Months of Supply, the more upwards pressure there is on prices.

Months of Supply for SFD homes in Fairfax and Loudon Counties has blown through 10+ year historical lows (first and second charts) and shows no sign of slowing down (prices likely rising rapidly), while Months of Supply has tapered off and even increased slightly in Arlington (third chart), a sign that prices might be stabilizing. Months of Supply in Arlington is still way too low to create a buyer’s market where prices might start dropping.

I hope you’ve found this analysis interesting and/or helpful. If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.