Starting Your 2022 Home Search

Question: We are looking forward to buying a home in 2022. Do you have any recommendations on how we should start the home buying process?

Answer: Google “home buyer tips” or “what to know before buying a home” and you’ll find plenty of advice on the topic, so I’ll include some suggestions I don’t see on most of those lists and also put my own spin on others that you have heard before.

Weighted Criteria

It’s easy to come up with 3-5 things that are most important to you, but challenge yourself early to come up with a list of 12-15 things. Then give yourself 100 points and allocate points to each based on how important each item is to you and you’ll end up with a weighted criteria list to help you focus your search and objectively compare properties.

If you want to take it to the next level, bring your weighted criteria list with you on showings and score each house out of the total points allocated to it so each home you see is scored on a 100-point scale.

Length of Ownership

How long you expect to be in your home is one of the most important considerations in defining what you prioritize and how you use your budget. You should focus on the following:

  1. Likely length of ownership
  2. Difference in criteria for a 3-5 year house vs a 10-12+ year house
  3. Difference in budget requirements for a 3-5 year house vs a 10-12+ year house

Appreciation is not guaranteed and difficult to predict, but the value of longer ownership periods is undisputed. One way longer ownership adds value is the potential for eliminating one or more real estate transactions, and the associated costs (fees, taxes, moving expenses, new furniture, etc) and stress that comes with moving, over the course of your lifetime.

If you have an opportunity to significantly increase your length of ownership by stretching your budget, it’s often justifiable. On the other hand, if your budget or future plans restrict you to housing that’s likely to be suitable for just 3-4 years (and buying now still makes sense), it’s generally better to stay under budget.

Influencers (not the Instagram ones)

Family, friends, colleagues…they’re all happy to offer opinions and contribute to your home buying process, but the input can be overwhelming and unproductive if you don’t set boundaries. Try to determine up-front who you want involved in the process and how you’d like them to be involved.

Think about how you’ve made other major decisions in life – what college to attend, what car to buy, where to get married, whether to change jobs – and if you’re the type of person who likes input from your friends and family, you’ll likely do the same when buying a house. Plan ahead with those influencers so their input is productive.

Does Your House Exist?

Before jumping too far into the search process, spend a little bit of time searching For Sale and Sold homes on your favorite real estate search website/app to see if the homes selling in the area you want and within 10% of your upper budget are at least close to what you’re looking for. If not, spend some time adjusting price, location, and non-critical criteria to figure out what high-level compromises you’ll need to make and then compare those compromises to your current living situation and/or continuing to rent.

Know Your Market

We’re in a strong seller’s market for single-family and townhouses right now with low supply, high demand, and increasing prices, but the condo market is more balanced.

Each sub-market behaves a bit differently and comes with its own unique set of challenges and opportunities, so take time early on to understand the sub-market(s) you’ll be involved in and what you’re likely to experience. This is something your agent should be able to assist with.

Pre-Approval & Budget

There is a lot of value in working with a lender early on in the search process. For starters, you’ll have somebody who can provide real rates and advice based on your specific financial situation/needs. A lender can only do this if they’ve reviewed your financial documents and credit. The more you put in, the more you get out.

You’ll need to have a lender pre-approval to submit an offer (seller has to know you qualify for the purchase you’re offering to make) so if you have to do it anyway, why not doing it early on so you get the most value out of your lender? It also means that you’ll be prepared to make an offer if you find the right home before you expect to be ready.

Given how competitive the Arlington/Northern VA/DMV real estate market is, the quality of your pre-approval can make a big difference when you make an offer. You should strongly consider partnering with a local lender with a great reputation to give yourself an advantage (or not put you at a disadvantage) when making an offer. Pre-approval letters from big banks and online lenders don’t go over as well in our market. If you’re looking for a recommendation, consider Jake Ryon of First Home Mortgage (JRyon@firsthome.com).

Find an Agent

The least surprising suggestion on this list! Agents come in many different forms and finding somebody who suits your personality and goals is important. Ask friends, colleagues, and family for referrals and meet with multiple people until you find the right fit.

The worst thing you can do is choose your agent based on whoever responds to an online showing request faster. A good agent can provide a ton of value being involved in your buying process 3-6+ months before you’re ready to buy. Be wary of anybody who wants you to “wait until you’re ready” before working with you.

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

Answering Your Appraisal Questions

Question: Can you explain the basics of the appraisal process?

Answer: I sat down with one of the best local lenders, Jake Ryon at First Home Mortgage (Jryon@firsthome.com), and came up with a list of some of the most common questions we hear about appraisals, which I’ll answer below:

What is an appraisal?

An appraisal is an objective assessment of a property’s value, conducted by an unbiased third party who does not have a stake in the sale of the property.

Below is an example of the core component of a recent appraisal in Arlington, the Comparable Sales Analysis. It compares objective features of the subject property (the home being assessed by the Appraiser) to the same features of similar/comparable homes that have sold nearby to reach a valuation of the subject home based on the Appraiser’s determination of how the difference in features change the value of the homes.

Why are appraisals done?

In most cases, the bank/lender is the primary investor in a home purchase. If you put 20% down, the bank is investing the other 80%. Appraisals are done to ensure that banks are making responsible investments in homes they otherwise know very little about and to make sure they do not lose substantially if you, the borrower, default on the loan and the bank is forced to take over (and sell it).

In short, the bank conducts an appraisal to make sure they agree with the value (aka the agreed upon sale price) you’ve placed on the home.

Who does the appraisal?

Anybody can hire a licensed appraisal to provide an opinion on a property’s value, but most appraisals are done through a bank/lender. Lenders have a pool of independent, licensed appraisers or appraisal companies that receive a notice when an appraisal is needed for a loan and an appraiser from the lender’s pool claims the job.

The selection of the appraiser is designed to be a blind selection process to maintain independence and objectivity so that lenders can’t handpick the appraiser they want and potentially influence the results.

Is an appraisal required? What is an “appraisal wavier”?

Most lenders require an appraisal to approve a loan, but in some cases an “appraisal waiver” is issued if Fannie Mae/Freddie Mac determine that that they do not need the additional assessment of an Appraiser because the sale price falls within an acceptable range based on sales history and reliability of comparable sales.

Waivers may also be given if the borrower has a high enough down payment that enough of the risk of overpaying for a property is being absorbed by the buyer.

How long does an appraisal usually take?

When Appraisers are not overwhelmed with orders and a lender submits a rush order right away, I’ve seen appraisals completed in as little as a few days. However, in most cases, appraisal reports are usually completed within 1-2 weeks of the order being placed by the lender.

What effect does a low or high appraisal have on a property sale?

If the appraisal value comes in at or above the purchase price, the bank is happy and the loan proceeds along the approval process. If the appraisal value is below the sale price, the bank will require the sale price to be reduced to the appraisal value or that the buyer put more money down to satisfy the loan-to-value ratio.

In most cases, the amount of additional money a buyer needs to put down is equal to the percentage the bank is contributing to the purchase (e.g. 80% if you’re making a 20% down payment or 95% if you’re making a 5% down payment) multiplied by the difference between the contract’s sale price and the appraisal value. However, this additional contribution can vary or may not be needed depending on your down payment amount, type of loan, and other details of your loan arrangement.

What happens if we disagree with the value or it comes in low?

The borrower/buyer is the only party who can challenge an appraisal and they must provide other (better) comparable sales, facts, or justifications to support an adjusted valuation.

I have dealt with some frustrating scenarios as a listing/seller’s agent when an appraisal came in low based on factually incorrect information on the appraisal report (incorrect bedroom count, square footage, etc) and there is nothing that can be done unless the borrower/buyer requests a revision.

What is an appraisal contingency?

An appraisal contingency is one of the three “standard” contingencies in the residential real estate contract (inspection, financing, and appraisal are the “big three”). It protects the buyer in the event a property appraises for less than the sale price by giving the buyer the ability to renegotiate the sale price or void the contract without losing their deposit.

Who pays for the appraisal and how much does it cost?

Buyers pay for the appraisal as a pre-closing expense and the cost usually ranges from $500-$1,000 depending on the type of loan and value/complexity of the property.

Does appraisal value equal market value?

I would argue that the answer is no. Market value is the price a buyer and seller are willing to exchange a property for and often incorporates forward-looking expectations (future construction, development pipeline, market trends, etc).

The appraisal value is generally backward-looking given that Appraisers are tasked with determining a home’s value based on similar properties that have sold/closed nearby (generally within 6-12 months). There is subjectivity in which comparable sales an Appraiser chooses for the report and how they value different features, like a pool, view, or extra garage space.

Oftentimes I find that things the market values like beautiful finishes/design, a quiet neighborhood street lined with mature trees, or lot quality (privacy, flat yard, etc) are not valued by Appraisers to the same extend as they are buyers. Appraisers are generally focused on objective, measurable criteria like bedrooms/bathroom count, square footage, parking, lot size, etc.

It is worth noting here that Appraisers do know the contract sale price of the property they’re appraising in real-world appraisals for lenders (as opposed to my hypothetical scenario above).

Does appraisal value impact my property tax assessment?

No, the appraisal value has no impact on anything outside of the loan. The County will not receive the appraisal value to include in their assessment for tax purposes.

Can I switch lenders and use the same appraisal?

For Conventional loans (the majority of loans in Arlington), most lenders will not accept an appraisal done through another lender, but VA and FHA appraisals do have reciprocity on appraisals between lenders.

If you have additional questions about appraisals, you can email me at Eli@EliResidential.com or a great local lender, Jake Ryon of First Home Mortgage at Jryon@firsthome.com.

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

Should You Stage Your Home?

Question: Do you recommend staging for vacant homes?

Answer: When you stage a home, you are placing temporary furniture and accessories in a home while it is being marketed for sale. In most cases, I strongly encourage staging a home instead of leaving it empty.

The value of staging shows up in two critical parts of the selling/marketing process. It improves the quality of the photos by helping people understand the scale and purpose of a room. Better photos lead to more showings. Good staging also improves the way Buyers experience the home in-person during a showing. Better showings lead to better/more offers.

Figure 1: Great staging helped Buyers make sense of an otherwise large, open space at 3196 N Pollard St Arlington

In my opinion, the three main benefits to staging a home are:

  1. Add Life to Empty Homes: Walking into an empty house can be eerie and makes a home feel lifeless. Those are not feelings you want potential Buyers to have while walking through your home. Good staging can add energy and life to a vacant home.
  2. Help Rooms Feel Larger: This is counterintuitive, but most people perceive empty rooms as being smaller than they really are. I’ve experienced this on numerous occasions walking through empty rooms with Buyers who have trouble understanding how a bed or couch can fit into an empty room that is more than big enough for their furniture.
  3. Engage the Eye: Well staged properties keep Buyers engaged with room layout and functionality, but unstaged empty rooms allow Buyers to focus on flaws like paint scuffs, separating trim, poor lighting, and other things you’d prefer Buyers to overlook during their visit

You do not need to stage every room. In a larger townhouse or single-family home, that can get unnecessarily expensive. Prioritize the most important rooms like the living room, dining room, and primary bedrooms for the best return on investment. Accessorizing walls, countertops, and shelves also adds a lot of value.

Figure 2: Don’t forget about staging for outdoor spaces like this patio at 4645 4th Rd N Arlington

Good staging isn’t cheap, often ranging from ~$2,000-$10,00+ depending on the size of a home and type of staging furniture, but it should be looked at as an investment like anything else you do to prepare your home for sale like painting, cleaning, and landscaping. As a rule of thumb, I think that investing .25-.5% of the market value of a home generates a clear, strong return.

Cheap, thoughtless staging provides little or no value at all. Sticking a chair or two in the living room or simply laying a blow-up bed on the floor of a bedroom are not the same and provide little, if any, benefit.

If you intend on living in your home or leaving your existing furniture for the sale (photos and showings), consider “occupied” staging, whereby you hire a stager to help you maximize the use of your existing furniture and accessories. Just promise not to get offended if they recommend removing your favorite lime green shag carpet 

ies from the owner, with some add-ons from the Stager, in a great example of a successful Occupied Staging approach at 1276 N Wayne St #1230 Arlington

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

Question: I’ve submitted two offers on home this year and both times lost to multiple offers. Is this normal or is the market more competitive this year?

Answer: 2018 has been a good year for sellers and a frustrating one for buyers already. Generally, I don’t start seeing multiple offer deals until late February/early March, when it starts to warm up and days get longer.

However, about 80% of the listing and purchase deals I’ve been on this year have ended up with multiple offers. I even had a listing that had been on market for three months receive three offers in one weekend. My colleagues who work in new construction and generally have the best pulse on market pace have also been surprised by the amount of activity this early.

Here are some numbers in Arlington from January to back up the anecdotal evidence of a hot market:

  • Supply Down, Demand Up: Monthly of supply measures how long it would take to sell all existing inventory at the current market pace (supply and demand) is down 21% YoY and at its lowest levels (1.31 months of supply) since March 2013 (1.22 months of supply)
  • More Homes Under Contract: Over 200 homes went under contract in January (215) for the first time since 2012 (219)
  • Homes Under Contract Faster: Of the 119 homes that were listed and went under contract in January 2018, 69% went under contract within one week. Over the last five years, 49% of homes listed and under contract in January went under contract within one week.
  • Average Number Of New Listings: The amount of new homes listed on market in January 2018 (234) is about average for what we’ve seen over the last decade

Advice For Buyers

Periods of low inventory and high demand can be frustrating for buyers, so here are a few tips for buyers to create leverage for themselves without simply paying more:

  • Quality Of Lender: Have a pre-approval letter from a strong local lender who has review all relevant documents, not just somebody who checks credit score and asks for basic financial information. A strong lender letter gives the seller confidence you will close on the home on time, without complications.
  • Contingencies: Consider giving up your right to request repairs and credits after the home inspection and using a Pass/Fail contingency instead. This shows that you’re not interested in nickel and diming a seller, but just want to make sure there are no major issues. You can also offer to cover up to a certain dollar amount in the event of a low appraisal, if you are offering to pay above the asking price.
  • Close Faster: Most homeowners want to close as quickly as possible. A good lender can have you ready to close in 20 days vs the more common 30-40 day close.
  • Don’t Play Games: We all want to negotiate a great deal, but oftentimes a great deal is actually having your offer accepted not saving a few thousand dollars. When a seller has multiple similar offers, they often put more weight in who they think is most likely to close with the least complications. In that scenario it pays off to make it clear how much you love/want the home instead of acting like you could take it or leave in an attempt to negotiate a lower price.
  • Days On Market: The number of days a property has been on market should dictate how you approach an offer. You won’t have much leverage in the first few weeks or after a major price reduction.

The spring market can be a great time for buyers who are prepared for competition because you’ll see a significant increase in inventory, so that illusive 2 bedroom + den or half acre yard with a deck is more likely to materialize.

If you’re not prepared to make a strong offer, the spring can be frustrating and defeating because you may watch your dream home(s) go to other buyers who have made smarter, but not necessarily higher offers.

Question: What were the real estate related changes in the new tax plan and how will those changes impact our local real estate market?

Answer: Spending an hour every week working on my taxes in QuickBooks doesn’t qualify me as a tax expert, so before I provide my take, I’d like to introduce local tax expert Molly Sobhani, CPA of Klausner & Company, located in Rosslyn, to break-down the key changes in the new tax plan that will effect how buyers and homeowners make real estate decisions. Following Molly’s explanation, I will provide my personal thoughts and stats, which stand in contrast to most of the opinions I’ve read.

If you would like to follow-up with Molly about the tax bill or any other tax questions, she can be reached directly at msobhani@klausner-cpa.com or (571) 620-0159. Take it away Molly…

After weeks of confusing, convoluted and contradicting proposals introduced by the House and Senate, the Tax Cuts & Jobs Act (TCJA) was signed into law on December 22 by President Donald J. Trump. As the dust continues to settle on TCJA, taxpayers across the country are wading through the tax reform bill and the impact of those changes.

With increases to the standard deduction, changes to the deductibility of mortgage interest and limits on property tax deductions, current homeowners and potential homebuyers have a lot to think about. The housing market will undoubtedly be impacted but how – exactly – is still a big question mark.

Summary of Major Tax Law Changes Impacting Residential Home Ownership

  1. Interest will only be deductible on mortgage debts used to acquire your principal residence or a second home of up to $750,000 (or $375,000 for a married couples filing separately). The phase-out of deductible interest begins after the loan balance exceeds $750,000. This new debt limit applies to all loans incurred after December 15, 2017.
  2. Interest on home equity debt (also known as Home Equity Lines of Credit or HELOCs) will no longer be deductible. This is true regardless of when the home equity debt was incurred.
  3. State and local taxes (also known as SALT deductions) will be limited to $10,000 per year. This category of deductions also includes property taxes paid on homes.
  4. The Standard Deduction has increased substantially from $12,700 for joint filers ($6,350 for single filers) in 2017 to $24,000 for joint filers ($12,000 for single filers) in 2018.

One provision that did not change is related to the capital gain exclusion of up to $500,000 for joint filers ($250,000 for single filers) on the sale of a primary residence. You still must use the home as your primary residence for at least two of the last five years in order to be eligible for the full exclusion.

So why do these new tax provisions make homeownership a trickier decision? The incentives for being a homeowner have now been substantially diminished by the new laws for many taxpayers.

A Hypothetical Scenario

A married couple earns $150,000/year in wages and is looking to buy a home in Arlington, VA. Their total state income taxes are $8,625 (5.75% of their $150,000 wages.) They have no other deductions to itemize in 2017 so they will take the $12,700 standard deduction.

In January 2018, they buy a condo for $425,000. They put down 20% and borrow $340,000 at 4%. They are under the $750,000 mortgage debt cap so they are eligible to deduct all of the interest they pay on their loan each year. In the first year, their total interest expense totals $13,491. Their property taxes are $4,233 based on Arlington’s 2017 rates for a $425,000 assessment. Our married couple has a brand new home and all these brand new deductions, right?

But wait! After we add the new property tax deduction of $4,233 to the $8,625 they already pay in state income taxes, they are over the $10,000 limit for SALT deductions. In this example, $2,858 of their property taxes are not deductible.

Fine. Let’s look at their total deductions then: they have the maximum $10,000 SALT deductions and $13,491 of mortgage interest, totaling $23,491. Under the old tax laws, they would itemize their deductions and see a reduction in their Federal and state taxes for these additional expenses.

But we’re not working under the old laws anymore, are we? Under TCJA, even after spending all this money on buying a new home, paying the interest on their mortgage and paying their property taxes, they are actually still better off taking the standard deduction of $24,000.

Why Bother?

As you can see from the example above, by increasing the standard deduction to $24,000 for a married couple filing jointly, many taxpayers who otherwise would have itemized may now benefit more from the standard deduction. This essentially takes away the tax benefit of owning a house for some people. And the question that many potential homebuyers may consider is: “Why bother?” More and more, they may delay the decision to buy in favor of renting.

Other Potential Effects on Housing Markets

Home values may be impacted, too, by the change in tax laws. If mortgage interest is limited to $750,000, houses that are listed at prices over $937,500 (assuming a buyer puts 20% down) may not be as appealing to new buyers as lower-priced homes.

Another consideration is how the disparity in state income and state property tax rates may drive homebuyers into lower tax rate states. In high tax states, there could be multiple scenarios in which taxpayers lose 100% of the tax benefit of paying property taxes.

Conclusion

Of course, there are other (wonderful) reasons to buy a home and other (wonderful) reasons to buy a home in certain neighborhoods. The upsides generated from the Tax Cuts & Jobs Act, though, are severely lacking.

Eli’s Closing Stats and Thoughts

According to The Washington Post, Moodys Analytics predicts that home values in Arlington will drop 2.3% as a result of the new tax bill, with drops of 2% in DC, 2.5% in Montgomery County, 2.6% in Loudon County and 4% nationally. Of course, this analysis is limited to the impact of the tax bill and doesn’t take any other growth factors into consideration. In other words, if Arlington continues its growth from 2017 (3.1%), we wouldn’t see actual losses, but stunted growth.

The change in SALT deductions and increase in the Standard Deduction will reduce the benefit of homeownership for many Arlington residents, but let’s take a look at how many homeowners are likely to be impacted by the reduction of the mortgage interest deduction limit to $750,000. Of the 3,100+ homes sold in Arlington in 2017, just over 400 were bought with loans exceeding $750,000. Approximately 30% of detached homes in Arlington (350 of 1,150 sales) had a loan exceeding the new limit. Keep in mind, however, that homeowners with loans over $750,000 will still be able to deduct interest on the first $750,000.

 

I Don’t Believe The Market Will Suffer

While these stats and Moodys’ analysis are great, they fail to capture how homebuyers actually make decisions in the real world. The majority of buyers decide to purchase a home because of a major life event (marriage, kids, job change, etc) and once they’ve decided to purchase a home, their budget is based on how much they have saved for a down payment and how much they can afford each month in housing costs.

Their monthly budget is primarily based on income and the sum of mortgage payments, property taxes, any HOA fees, insurance and maintenance. SALT and mortgage interest deductions don’t factor into any of the core considerations for most homebuyers.

Let’s Be Realistic

Let’s be honest, for most people, taxes are a once-a-year afterthought and tax planning is mostly crossing their fingers, hoping for a few dollars back. For those who do pay close attention to their tax exposure and who stand to lose out on the benefits of the mortgage interest and SALT deductions, I question how much it actually matters.

Previously, the mortgage interest was capped at $1M and there were just 163 (5%) homes purchased in 2017 with a loan of $1M or more who will be “fully” effected by the change to a $750,000 cap. In the first year, the interest paid on that difference of $250,000 is about $10,000 (drops each year), so for somebody with an effective tax rate of 30%, that’s a $3,000 change to their bottom line from last year.

Adding the change in SALT deduction increases that for many people and $3,000+ is nothing to sneeze at, but we’re talking about the wealthiest homebuyers with incomes exceeding $250,000/year. I’d bet that for those who are conscious of the net effect on their bottom line, they’re more likely to find ways to save this money somewhere else than their home purchase.

Plus, the tax plan provides substantial benefits to wealthy Americans and may very well have a net positive effect on their bottom line anyway. Also, does anybody really think that somebody negotiating on a $1.5M+ home they plan to live in for 15+ years will pay $5,000 less because that’s the calculated net impact from mortgage interest and SALT on their 2019 taxes under the new tax bill? No way.

Let’s be realistic about the psychology of home buying and what determines buying power because that’s what impacts home prices, not expensive studies funded by special interest groups (yes, I’m kind of calling out the National Association of REALTORS for fear mongering).

Question: Are there certain considerations to be aware of when re-listing your home in the spring/summer market if you listed and then pulled it during the fall/winter market? Are there things that you would need to fix up in a slow winter market that you could let slide in a hotter market?

Answer: You’ve been on the market for months, had a few interested buyers, but nothing has stuck. Now you’re in the midst of the holidays during the coldest and darkest days of the year so you’re asking yourself what every seller is asking… should you pull your listing and wait for the market to heat back up in the spring?

There are three scenarios that I’ll consider advising sellers to take their home off the market during the winter:

  1. You are living in the home, are under no pressure to sell, have been on the market for more than 60 days without an acceptable offer and have exhausted conversations with any buyers who have shown interest.
  2. You have received feedback from agents and potential buyers that the home needs work and you will take time over the winter to make the necessary improvements, providing that the cost of those improvements will net you better terms than an immediate price reduction and avoiding additional carry cost.
  3. A key selling point of your home is landscaping and/or a view that is difficult to recognize during the winter.

Pros & Cons Of Re-Listing

  • Pro: More Buyers… The number of homes that go under contract drops substantially from November-January and picks up quickly in February. On average, the number of new purchase contracts more than doubles by March compared to December and January.

 

  • Pro: Faster Sales… The increase is buyer activity (demand) results in homes selling a lot faster in the spring/summer

 

  • Con: Not Necessarily Higher Prices… The increased buyer activity impacts days on market a lot more than it does pricing. The amount somebody is willing to pay or qualified to pay for a home often does not change based on the season, rather larger economic factors.

 

 

  • Con: If you decide to re-list in the spring, you are probably planning to do so at a higher price. Be careful with this decision because agents and buyers have easy access to previous asking prices and if you have not made any substantial capital investments to your home to justify the increase, most buyers will base their negotiations on your previous asking price, not the new/higher one.
  • Pro: If you’re off-market for three months or more, your days on market count officially resets to zero when you re-list. This is a system rule for MRIS/BRIGHT (the database of record for agents), although most buyers use sites that show the full listing history and can easily see that something was withdrawn and re-listed.

The Spring Isn’t Easier

Don’t ease up on the marketing of your home in the spring just because there are more active buyers than the winter. You will be competing against 2-3 times more homes for sale so you could make a case that you need to do even more to stand out in the spring, not less. However, if you’re on a budget, you may want to allocate your repair, improvement and staging funds differently based on the season such as the warmth of the family room in the winter vs outdoor dining in the spring.

Happy holidays everybody!

Question: I came across an article you wrote about how buyers and sellers can avoid the most common problems encountered in a real estate transaction and it made me wonder what some of the most common mistakes are that home owners make when selling that have the biggest impact on their bottom line.

Answer: The biggest mistake a home owner can make when selling their home is not calling me first… kidding (but not really). Below are a handful of the biggest mistakes I see home owners make when selling their home, that have the most impact on their net bottom line. This is not exclusive to homes sold without an agent either. Unfortunately, I see many of the same mistakes on For Sale By Owner (FSBO) homes as I do on listings owners are paying an agent to manage.

Over-Investing In Updates

Choosing the right combination of updates to invest in (or not) to prepare your home for sale has the biggest impact on your net bottom line of any decision you’ll make. I cannot stress the importance of getting this decision right early in the process.

You should only invest in updates that will result in an ROI of greater than 100% or it’s a waste of money and time. Of course you will be able to sell your home for more money if you redo the kitchen and master bathroom, but in most cases, you’ll only get a fraction of your money back, generating a huge net loss for you.

Similarly, don’t spend $10,000 replacing floors, but ignore painting and leave your old brass doorknobs. Selecting the right “package” of updates that will generate the highest ROI is specific to your sub-market, budget, priorities and time of year.

Working with an agent on these decisions who works with both sellers and buyers is critical because they have a strong understanding of how buyers interact with homes during showings and the impact certain updates have on their buying decisions.

Stop Using Amateur Photography

My photographers are some of the most valuable assets I have because the quality of photos can make the difference between drawing heavy traffic and being passed over… Traffic = offers and heavy traffic = multiple offers. Buyers and agents are combing through a lot of homes to decide what is worth seeing in person and the quality of your photos influences that decision more than anything else. Do not take pictures with your cell phone. Do not use an amateur photographer. Do not use a photographer without real estate experience.

Listing On The Wrong Day

It’s Sunday evening… you’ve taken pictures, selected your asking price and spent all weekend cleaning so you’re finally ready to put your beautiful home on the market, make yourself a drink and watch the offers roll in. STOP. There is one day of the week that you should put your home on the market to maximize exposure while minimizing days on market (and two acceptable alternatives), but Sunday evening is not one of them. Feel free to email me to find out which day you should list your property and why.

Stage It… Vacant Or Not

I discussed this in detail earlier this year. It hasn’t changed. Yes, you should hire a staging professional.

Don’t Be Offended By The Home Inspection

You raised three amazing children in your home and kept up with regular maintenance for 25 years, so who is this buyer and their inspector to tell you there are 35 items that need to be repaired? It’s hard not to take the results of a home inspection and the resulting buyer requests (read: demands) personally, but you’ll be much better off keeping your emotions out of this final negotiation. Reference my advice to sellers for home inspections here.

Remember that this is likely just as emotional of a transaction for the buyers and the goal is to reach a equitable agreement, not start a fight to defend the pride you have in your home.

There are a host of other mistakes I see including over-pricing, limited showing times and not including a floor plan but the above highlight the most common errors that have the biggest impact on a home owner’s net bottom line.

If you’re considering selling your home, even if you’re 12+ months out, don’t hesitate to reach out to me to discuss strategies that will maximize your sale. You can reach me any time by email at Eli@EliResidential.com or phone at (703) 539-2529.

Question: We are planning to buy a home in the next 12 months and wondering what the real estate market is like during the winter. We’ve heard it’s a bad time to sell, but does that mean we won’t be able to find anything we like?

Answer: I love working with buyers in the winter because we have more opportunity to negotiate (a nice reward for fumbling with keys in the dark when it’s 30 degrees) and the probability of finding a seller ready to negotiate increases substantially. In Northern Virginia, the winter market generally runs from late November through late February/early March (Thanksgiving to March Madness) and is defined by increased buyer leverage, less contract activity and fewer new listings. While many buyers can benefit from winter shopping, it’s not the right time for everybody.

Buy In The Winter If…

  • You’re a bargain hunter
  • What you like is priced just outside of your budget
  • There is a regular supply of homes you like
  • You can accept having a few offers rejected

Wait For The Spring If…

  • You have specific, hard-to-find criteria
  • You value the perfect home over a great deal
  • Your purchase is contingent on selling your current home (requires additional conversation)

That’s not to say you can’t negotiate a great deal in the spring or find a unique property in the winter, but if you’re playing the odds, the above is a good set of guidelines for deciding the best seasons to focus on a purchase.

I’ll let you review the trends in Northern Virginia for yourself:

Buyer Leverage Increases In The Winter

In the winter, buyers pay about 2% less, relative to original asking price, than they do in the spring. On a $500,000 purchase, that’s $10,000 in savings.

 

New Contracts To Purchase Drop By Half In The Winter

Buyers have more leverage in the winter because there are fewer of them actively searching the market.

 

It’s Harder To Find What You Want

The probability of the home you want hitting the market in the winter drops substantially, making it difficult on selective buyers. This is also why fewer homes go under contract in the winter.  

 

If you’re on the fence about buying this winter or not sure if you have time to prepare yourself to make a purchase, send me an email at Eli@EliResidential.com or give me a call at (703) 539-2529 to discuss your options and put a strategy in place.

Question: This is in response to recent comments on my columns about what it means to sell “as-is.”

Answer: Selling a property “as-is” in Northern Virginia carries a technical definition as stated in the contract and an intended purpose that should be discussed between the buyer and seller.

Technical/Contractual Definition

In Northern Virginia’s Contingencies/Clauses Addendum you’ll find a section for selling “as-is” which contains the following terms that can be individually selected for the contract:

  • Seller will not clean or remove debris. The standard is for the property to be free of trash/debris and broom clean.
  • The seller is not responsible for addressing any wood destroying insect/termite issues. The standard agreement requires the seller to pay for any damage from wood destroying insects.
  • The seller is not required to fix any Homeowners Association violations related to the physical condition of the property.
  • The seller is not responsible for providing working smoke detectors.
  • The seller is not responsible for compliance with notices of violation from local authorities.

Implied Definition

When you market a property as-is, you are implying that you will not negotiate with the buyer to fix anything and the buyer should be prepared to take on the full risk of the property in its current condition. Generally, this means a buyer will agree to take the property in the condition it is in at the time of offer and that the contract is not contingent on a home inspection (buyer withdraws the right to negotiate or void based on home inspection results).

However, you may consider accepting a short pass/fail inspection contingency whereby the buyer does not have a right to negotiate credits or fixes, but does have the right to void the contract if they find any major problems with the home during the inspection.

Who Uses As-Is?

It is common to see estate sales and homes that will be the targeted by investors (tear downs or flips) being sold as-is. In the case of many estate sales, the family member(s) who inherited the property may not live nearby, know anything about the condition of its systems, or want to be bothered by negotiations after a deal has been made. It doesn’t necessarily mean the property has problems.

Understand Your Choice

As a seller, you want to make sure you understand the message you’re sending and buyers you’re targeting when you market a home as-is. You also need to be realistic about how this will impact the sale price (discounted). As a buyer, you want to make sure you understand why a home is being sold as-is, what the seller’s contractual and implied expectations are, and be prepared to handle the risks associated with buying as-is.

Question: We are planning to sell our home and wondering if the cost of professional staging is worth it. What’s your opinion on staging and are there certain circumstances where you do or do not recommend it?

Answer: I recommend staging for almost every home I sell because it will increase your sale price by more than you spend and help your home sell faster. In fact, it makes such a difference that clients often joke after seeing their decluttered and staged home that they’re considering moving back in!

What Is Staging?

Professional staging is a service used to improve the marketability of a home by arranging rented furniture in certain rooms of a home to maximize the space and visual appeal. Most staging professionals have an interior design background and a large supply of furniture to work with.

Staging is mostly done when a home is vacant, but for sellers occupying the home they’re living in, stagers will also provide consultations on how to best utilize your existing furniture and make suggestions on small add-on items to enhance a space (area rugs, towels, flowers, wall art, etc).

How Much $$$?

Condos can usually be staged for $1,500-$2,500 and townhomes and single family homes generally cost $2,500-$4,000 depending on the number of rooms you stage and quality of furnishings. For high-end real estate, expect to spend $5,000-$10,000. You should plan on spending 0.5-1 percent of your asking price on staging a vacant home.

What Are The Advantages?

  • Better pictures = more interest online = more showing traffic
  • Significantly better showing experience for buyers
  • Empty space looks smaller, staging helps visually increase the size of a room
  • Buyers struggle to visualize how beds, couches, tables, etc will fit
  • Awkward spaces benefit from the design of a professional
  • Clean, organized look increases the sense of a well-maintained home
  • Play to the strengths of a room and distract from its flaws

When Should You Stage?

  • Move-in-ready condition (limited updates/investment required)
  • Vacant
  • Home has been thoroughly cleaned and freshened up as necessary (paint, replace damaged/ancient items, etc)
  • Using professional photography

Where’s The Proof?

You may see staging companies or agents make claims that staged properties return an “X” percent higher sale price or sell “X” days faster than unstaged properties, but the reality is these numbers are just convenient marketing figures with no real substance.

One of the challenges with statements like these in real estate is that you don’t have the ability to isolate something like staging and compare the success or failure of the same home sale with and without it. You have to rely on the experience of your agent to help with decisions like these.

My experience with staging comes from seeing the impact it has on homes I sell, but even more so, how buyers I work with react. There is a noticeable difference in how buyers react to staged homes versus empty or cluttered homes (lived in without regard for design) and this shows up in their preferences when they’re viewing properties online to decide what they want to see and then again when they’re actually in the property.

I generally take an opportunity to point this out to my clients so they understand how much of an impact staging has on their perception of a home, so they keep it in mind when it comes time for them to sell.

I’m Here To Help

If you’re considering selling and trying to decide which investments like staging, painting, and updated appliances will return more than they cost, feel free to reach out to set-up time for me to see your home and make some suggestions.