Navigating Assumable VA Loans + Memorial Donation to TAPS

Question: How does assuming a low interest rate VA loan work?

Answer: Thank you to all who have served and to their families who have sacrificed or lost loved ones for our freedom. I hope you and yours had a special Memorial Day weekend with friends and family to celebrate our country and those we’ve lost defending it.

The Eli Residential Group is donating to Arlington VA-based TAPS (Tragedy Assistance Program for Survivors) in honor of Memorial Day. Since 1994, TAPS has provided comfort and hope 24/7 through a national peer support network and connection to grief resources, all at no cost to surviving families and loved ones.

In keeping with the theme of Memorial Day, I will revisit a column about assuming low interest rate VA (Veteran Affairs) loans.

An assumable loan is a loan that can be transferred from a seller to a buyer, allowing the buyer to maintain the interest rate of the seller’s existing loan rather than accept a market-rate interest rate. This can be valuable in a high-interest rate environment like we’re in now when most homeowners have an interest rate well below current market rates.

To help me provide the best information about assumable VA loans, I reached out to Skip Clasper of Sandy Spring Bank (sclasper@sandyspringbank.com), who I highly recommend for a range of loan products including VA loans, construction/rehab loans, and jumbo loans.

Only Some Loans Are Assumable

VA loans (available to Veterans, service members and surviving spouses), FHA loans, and USDA loans are the only traditional loan products that are assumable. They make up a relatively small percentage of existing home loans in Arlington (likely single-digit percentage of total loans). I’m not aware of any conventional loans that can be assumed.

Key Details about Assuming a VA Loan

There are some important details and caveats to assuming a VA loan that both buyers and sellers need to understand prior to transferring a loan:

  1. Buyers do NOT have to be a Veteran or otherwise qualify for a VA loan to assume a VA Loan
  2. Sellers can NOT obtain a new VA loan until the previously assumed loan is paid off (or refinanced out of) unless the new buyer is a Veteran and uses their eligibility on the assumed loan
  3. It is less expensive (closing costs) to assume a loan than to originate a new loan.  The VA Funding fee is only 0.5% for assumable VA loans.
  4. You need a down payment that covers the gap between the assumable loan balance and the purchase price. For example, if the seller’s loan balance is $200,000 and the purchase price is $500,000, the buyer is assuming $200,000 is debt and will have to cover the remaining $300,000 via down payment or alternative debt such as a second trust.
  5. Buyers need to qualify for the loan using normal income, debt, and credit guidelines

As you can probably determine from the above details, there are only a limited number of scenarios where assuming a VA loan makes sense for both parties. The biggest hurdle to VA loan assumption is that the VA loan eligibility stays with the loan so if the buyer does not have their own VA loan eligibility, the seller must be sure they are okay giving up this very valuable benefit until the new buyer pays it off or refinances.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

The Bedroom Chronicles: Exploring Arlington’s Housing Market…by Bedroom Data

Question: What is the ratio of bathrooms to bedrooms in Arlington?

Answer: Somebody recently asked me what the bathroom-to-bedroom ratio is in Arlington and I ended up exploring Arlington market data through the lens of bedrooms. I might be the only person who finds this interesting but if you find yourself daydreaming about things like the number of bedrooms sold in Arlington and the cost per bedroom, than this is the article you’ve been waiting for!

What is a Bedroom?

Unlike many other jurisdictions, Arlington doesn’t have its own definition of a bedroom and defers to the Virginia Residential Building Code. I wrote about back in 2016, linked here. The Virginia requirements are pretty simple: minimum 70 SqFt, 7’+ ceiling heights, proper egress window, heated, and ventilation.

Arlington’s Housing Market by Bedrooms

  • Over the past five years, an average of 7,673 bedrooms have sold each year. 56% of bedrooms sold are in single-family homes, 25% in condos, and 19% in townhouse/duplex properties.
  • There’s an average of 600 new bedrooms being delivered each year via new construction
  • The average cost per bedroom has decreased in 2023 causing an overall decrease in the cost per bedroom in Arlington, despite small increases in the cost per bedroom for single-family and townhouse/duplex homes
  • There are an average of 2.7 bedrooms in each home sold in Arlington. I expected to find that the number of bedrooms per transaction increased in the spring, suggesting that more larger homes are listed during the spring market, but the average size of homes by bedroom count is consistent each month of the year always between 2.5 and 2.8 bedrooms per home sold.
  • There is an average of .8 full bathrooms for every bedroom sold. The ratio for single-family detached homes is .73 full bathrooms per bedroom
  • The second table below shows data from 2022-2023 sales
  • The data suggests that 4BR homes are the most in demand, followed closely by 3BR and 5BR, and for good reason…4BR homes have the best cost per bedroom of any size home
  • If you are buying a home with 2-6 bedrooms, you’re most likely going to pay at or above the asking price
  • The most expensive zip code per bedroom is 22209 at $494,000/BR and the least expensive is 22204 at $244,000/BR. The average cost per bedroom in a single-family home in 22207 is $349,000.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Hidden Pitfalls in Rental Agreements and Leases: Protecting Your Interests as a Renter or Landlord

Question: Do I have to use my Property Manager if I sell my house?

Answer: This is more of a PSA post than anything else. If you’re a landlord or tenant, it’s crucial to pay attention to the fine print in agreements, especially regarding a future property sale. It’s common for Property Managers or Agents to include language that gives them the right to list your property if you choose to sell it or gives them a right to a commission in the event it sells during the rental period, to the tenant or somebody else.

Property Managers With Exclusive Right to Sell

Watch out for language granting property managers or agents exclusive rights to list your property if you decide to sell. This exclusivity restricts your options and flexibility, limiting your ability to explore alternative selling methods or use the agent of your choosing.

Required Commission Payments

Be aware of language stipulating a commission to property managers or agents if you sell your property to the tenant or another buyer during the rental period. Landlords might be obligated to pay a commission, even if they find an alternative buyer or wish to handle the sale independently. This financial burden can significantly impact both parties.

What If an Exclusivity or Commission Clause Exists?

Like most things in a contract, these clauses are negotiable. If you see something that you believe binds you to certain actions or payments in the event of a sale, ask about it and work to ensure you have the most flexibility if a sale does take place. You may not plan to sell when you sign the paperwork, but life happens and priorities change.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @Properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Selling Your House? Five Questions to Ask an Agent That ChatGPT Doesn’t Know

Question: Do you have any advice on questions I should ask a Realtor I’m interviewing to sell my home?

Answer: Before you ask, yes, I used ChatGPT for this column, BUT I used it to come up with 50 questions AI thinks you should ask a Realtor so that I can offer you human brain questions that will hopefully be more useful.

Or…is that what AI would say if I told it to pretend like it was a human trying to convince readers an article wasn’t written by AI 😉

Without further ado, here are five questions (from my own non-AI brain) that will help you make the right decision about who is handling the sale of your home:

How Do You Determine Price?

It’s impossible not to ask the agent you’re interviewing how much they think your house will sell for, and that’s totally fine, but don’t get wrapped up in an on-the-spot valuation of your home during the first appointment. Instead, it’s more important to understand the process your agent uses to determine pricing and decide if it’s an approach you’re bought into.

Who Will I Work With?

Agents and agent teams come in all shapes and sizes (link to past article on the topic), some are solo agents and some have a series of coordinators that handle each stage of your sale. In some cases, you may have little interaction with the agent you interview. It’s important to understand who will be involved in each step of the sale from determining/coordinating listing prep, to preparing the marketing, to negotiating contracts, and overseeing the contract-to-close.

Who Will Host the Open House(s)?

Open Houses are a great opportunity to interact with interested buyers, highlight strengths of the property, and collect valuable feedback. Open Houses are also a great source of new business for agents. Make sure that the interests of your Open House host(s) are aligned with your interest in selling your home.

How Often Do Deals Fall Through and What Happens If Things Go South?

Real estate deals go sideways in expected and unexpected ways so risk prevention (early identification and diffusion of problems) and management (handling of problems that arise) are critical attributes of a great agent. When things go south, a great agent has the resources to manage the most difficult deal-killers by tapping into brokerage leadership, legal resources, contractors, and having the experience, creativity, and leadership to put it all together.

Should I Consider Selling Off/Pre-Market?

It’s a great question and the answer is not the same for every home/homeowner. The right answer requires a deeper understanding of your goals, the market, and some good ol’ fashion critical thinking. There’s also a lot of different information out there about off/pre-market sales (some good, some misleading) so I think it’s a good topic to cover with your potential Realtor.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @Properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

How Much Do Good Schools Cost?

Question: How much of a difference do schools make in the value of homes in Arlington?

Answer: Nothing drives home values like schools and for most buyers around here, that is determined by the 10-point scale ratings on the all-powerful GreatSchools.org. Let me be clear, this article is not meant to validate or contest the quality of GreatSchools ratings, rather an acknowledgement of the weight the website’s school ratings have on home purchase decisions and therefore, home values.

Quick Tips for Using Schools in Your Home Search

  • Families define a “good school” differently. Whether that’s test scores, socioeconomic diversity, language instruction, athletics, or a STEM focus think about what matters most to you and target schools that fit your values.
  • GreatSchools offers more than just a single rating, they offer component data as well. Dig deeper and look at the components of a school’s rating and review them based on what you value.
  • I have spoken to parents who have had both excellent and terrible experiences at top and low rated schools alike.  The GreatSchools rating is not everything.
  • There are excellent public resources available for research including the Virginia Dept of Education’s School Quality Profiles and information nights for each school where you can see a school and interact with teachers first-hand
  • There are numerous message boards with loads of information about school operations from disability support, to college readiness, to athletics
  • There are other private ratings websites like Niche.com and US News and World Report that offer different perspectives and ways of ranking schools
  • Arlington County ranks as the #2 school district in Virginia, just behind the City of Falls Church, with an overall A+ grade. Loudoun County ranks # 5 and Fairfax County ranks #6 in Virginia with an overall A grades.

How Much Does Each GreatSchools Point Cost?

If you want to buy a detached house or townhouse within a top-rated school boundary, you’re going to pay a lot. However, if school ratings and budget are your top focuses, you can use the table below to figure out what the most efficient use of your budget is to maximize your GreatSchools rating per dollar spent.

The table is sorted by the average cost per point of the GreatSchools.org rating (GS rates schools on a 1-10 point scale) for each neighborhood school in Arlington with the most “cost-efficient” schools to buy a home in listed first.

The data uses sales since January 1 2021 of detached and townhouse homes with at least three bedrooms. Net sold price is the sold price less any seller credits. Only the neighborhood schools are included in this analysis, not the magnet/option schools. Fleet and Arlington Science Elementary and Hamm Middle are not currently rated on GreatSchools.org

  • The most cost-efficient elementary schools are Tuckahoe (9), Ashlawn (7), and Glebe (8)
  • The most cost-efficient middle school is Swanson (7)
  • The most-cost efficient high school is Wakefield (4)
  • The most expensive school to buy housing in on a total cost basis is Jamestown Elementary (9), but the most expensive per bedroom and per square foot is Innovation Elementary (6)
  • The least expensive school to buy housing in on a total cost and price per bedroom basis is Abingdon Elementary (3) and the least expensive per square foot is Carlin Spring Elementary (2)
  • The most difficult school to find a 3BR+ detached/townhouse home is Hoffman-Boston (5)
  • Barrett Elementary (3) is the only North Arlington school with an average price under $1M and Oakridge Elementary (4) is the only South Arlington school with an average price over $1M 
  • A purchase of a 3BR+ detached or townhouse home in the top rated school pyramid of Jamestown Elementary (9), Williamsburg Middle (9), and Yorktown High (6) averages nearly $1.45M and an average of $332k per bedroom

If you’d like some more personalized data run for you using home sales and GreatSchools ratings, you’re welcome to reach out to me at Eli@EliResidential.com. I’m happy to help.’

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Investment Property to Save and Pay for College (vs 529 Account)

Question: Is it more effective to save for my kids’ college through a rental property investment or a more typical college savings plan like a 529?

Answer: I often hear from parents who purchase a small investment property around the birth of their child as the primary savings vehicle for college. Some people swear by it. I did it when my son was born (and will report back with results in 13 years!).

I reached out to my financial advisor, Erik Fischer CFP, RICP of Taylor Financial (erik@taylorfinancial.com, (727) 417-3400), about the topic and he offered a very detailed, thoughtful comparative breakdown of using a real estate investment as a college savings tool vs a more traditional 529. Erik is an excellent resource if you have additional questions about this topic or other financial savings topics.

With frequency, this question arises from parents who gravitate towards real estate investing.  And, there is not a definitive answer. Ok – column over.  Just kidding.  While it’s true that there is not a definitive answer, depending on your situation the answer may be definitive for you.

Identifying the parameters:

  • First, establish a target – how much wealth do you want to save to pay for college?
  • Then, consider the following key areas when comparing the two investment vehicles
    • Savings strategy –how will you fund your savings vehicle
    • Flexibility
    • Level of involvement
    • Associated risks
    • Expected growth rate
    • Tax implications

Establish your target: 

The good news here is that your target will likely be the same regardless of which approach you choose.  So here is an easy-to-follow framework of how to establish your target.

  1. Identify the amount you would like to have accumulated for each child when they reach college.  You can research the “Cost of Attendance” (*important* this is your all-in cost, not just tuition) at http://www.collegeboard.org. 
  2. Use the current cost of attendance for a school and inflate that amount to future dollars using an inflation rate of 5%.  Inflate this number out until your child is likely to graduate college.
    1. Why 5%?  This is somewhat arbitrary, but over the last 20 years college costs have been doubling or more the long-term average inflation rate of 2-3%.  I encourage you to use a number somewhere from 5-8%.
  3. Take the last 4 years of inflation adjusted costs and add them up.  These numbers represent a ballpark of what you could expect to pay for this child.  Is it perfect? Of course not, but it will give you a greater level of visibility into what you will need.

Establish your target (example):

Let’s say your child was just born, plans are to attend college in 18 years, graduate in 4 years.  At UVA, in-state cost of attendance for families making over $110,000 per year is $29,877 (tuition represents roughly half of this number).  If you adjust for inflation and add up 4 years of all-in cost, you arrive at an aggregate number that includes the annual timeline of cashflows.  See table below:

These calculations will vary whether you plan for in-state vs out-of-state, public or private, and how much of the cost you are willing to fund.  Regardless, the framework will remain the same or very similar to arrive at some accumulation target.

You have your target, now what’s the best way to get there: 

Let’s compare a 529 based approach to a rental property-based approach.  Of course, these are not the only two ways to save for college, but we’re focusing on these two today.

Let’s first look at the rental property approach: the high-level idea is buying a rental property when a child is born and selling it to fund college when the child is college-ready.

Because of the increased complexity of rental real estate (which is not inherently good or bad, it just is), let’s identify some of the important considerations first:

  • Down payment will be required
  • Management / execution risk
    • cash flow planning
    • property management
    • tenant management
    • increased tax planning
    • increased insurance planning
    • financing considerations (if you will require a mortgage)
    • a plan to sell the property (to fund college)

So, you may have picked up here another hint at what the answer might be for you depending on your situation.  That is, if you do not have the cash on hand to make a reasonable down payment for the type of property you desire, the rental property might be off table for you, at which point you might lean on an annual savings approach of a 529.

Rental property example:

Rental strategies come in all shapes and sizes, but let’s say that we have $50,000 available to fund this strategy and we use that to purchase a property with the following facts:

  • 20% down payment, leaving $10,000 left over as a sinking fund to close the deal and maintain the property.
  • Purchase price $200,000
  • Mortgage rate of 6%
  • Cash flow neutral over the course of the 10 years (perhaps negative in the first few years, and positive in the last few years due to rent inflation and fixed mortgage), with annual profits years 11-18 of $5,000 that you let accumulate in a bank account that generates some interest
  • Property appreciates at 3% annually
  • Sell the property in your child’s senior year of high school and pay off the remaining mortgage.
  • Keep the rest in cash to pay for school, or in a high yields savings or CD ladder to time payments over 4 years.  The point is, you’ll have all your cash going into freshman year and you’ll keep it invested safely while they are in college.

Here is the formula with accompanying visuals below:  determine growth of underlying asset, then sell after 18 years, subtract 5.5% of sale price (commissions, closing costs, etc.), eliminate the debt, add back in the cash from your rental property bank account.  Once you have done all this, you are left with unencumbered cash that you can use to pay for college (pay it all to a college…lovely, right?)

$340,487 x 94.5% = $321,760

$321,760 of take-home transaction, minus the outstanding debt of $94,493 = $227,267

Plus $45,000 in cash that has accumulated in your rental property bank account = $272,267*

*The final available balance will likely be lower due to a capital gains tax, but the tax charge is highly variable based on factors like future tax code, final cost basis, tax management during property ownership, and other personal financial considerations at the time of sale.

We are now very close to our target.  Also, it’s very important to identify the many factors that can be quantified with deeper analysis, but by nature are less tangible.  Let’s list them:

  1. Advantages
    1. Tax advantages along the way with depreciation, deductible expenses, and favorable tax rates (capital gains rates) on sale
    2. Opportunity to develop skills and expertise in real estate
    3. Flexibility that you are not required to use the asset for college if you are able to pay for or end up choosing to pay for college in some other way – this is a big one.
    4. Potential for upside return
    5. Potential to be integrated with planning for your own retirement
  2. Disadvantages
    1. Level of management extremely cumbersome compared to a 529
    2. Execution / management risk can significantly impact total returns.
    3. Increased liability 
    4. Market risk
    5. Typically, you will need a significant amount of cash upfront to make the down payment

Carefully examine these attributes, because one or some of them might be deal-makers or deal-breakers for you.

Now, let’s compare the rental property strategy to the typical/default college savings account, a 529. This is simple, add an initial lump sum, or deposit annually.

529 – Annual Deposits equaling $500 per month for 18 years

529 – Lump Sum with the same $50,000 that was used for the rental property

The tables above represent the hard numbers that move you much closer to your ideal target. Helpful.  Now, there are also many factors that can be quantified with deeper analysis, but by nature are less tangible.  Let’s identify them:

  1. Advantages
    1. Tax-free growth, and tax-free distributions if used for qualifying educational expenses.
      1. This is the big one, it’s the main differentiator of the 529 from any other account type.
    2. Automatic – set it and forget it
    3. Can be transferred to other qualifying relatives if needed for their education
    4. Potential for stock-market returns
    5. Based on the new Secure Act 2.0 law, part of the plan may be eligible to convert to a Roth IRA for the beneficiary if certain criteria are met
  2. Disadvantages
    1. Tax benefits are lost if not used for qualifying educational expenses
    2. 10% penalty on earnings if not used for qualifying educational expenses
    3. Market risk
    4. Lack of flexibility to use the money for any other reason, due to a & b above
    5. Lack of liquidity, use and control for any reason other than college
    6. Cannot be integrated with planning for your own retirement

Carefully examine these attributes, because one or some of them might be deal-makers or deal-breakers for your own situation.

Comparing the two: 

How do we put this all together?  From a wealth accumulation perspective, in these examples, the rental property strategy wins, and it beats the lump sum deposit into a 529 by a significant amount.

However, this is only one example.  If we ran 100 examples for each, we would get 100 different results for each. Yes?  You could get a 10% return in the 529, or a 6% return. Your rental property could cash flow negatively in all years, or positive in all years.  You could get a great deal, or a bad deal.  You could refinance if interest rates lower and capture significant savings.  You could have an extended vacancy. Maybe the asset only grows by 2% instead of 3%.  There will be a ton of variability.

Distill the factors that will influence the results for you:

  • Rental strategy
    • Purchase price of the home
    • The plan to sell the home
    • Ability to manage the cash flow of a property, maintain it, and sell it properly / advantageously
    • Ability to execute proper tax planning along the way
    • Ability to manage tenants
  • 529
    • If you deposit a lump sum, at what point in the market cycle did you get started – during a bull market?  During a bear market?  Unfortunately, this is somewhat out of your control, but it makes a big difference in final results
    • Investment selection – did you create an appropriate portfolio within the account
    • Behavioral finance – did you try to time the market, chase a rate of return, or avoid a market drawdown?  As you can tell by the wording, none of those tend to be in your financial interests.

What’s the bottom-line(s):  

  • Don’t just focus on the surface-level math, but dig deep into the variables that impact your personal strategy (including non-financial)
  • While real estate in this example, and many others, may produce a higher college savings balance, it comes with a lot more work and requires a large lump sum payment up-front
  • Research and seek out the expertise you need to execute both options efficiently

Thank you very much for your detailed analysis, Erik. I have benefitted from Erik’s financial guidance for many years and would encourage anybody with questions about college savings or other financial planning decisions to reach out to him at erik@taylorfinancial.com.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

How’s The Market?

Question: How is the real estate market through the first quarter?

Answer: “How’s the market?” Well, technically, that answer depends on what market you’re talking about – location, property type, price point, etc but for this column, I’ll provide an overview of what we’re generally seeing in the Arlington/Northern VA/DC area market these days.

  • The market is competitive
  • Demand is moderately high
  • New listing volume is historically low
  • Rates (Hopefully) Heading Down
  • Ignore National Data

The market is Competitive

Multiple offers, escalations, and reduced or no contingencies are common.

The data visualization below is from the listings that went under contract each of the last two weeks at our brokerage, RLAH @properties, of ~400 agents in the greater DC Metro area.

Demand is Moderately High

Demand is lower now than it was from late 2020 through early 2022, due to high interest rates.

The chart below shows the quarterly absorption ratio for Northern VA over the past decade. A higher ratio = higher demand. We’ve fallen slightly from the post-Amazon HQ2 year (this was primarily driven by the condo market) and Covid buying years, but demand is still well above the “norm” established from 2013-2018.

Graphical user interface

Description automatically generated with low confidence

New Listing Volume is Historically Low

The lack of new listings is driving competition, not high demand.

The chart below highlights the dramatic drop in new listing volume for the DC Metro area for Q4 and Q1, with about 10,000 fewer homes listed for sale during the most recent Q4/Q1 compared to previous years, or a ~25-30% drop for most DC area localities.

Timeline

Description automatically generated

Rates (Hopefully) Heading Down

Inflation data suggests we’re heading firmly in the right direction and that puts downward pressure on interest rates. However, turmoil in the banking sector (SVB Collapse, commercial building loans) has caused demand for mortgage-backed securities to drop thus putting upward pressure on interest rate pricing.

Here’s a collection of some of the most recent interest rate forecasts through 2023:

Chart, line chart

Description automatically generated

Ignore National Data

Different markets, especially west coast (struggling) vs east coast (appreciating), are seeing very different data and make national data pretty useless to the individual homeowner/buyer.

The charts below show the wide range of national real estate price forecasts and a chart showing performance for major regional real estate markets around the country. Notice the variation between regional markets and you can understand why combining all of that data into one national pricing datapoint isn’t helpful.

Chart

Description automatically generated
Chart, bubble chart

Description automatically generated

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

2,491 Agents Sold Real Estate in Arlington Last Year

Question: How many different real estate agents are there doing business in Arlington?

Answer: There were 2,795 real estate transactions in Arlington last year, totaling $2.264B in sales volume. This is down from over 3,500 transactions in 2021 that totaled $2.786B in sales volume, but very similar to the 2019 and 2020 numbers.

There were 2,491 licensed real estate agents involved in at least one sale in Arlington in 2022. Each transaction usually includes two real estate agents – one representing the buyer and another representing the seller.

I looked over the 2022 Arlington transaction data and pulled out some interesting highlights below. Of note, there are many real estate teams that enter all sales under one agent’s name, so in these cases, individual numbers represent the production of many agents rolled into one agent’s name, but I don’t have transparency into that data. Here’s a link to an article I wrote in 2019 explaining how different agents/teams are structured.

  • 63% of agents who did business last year in Arlington had just one sale in Arlington (many of those had more sales outside of Arlington) and accounted for 24.4% of the total sales volume
  • 2.6% (65) of agents handled 10+ transactions in Arlington
  • 0.36% (9) of agents handled 20+ transactions in Arlington
  • 1,666 different agents represented buyers, 66 (4%) represented 5+ buyers
  • 1,379 different agents represented sellers, 115 (8.3%) represented 5+ sellers
  • The top 20% producing agents in Arlington accounted for 61% of sales volume
  • Keri Shull and her team once again led Arlington in total transaction and sales volume, representing 2.7% of buyers and sellers in Arlington and just over $94M in total sales volume, but for the first time I can recall, we have new leaders in the listing category, with Betsy Twigg leading listing sales volume at $46.5M and Kay Houghton leading listing transactions at 58
  • The highest average sale price with at least four transactions in Arlington is Julie Zelaska at more than $2.16M per sale

*Chart does not include internal sales agents

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, but market expertise and experience are still important factors for most people.

Many people see the low barrier to entry for real estate licensing, and the resulting high volume of agents, as a negative, but 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 provides the type of service you’re looking for and the experience to match.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @Properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Six Tips for Selling to a Builder

Question: I’m planning to sell my home to a builder to be torn down, do you have any advice?

Answer: For many homeowners with older, smaller homes in expensive markets, selling to a builder is the easy and most profitable option when you’re ready to move. If you live in a home like this, you probably get hundreds of calls and letter from builders, investors, and real estate agents offering to buy your home as-is.

A brick house with a chimney

Description automatically generated with low confidence

Here are six tips and ideas if you’re considering this option…

Don’t Overvalue Cash

The idea of somebody paying cash for your home sounds exciting and more reliable than somebody getting funds from a bank. “They pay cash” is one of the most common reasons I hear from homeowners explaining why they prefer selling to a builder.

The truth is that many builders don’t buy homes with a mountain of cash they have sitting around; they rely on strong banking relationships to finance their purchase with cash-like deals (the money is available quickly and easily).

The real value of cash is that a buyer can close quickly and does not require any bank approval, but a cash-like deal from a well-qualified buyer working with a great bank can often mirror this by removing any finance or appraisal contingency and closing as fast as the bank will allow (many can close in 2-3 weeks).

The contingency (or study period) structure and Earnest Money Deposit terms are more important than the funding source being a buyer’s private cash balance vs a trusted bank/lender. I would also argue that it’s more likely that an individual or builder cash-buyer will run into a cash crunch prior to closing than an established bank/lender.

Your Home May be Worth More to a Homeowner

It’s no secret how hard it is to find entry level homes these days. You may think that your current home with a small kitchen, old roof, and unfinished basement is only worth the land it sits on, but buyers are hurting for inexpensive homes, even if they need loads of improvements. Don’t assume that just because your home is small and dated that a builder is your only option.

Make sure you’re comparing builder offers to what you can get on the open market, taking into consideration other financial (e.g. differences in commission) and non-financial (e.g. timeline and showings) differences between the two routes. There may be little downside to testing the open market before committing to a builder, depending on your situation.

Your community will also appreciate your contribution to preserving the local tree canopy!

Builders Can Offer Attractive Rent-Backs

A rent-back means that you can live in your home after closing (aka after getting paid) for a specified period, usually for little or no cost, for months after a sale. For many sellers, this extra time is perfect for searching for your next home or apartment, with cash in-hand, or taking time to clear out decades of personal belongings.

A normal buyer can also offer a rent-back, and are often happy to, but if a home is being purchased using a mortgage for a primary residence, the buyer cannot offer a rent-back over two months. A builder, even if the funding comes from a bank, or cash buyer has no restriction on the length of rent-back. It’s well within reason to negotiate 3-4+ months of free or low-cost rent-back from a builder after closing.

Share in the Builder’s Profits

Jealous of the profit a builder will generate from building a new home on your lot? Rather than selling your home to a builder, consider negotiating an equity stake in the project and getting paid based on the sale of the new home. It’ll take 10-12+ months longer to be paid and there’s more risk, but you can make a lot more than you would selling your existing home.

A picture containing building, outdoor, wooden, old

Description automatically generated

Use Missing Middle to Upgrade, Stay Home

The new Missing Middle zoning code may be a great solution for many Arlington homeowners by allowing you to partner with a builder to build a Missing Middle product (duplex, townhouse, or small condo building), live in one, designed to your specifications, and leverage profit sharing on the others to significantly reduce the cost of your new home.

The cherry-on-top is getting to stay in the same place you have lived in for years/decades!

Realtor Representation Can Be a Net Benefit

A direct sale without agents/commissions is one of the primary selling points builders offer and it’s certainly a good one, but representation and commissions come in many shapes and sizes that sellers can benefit from when selling to a builder. Benefits range from understanding how to measure the value/risk of contract terms like a study period or deposit, knowing what to negotiate for based on your needs/preferences, or effectively soliciting more bids to ensure you’re getting the best price.

Even though working directly with a builder can be simple, it’s important to remember that a builder’s core business is acquiring lots with favorable terms/prices, which runs counter to your best interests.

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @Properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Missing Middle Series: Initial Thoughts

Question: What effect do you think Missing Middle will have on the Arlington housing market and community?

Answer: As expected, Missing Middle (MM) aka Expanded Housing Options (EHO) passed unanimously on Wednesday March 22. In short, the new zoning laws will allow development of 2-6 units on any lots previously designated exclusively for one (single-family detached) unit, effecting a majority of Arlington, if certain minimum lot size/requirements are met. Here’s a link to Arlington’s press release with details.

There is so much to digest, investigate, and learn about what MM means for the Arlington community and housing market that will come together in the coming weeks, months, and years as we determine the best implementation of the new zoning code, learn more about how the County will permit MM housing, and most importantly, analyze how the market will respond to different MM products in different parts of the County.

Results will be positive for some, maddening for others. Some results will be expected and others a complete surprise. Over time, slowly, Missing Middle will change our community…but that’s the point.

I will dedicate many posts here to Missing Middle in the coming weeks, months, and years and would love to hear from you (homeowners, renters, investors, architects, community activists, and on) about what you’re seeing and learning as we go.

To kick things off, I’ll share some initial thoughts on the zoning details and answer some questions I’ve received.

What are the highlights?

The code requirements I find most relevant to how MM will be implemented are:

  • MM is allowed in all residential single-family zoning districts (R-5, R-6, R-8, R-10, R-20) on conforming lots, meaning the lot meets the minimum size (total sqft and avg width), with the exception that R-5 lots must be at least 6,000 sqft instead of 5,000
  • Same set-backs and coverage requirements apply as previous/existing requirements for single-family development so the maximum building envelops will be similar to what you see now for most new single-family construction
  • Gross Floor Area (GFA), the total floor area (measured from exterior walls) less any garage space, maximums are determined by project density (number of units) and type (e.g. townhouse vs multi-plex) and will limit how big a project can be, even if the lot coverage and set-backs would allow for larger development (this effectively caps enormous development on large lots).

Where will MM be built?

Much of Arlington’s single-family housing was built prior to the 1960s and has been the target of builders and homeowners to tear down and build new homes for years. Missing Middle housing will follow a similar pattern of replacing existing older homes with new development.

We will likely see a concentration of MM development along transit corridors like Rosslyn-Ballston, Columbia Pike, Washington and Langston Blvd, and National Landing (Crystal/Pentagon City area) where multi-plexes (3-6 unit buildings) can sell for a premium, but MM development will also happen in neighborhoods outside of transit corridors, likely in the form of 2-3 unit offerings.

What will be built?

This is the million (billion?) dollar question: what will be built and where? The reality is that this will come down to what maximizes returns/profit for builders and investors.

The code allows for duplexes (one unit stacked on the other), semi-detached/townhouse (direct-entry homes sharing one or two vertical walls), and multi-plexes (mini condo/apartment buildings).

The Gross Floor Area maximums and standard set-back/lot coverage requirements significantly limit the size of the units that can be built, likely resulting in most MM units being ~1,000-2,400 finished sqft. If that’s the case, I think the code falls short of how the consumer would define “middle” housing and if there’s a disconnect between demand and what the code allows, developers may not like the returns enough for MM development to take off.

The GFA maximums (e.g. 7,500 sqft for three townhouses and 8,000 sqft for 5-6 unit multiplexes) have a limiting effect on larger lots that otherwise support a bigger structure based on set-back and coverage requirements and the set-back/lot coverage requirements likely prevent builders from reaching the GFA limits on smaller lots (e.g. you won’t get anywhere close to 8,000 sqft GFA on a small 6,000 sqft lot).

Minimum off-street parking requirements of .5 or 1 off-street space per unit, depending on proximity to transit, have been established but I think developers will ultimately build to demand rather than code minimums and demand will likely be for 1+ off-street parking in all locations and two off-street spaces in locations away from transit corridors.

Who will be building?

Projects will cost millions when factoring acquisition, construction, and selling costs which is too expensive and complex for most one-off “hobbyist” developers/flippers. I think that’s a good thing for the community because it means a more professional, thoughtful approach from developers who intend to do business many times over in the community and it means fewer chances for mistakes – building the wrong product in the wrong location.

The other concern is that we’ll be overrun by deep pocketed investors/private equity funds who will load up our neighborhoods with cheap 6-unit rentals. I don’t see this being the case. There are much easier ways to put $100M+ to use than buying 100 Arlington lots, each with different zoning requirements and market factors, spending 12-18+ months permitting and building, only to manage 100 separate locations for modest ROI (Arlington has very low rental ROI compared to other markets because property values are so high). We’ve seen very little national-level real estate activity here while it’s become popular in many other parts of the Country the last few years, and I expect it to remain that way.

I think that, for the most part, MM will be built by local and small regional developers like we currently see in the single-family market.

Will rentals take over my neighborhood?

I’ve heard a lot of concerns about 4-6 unit rental buildings popping up all over neighborhoods, but my initial assessment suggests the returns in non-transit oriented locations will be far too small to justify the amount of capital needed to build dedicated rentals and this is likely also true for many transit-oriented locations/lots.

There are bound to be some outliers where a rental makes sense or a mistake is made that lands a rental multi-plex in the wrong location that produces poor returns and devalues surrounding homes (this is the part of Missing Middle I hate most), but I don’t see MM leading to widespread development of dedicated rental properties, the land and construction costs are simply too expensive and unit sizes in multi-plexes too similar to what’s already widely available for rent in apartment/condo buildings.

How will lots be valued?

Lots being acquired for single-family development have mostly traded at 35-45% of the resale value of the house that replaces it. Local builders and agents have a good idea of what their costs and resale value will be so the valuation of lots has been straightforward. The cost of building MM housing won’t be too difficult to calculate, but projecting resale value/demand will be a much more difficult for a while to come and other risks, such as unknowns working with the County on something so new, also must be priced in.

Understanding the most efficient, and sometimes creative, way to construct MM to deliver the right product to the market based on location and assumed consumer demand will play a huge role in determining lot values. Some developers will be ultra conservative and prefer to stick with the tried-and-true approach of single-family development and others who have more experience in MM products (e.g. DC-based developers) may be more aggressive in their projections and valuations.

Many homeowners in older homes have just seen their property (land) values jump overnight, possibly by 10-20%, but there will also be plenty of homeowners whose lot and location don’t support MM as it’s currently defined and will see no change in land value.

When will they be built?

We’re probably 16-18+ months away from seeing the first MM properties delivered to market. The County won’t start taking permit applications until July 1 and I’m certain that the permit process for MM will take longer than the already cumbersome, months-long permit process for single-family development, then add 8-10+ months for construction.

If you’re interested in how your lot fits into Missing Middle or have a project you’re working on that you’d like to discuss, you can reach me at Eli@EliResidential.com.

You can read the full details of the code changes in the County’s press release and reference a library of information on Missing Middle here

If you’d like to discuss buying, selling, investing, or renting, 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 discuss buying, selling, renting, or investing, please send an email to Eli@EliResidential.com. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.

Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH @properties, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.