Mid-Year Arlington Real Estate Update

Question: How did the Arlington real estate market perform in the first half of 2019?

Answer: I am excited to announce the first of many collaborations with Jeannette Chapman, Deputy Director and Senior Research Associate, at the Stephen S. Fuller Institute at George Mason University to bring you deeper, more insightful analysis of the Arlington housing market. The Fuller Institute conducts incredible research and analysis on the Greater Washington regional economy and I’d encourage you to subscribe to their monthly Washington Economy Watch reports. Jeannette is an Arlingtonian and housing data junkie, which means even better market insights for ARLnow/Ask Eli readers!

Inventory Down, Prices Up

Amazon announced they were moving their second headquarters to Arlington in November 2018 and there has been year-over-year double-digit decreases in homes listed for sale in each of the seven months from December through June, topping out with a 29.5% drop in April 2019 compared to April 2018. I think this is due to owners deciding to hold out for more gains once Amazon employees start showing up.

The shortage in housing inventory forced buyers to compete for homes, resulting in 46.1% of homes selling for more than the asking price in the first half of 2019, compared to an average of 26.5% going over ask during the previous five years. 

Less inventory combined with shifts in demand (buyers moving their timelines up and new investors entering the market) led to price increases across Arlington in the first half of 2019, compared to the first half of 2018, by an average of 4.6% and median 8.8%. This does not mean that all homes in Arlington are worth 5-9% more than they were this time last year – some sub-markets are up more while others haven’t experienced the “Amazon-effect” yet.

To get a more accurate picture of what’s happening in our housing market, we separated the data into smaller sub-markets. Townhomes aren’t included because there’s not enough volume to produce good data and we left out the 22202 zip code, which makes up the Crystal City/Pentagon City area (aka most of National Landing), because it’s a very different market than the rest of the County and requires its own analysis in a future column. We chose to remove new construction, age-restricted housing, and Cooperatives. Finally, the time period is based on when a property actually went under contract instead of when it closed.

Interpreting the Data

For the most part, the charts above reflect what I’ve experienced in the Arlington housing market this year so double-digit appreciation from South Arlington single-family detached homes and North Arlington condos makes sense. However, I was very surprised by the South Arlington condo data.

My experience this year tells me that South Arlington condos have appreciated more than most Arlington sub-markets, with examples of units selling for 10-20% more than they would have last year. So why does the data show that 0/1BR condos in South Arlington are only up 2% compared to the first half of 2018? The make-up of the individual sales is different in 2019 and 2019 sales are down nearly 50%, meaning our sample size is too small.

During the first half of 2018, there were more expensive sales and fewer inexpensive sales, as a percentage of total sales, compared to the first half of 2019. Sales in 2019 have also been 32sqft smaller with 7% higher condo fees than the sales in 2018. These differences in the make-up of the data have skewed the median and averages in a way that doesn’t accurately represent what we’re seeing from individual sales.

The lesson? Real estate data is tricky and doesn’t always communicate what’s actually happening in the market (e.g. this June column about 17.3% appreciation in Arlington).

Historical Context

We took a look at the strongest performing sub-markets in the first half of 2019 to see how these gains look from a historical perspective, going back to 2000:

  • North Arlington condos show the biggest “Amazon-effect” with a sharp deviation from relatively stable prices over the last 10+ years. Note that existing condo sales dropped off more than the chart suggests during the recession, but the sales in newer, more expensive buildings helped maintain the market-wide median price.
  • History suggests that the North Arlington condo market will level off and remain relatively stable at these prices. It’s easier to add new condo supply to the market compared to other housing types, so supply usually adjusts to meet demand.
  • Single-family detached homes in South Arlington received a noticeable boost from Amazon, but were already trending up over the last 3-5 years so the 12.3% gains are likely a combined effect
  • Volatility in the South Arlington single-family detached market will likely continue for years to come as the area develops and the market finds a balance. I am bullish on most single-family detached housing in Arlington because it’s nearly impossible to add more supply to meet increasing demand.

Conclusions and Questions

There’s no doubt that Amazon has had a major impact on Arlington’s housing market already, but at this stage, it’s all speculative. Homeowners speculating they’re better off waiting to sell. Investors speculating that property values will appreciate. Home buyers speculating that they’re better of buying now.

I expect the North Arlington condo market to taper off and provide owners with modest, long-term growth and believe the best days for North Arlington townhouse and single-family detached homes are 3-5 years out.

Even though the aggregate data doesn’t currently show double-digit growth in the South Arlington condo market, that’s what is actually happening (see earlier explanation). I think this, and the South Arlington townhouse/duplex market, will stabilize next year and provide modest, long-term growth. I wouldn’t be surprised if there was a pull-back in the South Arlington single-family detached market next year, but I think it has the most growth potential over the next 8-12 years, outside of the 22202 zip code. The ceiling for South Arlington will depend on the quality and pace of development along Columbia Pike, parts of South Glebe, and Nauck.

Some of the questions I have about the next 6-24 months in the Arlington housing market are:

  • Will homeowners react to recent appreciation and take advantage of a “seller’s market” by putting more homes on the market in the next 6-18 months or will they continue to wait?
  • Did 2019 cannibalize buyers who were planning a purchase/investment in 2020-2021 and will that demand be replaced with new buyers or will we see a drop in demand until Amazon hiring picks up?
  • What decisions will the County make to increase density and will that provide for more townhouse/duplex development instead of just condos/apartments?
  • How will the headwinds from a potential downturn in the US economy impact local real estate momentum?
  • How much more will office vacancy rates drop and will another Fortune 500 company soon follow the lead of Nestle and Amazon?

If you’d like an analysis on how the value of your home has changed in 2019 or would like to discuss a strategy for buying or selling a home in Arlington or nearby communities, feel free to email me at Eli@EliResidential.com to schedule time to talk or meet. Our team covers Northern Virginia, Washington DC, and the Maryland Suburbs.

How Much Are Condo Fees In Arlington?

Question: Our Board of Directors is planning for the 2020 budget and we’d like to get a sense of the market rates in Arlington, particularly in the Rosslyn-Ballston Corridor. What are the average condo fees in the Arlington area on a cost per square foot basis?

Answer: It’s that time of year for most Condo Associations – budget planning time! As a former Condo Board Treasurer, I understand the pressure you’re under to balance responsible spending and reserve contributions with resident expectations of low, stable fees. Let’s take a look at what condo fees are across Arlington…

Arlington Condo Fee Rates

Fees are generally set on an annual basis by dividing up the Association’s total budget, including reserve contributions, by the ownership percentage assigned to each unit. Ownership percentage is determined by the builder and can be found in the legal documents you received prior to purchase. In most cases, it’s determined either by the number of bedrooms or square feet.

On a square foot basis, the average condo fee in Arlington is $0.54/sqft with a median fee of $0.53/sqft. Along the Rosslyn-Ballston Corridor the average jumps a bit to $0.57/sqft and the median remains the same.

On a per bedroom basis:
Bedrooms Average Fee Median Fee Average R-B Corridor
0 $319 $380 $306
1 $436 $470 $443
2 $575 $471 $631
3 $976 $505 $1,093

Not All Fees Created Equal

Before you jump to any conclusions about the relative value of your condo fee, you need to consider what’s included.

Amenities that require staffing and/or expensive maintenance like an attended front-desk, on-site management, and pools add significantly to the budget. The value for those amenities is subjective. Amenities that take up a significant amount of space within a building like large lobbies, party rooms, or rooftop gyms take away from the total unit count, thus increasing the ownership percentage of each unit.

There’s also a wide range of utilities included, or not, in a condo fee. Some fees include all utilities (water, sewer, trash, gas, and electricity) while others may only include trash with the rest paid directly by each owner. Some fees even include internet and cable! These differences can change your monthly bottom-line between two condos by hundreds of dollars.

Another important consideration when analyzing condo fees is how well they’re being used to fund the reserves (the Association’s savings account for major repair or replacement work) and whether future planned/unplanned building expenses will require a fee increase or special assessment. A well-funded reserve account usually means long-term fee stability and decreased chances of a special assessment. Associations should complete a new Reserve Study every five years to maintain a sufficient reserve balance and healthy building maintenance.

Other Thoughts On Condo Fees

Over the past couple of years I’ve written other condo fee related columns you might find helpful including A Case For Condo Fees, How Fees Impact Resale Value, and Finding Savings In Your Condo Budget.

While I have the attention of condo owners/Boards, I’ll also remind everybody that I’m organizing an info session on smoking bans in condos and to email me at Eli@EliResidential.com if you’re interested in joining.

National Home Ownership Up, Renting Down

Question: Is it true that more people are choosing to rent than buy a home? 

Answer: I’ve certainly been hearing this theory for a while now too – people are foregoing the American Dream of owning their own home for the ease and flexibility they get from renting. That’s usually paired with some scary data about how Millennials only rent and are ruining everything (see my August 2018 column about this topic). While that trend was true for most of the last 10-12 years, it’s proven false over the last two years.

 

Home Ownership Way Up, Renting Slightly Down

On a National level, the US Census Bureau is reporting a third straight year in increased home ownership with 2018 being by far the largest growth we’ve had in home ownership since 2004. The numbers of renters dropped for a second year in a row, the first drop in National rental rates since 2004.

 

  Via the    Mortgage Bankers Association    (MBA)
Via the Mortgage Bankers Association (MBA)

 Why The Sudden Change?

I believe there are two main reasons why the trends have reversed course over the last two years.

First, the majority of Millennials are finally of home-buying and settling down age and have had some time to build up a savings after taking on historically high amounts of student debt and graduating into a recessions/slow economy. I always laughed when I heard “experts” claim Millennials would never buy homes while most of them were under 30 and financially unprepared for a mortgage. 

The second reason is the strong economy we’ve witnessed over the last few years that has finally led to higher income. Better pay and more job security will always lead to higher rates of home ownership.

 

What About Arlington?

As of 2016, the home ownership rate in Arlington was just 44.2%; well below the National (63.6%), Virginia (65.8%), and Greater Metro Area (63%) average ownership rate. Arlington home ownership has only increased by .3% since then. I recently heard that 20% of Arlington’s population moves every year (most in the Country) so you can expect such a transient population to favor renting over ownership when compared to the rest of the country. Given how expensive it is to live in Arlington, I don’t see the ownership rate increasing much over the next five years, which is a good thing because there’s already nowhere near enough homes for sale to support the current ownership rate.

Amazon Housing Impact Check-in

Question: Has there been an increase in the number of homeowners putting their home on the market after Amazon’s decision to move to Arlington? 

Answer: For me, this was the big unknown — would the announcement of Amazon HQ2 cause homeowners to quickly put their homes up for sale to take advantage of a higher resale value or would those owners decide to hold on for the mid/long run, hoping for a much greater return 5-10+ years from now? The early data in Arlington and Alexandria suggests a preference for the latter.

 

New Listings Way Down

The easiest way to answer the question is to look at the Year-over-Year change in the number of new listings to hit the market each month. Over the last three months, the YoY difference in new listings in Arlington has been -11%, -18.4%, and -13.9%. The City of Alexandria has followed a similar pattern.

  

Months of Supply…Also Way Down

Months of Supply is a supply/demand reading that tells you how many months it would take for all the homes currently on the market (supply) to sell, given the current rate of sales (demand). Economists generally consider six months of supply to represent a well-balanced real estate market for both buyers and sellers. Arlington and the City of Alexandria have hovered around 2-3 months of supply for most of the past 6-7 years, having never dropped below the one-month mark for 10+ years…until December 2018, when the two combined to average about .75 months of supply each of the last three months.

What Does This Mean For Northern VA?

You can shield the Seven Kingdoms from White Walkers by stacking up all of the frustrated buyers searching in Arlington and Alexandria. Some may decide to pass on buying a home and continue renting, find a way to make their existing homes work, or move out of the area altogether, but many others will start to look further west for value (it’s there, trust me). Expect to see an immediate spillover into Annandale, Falls Church, and Springfield; that shift has already started with many of our clients.

What To Inspect Before Buying A Home

Question: I’m hoping to purchase a home this year and wondering what types of inspections I’ll be able to do on the home before buying it and about how much they will cost. 

Answer: Most sales contracts include an Inspection Period (usually 3-14 days after an offer is accepted) for buyers to conduct various inspections of their choice on the property. Depending on how the contract is structured, buyers may have the right to negotiate for repairs or credits based on the findings and/or the right to terminate the contract.

 

Standard/Common Inspections

  1. General Inspection: This is the most common inspection for buyers to conduct with costs ranging from about $300-$1,000 depending on the size, age, and type of the home. A General Inspector is hired by the buyer and works for the buyer, not for the seller or the buyer’s agent. A general inspection is classified as a “visual inspection” of the surface, structural, and mechanical components of a home like appliances, flooring, electrical, plumbing, foundation, and other elements which includes running all mechanical components they can access. Your inspector cannot open up walls or floors and, in many cases, cannot climb on roofs.
    A good inspector will be able to identify many of the home’s flaws through the general inspection as well as identify any signs that further specialty inspections are needed (see below). Some inspectors carry high-end thermal readers to find evidence of moisture, poor insulation, or faults in the ductwork. After the inspection, you’ll receive a detailed report with photos, descriptions, and recommendations of everything the inspection covered. An extra benefit of an inspection is that you’ll learn a lot about how your home works and propert maintenance.

  2. Radon Testing: Radon is toxic gas from the ground that is known to cause cancer with prolonged exposure above certain levels (EPA website). Most homes in Northern VA have an average to above average risk of elevated radon levels and it is impossible to know without testing. Radon levels can vary widely from one house to another on the same block. I always recommend buyers test for radon if they have basement/below ground living areas (radon generally doesn’t impact above-ground levels).
    The test is relatively inexpensive ($150-$200) and most general inspectors can administer the radon test as well, which requires a small box to sit in the basement for 2-3 days. In the event of elevated radon levels, radon remediation systems are highly effective and usually cost about $1,000.

  3. Wood-Destroying Insect (WDI) Inspection: Around here this is primarily an inspection for termites or carpenter bees. With a cost of $50 or less it makes sense for buyers to order this for a purchase of a townhouse or single-family detached home (generally not necessary for a condo). Of note, the Northern VA Sales Contract requires sellers to cover the cost of any treatment or repairs related to WDI. This can usually be ordered with the general inspection or separately with a pest company.

 

Specialty Inspections

In some cases, it makes sense to bring in specialists for additional inspections. This may be on the recommendation of your General Inspector or for a number of other reasons. Ultimately, this comes down to a cost-benefit analysis by you and your agent because you can easily spend thousands of dollars on specialty inspections. The following is not an exhaustive list of specialty inspections, but those that tend to be the most common. Cost estimates do vary.

  1. HVAC Inspection ($150+)

  2. Chimney Inspection (free-$200): A structural flaws in a chimney or a failing liner can be very expensive or unsafe if you plan to use the fireplace. A chimney inspection will include a scope of the interior of the chimney.

  3. Roof Inspection (free – $200)

  4. Mold Testing ($150+): Ranges from air sampling to testing of a specific area with known mold

  5. Lead Testing (varies): If you suspect lead-based paint or want to test for lead in the water. This is worth further discussion around lead and lead paint with your agent.

  6. Structural Inspection ($250-$1,000+): Settling and settlement cracks are normal, but signs of continuous or abnormal settlement warrant a visit from a structural engineer. A good General Inspector will be able to tell you whether or not further structural evaluation is recommended.

  7. Water/Sewer/Gas Line Inspection: ($500+): The main lines connecting your water, sewer, and gas from the public lines to your home are expensive failure points, with replacement usually costing $5k-$10k in addition to repairing any landscaping, driveway, etc torn up in the process. Tree roots are a common cause of damage. These inspections involve scoping of the entire line and get pretty expensive. An alternative to paying for these inspections is purchasing relatively cheap insurance through Dominion Energy’s insurance partner HomeServe.

  8. Electrical Inspection ($200-$500): If there are concerns over the quality of the electrical system/installation, you can hire an electrician for further evaluation

  9. Plumbing Inspection ($200+): If there are concerns over the quality of the plumbing lines, you can hire a plumber for further evaluation and, for an additional cost, scope the plumbing lines

  10. Pool Inspection (varies)

 

I usually recommend starting with the standard inspections and adding additional inspections as needed. If you want to include a bunch of specialty inspections in addition to the standard inspections, you’ll want to make sure your contract provides enough time in the Inspection Period to complete all of them and set that expectation with the seller up-front, especially if the home is occupied. Keep in mind that even with a full Inspection Contingency in place, with the right to negotiate for repairs and credits, there’s no guarantee that after paying thousands of dollars for inspections that the seller will agree to repair, replace, or credit everything you ask them to.

 

Tax Assessment vs List Price: Who Is Right?

Question: I am interested in making an offer on a home, but the asking price is nearly $80,000 higher than the County’s tax value. Will I be overpaying if I offer over the tax assessment? Can I use the tax assessment to negotiate a lower purchase price?

Answer: This is one of the most common questions I’m asked by clients early in the buying process. The fact is that the majority of homes are assessed below market value (sold price) and you should not rely on the County’s assessment to determine how much you’re willing to pay for a home.

 

Negotiate Away, But Don’t Expect Them To Listen

As for using it in negotiations, you should find any angle you can to negotiate a better deal for yourself so if pointing out the tax assessment helps you get a better deal, by all means go for it! However, don’t be surprised when the seller or the seller’s agent quickly dismiss it, especially if they’ve seen the data presented in this column (sorry!).

 

2018 Tax Assessment vs 2018 Sold Prices

Let’s take a look at how Arlington County’s 2018 Tax Assessment Values compared to the actual purchase price of homes that sold in 2018. The table below is based on 689 of the ~3,000 total sales in Arlington from 2018. For some reason, the MLS doesn’t have updated 2018 tax assessments for most of the transactions hence a limited data set, but 689 data points are plenty.

In 2018, homes in Arlington sold an average of 7.6% higher than their assessed value. By comparison, Zillow claims that their Zestimates have just a 3.3% margin of error in Arlington. Just 17.1% of homes sold for less than their 2018 tax assessment and only 8.3% sold for 5% or less than the assessed value.

 

Appealing Your Tax Assessment

If you’re an Arlington homeowner, you should be happy to hear that you’re most likely paying taxes (.996% rate) on a value that represents less than what your home is worth. For those of you who are not happy with the assessed value of your home, every year you have an opportunity to appeal your assessment, but the burden of proof is on you, not the County, and it’s not easy even if you have solid data. Arlington provides an informative website on the appeal process.

 

Quick hits on that process:

  • Your first appeal with the Dept of Real Estate Assessments must be filed by March 1 of that year

  • 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

Too Many Real Estate Agents?

Question: I’m a bit overwhelmed by the number of real estate agents claiming to be “Arlington experts.” How many real estate agents worked in Arlington last year? 

Answer: The residential real estate profession has one of the lowest barriers to entry of any industry. While there are a lot of great agents out there, dedicated to their profession and delivering real value to their clients, it’s easy for just about anybody with a couple of months to study and a couple thousand dollars to represent you in a real estate transaction.

That’s why it’s important to ask your agent if they’re full-time or part-time, how they conduct business, and about their professional background.

 

The Data

In every transaction there are generally two agents – one representing the buyer and one representing the seller. Below is a breakdown of how many agents were involved in Arlington transactions in 2018:

  • 1,669 different agents represented buyers and 1,452 different agents represented sellers in 3,095 transactions representing just over $2B in sales volume

  • 71% of those agents represented one Arlington buyer and 65% represented one Arlington seller in 2018

  • 85 agents represented 10+ transactions in Arlington in 2018 and 18 agents represented 20+ transactions in Arlington

  • Buy-side agents worked for 260 different brokerages (offices) and sell-side agents worked for 284 different brokerages

  • Congratulations to Keller Williams Realty for being the top brokerage by transaction and dollar volume for both buyers (378, $250M+) and sellers (428, $281M+) in 2018 and congratulations to the Keri Shull Team of Optime Realty for being the top agent/team by transaction and dollar volume for both buyers (129, $79M) and sellers (83, $57M+).

An agent’s volume in Arlington isn’t the whole story. There are many great agents on this list who do most of their work outside of Arlington and there are quite a few agents who transact simply for their own investments.

 

What Do You Think?

Most studies suggest that consumers are less concerned with measures like sales volume and more focused on the strength of communication and trustworthiness of the agent they’re working with. I’d love to hear whether you, as a consumer, consider transactions or sales volume a top three factor when choosing an agent.  

Interestingly enough, I often find that most people want to make sure their agent isn’t doing too much business and being spread too thin.

While some may see the low barrier to entry and high volume of agents as a negative, it also means that you have a lot of choices as a consumer and, with some effort, can make sure that you’re working with somebody who will provide the type and style of service you’re looking for. It’s completely reasonable to interview multiple agents and the more you can express what you want from an agent, the better chances you’ll have at working with the right person.

Does Virginia, Washington DC, or Maryland Have the Most Favorable Taxes?

Question: I recently got a job in the DC Metro area and will be moving to the area next year. I am open to living in Northern Virginia, Washington DC, or Maryland and want to know which jurisdiction offers the most favorable taxation. 

Answer: Congratulations on your new job (Amazon HQ2?)! There must be a lot going on in your mind right now like whether you’re still young enough to offer your friends pizza and beer to help you move.

 

For years I’ve looked for a good resource to send clients in response to this question and couldn’t ever find it, so I reached out to my CPA, Klausner & Company located in Arlington VA, who I highly recommend, to come up with a detailed yet simple chart to compare taxation between Virginia, Maryland, and Washington DC across different incomes. So with that, I will turn this week’s column over to Chris Light and the tax experts at Klausner & Company, enjoy!

 

First thing’s first, Virginia, Washington DC, and Maryland all have reciprocity with each other. This means that if you live in one state and work in the other, you only have to worry about paying taxes and filing a tax return in the state that you live in.

 

Let’s analyze the tax outlook of three different people who have just landed new jobs as employees in the DC Metro area:

  • Bobby’s AGI is $85,000. Bobby has a vehicle valued at $18,000 and a home valued at $450,000.

  • Sarah’s AGI is $150,000. Sarah has a vehicle valued at $35,000 and a home valued at $800,000.

  • Chris’s AGI is $300,000. Chris has a vehicle valued at $65,000 and a home valued at $1,200,000.

 

Important Notes

AGI, Adjusted Gross Income, is a term to describe a person’s income minus some specific deductions. Bobby, Sarah, and Chris’ AGI are all based on salary earned by the end of 2018. AGI is used to determine taxable income, as seen in the ‘Math’ chart below. Taxable income determines which income tax brackets they fall in.

 

They are all taking the standard deduction. Virginia and Maryland property taxes vary by county and city/town, so the table below uses Arlington County rates for Virginia and the average Montgomery County rate for Maryland. Now let’s crunch some numbers:

 

 

Summary of Findings

Washington DC yields the least amount of taxes from Bobby and Sarah, the comparably lower and middle-income earners. This is thanks to its mirroring of the federal standard deduction, lower real estate taxes, no tax on groceries, and no vehicle property taxes. Chris, the highest earner of the three, finds that Virginia will provide him the most tax relief. This is mostly due to Virginia’s income tax cap at 5.75% compared to Washington DC’s highest rate of 8.5% for the bulk of his income. Maryland’s lower standard deduction, extra local income tax rates bundled with higher real estate tax rates push it past Virginia as the highest taxes of the three for each income level we analyzed.

 

What About Renting?

What if Bobby, Sarah, or Chris were considering renting an apartment near the metro? If we consider apartments with comparable rents and close enough to public transportation they don’t need a car, that will take real estate and vehicle property taxes out of the equation. This would push Virginia well into first place for the cheapest place to live for all of them.

 

What If I’m Married?

How does marriage impact the equation? Let’s say Bobby got married and had a kid during 2018. Using the Standard Deduction and Exemptions table (below), it becomes apparent that even though Washington DC has no exemptions or child credits, its $24,000 standard deduction is enough to keep Bobby’s family’s taxable income lower than it would be in Virginia or Maryland (assuming Bobby doesn’t have A LOT of kids). Maryland on the other hand has a sizable exemption at $3,200 per person (see below). However, Maryland’s extra local income tax rates are the reason that its income taxes are not lower than Virginia’s at any of the levels of income that we analyze.

If you really can’t decide which jurisdiction to live in, remember that Virginia has the lowest alcohol tax, meaning you can splurge on an extra nice bottle of champagne to celebrate your new job and new home!

Thank you very much Klausner & Company for finally providing people with an easy to understand breakdown of taxation in the DMV. For those of you in need of CPA services for yourself or your business, I am a loyal, happy client and I can’t recommend them enough. They provide specialize in tax services for individuals and small business and have over 40 years of experience in the Greater Washington area.

Once you’ve taken advantage of the provided tax information and would like to talk about the non-tax related questions you have about where to live, please reach out to me at Eli@EliResidential.com. Our team has worked with buyers from all over the country and the world to find the right neighborhood and we’re happy to help you too.

Below are some additional details and comparison tables outlining the tax rates in each jurisdiction.

 

 

Dealing With Homes Selling Above Asking Price

Question: Are you seeing people use Escalation Addendums in their offers now that the supply of homes has dropped?

Answer: The use of Escalation Addendums in multiple offer situations is not new, but the frequency with which they are being used is. In the last three months over 25% of sales have been for over the asking price (another 24% have been for full ask). All-time low inventory levels + strong demand = price increases and a lot of competition from well-qualified buyers.

In the last 24 hours our team has submitted three offers on properties with multiple offers that will no doubt sell for over the asking price. In many cases, using an Escalation Addendum is the best strategy for buyers and sellers so let’s take a look at what that means.

 

What Is An Escalation Addendum?

An Escalation Addendum provides the maximum value a buyer will pay and an escalation factor, the amount their offer is to increase over the next highest offer. Sellers may use the escalation without further approval from the buyer, but they must deliver to the buyer the entirety of the contract used to escalate the accepted offer. Escalations are based on “Net Price” meaning purchase price less any seller credits.

 

Understand The Risks

The obvious risk in using an Escalation is that buyers are exposing their maximum purchase price and some sellers may ask for that max, regardless of whether or not another offer allows them to get there contractually. There are strategies buyers can use to prevent a seller from doing this and, in my experience, most sellers use Escalations as they’re meant to be used.

The other not-so-obvious problem is with non-financial differences between two contracts. The Escalation Addendum says nothing about differences in settlement date, contingencies, and other non-financial terms that make a material difference between contracts (e.g. no Home Inspection Contingency vs full Inspection Contingency is treated equally in the Escalation Addendum).

 

When To Use An Escalation Addendum

Escalations are best used when there are multiple confirmed offers and the seller has set a deadline for “best-and-final” offers. It’s important for buyers to establish expectations with the seller before they include an Escalation Addendum to maximize the benefit and reduce the risks. This is where having an experienced agent working for you can be the difference between making a smart decision and irresponsible one or securing a home and helping somebody else secure it.

 

Proper Communication Is A Win-Win

I strongly believe that with proper communication between sellers and buyers, Escalation Addendums benefit both parties by allowing the seller to draw out the highest available price for their home and allowing buyers to confidently maximize their chance of securing a home. Improper communication leads to a lack of trust and a lack of trust will almost always earn sellers less and may keep the most motivated buyer out of the home of their dreams.

I can think of a recent example where a seller left 2% on the table by failing to communicate appropriately which compromised the trust of our client leading them to hold back on their offer terms. A lack of trust kept 2% out of the seller’s pocket and kept our client out of a home they loved.

 

It’s Not Always About Price

Being the winning offer amongst multiple offers isn’t always about price. Buyers need to focus on non-financial terms as well to set themselves apart and it’s important to understand how you can increase the strength of your offer without taking on excessive risk, but that’s a topic for another day. 

If you’re thinking about buying or selling a home and would like to discuss the right strategies in today’s market feel free to email me at Eli@EliResidential.com to set-up a meeting.

 

If you’d like a question answered in my weekly column, please send an email to Eli@EliResidential.com.

I’m Moving Into A Dirty House!

Question: What obligations does a seller have on the condition and cleanliness of a home when it transfers ownership?

Answer: Many sellers apply The Golden Rule of treating others how you wish to be treated and convey their home in the condition they’d like to move into a home. Unfortunately, this rule isn’t a contractual obligation so let’s take a look at what the contract states and some common points of contention.

 

Contract Language on Property Condition

The Northern Virginia contract states that the “Seller will deliver Property free and clear of trash and debris, broom clean and in substantially the same physical condition to be determined as of [Select One] Date of Offer, Date of Home Inspection, or Other [as defined in contract].” If you’re doing a home inspection, use the home inspection as the date of determination because there’s a documented property condition report. 

All systems, finishes, and fixtures convey in as-is condition as of the time period selected in the previous statement, unless otherwise noted in the contract. Electronic components/devices don’t convey, but all related mounts and hardware do (e.g. TV goes, the wall mount does not).

 

Your Final Walk-Thru

The final walk-thru is your opportunity to catch any property condition issues before they become your problem. Once you sign the paperwork any leaks, holes in the wall, or faulty systems are yours to deal with. While the contract allows you to do a walk-thru as early as seven days before settlement, I recommend doing it just before you sign the paperwork to reduce risk.

 

Common Points of Contention

  1. Pre-Existing Condition: During the final walk-thru you find a hole in the wall that was previously covered up by a large piece of furniture. If the hole existed prior to the contract, the seller has no contractual obligation to address it. If a faulty water heater leaks and causes damage in the basement, the seller must clean-up the leak and repair any damage the leak caused, but likely won’t be obligated to replace the faulty water heater.

    Get it? The seller’s obligations revert back to the as-is condition at the point in time stated in the contract (date of offer, date of inspection, or some other defined time), unless a separate addendum is created that provides other direction.

  2. Clean or Dirty: Broom clean doesn’t mean “clean” in the way most buyers want to arrive to their new home, so plan to hire professional cleaners prior to moving in. On the other hand, it’s normal for sellers to leave behind paint, lawn tools, and cleaning supplies. You should confirm the buyer wants these prior to leaving them behind or you may be scrambling to clear them out at the last minute to remove “trash and debris.”

  3. Nails and Screws: Do you have a bunch of nails and screws left in the wall after removing photos, art, and shelving? Leave those in place otherwise buyers can make a case that the physical condition of the home changed due to all the new holes.

Contractual obligations are not what most of us would consider the right way of doing business. That’s why I stress maintaining a positive relationship between all parties during negotiations so that when something unexpected comes up, it’s handled with care and consideration instead of contractual force. For those who subscribe to the business practice of brute force [ahem Roger Stone], I suggest picking up a copy of Ron Shapiro’s “The Power of Nice”.