It’s a Great Time to Remove Mortgage Insurance

Question: Can you explain what Mortgage Insurance is and if there’s any way to get rid of it?

Answer:

What is Mortgage Insurance?

Mortgage insurance is an additional monthly or up-front fee added to a mortgage, usually set at .1%-1% of the loan amount, offered by either the government or private insurance companies to enable lenders to offer down payments below 20%. Mortgage insurance covers lenders for losses up to a certain amount if a borrower defaults on their mortgage.

Note: there are some sub-20% down payment products on the market for high-earning, high-credit borrowers that do not require Mortgage Insurance.

There are two types of mortgage insurance available:

  1. FHA mortgage insurance: FHA is a government program, which requires a down payment of as little as 3.5% of the sales price, and mortgage insurance is required on FHA mortgages, regardless of the amount of down payment.
  2. Conventional mortgage insurance: Conventional mortgages are home loans that are not insured or guaranteed by the government, as in the case of the FHA mortgage example. Many conventional loans are sold to Fannie Mae or Freddie Mac and thus follow these entities “conforming” guidelines.

Conventional or private mortgage insurance enables lenders to offer conventional loans with a minimum down payment as low as 3.0%-5.0%. Most 3.0% down conventional mortgages are restricted to low-to-moderate income borrowers.

How is the Fee Determined?

The cost of mortgage insurance will vary greatly, depending upon several factors:

  1. The amount of the down payment
  2. The qualifications of the borrower like credit score and debt-to-income ratio
  3. Whether the mortgage is an FHA or conventional loan
  4. The type of the mortgage such as a 30-year or 15-year loan

Mortgage Insurance Can Be Removed

If you have a Conventional Loan (not FHA), you can request that your Mortgage Insurance premium be removed from your payments once your equity reaches or exceeds 20% (loan-to-value/LTV is 80% or less). This can be a result of a natural equity increase through your monthly payments and/or through appreciating home value.

To qualify, you cannot have a late payment in the last two years and if you are making your case based on a higher market value of your home, the loan servicer will require a new appraisal (cost is usually around $500).

For Conventional Loans, your Mortgage Insurance is automatically removed once your LTV reaches 78% (equity reaches 22%) or you reach the midway point in your loan (15 years into a 30 year loan). Prior to hitting a 78% LTV, it is up to your loan servicer to decide whether to approve the removal of your Mortgage Insurance payment.

Key Takeaway

Given how much townhouse and single-family homes have appreciated recently, if you have Mortgage Insurance and have not made a late payment in the last two years, it’s a good idea to contact your loan servicer about having your home reappraised to see if you now have 22% or more equity and qualify for automatic removal or have 20%-21.99% equity and can apply for early removal.

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

Reserve Studies Required Every Five Years for Condos/HOAs

Question: How often do Condo Associations and HOA/POAs need to conduct a Reserve Study?

Answer:

Virginia Requires New Studies Every Five Years

In light of the recent condo tragedy in Miami, I thought it would be a good time to remind everybody that Virginia requires Condominium Associations and Home Owner/Property Owner Associations to conduct a new Reserve Study at least once every five years.

In addition to providing valuable financial/budget guidance, Reserve Studies are also an important way to ensure your building/community remains in safe working order and structurally sound.

What is the Purpose of a Reserve Study?

During the Study, an engineer, or team of engineers, will inspect all common elements of the building/community to provide an assessment of current condition, useful life expectancy, and projected cost of repair/replacement. A building inspection includes everything from the elevators, to foundation, to hallway carpet.

After the inspection, the Study team will provide a detailed report of their findings and an assessment of the future financial needs of the Association over the next 30 years to maintain and replace the common elements of the building/community.

In most cases, these annual financial needs are analyzed against the current Reserve Balance (Association’s savings to pay for common maintenance and replacement costs) and the current Reserve Contribution amounts to determine if adjustments need to be made to the contribution levels in future budgets. Accelerating savings for an under-funded Reserve are one of the most common reasons Associations increase dues. If the funding requirement is high enough and the repair/replacement needs are urgent, that is when Associations will consider charging a Special Assessment to fund the Reserves immediately.

Don’t Forget About Presentation

I have reviewed tons of Reserve Study reports over the years and there is a wide range in quality. In my opinion, a quality report should not only be incredibly detailed in the inspection findings, but also as detailed in the presentation of the financial projections/recommendations. It’s also critical that this information be presented in an organized and easily understood format, which is not an easy feat when dealing so much information. If you are helping your Association choose a company to lead the Reserve Study, don’t forget to review reports they’ve produced for other communities so you can see how well they present their findings.

Important for New Buyers Too

In addition to Reserve Studies being important for building maintenance and budgeting, every new Buyer into your community will receive a copy of the Reserve Study (along with a other Association documents) once they’re under contract and has a three-day review period in which time they can void the contract for a refund of their deposit. So having a current and easily understood Reserve Study report is also a critical part of keeping Buyers under contract and the resale market in your community from under-performing.

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

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.Reserve Studies Required Every Five Years for Condos/HOAs

Is The Real Estate Market Slowing Down?

Question: Have you noticed a change in the real estate market lately?

Answer:

Summer Slowdown is Normal, Likely More Pronounced in 2021

It is normal for the real estate market to slowdown as we transition from the intensity of the spring market into the summer market and we (myself, my colleagues, and lenders I’ve spoken to) have seen that shift over the last few weeks.

I don’t think we are anywhere close to experiencing a market correction, but I do think the change in market conditions from the spring market (which really began in January/February 2021) to the summer market will be more pronounced this year because of COVID.

Buyers More Distracted By Travel/Events

Now that most of our buying population is vaccinated and businesses/events are open, Buyers’ attention is finally being focused on trips, events, and visiting friends & family rather than solely on their home search. Diversions are usually highest in the summer and around the holidays, thus historically slower markets, but this summer and holiday season will be met with an unusually high number of distractions for Buyers (that’s a good thing!).

Asking Prices Catching Up

Another factor in the shift in this summer’s market is that asking prices are finally starting to catch-up, in many cases, to actual market values. During the first 3-4+ months of 2021, the sales data (sold prices) wasn’t there or wasn’t enough to give Sellers the confidence to increase their asking prices 5-10%+ over 2019-2020 prices, which is why we’ve seen such extreme price escalations this year. Now that asking prices are falling more in-line with what the market is willing to pay (based on my experience over the last 4-8 weeks), the number of offers and wild escalations should subside.

What Likely Will/Will Not Happen

Homeowners planning to sell should not worry that the bottom is falling out of the market, but expectations should change compared to previous months. Here’s what I think the shift will and will not look like:

  • WILL result in fewer total offers on competitive homes
  • WILL result in fewer properties selling within the first week
  • WILL result in Buyers negotiating better/more contingencies
  • WILL result in less extreme price escalations
  • Will result in fewer homes listed for sale (likely a 20-30% drop compared to March-May)
  • WILL NOT result in prices falling (prices should stabilize)
  • WILL NOT result in a Buyer’s market

Spring vs Summer, 2016-2019

Let’s take a look at how the Arlington real estate market shifted from spring to summer from 2016-2019 to give some historical perspective. I did not include 2020 because it will always be an outlier that provides little value for historical trends/context. I looked at four data points that I use to measure market conditions:

  1. Percentage of homes that went under contract within one week of being listed
  2. Percentage of homes that sold for at or above the original asking price
  3. Average sold price compared to the original asking price
  4. Number of homes listed for sale

Here is a summary of findings from the charts shared below:

  • Intensity of demand (under contract within a week and homes sold for at or above ask) dropped from the spring to summer season all four years, with the exception of a slight increase in the homes being sold for at or above ask in the summer of 2019 (likely due to a significant drop in supply due to the Amazon HQ2 announcement in November 2018 putting upward pressure on prices all year)
  • The average sold price to original asking price dropped each year except 2019 (remained almost unchanged) suggesting less extreme escalations and more price negotiations
  • The number of homes listed for sale in the summer dropped by about 20-30% each year compared the spring market
VA Market Trends: Arlington vs Fairfax & Loudoun County

Question: How does Arlington’s housing market compare to what you’re seeing in Fairfax County and Loudoun County?

Answer: The Arlington single-family home (SFH) market has been competitive, and prices have increased, but the shift hasn’t been nearly as dramatic as what we’ve seen further west in Fairfax County and Loudoun County.

The Arlington condo market has improved from the end of 2020/early 2021, and prices seem to be coming back, but inventory levels are still much higher than they were in the years preceding the Amazon HQ2 announcement.

Listing Activity Up In Arlington, Normal In Fairfax And Loudoun

The number of SFH listings in Arlington this spring is up noticeably compared to prior years, but the biggest story continues to be the amount of condos being listed for sale. I previously wrote about the historical volume of condo listings we had last fall and that trend has continued through this spring, with the total number of condos listed for sale from March-May significantly higher than any other spring market in the last 10+ years.

The number of SFH listings in Fairfax County and Loudoun County have been consistent with past spring markets, down slightly compared to 2018 and 2019.

Demand Meets Or Exceeds New Supply, Except Condos

Despite higher-than-average listing activity in Arlington, the SFH inventory levels remain very low because there is enough demand to absorb the extra supply. SFH inventory has remained at about one month of supply throughout 2021.

Condo demand has not met the higher-than-average listing activity and condo inventory has steadily increased through the spring, after dropping (and flattening) from 5-year highs this winter. The Arlington condo market has settled at around 2.5 months of supply for the last 6 months, which represents a market that is more favorable to sellers than buyers, but still a significant shift from the post-Amazon HQ2 market with 2-3 weeks of supply for about 18 months.

Demand in Fairfax County and Loudoun County has been exceptionally high and inventory levels remain dangerously low with just 2-3 weeks of supply for nearly the last 8 months.

Prices Are Up (Of Course)

Prices for SFHs in Arlington are up, with the median price of a SFH in Arlington exceeding $1.2M for the first time ever in May. While the prices in Arlington are up noticeably, it’s nothing compared to the massive appreciation seen in Fairfax County and Loudoun County over the last four months where we’ve seen up to 15-20% year-over-year increases in prices throughout both markets.

Condo prices have increased from late 2020/early 2021 and seem to be settling in a bit below pre-pandemic numbers. I didn’t include a chart for condo prices because there’s too much variability and it doesn’t provide much value.

Escalations Over Ask Are The Norm, Likely To Change Soon

This spring, the average SFH in all three markets has closed for 3-4.5% over the original asking price. I expect this number to come down over the next few months as asking prices catch up with what the market is willing to pay and the attention/priorities of buyers starts to shift to other things like travel, events, and seeing family and friends.

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

Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.

Are Buyers Really Waiving Inspections? The Many Approaches to Home Inspections

Question: What are the different ways of structuring a Home Inspection Contingency and how do they affect the odds of my offer being accepted?

Answer:

Last Week’s $1,000 Donation Poll

Before I jump into today’s column, I want to announce that based on last week’s vote, our team donated $1,000 to the Fisher House Foundation on behalf of the ARLnow community in honor of Memorial Day. Fisher House Foundation builds comfort homes where military & veteran families can stay free of charge, while a loved one is in the hospital. Thank you to everybody who voted and commented with feedback about the various charities.


Home Inspection Contingency Overview

Not only is this market pushing Buyers to offer well over asking price, it’s also pushing them to take on a lot of risk by reducing or eliminating the protections offered by standard contingencies: Inspection, Financing, and Appraisal Contingencies are the “Big Three.”

Of the “Big Three” contingencies, the Home Inspection Contingency represents the most risk to a Seller because it gives the buyer a nearly unilateral option of voiding and/or the ability to request Seller repairs or Seller credits based on the findings of the inspection. Thus, Buyers who reduce or eliminate the risk of a Home Inspection Contingency to a Seller are viewed much more favorably than Buyers who do not.

A home inspection is when a Buyer hires a licensed Home Inspector to provide a report on the condition of a home. They examine and test things like appliances, the roof, water drainage, and the electrical system to help Buyers understand what they’re buying. Depending on the size and age of a property, inspections generally cost anywhere from ~$300-$800+ before common add-ons like radon tests and chimney inspections.

If you’re buying a home, there are a few different ways of approaching the home inspection.

Home Inspection with Right to Void or Negotiate Repairs and/or Credits

This option is most favorable for Buyers and least favorable to Sellers because it allows the Buyer to void the contract (and get their Earnest Money Deposit back) if they don’t like the results of the inspection (or even if they just get cold feet) and also allows Buyers to make any requests they want for Seller repairs or Seller credits.

If a Buyer decides to void, there’s nothing the Seller can do, as long as the Notice to Void is issued within the proper window of time. Buyers can make any requests they want of the Seller for repairs and credits, but the Seller can also negotiate or reject whatever requests they want. If the Buyer and Seller are unable to reach an agreement on repairs and/or credits within a specified number of days, the Buyer has the option of accepting the Seller’s latest offer for repairs and/or credits or voiding the contract.

Most people would consider this the standard/default type of inspection, but in hot markets like we’re experiencing now, this structure is much less common.

Home Inspection with Right to Void Only

Also known as a Pass/Fail inspection. This option is less favorable to Buyers and thus, better for Sellers. In this scenario, Buyers retain their ability to void the contract after doing the home inspection, but give up the negotiation period to request repairs or credits from the Seller.

The idea behind this inspection structure is to communicate to the Seller that the Buyer just wants to ensure there are no major issues, but is willing to take on the cost/burden of smaller issues. Of course, there’s nothing stopping the Buyer and Seller from agreeing to repairs or credits within this structure, and it happens more often than you might think. This is especially true if a larger issue is discovered that is a surprise to both parties such as water penetration or a cracked foundation.

In many cases, the timeline that Buyers have to complete their inspection and make a decision to void or not is much faster than a “full” inspection, which is another benefit to the Seller. If the contract is going to be canceled, Sellers want that to happen sooner than later.

Pre-Inspection

In this scenario, the Buyer does their home inspection before making an offer. It allows the Buyer to make a significantly more appealing offer to the Seller because it does not include a Home Inspection Contingency (no right to void based on the inspection), while giving the Buyer all the benefits of being informed by a complete home inspection.

The biggest downside to this approach is that Buyers are paying for a home inspection before they know whether or not their offer will be accepted so Buyers can pay hundreds of dollars and spend 2-3+ hours at an inspection for a house that they get significantly outbid on. In many cases I’ve experienced with hot homes, multiple buyers are doing pre-inspections. I recall a house in Arlington in early 2020 that had something like 20 pre-inspection done!

This approach is not always an option because there may not be enough time to schedule a pre-inspection before the Seller is reviewing offers or the Seller may not allow pre-inspections because they take up large chunks of time and get in the way of other Buyers seeing the property.

No Inspection or Info-Only Inspection

Unfortunately, the market has gotten so competitive that many Buyers are purchasing homes without doing a home inspection or doing one for informational purposes only, whereby the inspection is done after an offer is accepted without any contractual ability to void, thus risking the (likely high) Earnest Money Deposit if the results of the inspection are bad enough to warrant terminating the deal.

This is a particularly unhealthy place for the market to be because it transfers a massive amount of risk onto Buyers who choose to commit their deposit without any due diligence or makes it very difficult for Buyers who refuse to take on that type of risk to actually buy a home.

What Should We Do?

While I doubt it will ever happen, I’d like to see the state or our Realtor Associations introduce a basic/minimum inspection requirement for homes being sold to non-builders/contractors/investors (like the “accredited investor” threshold that the SEC has for certain investments).

This would mean that in a hot market where Buyers are being pressured not to do a home inspection, Sellers would pay a relatively small amount ($200-$300) for an inspection report on the core systems of the home to be conducted by a licensed Inspector, with that report available prior to offers being made or after accepting an offer, but with a short review period that includes a right to void (like the required HOA/Condo document review period).

The best advice I can give is that it’s important to understand the risk-reward balance of any decision you make in real estate, especially as it relates to structuring or removing the Home Inspection Contingency.

VOTE: An ERG Charitable Donation

Thank you to all that 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, back with friends and family to celebrate our country.

The Eli Residential Group will be making a $1,000 donation to one of three Veteran/Military Non-Profits. Please vote below and the charity with the most votes will be chosen for the donation.

  1. Fisher House Foundation
  2. K9s For Warriors
  3. Wounded Warrior Project

To vote please visit the poll on ARLnow by clicking below.

What is the Earnest Money Deposit and how much should it be?

Question: Can you explain how the Earnest Money Deposit is used and what an acceptable amount is?

Answer:

What is the EMD?

I like to define Earnest Money Deposit (EMD) as an amount of money deposited by a Buyer as security for the Seller that the Buyer will perform under the obligation of the real estate contract. Assuming the Buyer completes the purchase transaction, the deposit is deducted against what they owe at closing (down payment + closing costs).

If the Buyer voids the contract within their contractual rights (e.g. Home Inspection Contingency), they receive their deposit back in full. If the Buyer defaults (cannot close or backs out without contractual protections), that money is at risk (more on this later).

In most cases, the deposit is held by the Title Company handling the transaction. They act as an unbiased administrator of the deposit and are also the ones handling the funds at closing. In some cases, one of the brokerages representing the Buyer or Seller may also hold the EMD, but this is much less common today. In either case, the handling and distribution of the deposit funds are strictly regulated to prevent co-mingling or improper distribution if the transaction falls through.

The contract also stipulates when the funds are due. In most cases, Buyers make the deposit within 3-5 days of an offer being ratified (accepted by both parties). If you’re a Buyer preparing to make an offer, I recommend making sure you have enough funds for your EMD in an account that you can easily transfer money out of (wire or check), not a brokerage or retirement fund that takes 5-10+ days for money to clear.

How Much is the EMD?

The amount of the deposit is a negotiable term in the contract and should be given serious consideration by both Buyers and Sellers. Buyers can use the deposit amount to increase the actual or perceived strength of their offer over others. In the current market where many Buyers are competing with other offers, a higher EMD can help you stand out if you’re in a tight race with another offer.

What does it mean to stand out with your EMD? In my opinion, 1% of the sale price is the lowest EMD that should be considered, but 2-3% of the sale price is appropriate in most non-competitive or lightly competitive situations. In competitive situations, it’s common to see at least a few Buyers offer EMD of 5% of the sale price or more. I’ve even seen Buyers offer to post their entire down payment as EMD.

Consider it from the perspective of a Seller. If you’re reviewing multiple great offers on a $1,000,000 home and one has a 2% EMD ($20,000) and the other has a 10% EMD ($100,000), wouldn’t you be drawn towards the offer with a substantially higher EMD?

As a Seller, other terms like price, contingencies, and closing date will most likely rank higher in priority than EMD amount but it’s still important to ensure you have an acceptable deposit.

Consider this scenario…if you’re selling a $1,000,000 property and the EMD is 1% ($10,000), is that enough to keep your Buyer locked into the contract if, one week before closing, their dream home hits the market and they begin questioning the purchase of your home? Maybe yes, maybe not.

Is $10,000 enough money for you to offset the hassle and cost of going back on the market and uncertainty of getting the same or better price the second time around? Probably not.

So make sure that the deposit you’re receiving is enough to disincentivize the Buyer from defaulting and enough to offset the cost and hassle for you if the Buyer does default.

How Much Can the Seller Keep?

One may think that if the main purpose of the EMD is to give the Seller assurance that the Buyer will not default, the Seller should automatically get the entire deposit if the Buyer defaults, right? That is not the case and EMD distribution can be complicated.

EMD administration law requires that the Holder (Title Co or Broker) receive a signed EMD release form from the Buyer and Seller agreeing to how EMD is distributed before any money can be released to either party.

This is true for EMD release if the Buyer properly voids the contract within their contractual protections (e.g. Home Inspection Contingency) and is due 100% of the EMD or if the Buyer defaults and the Seller is due to receive money for damages.

It is rare for EMD to be disputed if the Buyer properly voids within their contractual protections because it would ultimately be a losing case for the Seller and put the Seller at risk for further legal action for withholding the release of funds. However, when a Buyer defaults without contractual protection, there’s often somewhat of a negotiation between both parties on how much of the deposit should be released to the Seller.

My experience is that Sellers often don’t walk away with the entire deposit, but that of course depends on the circumstances of the default, the relationship between the two parties, amount of the deposit, how likely it is for the Seller to find a new Buyer and at what price, and many other considerations. Side note: EMD disputes are often unexpected and a good reason why it’s so important for the Buyer and Seller to maintain a positive/cordial relationship because you never know when something can happen that will require cooperation.

Most EMD disputes are resolved between the Buyer and Seller, but if an agreement cannot be reached, no funds will be released to either party and legal action may be required by one party to resolve the dispute. This option is generally undesirable enough for one or both parties that EMD disputes are usually resolved without court involvement.

This article is applicable to Virginia, Washington DC, and Maryland and may not apply to other states/jurisdictions outside of the DMV.

What is the MLS/Bright MLS?

Question: In your last article you mentioned Bright MLS a few times, can you explain what that is?

Answer: If you’re buying or selling a home, you may hear the term “MLS” or “Bright” used a lot. The simplest way I describe it to people is that the MLS, short for Multiple Listing Service, is the real estate industry’s database(s) of record for property sales. There are hundreds of regional and local MLS’s across the country.

Bright (MLS) is the name of our regional MLS and also the largest in the country. Prior to 2017 it was called MRIS (Metropolitan Regional Information Systems), but in 2017 it was rebranded to Bright after a merger with 8 other regional MLS’s mostly from PA, NJ, and DE.

From a 2017 press release, the recently formed Bright MLS managed the records for about 250,000 annual transactions and $85 Billion in annual real estate sales. These numbers are likely higher now.

What is the MLS (Multiple Listing Service)?

The MLS is a real estate information exchange platform and database created by cooperating residential real estate brokerages to improve the efficiency of their real estate market.  As a privately created and managed organization, each MLS is primarily funded through the dues of the brokerages and agents within the market it serves. There are hundreds of MLS’s across the country and each operates under its own direction and rules & regulations.

The information you find on consumer-facing websites like Zillow, Realtor.com, and Homesnap comes from various MLS’s and each MLS has the right to negotiate its own relationship (syndication agreements) with these sites and determine what information is made available.

Without the MLS concept, we would have an extremely fragmented industry that would make it difficult for buyers to ensure they are seeing most/all of what is for sale within their sub-market and it would be much more difficult for sellers to get top dollar because they would not have access to the entire buyer market.

What is Bright MLS?

Bright is the MLS that serves our region including most major markets or 100% of markets in Virginia, Washington DC, Maryland, Pennsylvania, New Jersey, West Virginia, and Delaware. It’s the largest MLS in the country by size and geographic area.

The Executive Committee and Board of Directors is made up of representatives from the region’s major brokerages and directs the business of Bright, which has developed into a full-blown software, services, and technology company. Bright has adopted a strict set of rules & regulations to provide data uniformity and ensure fair play such as restrictions on marketing properties for sale that are not entered into the MLS, as discussed in last week’s article.

Your interaction with Bright MLS is likely to come from listings that your real estate agent sends you directly from the system, but you are also indirectly interacting with Bright whenever you search a 3rd party real estate site like Zillow because Zillow pulls its listing information from Bright (and other MLS systems across the country).

While at time frustrating for brokerages, agents, and consumers there is a tremendous net benefit to the MLS structure by combining home sale data into one database with a common set of requirements and rules of engagement. This allows the entire industry to function much more efficiently than it did prior to the MLS concept and since Zillow and other consumer-facing sites began aggregating listing information for public use, it have taken away the “gate-keeper” role real estate agents, to the benefit of consumers and, I would argue, real estate agents.

How Many Homes Sell Off-Market or Pre-Market in Arlington?

Question: A friend of mine found a house off-market through their neighbor. Do you have any data that shows how many homes get sold before every hitting the market?

Answer: Most people assume that there are a lot more pre-market and off-market home sales than there really are. The data I used to determine likely pre/off-market activity suggests that only about 4-5% of Arlington homes sell without being listed first.

However, within that 4-5%, you have a wide range of circumstances that cause homes to be sold pre/off-market that aren’t really part of the “standard” sale process including tenants buying from their landlords, investor deals, custom homes, new construction condos, deals between neighbors/family/friends, and others. In this case, I’m loosely defining the “standard” sale process as a homeowner who begins the process of preparing their home for sale with the intention of offering it to the public.

So, the actual percentage of “standard” sales that follow a more traditional sales process that end up selling pre/off-market is likely much lower, and probably closer to 1-3% of total sales.

To come up with my pre/off-market estimates, I looked at the number of sold (Arlington) homes in the MLS that had zero days on market and the number of homes with zero and one days on market. A home with zero days on market was almost certainly sold pre/off-market and a portion of homes with one day on market were sold pre/off-market, but it’s impossible to tell from the data how many of those were pre-market vs how many were listed and the seller accepted an offer on the first day.

Not every pre/off-market sale gets entered into the MLS so those sales won’t show up anywhere in my data, however, I think this dataset gets us pretty close.

The chart below shows the percentage of homes each year that sold with zero or zero/one days on market.

Changes in Pre/Off-Market Rules

You’ll notice from the chart that there was a steady rise in pre/off-market deals through 2019, followed by a quick reduction in those deals since 2020.

For years prior to 2020, in order to gain a competitive advantage, agents and brokerages were creating their own “shadow” pre/off-market listing platforms/feeds that circumvented the cooperative agreements established through the MLS.

In the fall of 2019, Bright MLS (our regional MLS) announced major changes to protect the cooperation agreements of the MLS and required a home to be entered into the MLS within one business of any public marketing or advertising (For Sale sign, social media, email blasts, mailers, website, etc). Since this announcement, the number of pre/off-market deals have dropped substantially, for the betterment of both buyers and sellers, in my opinion.

I wrote about these rule changes in more detail and explained the MLS/Bright MLS concepts further in this October 2019 column.

Best and Worst Months to List a Rental

Question: What time of the year is most and least favorable for putting a property on the market for rent?

Answer: The rental market follows similar seasonal trends as the resale market in that spring tends to be the best time to list a property and the market is slowest during the winter months. For this market analysis, I looked at all rentals in Arlington from 2015-2019 (I kept 2020 out because it’s an anomaly) to determine how the month a property is listed for rent impacts a landlord’s negotiation leverage and the days on market. I split the data into apartment-style properties and detached/townhouse properties to see if there was much variability, but the trends are similar for all property types.

Best Months to List: March – July

Worst Months to List: September – December

The data I looked at to determine the best and worse months are the percentage of the final rental price to the original asking price (indication of how much leverage landlords have), the average days on market, and the percentage of properties rented within two weeks of being listed for rent. These data points provide some of the best indications of how successful you will be renting a property at different times of the year.

While there are clearly certain months of the year that are better/worse to rent, I think it’s also important to note that the gap between the best and worst month(s) is not massive, but it’s enough that landlords should work to put themselves on a spring/early summer leasing cycle and avoid signing leases that expire in the late fall/winter.

If you are a tenant, you can expect the most properties coming to market from May – July and a dramatic reduction in options from October – December.

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