Ask Adam

Editor’s Note: This periodic sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty. Please submit follow-up questions in the comments section or via email.

Question: I am considering a new construction condo in Arlington and am wondering if you have any advice?

I love new homes as much as the next guy, but I can not stress enough to be careful during the buying process. The purchase of new construction can seem almost too easy at first. There is a charming salesperson ready to tour you through the gorgeous model homes. Next thing you know you have a contract in hand and are drafting a check for a 5-10% deposit.

Slow down. Even if it is the perfect home for you, please take time to read the entire contract at least once. I’ll save you the suspense by telling you now that it is a very one-sided contract. The developer holds most of the leverage. That said, you need to understand what you are agreeing to, what is expected from you and what is expected of the developer. There are certain benchmarks you both agree to meet and you need to be sure you are on top of these dates. Make sure you get all of your questions answered before signing and have all agreements in writing. You may want to have an attorney to review the contract for you.

You’ll also want to take your time reviewing the condominium disclosure package. This will include financial information and bylaws that pertain to the condo association. In Virginia you get a 10 day rescission period to review these documents if you are buying a new condo. You get three days if you are buying a house or townhouse that is part of an HOA. Believe me, I know how boring this information can be for some of you, but please read it thoroughly so you are not caught with any surprises.

Before negotiating the price and concessions, find out what other buyers have paid for similar units. Sales prices for closed sales are available online on the Arlington County real estate assessment web page. If sales have not closed yet, you are at the mercy of the sales person and whether they will provide you with the most recent sales and concessions. I find that many of them are forthcoming with this information.

One thing that drives me crazy about new construction is how the the developer will try to strong arm you into using their preferred lenders and title company. In most cases it is to your advantage to be able to shop for your lender and title company on the open market. Therefore, I usually try to negotiate for my clients to be able to receive seller concessions without them being tied to the developers preferred lender and title company.

If the developer is requiring you to use their preferred lenders to receive closing cost dollars or some other incentive, make sure you are comparing apples to apples when considering the preferred lender versus an outside lender. Sometimes the $10,000 you are receiving in closing cost help will be nullified by an origination fee charged by the preferred lender at closing.

Virginia clearly gives all home buyers the right to choose their own title company, but watch out for penalties that the developer will stick you with in the form of “document review” should you actually want to exercise your right to choose your own title company. One local developer charges a $1,000 document review fee! It aggravates me just writing about this.

One last piece of advice is to hire a home inspector. If you are going to have the opportunity to conduct a pre-drywall and pre-closing walk through – hire a home inspector to inspect the property at both of these opportunities. Some salespeople will discourage you from doing so because you are going to receive a home warranty. Don’t listen to them. You are spending too much money to not want your home in as perfect condition as humanly possible by the time you take ownership.

I hope this helps and you enjoy your new home for many years to come.

Editor’s Note: This periodic sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty. Please submit follow-up questions in the comments section or via email.

Question: We are thinking about purchasing our first home and are wondering if you can help us budget for the upfront costs of buying a home?

There are going to be some variables involved depending the size of the home, price and amount you plan to use as a down payment. That said, I’ll do my best to give you a general idea of the costs involved in purchasing a home in Arlington.

Different loan programs are available that require a down payment of 0%, 3.5%, 5%, 10% and 20% or more. You will need to discuss the different options available to you with a loan officer that you trust.

Your closing costs are likely to be between 2% and 3% of the purchase price.  Closing costs include:

• lender fees
• title fees and insurance
• prepaid interest
• prepaid insurance
• prepaid property taxes
• prepaid mortgage insurance (if applicable)
• government recording and transfer charges
• survey (if applicable)
• association dues / reserves (if applicable)

If you negotiate a closing cost subsidy, it will go towards paying for the above mentioned closing costs.  Your lender should be able to provide you with a loan scenario worksheet that will itemize the closing costs and monthly costs for your individual situation.  There are also online closing cost calculators available, like this one from RGS Title. I recommend always consulting with your lender before negotiating a closing cost subsidy so that you are aware of any restrictions they may have.

By closing towards the end of the month, you can reduce the amount of prepaid interest collected at settlement.  You also have the option of purchasing owner’s title insurance or not.  Be sure to ask whether there is more than one type of policy. Many title companies present you with their “enhanced” policy by default, which may not be worth the extra money to you.

The lender may require you to pay the appraisal and application fee at the time you make application for your loan. Budget about $450 for these costs.

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Editor’s Note: This periodic sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty. Please submit follow-up questions in the comments section or via email.

Question: Is it better to use Zillow or the Arlington County assessment to determine home values?

Zillow can provide a fun way to follow an automated estimate of your homes value over time.  Would I use it to price a home I’m going to sell or determine how much to offer on a property for sale?  No.  There is too much money at stake to look past the inaccuracies that Zillow is known for.  I’m not an expert on Zillow, but my guess as to why it is often inaccurate has to do with the system’s inability to know about upgrades to the subject and comparable properties.

Arlington County assessments are a wholesale view of value based on very basic characteristics of a home.  I’ve seen assesment values as much as $200,000 off from the actual market value.  Of course the assessed value was less than market value so the homeowners were quite happy about it, because they were paying less in taxes than they could have been.  Again, I would not recommend using assessed value as a gauge of market value.

I’ll describe how I go about determining market value, but keep in mind that this process is more of an art than a science.  Lots of variables beyond price, weigh in on how a property performs on the open market, such as how it shows, how it is marketed, what time of year it is, etc..  The following explanation is as though I am getting ready to list a home, but you can use elements of the process when considering an offer to purchase a home as well.

The first thing I do is try to find at least three of the most recent and most similar sales in your area that have occurred in the last 6 months.  The next step is to create an even playing field between my subject property and the comparable properties.  This may sound backwards, but I deduct value from the comparable properties for items I feel adds to the value to those homes.  Conversely, I add value to the comparable properties for items I feel reduce the value of those homes.  For example, if my subject property is a condo with one parking space, but the comparable I am using has two parking spaces, I may deduct $20,000 from the value of the comparable.  I go through this process to determine the adjusted value of my comparable sales.  Keep in mind that the $20,000 adjustment (for a garage space in this case) can not be arbitrary.  It should be based on a recent sale were the garage space was a common denominator.   Adjustments can be made for many items, including:

• Size of home
• Size of lot
• Days on market
• Condition
• Proximity to major roads
• School system
• Age
• Finishes
• POA fees

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Editor’s Note: This periodic sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty. Please submit follow-up questions in the comments section or via email.

“Just wondering what you think about the 22204 market. Do you foresee all the development around Columbia Pike having an impact? I see quite a few knock-downs and new homes springing up within blocks of my house but don’t really seem to feel full-scale gentrification. Still a ways off?” -Sean

As a resident of Arlington County I’m sure you’ve heard the buzz term “Smart Growth”. In my opinion, Columbia Pike is a great example of what is considered to be smart growth. I’ll explain why I think so.

You may already know that the Columbia Pike corridor was a vibrant artery in Arlington between the 1940’s and the arrival of the Metrorail. At the time, approximately one out of three Arlingtonians lived along the Pike. When decisions were made to run the Orange Line through the Rosslyn-Ballston Corridor and the Blue Line through the Eisenhower Corridor, development froze along the Columbia Pike corridor and it took a back seat. Between 1970 and 2002 not a single multifamily residential building was constructed along the Columbia Pike corridor and the relative value of land became stagnant or began to decline.

Step one in reviving Columbia Pike was a change to the zoning code. Arlington County and the Pike community introduced a new form based code that provides developers a lot more flexibility with the buildings as long as they conform to a certain look and size. The review period for plans could be reduced from years to months while providing a high degree of predictability for developers, businesses and the community at large. Adoption of form based code in 2002 coincided with what I consider the beginning of Columbia Pike’s revitalization.

We are in the midst of step two. New grocery stores, restaurants, bars, shops and multi-family residences are slowly moving-in along the Pike. There is a blend of old school and new school, which planners intend to maintain. Columbia Pike’s smart growth plan favors diversity among residents, buildings, retail options and homes. The benefit is realized by greater financial and social resiliency. If you are hoping for a Reston Town Center, then I think you will be disappointed with the direction of Columbia Pike. I compare the vision more closely to some of the neighborhoods in the San Francisco area.

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Editor’s Note: This monthly sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty. Please submit follow-up questions in the comments section or via email.

What should we expect from the spring real estate market in Arlington?

It feels like spring is already here in some ways. The sun is out and daytime temperatures have been hovering around the mid 50’s. Buyer demand is as high as I have seen it in recent years. People are even showing up to open houses. This is unusual for February.

Besides the cherry blossoms, the only thing missing is housing inventory. For example, I started working with a new client about three weeks ago. He wants a one-bedroom condo in Clarendon within a generous price range. There are lots of those, right? Unfortunately not. We have yet to look at a single home, because there are not any available for him to even consider.

In recent years we kept our fingers crossed for buyer demand to pick up. We now have ready, willing and able buyers, but not enough homes to go around.

Home owners have long been conditioned to believe that spring is the best time of year to sell a home. I’m hoping that the current drought of housing inventory in Arlington will soon be quenched by home owners throughout town that are simply biding their time until the “spring market” before they list their homes. Personally, I’ve been advising potential sellers to get their homes on the market as soon as possible — while competition is low.

Where are the current home buyers coming from?

We are all aware that mortgage interest rates are at all time lows. What you may not be aware of is that rental rates have been climbing to record-breaking numbers in Arlington. For a mid-range two-bedroom apartment in Clarendon you could easily be looking at $3,500 per month. Because of low interest rates and high rental rates, it’s not hard for many would-be-renters to build a case for transitioning to home ownership.

Does this also affect the higher end market?

I think it does. I call it trickle-up economics. For example: Sarah sells her condo in Ballston to a first time homebuyer so she can purchase a townhouse in Rosslyn. Jim sells Sarah his townhouse in Rosslyn so he can purchase his dream home in Lyon Village. As you can see in this example, the sale of Sarah’s condo to a first time home buyer, trickled-up to affect the purchase of a higher priced home in Lyon Village.

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