Renting Back Your Home After it Sells

Question: We’re preparing to sell our home and would like to stay in the house for a few weeks after it sells. Can you explain the rent-back concept?

Answer: A Seller’s Post-Settlement Occupancy, more commonly referred to as a rent-back, allows a homeowner to sell their home, collect the proceeds, and continue living in the home for a pre-determined period after closing.

Some common scenarios for a rent-back are:

  • You need the sale proceeds for the purchase of your next home
  • You want to ensure the sale closes before you move out
  • You want to wait-out the end of the school year or last day at a job

How Rent-Backs Are Structured

The Northern Virginia Association of Realtors contract (as well as other regional contracts) provides a standard form for a Seller’s Post-Settlement Occupancy Agreement so you don’t need to worry about hiring an attorney. It functions as a short-term lease including:

  • How much the seller will pay the buyer for the rent-back
  • How long the rent-back lasts
  • A security deposit
  • A penalty for staying past the rent-back period

Buyers will conduct a pre-closing walk-through before they purchase the home where they have all the rights provided to them in a normal sale. At the end of the rent-back, the new owners will conduct another walk-through once the previous owners move out, which is like that of a walk-through at the end of a normal rental period. If the previous owners caused damage during the move-out, leave junk behind, or fail other property delivery requirements, the new owners can make a claim against the security deposit, which is generally held by the Title Company who handled the sale.

Time Limitations

If the home is being purchased as a primary residence and the Buyers are taking out a mortgage, most loans (and all Fannie/Freddie loans) require that the Buyer intend to move into the property within 60 days of the closing and thus any rent-back is limited to 60 days (I usually recommend 59, just to avoid an issue with underwriting).

If a home is being purchased with cash or as a secondary home/investment property with a loan, the 60-day limit doesn’t apply. However, the contract form you’ll use explicitly states that it’s meant to give the seller the temporary right to use the property after closing and not subject to the Virginia Residential Landlord Tenant Act, so avoid using this form in place of a legitimate lease if the Buyer/Seller intend on a longer-term rent-back.

Not Without Risk

For the new owners, a rent-back carries with it some of the same risks as being a landlord. Disputes over security deposit, damage in excess of the security deposit, or trouble with the previous owners moving out on time are all realities that Buyers need to consider.

As with many decisions in a real estate transaction, a Buyer’s willingness to agree to a rent-back is a matter of risk and benefit. The risk being issues arising like those mentioned before and the benefit being that offering the seller a rent-back can be the difference between them accepting your offer or taking somebody else’s.

Free Rent-Backs?

In “normal” markets, the fee for a rent-back is usually calculated using the new owner’s carrying costs (mortgage + taxes + insurance), but in our hyper-competitive market, many Buyers offer Seller’s a free rent-back as a way to increase the competitiveness of their offer. A free rent-back isn’t worth much if the seller is asking for an extra week, but it certainly adds up if they’re asking to stay for 6-8 weeks past closing.

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

Poll: Will You Be in Arlington in Five Years?

Question: Do you expect Arlington to suffer from an urban migration to less populous areas due to COVID?  

Answer: There has been no shortage of articles written about COVID’s impact on desirability of urban living and areas like NYC and SF have already seen drops in demand. I wrote a couple of weeks ago that demand (measured by absorption rate) in Arlington seemed to be tapering slightly, while increasing across Northern VA. This could be a sign that some buyers are choosing more distant/less populous communities, but it could also be a result of how little inventory there is and how quickly prices have gone up.

POLL

Are you more or less likely to be an Arlington resident five years from now due to the impact COVID has had on you or your partner’s life/commuting requirements?

Participate in the poll at ARLnow.

I don’t think we’ll know how COVID will impact long-term demand in Arlington until we see whether or not it results in substantial changes to where/how people work. Most people I’ve spoken to don’t know whether their employers will make permanent changes to telework schedules or flex hours, or whether they will return to their pre-COVID work routines once life returns to normal.

Commute times are a top-three consideration for most Arlington residents so it’s hard to argue that a trend towards 50% or more telework days per month won’t reduce housing demand in Arlington. The next decade is also likely to bring major improvements to autonomous driving and the commuting experience which will allow some to bear longer commutes by increasing productivity during the drive.

But just how much would net demand change? I can also see a scenario where Arlington residents who leave for more space and/or less expensive housing are replaced by new residents from cities like DC, NYC, or SF looking for a better balance of urban and suburban life.

Major shifts in telework and commuting may reduce long-term demand for Arlington housing, but I think it’s far from a doomsday scenario where the bottom drops out of the market. Commuting is still just one factor of a much larger set of needs and wants that Arlington offers its residents so it’s more likely to result in tapered housing appreciation over the long-term, rather than negative growth.

Let’s check back in on this in 2025 to see how we’re doing…

How to Write a Strong Offer

Question: The last time I bought a house, the market was much more favorable for buyers. I’ve heard so much about competing offers and the need to submit a strong offer, but what exactly does that mean?

Answer: Other than price, there are about a dozen terms included in your offer that will determine its strength — the value/appeal it has to the seller. Of course, every home owner wants to get the most money possible, but they also care about when the sale is executed, the likelihood of getting to settlement, renegotiation periods, risk and more.

Sometimes a seller takes a lower offer price in exchange for better supporting terms. Understanding what type of offer is appropriate/necessary for a property and how certain terms change your (buyer or seller) risk exposure on the transaction is critical.

Let’s take a look at some of the terms included in most contracts that have the biggest impact on the actual or perceived strength of an offer.

Price/Escalation Addendum

This is an obvious one. Higher price = stronger offer. Escalation Addendums are common when there are multiple offers, but how and when to use them is a nuanced, yet critical, decision.

The Escalation Addendum allows you to beat any competing offer by a specified amount, up to the highest amount (ceiling) you’re willing to pay for a property. Used correctly, it prevents you from leaving money on the table, while not paying too far above what the rest of the market is willing to offer.

Contingencies

The three most common contingencies are for the home inspection, appraisal, and loan. Each provide the buyer with a set of protections that allow them to renegotiate and/or terminate the contract, without losing the deposit. Removing a contingency or shortening the contingency timeline increases the strength of an offer.

  • Home Inspection:  It used to be standard for Arlington buyers to include a negotiation period in the home inspection contingency, allowing them to negotiate for repairs or credits based on the results of the inspection or terminate the contract. Now it is much more common for buyers to forego the negotiation period and simply retain the right to void (aka a pass/fail inspection), which is much more attractive for a seller. Even more attractive is when buyers perform a pre-inspection on the property (inspect before submitting an offer) and remove the home inspection contingency altogether.
  • Appraisal: If you’re using a mortgage to purchase a home, your lender will almost always require a property appraisal. The appraisal contingency allows you to renegotiate or terminate the contract in the event the home appraises for less than the purchase price. It is common for buyers to remove the appraisal contingency or agree to cover up to a certain amount on a low appraisal to increase the strength of an offer.
  • Financing: The financing contingency allows you to terminate the contract without losing your deposit if your loan isn’t approved. Many buyers who have undergone a thorough pre-approval process have enough confidence in their ability to secure the mortgage that they remove this protection, thus conveying a strong financial position to the homeowner.

Speed of Sale

Most sellers want to close (executed sale) as quickly as possible so cash-buyers have the biggest advantage here because they can usually close in a week or less. For the more than 80% of Arlington home buyers relying on a mortgage, many choose to work with smaller, local lender who can sometimes close in as little as 2-3 weeks. Offering a quick-close to a seller can give your offer a significant boost.

Financing

If you’re relying on a mortgage, sellers are usually more drawn to higher down payments. That’s not to say that a 3-5% down  payment (or 0% on a VA loan) can’t win in a competitive scenario, but you are at a disadvantage and will often get passed over when all other terms/pricing are relatively equal.

A thorough pre-approval process by a quality/reputable lender can provide the seller with confidence that if they accept your offer, there is very little risk of the deal falling apart due to financial issues. Sometimes sellers take less money work with a buyer they have more confidence in.

Earnest Money Deposit (EMD)

This is money held in escrow (usually by the Title Company) as security for the seller that you’ll perform under the obligations of the contract. It gets applied against what you owe at closing for down payment + closing costs, but is at-risk if you default on the contract (terminate outside the legal means/contingencies).

Traditionally, a reasonable deposit ranged from 1-3% of the purchase price, but some buyers are electing to make substantially larger deposits in an effort to establish financial strength. Instances of buyers offering deposits of 10% or more are becoming more common.

Rent-Back

Oftentimes if the homeowner is still living in the house during the sale, their preference is to close as quickly as possible and then have some time to move out after the sale is complete – this is called a rent-back. It used to be common for the seller to cover the buyer’s daily carrying cost (mortgage + taxes + insurance + HOA fee) for the length of the rent-back, but in this hyper-competitive market, a strong offer often includes a free rent-back for the seller.

The use and structure of each of these terms is dictated by many factors including demand/competition, days on market, seller-preferences, and buyer priorities/risk tolerance. As a buyer, being prepared with the right offer strategy and understanding the risk-benefit tradeoffs for each term can be the difference between landing your dream home or going back to the drawing board.

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

Question: Can you provide some clarity on how mortgage forbearance works and whether that will negatively affect my credit score?

Answer: I’ve received quite a few emails from folks considering mortgage forbearance or asking for clarification on (usually) incorrect information provided to them from friends or family about the process. We don’t have all of the answers yet, but enough information is available to help people make more educated decisions about forbearance.

To explain forbearance and some of the unintended consequences, I asked one of the top mortgage lenders in the DC Metro, Jake Ryon of First Home Mortgage, to join as a guest columnist. If you’d like to talk with Jake about a loan, refinance, or any other mortgage related question you can contact him at JRyon@firsthome.com.

Take it away Jake…

What is Mortgage Forbearance?

Congress passed the CARES Act, allowing those facing financial hardship due to COVID-19 to request a mortgage forbearance (pause in mortgage payments) for 180 days, with the option to extend for an additional 180 days.

The bill does not require you to provide proof that you’re suffering a hardship, but the CFPB makes it clear that if you can pay your mortgage, you should. However, not everyone is following that guidance and some borrowers who are able to pay are choosing not to and may suffer unintended consequences.

Mortgage forbearance is a temporary pause in payment; it is NOT forgiveness. All missed payments by the borrower must be paid back.

Repayment

Unfortunately, the repayment terms for a forbearance are vague. Statements from Fannie and Freddie indicate that you do not have to repay the missed payments all at once, but that it is for the borrower to work out with the servicer. If the payments are not paid back in a lump sum or over a designated period, but instead added to the end of the loan, the borrower is agreeing to a loan modification.

During a forbearance the servicer (the company you pay) is still advancing the monthly mortgage payments to the end investor. This has led to major issues for lenders, and as a response, tightened credit standards and made it more difficult to obtain a mortgage.

Unintended Consequences

While taking a forbearance is not supposed to negatively affect your credit, there are some unintended consequences I’d like to explain.

*Please note this is based on the most up to date information I could find and is subject to change as this is a fluid situation. Please reach out to your loan servicer directly for your options. *

Refinancing: This may vary by lender, but as I understand it, to be eligible to refinance, borrowers must be out of forbearance and current on their mortgage. This is a big concern if rates continue to fall throughout the year.

Repayment Terms: As mentioned earlier, there are options to repay the missed payments via a lump sum, over a repayment period, or modifying the term of the loan. Keep in mind the servicer must agree to the repayment plan.

I’m hearing that modifications are only being offered if there is documentation to show you’ve been adversely affected by COVID-19. This is going to be problematic for borrowers who didn’t lose their job and assumed their skipped payments would be tacked onto the end of their mortgage or forgiven.

Buying Your Next Home: Since this is so new, we haven’t seen any credit reports reflecting modifications as a result of COVID-19. It’s unclear how lenders and investors will treat these modifications when evaluating new loans.

For example, most investors want to see borrowers pay their mortgage on time for a minimum of 12 months after their modification begins. If someone takes the full 12 months of forbearance, they could be looking at a minimum waiting period of 2 years before obtaining a new loan.

Residual Effects to Your Credit: While the CARES Act says mortgage lenders won’t report you as delinquent during a forbearance, they can’t control how other lenders will view it. For example, if you’re a credit card company and you see a borrower is in forbearance, are you inclined to increase their credit limit or issue a new card? If your credit card debt is increasing and your available line of credit is staying the same or decreasing, it will most likely lower your score.

Weekly Arlington Market Snapshot

Thank you very much for your insights Jake!

Here’s a quick look at how the Arlington market performed over the past week, compared to the prior week. New inventory and the inventory pipeline dropped down to some of the lowest one-week levels we’ve seen this spring, while contract activity remained relatively strong.

Past Seven Days (Arlington) 
Seven Days Prior (Arlington)

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

Impact of Coronavirus on the Real Estate Market, Part 2

Question: What has been the impact of the Coronavirus/COVID-19 on the real estate market?

Answer: What a difference a week makes. Last Tuesday I started off semi-apologetic for writing what felt like a click-bait article at the time and this week it feels like writing about anything else would be absurd.

Last week I wrote that the impact of COVID-19 on real estate thus far was business as usual with a few big “What Ifs.” Those What Ifs came to fruition within 24-72 hours of Tuesday’s column – major changes to our daily routines (school closures, work closures) and significant changes in the global/domestic economy.

It is no longer business as usual in real estate, but the show still goes on for most buyers and some sellers…for now.

This week and in the following weeks I will do my best to communicate the impact of the Coronavirus on the local real estate market through my experiences, experiences shared by my colleagues/industry partners (inspectors, lenders, etc), and market data.

What I’m Seeing/Hearing

Combining the reactions of my clients and clients of the 15-20 agents I’ve spoken with over the last few days to gauge shifts in supply (sellers) and demand (buyers), it seems that many/most buyers are staying the course with their purchase but the jitters seem to be setting in more over the last couple of days, especially for those who also need to sell a home. Sellers are much more nervous, understandably so, and many are questioning their need/plans to sell their home.

Most agents experienced noticeable drops in Open House and showing traffic over the weekend, although I spoke with a few agents who hosted 20+ groups during an Open House. My guess is that there are fewer people visiting homes who aren’t serious/ready buyers and that usually makes up a large percentage of total foot traffic.

Many of the agents I spoke with who submitted an offer this weekend still found themselves competing against multiple offers with strong terms, but the number of competing offers seemed less than what they would have expected a few weeks ago. I experienced this on a house in South Arlington that 2-3 weeks ago would have probably gotten 5-10 offers, but my client was up against just one or two, albeit strong, offers (they won!).

I think one of the best measures of buyer demand/activity is home inspection bookings. I spoke with Ken Humphreys, the Area Manager of Virginia and Maryland for BPG Inspections, one of the largest inspection companies in the country, and he shared some valuable insights on his activity, as well as regional and national activity.

Almost all of Ken’s business is in Northern VA and during a hot market (like the last 8 weeks) he’s often booked out for 5-7 days. His schedule is full this week Monday-Wednesday but wide-open starting Thursday, which never happens.

In Virginia and Maryland, their bookings are down 15% from where they were last week and they were projecting a 10% increase in bookings this week over last, given the time of year. Bookings are down about 20% nationally.

Transactions Still Going

There was some concern that transactions would be halted due to courts, appraisers, and loan underwriters shutting down due to Coronavirus but so far everybody is operational, with some adjustments to adhere to social distancing practices.

Arlington County courts, like many others, have restricted walk-in business but essential services are still available which includes e-recording of deeds (allows property ownership to officially transfer). Lenders and appraisers are still operational, but people should prepare for longer turn-around times. The slowdown on appraisals is actually due to the massive spike in refinancing over the last few weeks when mortgage rates dropped to all-time lows (spiked back up last week due to heavy volume).

Unfortunately, virtual closings aren’t widely accepted yet so buyers and sellers do need to sign in-person in the presence of a notary, so somebody in quarantine or older buyers/sellers who don’t want to mix with the rest of the population will need to take steps to ensure safe distance and cleanliness in order to sign paperwork.

What To Expect

Nobody knows what life and the economy will look like 4-8 weeks from now, but at this point in time, it’s my takeaway that supply is likely to take a bigger hit than demand, but both will have a noticeable drop-off.

It’s still a little too early for me to use listing and contract activity data to see how the market is reacting, but I’ll have enough to work with by next week’s column to present actual market data.

Stay healthy everybody!

Impact of Coronavirus on the Real Estate Market

Question: How will the threat of Coronavirus impact the real estate market in 2020?

Answer: I wasn’t planning to write this, it seems a little click-baity (now my “Trump’s Impact on Real Estate” column has some competition!), but I got the question four different times in under 24 hours last week so here I am writing about it.

Too Early To Know

Nobody knows how Coronavirus is going to impact the real estate market over the next month or the next ten months because we don’t know what the real impact of the virus will be on public health and markets. According to President Trump, it could disappear one day “like a miracle” and according to others, we could face a devastating pandemic.

Yesterday’s stock market closed down nearly 8% and this morning, the Futures were up almost 4%. Uncertainty slows the real estate market down and the only certainty right now is how uncertain the markets and public are about COVID-19. It’s hard to see how this type of uncertainty doesn’t create a drag on real estate across the country, the question is how long it will last.

Beyond the uncertainty, you have the very real impact of a sharp decline in investment/retirement accounts that many people use for down payments. With many accounts down double digits over the last two weeks, some buyers may reconsider their decision to sell stocks right now.

On the other hand, interest rates are historically low, hitting all-time lows last week, and the real estate market across the greater DC Metro has been on fire since January so it’ll take a major shift in demand to slow things down as we head into peak buying season.

What I’ve Heard

So far, what I’m hearing from clients, colleagues, and other industry partners (lenders, title, etc) is that buyers are hoping the Coronavirus slows the market down so they can have a better opportunity to buy, but there seems to be very few people actually pulling out of the market or reducing offers because of it.

Currently, buyers still seem more motivated by historically low rates and lack of buying opportunities than they are concerned that the likely impact of the virus. It seems that long-term confidence in local real estate is still a stronger influence on people’s decisions.

I think this mindset could change quickly, having broad negative effects on the local real estate market, if markets continue to tank, systematic failures in the market appear (e.g. Mortgage-backed Securities in 07-08), or people begin experiencing more direct effects of the virus like work/school closures or people they know testing positive. This is an important change to watch for if you’re considering putting your home on the market in the coming weeks.

Don’t Overvalue Speculation

It’s important to distinguish between fact and speculation and not overvalue speculation. If you spend 30 minutes online today, you’ll be able to find an assortment of well-supported reasons why the markets is on the brink of another recession as well as well-supported reasons why everything will be just fine, with growth ahead.

Your decision should be rooted in things you can rely on like how long you can live happily in a home (nothing creates value like longer ownership periods) and what your best alternatives are to buying (renting, staying put) or selling (do you have a better utilization of your equity?).

Of course, you want to consider the national, regional, and local economy as well as neighborhood trends, development pipelines, and other factors that will influence appreciation/depreciation potential, but be careful not to overvalue speculation.

(Tax) Assessment Values Well Below Market Values

Question: The County significantly increased the assessment value of my home this year, should I appeal it?

Answer: It’s that time of year again…time for homeowners to find out they’ll be paying more in real estate taxes this year due to an increase in the assessed value of their homes. Arlington increased the assessed value of residential real estate by an average of 4.3%, which is less than the 6.3% increase in average sold price in 2019 and much less than the 8.9% increase in median sold price.

Tax assessments are based on the sum of the County’s determination of the value of the land your home sits on and the value of the improvements made to that land (your home). The County adjusts each of these values every year to generate the total assessed value, of which Arlington homeowners pay about 1% of each year to the County in real estate taxes.

Based on conversations I’ve had with homeowners around the County, it sounds like most of the increase in assessments this year were driven by increases in the land value, which makes sense.

Assessed Value vs Market Value

While it is frustrating to see your assessment increase so much, costing homeowners an average of a few hundred dollars in additional tax payments, it’s highly unlikely you’re in a position to challenge your assessment. Over the last 14 months, the County’s assessed value was an average of 14.2% below what homes actually sold for.

Here’s a breakdown of how the County’s assessment compared to actual sold prices since 2019, broken out by zip code, property type, and price range. Here are some highlights from the data:

  • If the County’s assessment matched actual market values, homeowners would pay an average of about $800 more per year in taxes
  • Unsurprisingly, the zip codes with the greatest difference between market values and assessed values were all three South Arlington zip codes (22202, 22204, 22206), with homes in 22202 (home to Amazon HQ2) selling for nearly 20% more than the County’s assessment
  • The County has the most difficult time assessing home values in 22205 compared to other zip codes and, unsurprisingly, detached homes compared to condos or townhouses
  • Residents who own homes worth over $1M benefited the most by the County’s low assessments, with market values nearly 19% higher than their tax assessment, resulting in an average annual savings of about $1,900 if the County’s assessments were on par with market values
Zip CodeAvg Sold $ to Assessment $StdDev Sold $ to Assessment $Avg Difference Sold $ vs Assessment $
2220112.3%8.7%$71,412
2220219.7%15.9%$108,083
2220313.1%10.7%$72,268
2220415.4%13.7%$62,933
2220515.4%19.3%$126,150
2220618.1%11.9%$71,783
2220711.1%14.4%$106,188
2220910.7%8.8%$57,149
2221310.4%9.7%$40,016
Arlington14.2%13.0%$79,434
Property TypeAvg Sold $ to Assessment $StdDev Sold $ to Assessment $Avg Difference Sold $ vs Assessment $
Condo13.9%10.6%$50,659
Detached14.0%17.0%$118,925
Townhouse15.0%9.9%$81,220
All14.2%13.0%$79,434
Price RangeAvg Sold $ to Assessment $Avg Difference Sold $ vs Assessment $
<$1M13.3%$58,720
$1M+18.6%$187,718
Total14.2%$79,434

As reported by ARLnow last week, the County will not increase the tax rate (percentage of assessment homeowners pay in annual taxes) and may still decide to reduce the tax rate to offset increased assessments. The hope for many homeowners is that as commercial vacancy rates drop from the historic highs over the past decade, the increased tax revenue from businesses will allow the County to ease the tax burden on homeowners by reducing the residential real estate tax rate.

As always, if you are considering buying, selling, or investing in Arlington/Northern VA real estate, feel free to email me at Eli@EliResidential.com if you’d like to discuss your strategy and/or current market trends.

2019 Arlington Real Estate Market Review: Detached/Townhouse

Question: How did the Arlington real estate market do in 2019?

Answer: Arlington’s real estate market made the national news cycle more than a few times in 2019 with some pretty extraordinary references to rapid appreciation – some accurate and some not. I’ve seen prices in some pockets of the market surge 15-20% in 2019, but for most of the market, appreciation was strong but not eye-popping.

Overall, the average and median price of a home sold in Arlington in 2019 was $705k and $610k, a 6.3% and 8.9% increase over 2018, respectively. Average days on market dropped by one week and an incredible 61.4% of buyers paid at or above the seller’s original asking price. The number of homes listed for sale in 2019 dropped about 17% compared to 2018 and demand surged, with buyers absorbing about 67% more inventory in 2019 than in 2018.

Last week I looked at how Arlington’s condo market performed in 2019 and this week we’ll dig into the performance of the detached and townhouse/duplex markets. I did separate write-ups on the 22202 (Amazon zip code) condo and detached home markets last month and decided not to include data from 22202 in most of the analysis for this week.

Arlington Detached/Townhouse Market Performance

First, we’ll take a look at some of the key measures for market performance across Arlington and within North and South Arlington. I’ve listed some highlights below, followed by a summary data table:

  • Median detached home prices increase by 6.7% from $890k in 2018 to $950k in 2019
  • Median townhouse/duplex prices increased 8.5% from $530k in 2018 to $575k in 2019
  • Average detached homes prices increased by an average of 5.1% and townhouse/duplex homes by 3.6%
  • South Arlington appreciated more than North Arlington, particularly in the less expensive townhouse/duplex market
  • On average, a detached home in North Arlington is 55.5% more expensive than a detached home in South Arlington and 76.9% more expensive for townhouse/duplex homes
  • Buyers accomplished very little trying to negotiate with sellers, averaging just 1.1% off original asking prices on detached homes and paying an average of 1% over the original asking price on townhouse/duplex homes
  • The number of new detached homes sold in 2019 was just below the trailing five-year average. Note that not all new homes make it in the MLS, so the actual count is likely a bit higher.
Performance By Zip Code

Next let’s take a look at average prices for both detached and townhouse/duplex homes by zip code:

  • Over the last five years, the top performing zip codes have been 22202 (National Landing) and 22209 (Rosslyn area), with Amazon HQ2 and Nestle leading the way in the commercial sector for those zip codes, I wouldn’t be surprised to see this trend continue over the next five years
  • Nearly all of the appreciation for 22202 came from 2019’s Amazon bump
  • If I remove new construction sales from the data, the appreciation percentages remain relatively similar for every zip code except for 22203 and 22213. Without new construction included, 22203 gained 4.5% (instead of zero change) and 22213 gained .5% (instead of dropping 2%), in 2019.
Additional Charts/Market Highlights

In each quarter last year, the market produced an average of 15% fewer detached homes in 2019 than it did during the same period in 2018. Interestingly, the market produced more townhouse/duplex homes in the 1st and 4th quarters of 2019 than the same periods in 2018.

https://cpp1.getsmartcharts.com/chart/mls/1/getreport.php?rid=2&ftid=2&fid=1001,1004&gty=4&ltid=4&lid=51013&gid=2&cc=dd0000,05c500&sid=1&mid=2&tt=2&mode=4

Within the detached home market, lower (+5%) and mid-priced (+6.4%) homes appreciated more in 2019 than the upper-end (4.3%) of the market. I think we will see an even sharper appreciation in the lower 25% of the market in 2020.

Since bedroom count is such an important factor in most homebuyer’s criteria, I thought it’d be interesting to take a look at the average cost of a home in 2019 by the number of bedrooms it had. Not much explanation needed for this one!

Looking Ahead

I will be keeping a close eye on inventory levels as this year starts off. However, I think demand is so high that it would take a significant increase in inventory to slow price appreciation in 2020.

With rates remaining low through last year and projected to do so again this year, coupled with strong employment rates and stocks, buyer confidence is high. On the flip side, markets usually stagnate heading into a Presidential election so it’ll be interesting to see if/how the election effects counter the current momentum.

I think that over the next 5-10 years, detached home prices will appreciate significantly as demand rapidly increases with employment growth, yet we will not be able to introduce any meaningful supply increases due to limits on available land. Condo supply and even townhouse/duplex/triplex supply can be increased with development and changes to zoning laws, but it’s unlikely we will be able to add more supply to the detached market other than one-for-one replacements (tear-downs) and the occasional subdivision of a larger lot.

Thanks for reading along! If you have any questions or I can be of any help with your real estate needs, don’t hesitate to reach out to me at Eli@EliResidential.com.

The 20% Down Payment Myth

Question: Is it possible to buy a home with less than 20% down?

Answer: I’m always surprised by the number of people who assume they have to put 20% down to buy a home and delay their goal of becoming a homeowner for years because of it. Studies show that the most common reason people give for not buying a home is that they don’t have enough for a down payment.

In reality, about 1/3 of Arlington buyers purchase a home with less than 20% down and for many buyers, especially first-time home buyers, they’re putting as little as 3-5% down.

Programs For Everybody

For those with good credit, there are popular Conventional Loan programs allowing for as little as 3% down and for those with lower credit scores, FHA Loan programs range from 3.5%-10% down. There are also some exceptional programs available to those with great credit and strong incomes allowing for 10%-15% down at great rates.

Specialty Programs For Military and Doctors

If you are an active-duty or former servicemember you likely know about VA Loans that allow purchases with zero down. Doctors also have access to special loan programs offering great rates with low down payments for large loan amounts.

Mortgage Insurance

Most loans with less than 20% down will include mortgage insurance, which I wrote about here. It will increase your monthly payment and generally represents a higher percentage of your loan amount the less you put down. However, there are options to get rid of the mortgage insurance fees by buying it out or applying for early removal after a couple of years. There are also some programs that do not include mortgage insurance at all.

Impact on Negotiations

Clients often ask me how much a lower down payment will impact their ability to negotiate, so last year I ran the numbers on the impact of different down payments on the percentage buyers were negotiating off the sale price. The results showed that only cash buyers (100% down) and buyers not putting any money down were materially impacted by their down payment, the negotiation leverage was pretty similar for everybody in between.

However, it would be misleading to suggest that down payment percentage doesn’t have any impact. Most sellers will respond more enthusiastically to higher down payments and this comes into play in competitive scenarios (multiple offers), which has become common in Arlington and the surrounding DC Metro neighborhoods. When sellers are choosing between multiple, similar offers, buyers with higher down payments have an advantage.

Buyers can combat the potential negative impact of a lower down payment in multiple offer scenarios by getting a strong pre-approval letter from a reputable local lender, offering to get pre-approved by a lender of the seller’s choosing, increasing the Earnest Money Deposit, or a number of other tweaks to the contract that will be looked at favorably by the seller, without increasing risk to the buyer or increasing the offer price.

Favorite Mortgage Programs

Here’s a link to an article I wrote with some of my favorite mortgage programs and contact information for great lenders who offer them.

If you’d like any additional information or recommendations on lenders or loan programs, don’t hesitate to reach out to me at Eli@EliResidential.com. If you’re thinking about buying a home in Arlington or the surrounding Northern VA/DC Metro neighborhoods, I’d be happy to meet with you to discuss your options.

71% Of Homes Sell Within Ten Days

Question: How fast are homes selling in Arlington this year and how does that compare to previous years?

Answer: Days on Market measures the number of days between a home being listed for sale and when it goes under contract. Low days on market is one of the leading indicators of a hot market and signals future price appreciation.

The most common way to measure this is average or median Days on Market, currently 33 days and 9 days over the last six months in Arlington, but I also like to track the percentage of homes that go under contract within the first ten days. I generally find that this metric gives buyers and sellers a better feel of the market.

Fast & Furious 2019

The percentage of homes that go under contract within ten days has skyrocketed in 2019, doubling the rate seen in 2015 and 2016. Below, you can see how demand for South Arlington homes has been increasing relative to North Arlington over the last three years, not just since the Amazon HQ2 announcement in November 2018.

The table below breaks the market down a bit further by number of bedrooms within each market. Note the incredible demand of one- and two-bedroom homes (mostly condos) in South Arlington, with well over 80% going under contract within ten days. Even more impressive is that only about 25% of one-bedroom South Arlington properties were selling within ten days as recently as 2015 and 2016. If you bought one before the madness, congratulations!

Prepare To Pay

Sellers control the negotiations during the first ten days of a sale and the price paid on homes going under contract within the first ten days reflect that, with an average purchase price well above the asking price.

The table below breaks the market down a bit further by number of bedrooms within each market. It is based on net sold price (sold price less any seller credits). In South Arlington, homes that go under contract within the first ten days on market are averaging a net sold price nearly 2% higher than the seller’s asking price. One important takeaway from this data is that in 2019 buyers making an offer on a property that has recently hit the market have become accustom to including escalations, which is why you see average prices well above the asking price.

What Does It Mean?

Unsurprisingly, some national studies have determined that Arlington and Alexandria are the country’s hottest real estate markets. That’s great news for home owners, especially those looking to make a move into a less expensive market, renting, or downsizing. The frustration for buyers comes from all sides as well. There’s very little inventory to choose from and, as detailed above, good inventory moves quickly and for a premium.

If you’re considering selling, it’s important to understand just how high you can price your home without overpricing and missing the market, which can lead poor results.

If you’re hoping to buy a home, planning and preparation are critical. Despite the market conditions, I have worked with a lot of buyers this year who have found success in Arlington, but it requires the right approach.

I am available every day of the week to meet or schedule a call if you’d like to discuss your options to buy, sell, or rent in Arlington or the surrounding Northern VA, DC, and MD Suburb communities. Just send me an email at Eli@EliResidential.com to schedule some time to talk.