Home Owner

Missing Middle Thoughts and Observations

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Missing Middle Thoughts and Observations

Question: In the six months since Arlington passed Missing Middle, what have you seen and what do you think of it?

Answer: It’s been about six months since Arlington passed the Expanded Housing Options (EHO) aka Missing Middle (MM) zoning changes, allowing the construction of 2-6 unit properties on lots that were previously zoned exclusively for single-family homes. There has been much excitement and angst about it changing the fabric of our community, but it seems to me that the outcome will be much milder than many people expect. Unfortunately (or not?), it seems like it won’t go far enough to make the proponents happy but goes far enough to make the opponents angry.

For those who want more of an introduction to Missing Middle, you can read my initial thoughts on MM from March. This week, I’ll share an assortment of thoughts and observations I’ve gathered over the last few months while I try to better understand what MM means for Arlington. I’ll caveat the entire column saying that MM is all very new, very much undeveloped, and we probably won’t understand where and how it will be most utilized for another 4-5 years.

Don’t Expect Floodgates to Open

More than a dozen Missing Middle applications were submitted during the first week the County opened applications (on July 1), but according to Arlington’s application tracker, there are currently 22 applications submitted and under review and 5 applications approved. I consider this to be a modest pace of applications, suggesting there’s not a huge appetite yet to build Missing Middle. I’ve run at least a dozen scenarios with builders and architects and have mostly found that the numbers don’t make sense or that the margins are too tight to justify given the risk of the unknowns (outsale prices/demand, permits, lawsuit, etc). 

Initially, I expected MM to add significant value to many older, smaller Arlington homes right away and cause a bit of a frenzy in the marketplace. The limitations of the new zoning code coupled with uncertainties about market demand for MM products and the County’s permit process seem to have kept, from my observations, developers and investors from paying a premium for tear-down homes intended for Missing Middle development (the pending lawsuit is also a significant factor).

Based on my conversations, it seems that the approach many are taking is to apply a similar valuation to an acquisition as they would for single-family development so there’s a safe exit if the Missing Middle project doesn’t work out or the lawsuit prevents further development. Each investor will evaluate potential MM deals differently, but it seems unlikely, for now, that we’ll see a frenzy of buying at a premium over previous tear-down valuations. There will of course be exceptions for certain lots that set-up perfectly for MM.

Applications Don’t Mean Much

So far, all we’ve seen are applications for Missing Middle construction not actual construction, but it’s important to understand that applications, even the five approved applications, are a small first step towards delivering a Missing Middle project. The County does not charge an application fee and the requirements for an application are simple:

  • Floor plans 
  • Building elevations 
  • Existing property plat and building location survey 
  • Proposed property plat and building location survey 
  • Landscaping and/or tree preservation plans

I think that many approved applications won’t get any further, especially after going through Arlington’s ever-changing Land Disturbance Activity (LDA) and Stormwater requirements (this comes after the MM application gets approved), which adds a lot of cost and complexity to construction projects in Arlington and hamper profitability.

I also wouldn’t be surprised if a lot of the owners are hoping to sell their home with an approved Missing Middle application and set of plans, but don’t intend on actually building it themselves. That means they may not have done a true cost/profit analysis to determine if MM is financially viable or more profitable that a single-family development, so they might not get built.

One question I have for the County is that, given the limits on the number of applications they’ll allow each year, how will they clean out the application pool of applicants who decide not to build, sit on their application, or get stuck in the application process?

Large Lots, Largely Untouched

Of the 27 properties listed on the County’s application review tracker (as of this writing), none are located in R-8, R-10, or R-20 zones, which are home to most of the larger lots (“large” is relative) in the County and mostly located north of Langston Blvd. Note: the higher the number after the “R” generally the larger the lots are in that area/neighborhood.

I think this is mostly because the County, intentionally or not, made MM development unappealing for developers, compared to building single-family homes, on large lots by limiting number of townhouses that can be built to three modestly sized units. A developer must go with a multi-family/apartment-style product if they want to build more than three units and it’s hard to imagine demand being too strong for mid-sized condos without amenities, that are located away from the commercial/Metro corridors, where most of these larger lots are located.

I believe this trend will hold unless changes are made to allow 4+ townhouses to be built on a lot or there’s a significant increase in how large the building envelope (gross floor area) can be for developments on larger lots.

Creative Opportunities for Aging in Place, Families, Singles

One of the ways I can see Missing Middle being utilized is allowing homeowners to partner with a builder on the redevelopment of their property to create multiple units, one or two of which would be designed to their own specificationsn/eeds, with the cost of their new unit being reduced through the sale of the other units. For example:

  • Aging in Place: a homeowner who requires care could build themselves a first-floor condo and a separate studio for a caretaker, then sell the other units
  • Families: a family might build out the entire top floor for themselves, buildout a separate unit for their parents (a truly separate and self-sufficient in-law suite), and sell the rest
  • Savvy Singles: a savvy single might build a small 1BR or studio for themselves to maximize the value and size of the rest of the units to earn themselves a free or very inexpensive home

Classic Cottages Leading the Way

Classic Cottages, a well-recognized custom homebuilder in Arlington (and surrounding Northern VA communities) seems to be taking the lead in Missing Middle development projects, with a handful of applications in across the County. They will likely be one of the first to give us a glimpse of what early Missing Middle will be, and can be.

None of their projects will be rentals, a fear many Arlingtonians have that neighborhoods will fill up with small rental buildings, and they intend to build to a similar design aesthetic and quality standard as they do in their $2M+ homes. They’re one of many local builders who will likely dabble in Missing Middle construction who don’t want to spoil their custom-home brand by building a weak product that reflects poorly on them. 

I think we’ll see a high-quality product that is meant for sale, not rental, from most other developers too. The Arlington consumer rewards builders with high price premiums for higher-end construction, so the margins and incentives exist to deliver quality. I’m also convinced that in most cases, the cost of acquisition and construction are too high for rentals to pencil out and most MM construction will be sold to homeowners, not investors.

Lawsuit Won’t Change the Long-Term Path

The current lawsuit filed against the County may slow down the implementation of Missing Middle, but I see that as only a short-term victory for MM opponents, not something that will prevent upzoning from being established to Arlington in the long-run. Variations of Missing Middle are picking up momentum all over the region (City of Alexandria, Fairfax Co, Montgomery Co) and increased zoning flexibility seems to be the only way to feed a starving housing market. Even if the lawsuit is successful, it should only be bump in the road to more housing density.

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.

What is the MLS and Bright MLS?

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What is the MLS and Bright MLS?

Question: I often hear people reference the MLS or Bright when referring to properties for sale. Can you explain what these are?

Answer: If you’re buying or selling a home anywhere in the US, you may hear the term “MLS” and if you’re buying in the Mid-Atlantic “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 that act as the aggregator of properties for sale/rent.

Bright (MLS) is the name of our regional MLS and, with just over 110,000 participating agents, it is the second largest MLS in the country behind the California Regional MLS. 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.

The map below shows the current Bright MLS footprint, meaning brokerages/agents in all of these areas input their listings into the same platform. It covers 40,000 square miles and 20M people.

Our Reach Map

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 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 the mid-atlantic region including all of, or most major markets in, Virginia, Washington DC, Maryland, Pennsylvania, New Jersey, West Virginia, and Delaware.
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 this article.

MLS is a Net Benefit to Consumers and Agents
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 their data is pulled from Bright (and other MLS systems across the country).

While at time frustrating for brokerages, agents, and consumers (personally, I think there’s so much more they can do with data and their consumer-facing tech), the MLS structure is a tremendous net benefit for the industry and consumers 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 more efficiently than it did prior to the MLS concept, which has led to lower commission fees.

The biggest example for consumers (and I’d also argue to Realtors) is that since Zillow and other consumer-facing sites began aggregating listing information for public use, real estate agents are no longer the “gate-keepers” of listing information and consumers have direct access to practically everything that is on the market (entered in an MLS) in nearly real-time.
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.

Mid-Year Condo Market Review (Arlington)

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Mid-Year Condo Market Review (Arlington)

Question: How was the market for condos in Arlington during the first half of the year?

Answers: The condo market loves stability, often it’s a bit too stable for most condo owners (low appreciation), so after a wild ride from 2019-2021, we can finally say with a high level of confidence that the Arlington condo market has found its level in the wake of Amazon HQ2 (rapid appreciation) and COVID (supply surge and depreciation).

The data below is based on the sales of apartment-style condos in Arlington during the first six of of the past five years. Note: I filtered out new construction data because it throws off the readings on actual market trends and gives a distorted view of pricing in 2021 (mostly due to 2000 Clarendon sales).

Average Prices Down Slightly

I’m generally not a big fan of using $/SqFt because it can throw off so many false readings, but in this case, I think $/SqFt is a more reliable way of reading the year-to-year price trends of the market than average sale price, but both readings indicate pretty similar market conditions over the past five years.

  • The average price for a 1BR decreased by .6% to just over $375,600 and the average $/sqft decreased by 2.5%
  • The average price for a 2BR decreased by 1% and the average $/sqft decreased by 3%
  • Overall, prices have changed very little since the Amazon HQ2 bump in 2019, with just 1.6% appreciation for 1BR in the last five years and 6.9% for 2BR on an average price basis, and a 2.7% increase for 1BR and 3.8% increase for 2BR on a $/SqFt basis
  • On average, condos are selling for just under their original asking price
  • Keeping up with the market-wide trend of low supply, sales volume in the first half of 2023 came in just higher than 2020, when the market froze for Q2. 2023 sales are down well below the first half numbers over the rest of the decade.
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  • Just over 50% of condos are selling within the first ten days on market
  • Just over 50% of condos are selling for at or above their original asking price
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Poised for Future Price Growth

I expect the second half of the year to be like the first half, but with normal seasonal trends in play, meaning properties will take a bit longer to sell and buyers will be able to negotiate more off the asking price, but expect prices to hold steady for the most part.

However, if rates start coming down by next year, the condo market is poised for strong appreciation (in the condo world, that would be 3-5%). If you look at the first chart below, you’ll see that we are operating with some of the lowest inventory levels we’ve seen in the past decade (bested only by the 16 months of Amazon HQ2 craze), any pop in demand will cause prices to jump with such low inventory levels. The second chart shows Months of Supply is remaining low as well, at about five weeks. Months of Supply measures supply and demand, with lower values indicating a more favorable market for sellers.

These charts suggest a market with a lot of upward pressure on prices, being held back only by the high interest rates.

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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 Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

2023 Mid-Year Single-Family Home Market Review (Arlington)

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2023 Mid-Year Single-Family Home Market Review (Arlington)

Question: How was the market for single-family homes in Arlington during the first half of the year?

Answer: All it took was 7% interest rates to stabilize prices…which is exactly what the Fed’s goal was and the Arlington single-family home market is a great example of it working. Coming into the year, there were signs that prices would fall in 2023 if rates remained high, but due to a historic supply squeeze, prices remained stable despite a significant drop in demand (the drop is supply was more significant than the drop in demand).

The data below is based on sales of single-family homes in Arlington during the first six months of the past five years.

Competition Eases, Prices Stabilize

The Arlington single-family market will always be competitive, but the intensity of the last two years has softened and brought some stability to prices:

  • The average home price increased by 2.3% to over $1,360,000 and the median price increased by 1.7% to $1,220,000. If you remove new construction sales from the data, the average sale price actual decreased by .6% to just over $1,241,000.
  • Over the past five years, the average home price in Arlington has increased by nearly 27%
  • On average, homes are selling for just over their original asking price in 2023
  • 14% of homes sold in the first half of 2023 sold for $2M+ and only 32% sold for $1M or less
  • If you remove 2020 sales numbers (COVID lockdown), there were 26% fewer sales in the first half of 2023 than the 5yr average. That is almost exclusively due to low supply, not low demand.
  • 68% of sales in 2023 were at or above the asking price, less than 2021 and 2022 but just above 2019 and 2020
  • 64% of homes sold within 10 days on the market, last year it was 74%
  • Homes that went under contract within one week on market sold for an average of 3.9% over the asking price, in 2022 the average was 6.8% and in 2019 it was 2%
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Zip Code Prices All Over the Place

There was no consistency in average price change across Arlington zip codes:

  • Note: 22213 only has 8 sales in 2023 so the data isn’t very reliable, I considered not including it
  • 22201 led the way with an 8.9% year-over-year increase
  • After massive growth in 2021 and 2022, the 22205 zip code had the worst performance, down 8.5% from last year. However, this is not a reflection of actual home values dropping in 22205 by that much, but mostly the make-up of the data set
  • 22204, the zip code I now call home, remains the only zip code for a third year in a row with an average home price below $1M
  • 22207, the best bellwether for Arlington single-family market conditions, continued its steady appreciation clocking in at 4.2% over 2022 to an average of $1,609,000. Without new construction sales, the average price increased by 1.8% to $1,455,000.
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Looking Forward

There is no relief in sight for interest rates, with many rates returning to the 7%+ mark as of last week. Expect a noticeably less competitive, more balanced real estate market in the second half of the year. Buyers will have a better chance at finding value and sellers should level expectations.

The big question is when will rates come down (many expect to see 4-5% in the next 12-18 months) and what will that do to prices. If inventory remains low, which it’s likely to do for years to come, I think that we’ll see another surge in demand and prices when rates break through 5.5-6%. If that coincides with Q1/Q2 of 2024, expect that surge to be amplified. Until then, I expect prices to remain relatively flat with competition light to moderate, depending on the season.

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.

Best Arlington Condos for DC July 4th Fireworks

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Best Arlington Condos for DC July 4th Fireworks

One of my favorite things about the Arlington condo market is the remarkable views that some of the buildings have of DC and the National Mall! Some of the best July 4th fireworks in the country take place on the National Mall and what better place to view them than from your very own Arlington condo!  

Today, Jean Ropp, Arlington real estate agent with Eli Residential Group, toured 4 Arlington condo buildings to check out their views of the DC Skyline:

  1. Prospect House, 1200 N. Nash Street, was built in 1966 and is located just steps from the Iwo Jima Memorial. The building is best known for its views of the Washington Monument and DC skyline.
  2. The Pierce, 1781 N. Pierce Street, completed in 2021, it is Arlington’s newest building for sale. This high-end, luxury building has an average sale price of ~$1.8M and $1,000 per square foot. Part of the price tag come from the impressive views of DC from many of the units, the rooftop terrace and the rooftop pool.
  3. The Odyssey, 2001 15th Street N., built in 2006, is located in the Courthouse neighborhood. This building’s great reputation and excellent amenities make it an Arlington favorite. The views from the rooftop pool and top floor gym are exquisite.
  4. The Waterview, 1111 19th Street N., built in Rosslyn in 2008, is unique because floors 1-15 are a hotel and floors 16-31 are condo residences. The Waterview has its name for a reason! The views of the Potomac River and Washington DC are unmatched.

There are other buildings in Arlington that offer superb views not mentioned here including 2000 Clarendon and Clarendon 1021.

Let us know in the comments below which of these buildings you’d like to watch the DC July 4th Fireworks from! If you’d like to tour any of these buildings, you can contact Jean at Jean@EliResidential.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 Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.

Condo Fees, They’re So Underappreciated

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Condo Fees, They’re So Underappreciated

Question: Why would anybody waste hundreds of dollars each month on condo fees?

Answer: Most people associate paying condo fees with throwing money down the drain, but the truth is that most people aren’t looking at condo fees the right way; they even offer some advantages over a single-family home or townhouse.

What Do Condo Fees Pay For?

For those who haven’t spent much time studying condo budgets, some of the main expenses in a condo budget include:

  • Reserves: a building’s savings account for large major repair or replacement of things like the roof, façade, elevators, etc
  • Property Management/Staff: contracts for a property manager, front desk, janitorial services, and engineer
  • Maintenance and Utilities: general upkeep of the building including lawn service, basic repairs, power washing, window cleaning, snow removal, and utilities like water, sewer, and trash (some buildings also include gas, electric, and/or tv and internet)
  • Master Insurance: this policy usually protects everything except your personal items and improvements within each unit

Predictable Expenses

One of the most beneficial, yet underappreciated, advantages of condo fees is that they give homeowners a very predictable, flat expense structure. Taking care of a single-family home might mean months or years with very low maintenance expenses and then a run of tens of thousands of dollars in expenses (e.g. a storm damages your deck and deck and your basement floods).

In a condo, your biggest financial exposure is usually HVAC and appliances, all of which are under $10,000 and have somewhat predictable expirations. Many of the other normal home maintenance and replacement costs tend to fall under the purview of the Association.

For younger buyers with less savings and retired homeowners on a fixed income, the benefits of stable, predictable condo expenses makes financial planning/management easier and also require less of an emergency savings fund so more cash can be deployed into investments or to enjoy.

Home Maintenance Cost > Condo Fees

When you own a condo, you’re only responsible for what’s inside the walls of your home (appliances, water heater, flooring, walls, plumbing fixtures, etc) and, if you have one, an outdoor HVAC compressor. Of course with a single-family home or townhouse, you are responsible for a lot more without anybody to share those costs with.

Over the last 12 months, the average condo fee in Arlington was $583/mon (~$7k/year) representing about 1.4% of the average condo market value. Estimates for annual (single-family) home maintenance range from about 1-2% (Wells Fargo) to 1-4% (State Farm) of your home’s value in annual maintenance expenses.

Many homeowners will spend more in the long-run maintaining a single-family home than they will on condo fees, plus condo fees include more than just maintenance and repair.

Lower Utility, Insurance Bills

Condo living will help you save money on other expenses including utilities and homeowners insurance. It’s usually much easier to keep your unit comfortably heated and cooled because you benefit from the ambient temperatures from the units and hallway around you. And because of the existing Master Insurance policy for the building, your own homeowners insurance policy tends to be less expensive than a comparable policy for a single-family home or townhouse.

Amenities

Many buildings have amenities that can either save you money (e.g. a gym that saves you from paying a separate gym membership fee or grilling area to save you on a grill and propane) or enhance your living (e.g. pool, rooftop terrace, 24hr front desk security).

Life is Easier

One of the main reasons retirees sell the home they’ve lived and invested in for decades to move into a condo is to relieve themselves of the time and hassle of maintenance and repairs. While you can debate whether you’ll pay more on maintenance in a condo vs single-family home, there’s no denying that you’ll spend a lot less TIME on maintenance in a condo, and your time is certainly worth a lot. Even if you are not doing any of the maintenance work yourself in a single-family, you will spend time contacting, meeting with, and managing contractors and vendors who do the work.

This goes for landlords/investors too – the effort of maintaining an investment property that is a condo is much lower than one that is a single-family home.

But What About Evil Condo Boards?

Another concern I hear about condos is that the evil condo boards/management will increase fees or levy special assessments (one-time fee levied against all owners, on top of their condo fee) on a whim just to screw owners over for thousands of dollars. This simply is not accurate.

First and foremost, the Board members are also owners and pay the same fee increases and special assessments as the rest of the owners so they should have a shared interest interest in keeping costs down. Second, most Boards try to limit fee increases to 2-3% annually to keep pace with inflation (yes, fee increases have been higher the last two years while we deal with high US inflation). Finally, special assessments are generally a measure of last resort and uncommon.

If you are concerned about fee increases and/or special assessments, I strongly encourage you to attend Board meetings, participate on the Financial or Building Committees, or become a Board member to personally oversee your investment.

Conclusion

Just because this column is pro-condo does not mean it is anti-single-family home/townhouse, but somebody has to stand-up to for the oft-bullied condo fee! I do hope this message reaches buyers and investors who are a good fit for condos, but hesitant to consider them because of a misunderstanding about condo fees.

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

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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.

Missing Middle Series: Initial Thoughts

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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.

Did DC Real Estate Prices Just Crash?

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Did DC Real Estate Prices Just Crash?

Question: I found data that shows housing prices in DC are back down to the 2018 levels but anecdotal evidence suggests they are not. Can you explain whether the data I found is accurate or something is off?

Answer: The median price ($545,500) for homes sold in January ’23 in Washington DC showed a 15.4% year-over-year drop and was the lowest median price for any month going back to January ’19.

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Did DC Lose Four Years of Appreciation?

Given the economic and real estate climate since this summer, with endless headlines about market corrections, it would be easy to interpret the latest DC median price data as proof that the bottom is falling out of the real estate market. Unfortunately for our bear-market prognosticators, or those waiting for a market crash to buy property, the chart above is misleading and not representative of the actual market.

The drop in median price is due to an unusual data set and does not mean that real property values have fallen 15.4% year-over-year and/or lost four years of appreciation.

How The Data Steers Us Wrong

Real estate data can be tricky to use correctly (aka draw accurate conclusions) so if you want to make data-driven decisions, make sure you are leveraging the right data and working with somebody who understands the strengths and weaknesses of real estate data in your local market. Here’s why the January median Washington DC pricing data steers us wrong…

Timing: Pricing data lags by about 30-60 days, meaning the pricing data published in January is mostly made up of contract activity in November/December and is thus an indication of what happened in the market, not what is happening in the market. November and December are traditionally the slowest months of the year, with the least demand and lowest volume of homes being listed for sale. Sellers during this time of year also tend to be under more pressure to sell.

Combine that with the market deceleration in the 2nd half of the year due to rapidly rising interest rates and it made for an unusually slow real estate holiday season.

By the time the January pricing data was published in early February, market demand had already picked up significantly.

Sales Volume: Only 352 homes sold in DC in January compared to the 10-year monthly average of 718. Other than December ’22 (432 sales), no other month for the past 10+ years had registered under 450 sales and only five months registered less than 500 sales.

The unusually low sales volume means that the median price data can be skewed by unusual balances of less (or more) expensive homes in a given month, which is why most January pricing data comes in much lower than other months and why January ’23 was such an extreme version of that scenario. 

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There were just 46 single-family homes in the January data. As you can see from the chart below that shows the number of sales by price points, the distribution of sale prices skewed significantly lower in the January data with a big drop in the number of $1M+ homes sold but a more consistent number of homes under $600k sold. This leads to a much lower median price, but doesn’t mean home values are dropping, just that fewer expensive homes were sold.

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Average Price: The chart of monthly average prices tells a different story about price trends, showing a clear upward trend since 2019/2020. However, as you can see, using average price presents its own set of data challenges because of how much variability there is on a month-to-month basis based on the type/balance of sales included in the data for any given month.

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Buyers Still Won During Q4

I’ve shown a bunch of reasons why the low median price for January sales wasn’t an accurate representation of the market (home values not down 15.4% year-over-year or to 2018-2019 levels), but I should still point out that it was objectively a more favorable time for buyers to negotiate better deals, just not to the tune of double-digit price drops.

The average home that sold in December ’22 and January ’23 sold for 4.2% less than the original asking price, which is pretty good when you consider the average home in the spring of ’22 was selling for nearly 1% over ask. In my opinion, this is the best measure of how much home values actually dropped from spring ’22 to November/December ’22, which is likely about 5%.

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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.

2022 Arlington Single-Family Housing Review

reallivingathomeblog Arlington, Buyer, Home Owner, Seller , , 0 Comment
2022 Arlington Single-Family Housing Review

Question: How did the Arlington single-family housing market perform in 2022?

Answer: The 2022 housing market came in like a lion and left like a lamb. The way things were reported in the news, one may be led to believe the 2nd half of the year was a disaster, with home values crashing because of higher interest rates, falling stock portfolios, the Ukrainian war, and buyer fatigue. 

The truth, at least locally, is that the aggregate of the first half/second half, yin and yang housing market was still marked by strong price growth across all single-family sub-markets (I’ll analyze the condo market next week).

Strong, Stable Growth Continues for Arlington Single-Family Homes (SFH)

Like a blue-chip stock, the Arlington housing market is reliably strong and stable. We didn’t experience the double-digit annual appreciation of other national housing markets from ’20-’22 but we also benefitted by excellent growth prior to the pandemic buying craze (Amazon HQ2 and overall strong local market conditions). You can also count on the likelihood of stable growth to continue even if other markets struggle as they transition out of their reliance on pandemic-buying and ultra-low interest rates.

  • The average and median price of a SFH in Arlington increase 4.4% and 7%, respectively
  • Over the last five years, the average and median price of a SFH in Arlington increased by 25.3% and 29.1%, respectively
  • The average buyer paid 1.9% over asking to purchase a home in 2022
  • Homes that sold within ten days of being listed sold for an average 5% over asking and 57% of homes sold in 2022 were sold within ten days
  • Low supply was a big driver in keeping prices elevated despite difficult second half market conditions. There were 30% fewer SFHs sold in 2022 than in 2021.
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22205, 22201 Zip Codes Lead Growth

If we drill down into performance by zip code (note: 22206 and 22209 don’t have enough SFH sales to be included), we find some really good insights:

  • 22204 is the only remaining zip code with an average price below $1M. It was only 2017 that the entire County’s average price was below $1M.
  • 22201 extended its lead as the most expensive zip code to purchase a SFH, costing an average of over $100k more than the next most expensive zip code, 22213, and finishing the year with an average price of nearly $1.6M
  • 22201 and 22205 experienced the most appreciation, with YoY increases of 9.3% and 8.2%, respecively. The next highest zip code, 22203, grew by 4.9%.
  • 22205 was the most competitive/frustrating for buyers, with the average home selling for 4% over ask
  • Over the last five years, the 22202 zip code (area surrounding HQ2) has, unsurprisingly, benefited from the highest appreciation at 33.8% growth since 2018 due to the Amazon HQ2 boost followed by the pandemic buying craze
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New Construction: Bigger Homes, Bigger Prices

New builds have outpaced the appreciation of the rest of Arlington over the past two years, gaining 21% since 2020. New homes are also bigger than they’ve ever been with the average home claiming over 5,100 SqFt of finished living space, nearly six bedrooms, and more than five full bathrooms. Buyers are now paying almost $400,000 per bedrooms to own a new home.

You may notice the sharp drop-off in the number of new homes sold in 2022. This drop does not align with County data for new construction starts/completions and I think is more representative of the number of homeowners building outside of what’s being offered on the market – demolishing a home they already live in, acquiring their own lot and hiring a builder, or securing a lot/build with a preferred builder prior to it being marketed for sale.

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Price and Bedroom/Bathroom Distribution (for my Missing Middle friends!)

The biggest change in price distribution in Arlington has been at the ends of the spectrum, with the percentage of homes seller for under $800k dropping from 35% in 2018 to 11% in 2022. On the other end of the spectrum, the percentage of homes selling for $2M+ has increased from 3% in 2018 to 11% in 2022.

Most sales in Arlington fell between $800k and $1.2M. The median household income in Arlington is about $128,000 which at current interest rates, limited personal debt, and a 20% down payment qualifies for a roughly $900k purchase. If rates drop to 5%, the median income qualifies for roughly $1M.

Nearly 2/3 of SFHs sold in 2022 had three or four bedrooms, most of which had at least two full bathrooms, and the price of those homes averaged $940,500 and $1,155,000, respectively.

If we add townhomes and duplexes to this data, we’ll see an even higher concentration in the 3-4BR range and lower average prices, so we see here that the term “Missing Middle” is a bit of a misnomer…it’s not missing and the average costs generally align with median household income, but the supply simply of “middle” housing isn’t as high as County leadership and MM proponents would like it to be. I also expect that most Missing Middle housing built would be more expensive than the current average prices for 3-4BR homes, certainly when comparing existing “middle” housing and new Missing Middle housing in the same location.

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*Note: this table displays the most common BR/BA combinations, but does not show all sales

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.