Summer! We're So Glad You're Here!

Also published on the Huffington Post

Did anyone hear that thud?

It was the real estate market, coming to a screeching halt. Sigh. A few weeks ago something changed. I knew it was coming several months ago because all the signs were there. Spring never really sprung as far as real estate goes. The pace of sales cooled off in the suburbs. Builders were quietly talking — through my grapevine at least — about buyers canceling contracts. Lenders quietly cut staff. I didn’t know how long it would take to cool and what it would look like when it did, but here it is.

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When a perfectly charming row home sat on the market over a week in a neighborhood where a similarly priced house would have elicited a bidding war a month ago, I knew there was trouble.

When I went to see eight condos on a Sunday, seven of which were holding open houses that weren’t well attended at all, I knew there was trouble.

When listing agents were calling for feedback on perfectly lovely homes and practically begging me to get my clients to write an offer, I knew there was trouble.

When people on local real estate boards started talking about their house sitting on the market and about price reductions in their neighborhood and the responses were “blaming summer,” I knew there was trouble.

What happened? Is it because we went from winter to summer with no obvious spring? Perhaps. If it seems that it was snowing until the end of March that’s because it was. Listings were slow to hit the market in April and by May when the temperatures soared, people were outside enjoying their weekends — not looking for real estate. That means all the sellers who were so ambitiously timing the trigger-pull on their listing might have missed the boat. Since Memorial Day, DC has felt like a ghost town.

I believe there’s more than that though. People who need houses don’t just slap a “Gone Fishin” sign on their house hunt file. Expectations appear to have shifted. Buyers want more than what sellers were selling. A year ago, rates were low and many buyers were in heated bidding wars to jump into the market, waived all contingencies, and weren’t concerned if a house wasn’t perfect — they just wanted to get the house because the economic outlook was positive. All the same feelings of 2002-2005 were back: “This can NEVER slow down! Sure let’s waive all the contingencies and escalate over asking!!!”

Now? Rates ticked up a little bit and while many will argue that they are still historically low, try telling that to a buyer who knows rates were 3.5 a year ago and are now 4.5. They feel like you took money out of their pocket. And the compensation for that has to come from somewhere. If buyers are going to lock in for a 30 year sentence at a point higher than the lucky ones, the home they are buying better be renovated and pristine. Houses/condos have to be in great shape and renovated, to command the top price or buyers won’t pay it.

So, if buyer expectations shifted, then what’s going on in the minds of sellers? Well, sellers are always the last to know. They still think they can price at an increase over last month’s comparable sales and elicit multiple offers. Nope.

I’ve been telling buyer clients for a year to wait this out and seller clients to hurry and sell. Some of them may not have believed me, and that’s fine, but I know now that not one of my buyer clients from the last year owns a house that they overpaid for because I warned so highly against escalations and getting involved in a bidding war. Of course this means I may have done less business than other agents, but I can sleep at night and that’s just fine with me.

I remain uncertain what the fall market will bring. Typically people who have to enroll children in school have already made their move or they postpone it for a period of time, so that likely leaves a rather large contingent of would-be buyers out of the market. But what I can tell you is that right now the getting is good. I have clients making excellent deals because shifting buyer expectations and possibly the fact that we’re in the middle of summer have resulted in almost no competition. If you have been looking for a house and postponed your search, I highly recommend you reconsider getting back out there before the end of summer.

Investors and the DC Real Estate Market

Also published on the Huffington Post

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“I wanted to find an investment property that I could fix up and rent out. Can you help me with that?”

There it is — my least favorite call. Everyone and their mother are chasing investment properties in D.C. because they finally got the memo from 2010 that D.C. rentals are a great investment. Let me be blunt: Unless you already purchased property when prices were lower, that ship has sailed. Let me be even more blunt: If you’ve never done this before, pay attention. People don’t get rich in real estate when they don’t understand how the industry works. Sure, unsuspecting people may have experienced windfalls during the run-up of prices in 2000-2006, but the market corrected most of those loopholes. Loans aren’t as easy to get as they once were so there aren’t as many buyers in the game as there once were. Buyers now are serious — they’re pre-qualified, they have down payments and good credit.

 

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I’ve spent a lot of time with novice would-be investors and they all abandon their search once they find out the following:

1. Investment properties typically require a much higher down payment percentage than if you were buying your own home. Lenders require anywhere from 30 percent to 40 percent down, changing the appeal of the investment significantly.

2. Don’t be lured in by abnormally low prices. I’ve had calls about a collection of buildings around D.C. with sales prices in the $40,000 range. Most condos in D.C. are in the $200,000’s to $400,000’s, so I’m not sure why people think there’s a lone condo (or five) sitting there for sale at $40,000 waiting to be bought and rented for $2000 a month. These units are almost always co-ops and co-ops cannot be rented with ease. In addition, they come with hefty monthly fees — sometimes amounting to $1000 or more, often carry the stipulation that the owner must live in the unit, and if the price seems too good to be true, you can bet there’s an income cap to qualify. Markets equalize. There’s no “great deal” out there that a novice investor will find that everyone else overlooked.

3. Being a landlord in D.C. is not for the faint of heart. Tenant laws here are very pro-tenant, which is why they call them “Tenants for Life.” D.C. Landlord Tenant Law can be found online here, but some basic points to note:

• You need a business license and to have the property inspected and approved.

• You cannot discriminate (obviously) on a number of factors, but source of income is one. Don’t want to take a government voucher? Too bad.

• It takes months to evict a non-paying tenant and landlords can’t recover attorney fees.

• Should you want to sell, tenants can hold up your sale for six months or more. They can also assign their rights to third parties you’ve never heard of who can hold up your sale. Even worse, they can ignore all your notices, not respond at all, and you still can’t sell without a signed affidavit from them.

• The laws governing the security deposit are complex. If the District determines you made any misstep with security, you will have to give the tenant three times the amount of security. If you think the tenant won’t sue you for the money, guess again. It only costs them a few dollars to file against you in small claims court.

• You can’t evict a tenant or ask them to leave just because their lease expires. They can continue to live there as long as they want, as long as they pay rent.

If you still want to be a landlord, there are number of other District offices that come into play to govern the landlord-tenant relationship. A full list and description of the services offered is included in the Landlord Tenant Act.

The real estate market in D.C. is very efficient. Homes that have true investment potential typically end in a bidding war bloodbath. It’s unfortunate that I have the same conversation with beginner would-be investors at least once a week, but they all reveal that they had no idea about any of this. This is where my universal advice about investing in real estate stands: Just because you saw it on a Reality TV Home Improvement Channel, doesn’t mean it’s something that can be pulled off in real life — especially if your only experience with real estate investing is based on what you see on TV. The market here is too efficient and the career investor too savvy to allow anything with true potential to sit on the market waiting for a novice to swing by with a checkbook and a dream of quick easy wealth.

New Year, New Real Estate Market for DC

Also published on the Huffington Post

The pace of the DC Real Estate market continued right through the fall with a fury. The pace of the market actually continued right through the holidays with a fury. It was shocking to see houses listed on Christmas Eve and under contract by New Year’s, but then, this has been a shocking market. When I was out showing houses on New Year’s Day to my long-suffering clients who were outbid close to 10 times, I braced myself for a busy spring.

So, uh, where is spring? The weather dipped to the single digits sometime in mid-November and I can’t recall the temperatures heading north of freezing for much more than a day or two since. We just got pummeled with more snow. I’ve told pretty much anyone who will listen to me that I hate this weather. But I digress.

In a not-so-surprising turn of events, things appear to have slowed down post-holidays. Perhaps it’s temporary, though many of my fellow agents are lamenting the same woes. Houses are not flying off the market in a few days anymore. Bidding wars aren’t the rule anymore. Sellers can’t get away with overpricing a piece of garbage and finding several buyers in line to overpay for their shack. Only a few select areas are still “hot.” What’s that we always said when I worked for the builders? That’s right. The pie cools from the outside, in. The good news is that there are good deals to be had now in Maryland and Virginia, where houses are staying on the market longer.

There are promises all around that it will get better but I have it on good authority that many builders are getting quite a bit of cancellations in the new home sales market and the change is definitely noticeable in the resale market.

So? What happened? It’s anyone’s guess but here are my thoughts.

1) The weather. It’s just too damn cold to go out there and look at houses.

2) The inventory. There still isn’t a lot on the market and what’s out there has been picked over already - and usually for good reasons. Either the property is overpriced or there’s an incurable defect about the property that buyers just aren’t willing to accept. Usually though, like my real estate finance teacher used to say in grad school: There is no such thing as bad real estate, only bad prices. (I’m looking at you, sellers of houses on the market 100+ days! And don’t give me the old crap that you don’t really want to sell. If you don’t really want to sell then why are you on the market?)

3) Interest Rates. Doesn’t matter that they’re still pretty low historically - buyers think you’ve taken money out of their pocket when they have to hear from their friends who locked for 30 years at 3.5 while they are now are facing down 4.5 or higher. (Shut UP friends! You got a good deal now stop rubbing everyone’s face in it or we’ll let the air out of your tires.)

4) Apathy. There were so many bidding wars and escalations in 2013 that I get the sense some people are burned out. You can only house hunt actively and aggressively for so many months before you either make a big compromise - usually by switching to less competitive locations or deciding to rent for another year.

Spring is supposed to be here at some point, and while the jury is still out on what the market will do, I think we’ve entered a leveling-off zone. Based on what I’m seeing with clients and my general sentiments about the local market, I believe the frenzy peaked. Now, instead of seeing another year of double digit growth, we’ll be back to more modest single digit percent increases in price that pace with the more logical indicators like oh, I don’t know, people’s increases in income?

Only when the sun comes up will we know for sure.

Stupid Things Your Real Estate Agent Might Be Doing

Also published on the Huffington Post

I get it. Agents get a bad rap. I can’t help but get my feelings hurt a little when I hear things like we’re idiots, or money-hungry, but then I’m out there pounding the pavement and come face to face with an agent whose ability to sustain his or her own client base is astonishing. It’s happened more than once this month that a client of mine, upon hearing my half of a conversation with another agent, will say, “Are they for real?”

Yes. They are for real. Yes, Real Estate Agents show houses and “forget” to put the keys back in the lockbox. Yes, they list houses and then say you can’t show them for a week or two but then the house magically goes under contract. Yes, they play games then have their friend swoop in and buy the house for a good deal. At least that’s my strong suspicion. And yes, Real Estate Agents don’t return calls, don’t return emails and let their voicemail fill.

So what’s your agent been out there doing? Hopefully none of the following:

Oops I did it again!
I was setting appointments to see properties with a client. The listing agent kept correcting the address I was reading and I said, “No, it’s 1165. The owner is Elaine....” She said, “Oh. Oh. Oh no. I have to call you back.” With that, she hung up. I think you see where this is going. Not for a minute, not for an hour, but for two whole days she had the wrong house listed for sale. How... scary. But even scarier, it took her another full day to remove the incorrect listing and enter the right one. Reason cited for removal of first listing? “Assistant made an error.”

Sure. Blame the assistant.

Lesson: Don’t trust people who don’t take accountability for their actions and who blame others for things that are their responsibility.

Market Value? What’s That?
Clients of mine were interested in a house that has been languishing on the market. No. Not languishing. More like, rotting. It’s been listed for months in a hot neighborhood and yet, no contract. You needed a HazMat suit just to navigate the inside of this place and it’s clearly overpriced. At the right price though, my clients would buy it. I called the listing agent to talk about the houses across the street that are fully renovated and sold for less than her price. She started screaming, “That’s a good neighborhood!”

Whoa. It’s never good when agents get emotional about listings. It’s a sign something isn’t right. I wasn’t getting far with her so I called her partner who wasn’t much help either. He did tell me they received several offers that were about half the asking price — which is pretty much what my clients thought it was worth as well.

Lesson: The market is very efficient in D.C. The market is efficient everywhere really, but when the market speaks, you have to listen and in this case, it’s speaking very loudly. They are never going to get that asking price and shame on them for misleading their clients into believing that they could.

The Snow is Softer in Italy
My favorite had to be the highly unethical agent who could not contain himself from constantly nagging for my clients to move up their settlement date. This was not possible for a number of reasons — mostly because his client did not want to move out of the house she was selling. But it didn’t stop this guy from harassing anyone who would listen. He directly asked my clients to settle early when we crossed paths. He knows better. He’s not allowed to speak to my clients.

As it turned out, there was a ton of drama at settlement which required his presence, but he decided to go skiing in Italy instead. His client had no representation, had to make some decisions on her own, and he came back and complained about anything and everything. Well, it’s a service oriented business. Closing was scheduled months in advance (remember the long lead time he didn’t want?) and there was no excuse for him to not be there. That’s his JOB.

Lesson: Don’t get ditched at any point during the process but especially not at settlement when it matters the most to your net worth.

Check your agent's reviews. Ask for references. Talk to people. Check the State Real Estate Board Complaint Files. (This is a treasure trove of information.) Don’t make the mistakes the clients of the above agents have made — it can cost you a lot financially and emotionally if you make the biggest investment of your life with someone who is incompetent or unethical.

Ridiculous Extremes of the D.C. Real Estate Market

Also published on the Huffington Post

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The D.C. real estate market continues to move along at a very swift pace. Our market is nothing if not efficient and we consistently prove here that there is no such thing as “bad” real estate — only bad prices. But I’m finding there’s a caveat to that rule.

There can good real estate but certifiable insanity among the parties which then supersedes any market corrections. I’ve recently seen two extremes that I can only hope are the exception, not the rule.

The Extreme Buyer
I recently took a client to see a home that somehow went under contract from the time I left my house to the time we arrived. My client loved the house, so I called the listing agent to find out the possibility that the contract may not go through on a contingency.

The listing agent informed me that the contract purchasers saw the home come on the market the evening before and offered 10 percent over asking price with no inspection, no appraisal and no financing contingency. She also told me that the contract purchasers put the offer in at 10 p.m. the evening before with a 12-hour expiration. Holy. Crap.

These buyers really wanted this house. They were willing to give $65,000 of what should have been their equity to the sellers to get the house instead of letting the market determine the price and just outbidding via escalation. (Being that this was a condo, it was unlikely the home would have been bid so high.) They waived all their contingencies, and took a 12-hour timeframe during which most people are asleep and make it a nail-biting slumber party.

I’m not sure if this was a brilliant strategy or an arrogant, obnoxious stunt but it was shocking to say the least. I don’t think it’s so dire out there that buyers have to go to these extremes.

The Irrational Seller
Clients wanted to see a home that has been listed for sale for three weeks. The seller (who is also the agent, who is also the broker by the way) met us there. My clients did like the house.

Because most houses are under contract in this market within a week, I asked the owner/agent/broker if she had any offers. She said she had received full price offers but rejected them because of the contingencies. She wants no inspection, no appraisal and a 7 day financing contingency. It was hard not to laugh in her face. I told her what is usual in this market and she said if the buyers wanted to do an inspection they could, but she would not fix anything nor could they walk away. Waiving an inspection with a condo isn’t that risky but on a single family house? Whoa.

After I collected my jaw from the floor I said, “It sounds like you need a cash buyer.” She said she has a lender who will do the loan in seven days and they need to use that lender. I’ve never heard of such a thing but I also never heard of twerking until a few weeks ago so what the hell do I know.

I told her that I would advise my clients not to write an offer on her house, as I would never advocate waiving a home inspection, forfeiting the right to walk away, waiving the appraisal contingency which protects both the buyers and the lender from an overvalued asset, and waiving the financing contingency putting the buyer’s deposit in jeopardy if the lender can’t underwrite the loan for some reason. Never mind the fact that my clients have a lender and I never allow buyers using the seller-dictated lender even though this has happened before. A builder recommended lender with an incentive is fine. A seller holding their house hostage unless you use their lender friend who will divulge all your personal information to the seller is not fine. With that, we left.

This seller is all that is wrong with real estate. She’s greedy, she wants buyers to believe her about the condition of her house and its systems, she doesn’t want them to know if they are overpaying by way of an independent verification of value, and she wants her lender used. I am vehemently opposed to sellers or their agents trying to control markets and buyers like this.

Buyers? Never give away money when you’re not bidding against someone or waive your contingencies and rights no matter how badly you want a house. There are plenty of people from 2005 who did exactly this and can attest to the fact that you could be buying yourself very big problems down the road.

Building a House 102: The Nitty Gritty

Also published on the Huffington Post

Welcome back to my Land Development Training. I’m gleefully happy to report that the land agent from last week who changed the property details based on my questions has also dropped the price on those lots by 33 percent. Now, if you were the seller of that property and your agent maintained the land could be listed at $300,000 and then suddenly had to drop the price to $200,000, wouldn’t you be upset at having your expectations set at such a high number? This is why it’s very important to find agents who understand land use and laws — whether you are the buyer or seller.

Zoning is Everything Zoning tells you exactly what you can and can’t do with a property. Google the zoning code and the county and you should find out exactly what can be done in that zone. If it says one house per half acre and the lot is less than half an acre? You probably can’t build a house there no matter what someone says, unless the seller has filed for an exception, called a variance, which might allow you to build on the land.

There are also overlay zones. An entire area may be zoned for two houses per acre but there might be an overlay of a protection area across all or part of the lot. You can find all this out by checking with the Jurisdiction. Don’t worry, not only won’t you do this yourself, you should NOT do this yourself.

Feasibility Study A feasibility study is pretty standard whether you are a builder or individual - it’s like a home inspection period except only for land. Depending on your local market, you need anywhere from 15 to 60 days. (More competitive markets will demand shorter feasibility studies.) During this time, consultants you hire (engineer, environmental, architect) will study the property and check the county/jurisdiction master plan to determine exactly what condition the land is in, what development still needs to be done and what permits are in place, if any. The more that has been done to get you to the point where you can pour a foundation, the more value there is in the land because jumping through hurdles with the local government and utility companies is difficult, time-consuming work. At the end of the study period, you will know what you are facing to prepare the land for your home. Remember, builders have economies of scale that you won’t have as an individual. You don’t have multiple lots to spread out your costs, so it has to make financial sense with enough cushion the unexpected.

This Sounds Hard. Maybe I Should Tear Down People think vacant land is better but that’s not necessarily true. A vacant piece of land could have utilities so far away that it’s too costly to bring them in. When developers buy huge parcels of land to subdivide, they can afford to bring utilities in because they spread the cost across multiple lots. When you tear a house down, unless it was the Unabomber’s house in the woods, you are practically guaranteed that utilities are already at the site since you can assume someone lived there with running water and electricity. This means you can reconnect quite easily. You just have to get a permit and pay to demo the house.

Also, in many jurisdictions, they charge an impact fee to add a new household to the community. You will have more cars on the road, more kids in the school, more use of public services — and you need to pay the jurisdiction to offset that cost. The impact fees locally can run as much as $35,000. But if you tear a house down and rebuild? You likely will have no impact fee since technically that household has already been accounted for.

There’s also a huge time savings with tearing down a house. You are usually just filing for permits and submitting plans for your new house. When developing vacant land, you are at the mercy of government calendars, hearing dates and conditions required to get your plans approved and your development rolling. People can lose years trying to get vacant land to the day the trucks arrive. The downside to tearing a house down is finding a house that a seller understands is a teardown. Unfortunately many sellers make upgrades to bring in a higher sales price and these will have no value to you since for you, the value is in the land and the seller still believes the value is in the house.

I could probably go on forever, but I’ve given you the basic background to start the conversations. Understanding the seller’s frame of mind and logic will help, as will finding an agent who specializes in land. Getting the right consultants on board to do your feasibility will ensure you don’t end up with swampland where you can’t build a house, and knowing the pros and cons of tearing a house down will hopefully help you make some better decisions.

Building a House 101: Understand the Players

Also published on the Huffington Post

“I want to build a house.”

Famous last words. But I hear it in D.C. because the supply of existing homes is so weak. Someone may pass a patch of vacant land on their way to work every day and wonder, “Could I build a house there?” Or they see a neighborhood being McMansioned, and they want in. Can’t blame them. New houses are, well, new.

I’ve helped clients attempt to locate lots on which to build a home, but it’s not a process for the faint of heart. Building a house can be a series of hurdles — many cost-prohibitive. If you plan to go this route, there are some basic things that you should understand so you can be better prepared for the road ahead.

 

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Owners of Land are Usually Not Owners By Choice Land typically passes from generation to generation because land development is not easy. Grandpa owned some land, thought it was a good investment but didn’t have the resources to develop it, passed it to his kids, and they passed it to their kids. Now instead of dealing with one Grandpa, or five offspring of Grandpa, you are dealing with 22 heirs. Yes, 22 drooling heirs who see dollar signs and want their cut. I guarantee you — one of them will be a lawyer and another will be an HGTV junkie and this will skew all logic for pricing. I cannot say this enough, HGTV is NOT reality and lawyers who don’t specialize in land use aren’t real estate experts.

But the 22 heirs think this is easy and lucrative as their HGTV and lawyer cousins lead them astray. They read a couple news articles that say the market is strong. They see new, $700,000 homes selling across the street. The heirs will do some math and realize that $700,000 divided by 22 sounds decent, so the land is listed for sale at $600,000 with a false assumption someone can build a house for $100,000. They start counting (and sometimes spending) their profit. But, they forgot to calculate development costs and fees. Oops. Anyone who knows about land will bypass this overpriced parcel real fast. Sellers typically never counter your arguments with any logic. You have to prove to them that the cost to develop the land is x amount, and the cost to build is x amount and I also guarantee, they will accuse you of taking advantage of them. Call me when this happens, we’ll have a virtual clink of glasses and share a laugh.

The other problem with land pricing is that sellers love to work backward. They feel like if houses are selling for $700,000 today, by the time you finish building in two years, houses will be worth $850,000 (this logic is seriously flawed by the way) and so they back into a number. There is a ton of risk in land development. A market can turn south in a few months and if you essentially overpaid for the land because the seller priced it based on their made-up “expected” market climate in two years, you’ve given away your own equity while you held all the risk. Unlike a house, you can’t quickly list and sell a piece of partially developed land in a softening market because buyers would realize they may not be able to outpace the direction of the market and no price will be a good price. Because you will be holding the land through the market ups and downs, you should be compensated for that risk. Only pay a price that makes sense with today’s market conditions — not one for two to three years from now. Don’t let land sellers get into your pocket. Find sellers to work with who understand the business and are reasonable.

Find an Agent Who Knows Land This is so important. I have no idea how some listing agents get land listings. Oh wait, yes I do. They’re friends with someone in the family who asks “Hey can you list our property for sale?” Listing agents should know where all utilities are (at the road, at the site, or a mile away — because it’s costly to run utilities.) They should know what permits are in place. They should know if the land is in an environmental protection area which limits the ability for development. I’ve heard replies from “Power is right there” (right where? Even 20 feet can make a huge difference) to “Well they’re building houses across the street” to “What are you talking about” only to have the listing agent change their description on the listing within minutes to my exact words.

Every single piece of land is different. What matters is what entitlements your land has and what you can do with it, and your agent absolutely has to know this information or it could cause you to buy a piece of land that can’t be developed.

Now that you have some background, next week I will discuss Zoning, Feasibility and tearing down vs. building on a vacant lot.

5 Ways Buyers Can Improve Their Chances in the D.C. Real Estate Game

Also published on the Huffington Post

There’s nothing I love more than when a client finds THE house and you can see it on their face before they say a word. There’s nothing I hate more than finding out there are multiple offers.

My land development training tells me that you never want to be the winning bidder of a piece of property because it ultimately means you paid too much. I still operate under this school of thought, but I have to remind myself — sometimes several times a day — that the conditions under which I was buying land were business decisions. When people are buying houses in which they plan to live, it’s personal. There are many intangibles tied up with a personal decision that sometimes mean buyers are willing to pay more than anyone else to get the house.

So, if this is the house you must have, the house your family has to live in, the school district where you want your babies to get their education, the house you want to grow old in, how can you get this house? It depends how you structure your offer.

1) Find Out if the Seller is Seeking Specific Terms
Do they need to move right away or maybe they need several months? Can you use this information to your advantage in the offer? Would letting them select the settlement date or stay for a month post-settlement for free help them? Something simple like this might just be the icing on the cake that gets your offer accepted.

2) Schedule a Home Inspection Prior to Submitting an Offer
When a seller accepts a contract, they sweat it out while the contingency time periods tick away. The main contingency time periods are Inspection, Appraisal and Financing. Unless you are paying cash, you can’t do much about the pesky Appraisal and Financing contingencies except keep them as short as possible. But you can get the home inspection out of the way before you submit a contract. Sure, you will shell out several hundred dollars for the inspection, but it’s one less thing the seller has to worry about and will set you apart from the pack.

3) Write the Sellers a Letter
When the seller of a home stays there for your tour and proudly shows you every single detail of the home down to random moldings they chose, get out your stationary. Some people think a letter is hokey but you can’t go wrong telling someone that you will love and cherish their home. To many people, a home is another member of the family . They will be happy to know how much you will appreciate and care for the family member they love so much but have to leave behind.

4) Escalation Design
No, it’s not 2005. If you have written an offer on a house in D.C. recently and you didn’t win the bid, it’s probably because someone else escalated right past you. If you find out there are other offers, add an escalation clause. Escalations work like eBay — they bid against the other contracts in your absence. The trick, however, is to pick a random number. A lot of people will escalate in nice round numbers because people like nice round numbers. But not you! You hate nice round numbers. If you escalate in increments of $2000 or $3000, everyone else is doing that too and eventually, competing offers will land on the same number. Not good. Make your escalation factor $3850, or $4875, but do not make it anything that ends in 000. Got it? It’s also not going to be a low number like $1250 — not in this market. You need to create a bigger gap so you are as far ahead of the pack as possible, because if it comes right down to it and you are only $1000 ahead of someone else with better terms, you might get bounced. The highest price doesn’t always win.

5) Close Down the Closing Cost Drive Through Lane
Don’t even bother. People became so conditioned to asking for closing help in the down market and that thinking hasn’t changed. Buyers have the right to select a settlement agent but most buyers go with the choice of their agent since the average person doesn’t keep settlement companies on speed dial. Check the websites of several companies — they typically post their closing fees and that can help you identify the most cost-effective company to employ so you can keep a lid on your closing costs.

Good Luck and Happy Bidding!

DC Real Estate Market Update: Heating Up With Summer?

Also published on the Huffington Post

The calls are starting to sound the same. It’s becoming impossible to differentiate one buyer from the next when the phone rings. You can hear the optimism and excitement when they begin.
“I am in front of a house at ___ address, can you tell me about it?”

Sure, I can tell them about it. I can tell them that there are four bedrooms, five full bathrooms, a three-car garage, a finished basement and 3,300 square feet. They will be excited, but that’s really not what they want to know. They want to know the price, so I tell them what the seller is asking.

“Oh...”

It’s like going for the jugular. It never gets easier to rip the hope out of someone’s hands. Unlike Suze Orman during her “Can I Afford It” segment where she happily denies the wealthiest of consumers an opportunity to purchase a peppercorn, I actually don’t enjoy this. The potential buyers reveal that they thought that it was still a buyer’s market, and the asking price is about 40 - 50 percent higher than what they expected it would be. (That Suze segment is brilliant, by the way.)

In addition to the often-cited “strong government employment base” which keeps the market strong, there are also a lot of out-of-town buyers looking for property in the nation’s capital. Probably 90 percent of the calls I receive on a current Georgetown listing are from New York buyers.

The DC real estate market is continuing the ride of rising prices — which I still maintain is directly correlated to the lack of inventory issue. And that pesky lack of inventory issue? I still maintain that it is directly correlated to the fact that many properties that should be up for sale aren’t, because the sellers are either unable to break even from what they paid or because property in DC is viewed as such a solid investment that the owner doesn’t want to sell. In any case, that property goes off to become the newest member of the rental market supply.

The rental market continues to be strong, but there are signs that a change is on the horizon. According to Matt Rogers of EASE Property Services — a Washington, DC rental management company, “this time of year, properties were traditionally renting within the first two weeks of being listed, but now they are taking several weeks to secure a tenant.” Rogers says he needs every day of lead time to find a tenant because there is a lot of rental inventory on the market, adding that “the summer has traditionally been a time that the rental market has been very competitive with people clamoring to find housing but with the influx of new buildings coming on the market, it will be a curious to see if that continues this year.”

I learned when working for the big boys in residential homebuilding that you can never pinpoint the true high and low of a market until you are six months out from it. By then, it is too late to make a good business decision because you are either chasing a market or furiously trying to cap your losses. Simple economics teaches us that we have a self-correcting economy but whenever we’re all mired in the throes of an exciting market, we seem to develop amnesia for what could happen based on how similar markets have transpired in the past.

Property buyers in DC right now are chasing a market, facing multiple offers, battling price increases that outpace income increases, competing with out-of-area buyers and are operating out of fear of the inevitable interest rate hike. Does this remind anyone of 2005? It’s like watching the entire city go by in a big circle marked “real estate bubble.

Tenants searching for rentals are on the cusp of seeing prices level off and an increase in rental inventory, which means they no longer have to sign leases within minutes of viewing an apartment for the first time. But if property owners can no longer get the high rents they want, what happens to supply in the sales market? Economics dictates some of these property owners will decide to sell, so supply should increase, and the cycle continues — prices in the sales market level off, buyers see less competition and the bubble hopefully deflates instead of pops.

Phew! People in other parts of the country are envious of the DC economy, but boy, it is not easy being the popular kid.

Summer 2012: State of the DC Real Estate Market

Also published on the Huffington Post

The market is hot again in D.C. and surrounding areas. But is this a good thing?

As a real estate agent, I can never de-slime the sentence, “This will sell fast.” It feels very 2004 — when a majority of the professionals in real estate, and I use the word “professionals” lightly, were pumping the furor. Unfortunately though, that’s where we are in D.C. right now.

The current state of affairs began last year inside the District. Condos were suddenly in demand again. Then there was the lone agent in my office who, gasp, reported being involved in a multiple offer situation. The rest of us thought it was a one-time thing, but time quickly proved it wasn’t. Multiple offers soon became the new normal — especially on a renovated, well-priced home. If you have equity and are in the market to sell, the time is right. If you are in the market to buy or even rent, it isn’t looking so good for you. And I hate to throw this monkey wrench in the situation but there are a lot of cash buyers floating around out there too to compete with.

The wave has now reached the suburbs as well. If you were hoping that you could move out to a desirable neighborhood in Arlington or Falls Church and not have to compete with multiple offers or homes going under contract within a day, sorry. Economics 101 — when supply is low and demand is high, prices go up.

So where is the supply and why aren’t there more homes on the market? It’s anyone’s guess. My opinion is that this is a repercussion of the turbulent market we just lived through. Everyone who would potentially sell now can’t get their money back out yet because they bought in the last 10 years at the top of the market. They are either in a hold and see mode, or they are moving on and renting out their home to break even on a monthly basis and wait it out until they can sell.

Some of those people may never sell though because having an investment property in a booming market is a good thing. Rent prices are increasing along with house prices for a few reasons. The people who would be buyers but can’t find adequate homes are delaying a purchase and renting, putting a lot more people into the rental market than there would be normally. The market of renters and homeowners needs to balance, and right now it’s out of equilibrium. Couple that with the Transient Train which consistently dumps people off in D.C. for short-term gigs and there are always plenty of renters looking for housing.

For those in the market to buy, like several of my clients, the news isn’t great. There are no more deals. There’s little hope of finding the right home unless you can see homes and write contracts the moment they hit the market. Waiting it out means the price goes up.

Washington, D.C. is one of the markets currently enjoying year over year price appreciation. While in theory this is a good thing, when there’s not enough supply, prices push above market rate. When emotions run high, people overpay, and emotions run high when things like “school is starting” or “my job wants me to start right away and I don’t want to move twice” or “I lost the last three bids, I’m not losing this one” are the buyer’s reality. Reduced supply. Increasing prices. We’re potentially heading back in the same boat we just got out of.

While the news of a housing recovery makes people happy, another bubble is being created. Buyers who are escalating again are robbing their future equity. This is some of the same behavior that got us where we were before. Thankfully the creative lending piranhas have bitten the dust so hopefully this will be a less catastrophic bubble, but it’s a bubble just the same.