Ask Eli

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Answer: I was proud of the statement ARLnow and the rest of the Local News Network (LNN) sites made on Friday, taking a public stance supporting the Black Lives Matter movement.

Do people care what I think?

I honestly didn’t think so, but it has become clear to me over the last couple of weeks that taking a stance on the BLM movement is important to many of my colleagues, friends, neighbors and clients. For them, I want to state it in my most public forum: BLACK LIVES MATTER.

There are too many people better equipped to write/talk about the topic than me, so I will simply link to couple of them.

A few years ago, a close friend recommended Between the World and Me by Ta-Nehisi Coates and it had a profound impact on my understanding of privilege and systemic racism. The audiobook is narrated by the author, making his words even more powerful.

I have called RLAH Real Estate home for my entire real estate career and one of the things I’m most proud of is the incredible diversity across our 250+ agents in the DMV. Our leadership has done an excellent job of encouraging productive conversations about current events and taken strong public stands supporting BLM. I’d like to share this <5 minute video featuring stories from some of my colleagues as it relates to race in real estate.

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.

Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with RLAH Real Estate, 4040 N. Fairfax Dr. #10C Arlington, VA 22203, (703) 390-9460.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: What impact is Coronavirus having on the regional and local real estate market?

Answer: COVID-19 has had a similar impact on new listings in Arlington as it has across Northern Virginia and the D.C. metro area with each market dealing with a ~30-35% year-over-year drop in April and May. However, demand in Arlington has tapered off from 2019 highs, while demand in Northern Virginia and the D.C. metro area is steadily increasing, despite everything we’ve gone through with Coronavirus.

The tapering of Arlington demand, which is still very strong relative to historical numbers, is bringing the Arlington market more in-line with supply/demand readings of the Northern Virginia and D.C. metro markets.

The below chart shows Months of Supply (a good supply/demand ratio) for each market. Months of Supply calculates how long it would take for the existing housing inventory to sell out, if no additional inventory was supplied.

Prices Up Regionally

Year-over-year prices for May sales and year-to-date sales are up significantly across the region. Across all of the counties/regions listed below, Arlington’s year-over-year growth is the lowest, which is almost certainly due to the significant appreciation in Arlington last year, after the Amazon announcement.

Keep in mind that sales data lags actual market activity because it usually takes 30-45 days for a property to close, so May sales are more reflective of March and April activity than what we’re currently seeing. This is particularly interesting because March and April were the peak of Coronavirus concerns/lockdowns. Barring any major shifts in the D.C. area economy, I expect year-over-year prices to show even more growth as we get further into the year and sales reflect an even stronger buyer market.

Arlington New Listings Down

We’re used to seeing new listing supply peak from March-June, after November-February lows, with April and May almost always exceeding March’s supply. Unfortunately for many home buyers, new inventory tumbled in April and continued dropping further in May.

The May 2020 drop in new inventory represents a 32.1% decline compared to May 2019, which is particularly concerning when you consider that new inventory in May 2019 was already down 21.3% from May 2018, giving us a 47% decline in new inventory from May 2018 to May 2020.

The decline in new inventory was distributed pretty evenly across property type (single-family vs condo) and price point.

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This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: The last time I bought a house, the market was much more favorable for buyers. I’ve heard so much about competing offers and the need to submit a strong offer, but what exactly does that mean?

Answer: Other than price, there are about a dozen terms included in your offer that will determine its strength — the value/appeal it has to the seller. Of course, every home owner wants to get the most money possible, but they also care about when the sale is executed, the likelihood of getting to settlement, renegotiation periods, risk and more.

Sometimes a seller takes a lower offer price in exchange for better supporting terms. Understanding what type of offer is appropriate/necessary for a property and how certain terms change your (buyer or seller) risk exposure on the transaction is critical.

Let’s take a look at some of the terms included in most contracts that have the biggest impact on the actual or perceived strength of an offer.

Price/Escalation Addendum

This is an obvious one. Higher price = stronger offer. Escalation Addendums are common when there are multiple offers, but how and when to use them is a nuanced, yet critical, decision.

The Escalation Addendum allows you to beat any competing offer by a specified amount, up to the highest amount (ceiling) you’re willing to pay for a property. Used correctly, it prevents you from leaving money on the table, while not paying too far above what the rest of the market is willing to offer.

Contingencies

The three most common contingencies are for the home inspection, appraisal and loan. Each provide the buyer with a set of protections that allow them to renegotiate and/or terminate the contract, without losing the deposit. Removing a contingency or shortening the contingency timeline increases the strength of an offer.

• Home Inspection: It used to be standard for Arlington buyers to include a negotiation period in the home inspection contingency, allowing them to negotiate for repairs or credits based on the results of the inspection or terminate the contract. Now it is much more common for buyers to forego the negotiation period and simply retain the right to void (aka a pass/fail inspection), which is much more attractive for a seller. Even more attractive is when buyers perform a pre-inspection on the property (inspect before submitting an offer) and remove the home inspection contingency altogether.
• Appraisal: If you’re using a mortgage to purchase a home, your lender will almost always require a property appraisal. The appraisal contingency allows you to renegotiate or terminate the contract in the event the home appraises for less than the purchase price. It is common for buyers to remove the appraisal contingency or agree to cover up to a certain amount on a low appraisal to increase the strength of an offer.
• Financing: The financing contingency allows you to terminate the contract without losing your deposit if your loan isn’t approved. Many buyers who have undergone a thorough pre-approval process have enough confidence in their ability to secure the mortgage that they remove this protection, thus conveying a strong financial position to the homeowner.

Speed of Sale

Most sellers want to close (executed sale) as quickly as possible so cash-buyers have the biggest advantage here because they can usually close in a week or less. For the more than 80% of Arlington home buyers relying on a mortgage, many choose to work with smaller, local lender who can sometimes close in as little as 2-3 weeks. Offering a quick-close to a seller can give your offer a significant boost.

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This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: I just lost a competitive offer to an all-cash buyer. How common are cash buyers in Arlington? How much of a disadvantage am I at?

Answer: I have personally noticed an increase in cash buyers and expected to find a significant increase in the number of cash deals over the last 12-18 months, so I was a little surprised when I ran the numbers and learned that the percentage of homes purchased by all-cash buyers has only increased a few percent in the last couple of years. Since 2019, 17.5% of homes purchased in Arlington have been by all-cash buyers, compared to 14.3% in 2017.

Increased Cash Deals Attributed to Condo Sales

The number of cash purchases in Arlington jumped in 2018 and 2019, likely due to more cash investors getting involved after the Amazon HQ2 announcement in November 2018. This increase is attributed completely to condos (likely investors). The number of buyers paying cash for single-family or townhouse purchases has remained about the same since 2015.

The rate of all-cash purchases seems to be spread pretty evenly across all price-points and housing types. I assumed that the lower priced condos would have a much higher rate of all-cash deals, but it turns out that since 2019 only 20.5% of sub-$400k condo purchases were all-cash, which isn’t much higher than the overall Arlington market.

The chart below shows the percentage of homes sold in Arlington that were bought by all-cash buyers since 2015, also broken out by condo and single-family/townhouse purchases.

Cash vs Mortgage — What’s the Difference?

The idea of getting a cash offer sounds exciting, but what exactly does it mean? After all, a dollar from a lender is worth the same as a dollar from a savings account.

• Contingencies: Cash buyers don’t need the contractual protection of a financing or appraisal contingency because they don’t need a lender to approve/review anything. This is appealing for sellers because it decreases the possibility of something going wrong that disrupts the sale.
• Speed: Cash deals can close faster, often in one week or less, than financed deals which usually take at least 3-4 weeks due to the time it takes to process the loan.
• Security: Cash deals are considered more secure because the purchase funds are already available.
• Cost: Cash deals have lower buyer closing costs because there are no lender fees or lender’s title insurance. Lenders also require a substantial about (usually 1-1.5% of purchase price) of money be pre-paid into an escrow account for future property tax payments and homeowner’s insurance.

Given how competitive the current housing market is, many buyers using a mortgage take steps to make their offers as cash-like as possible by removing the appraisal and financing contingencies and/or working with lenders who can close quickly. For buyers that have taken these steps, there’s very little difference to sellers between their offer and a cash offer.

If you are a seller considering a cash offer, make sure you verify the existence of the cash funds the same way you would verify a buyer’s mortgage qualification with a pre-approval letter. The most common method of verification is to request bank statements, but a letter from the buyer’s bank should also suffice.

If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at [email protected].

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.

Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with RLAH Real Estate, 4040 N. Fairfax Dr. #10C Arlington, VA 22203, (703) 390-9460.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: How many real estate agents conducted business in Arlington last year?

Answer: There were 2,782 real estate transactions in Arlington that were recorded in the MLS in 2019, totaling $1.96B in sales volume. So how many different real estate agents do you think were involved in those transactions?

…2,217!

Now keep in mind that there’s usually two agents on each side of a deal, but that’s still a ton of agents involved within a relatively small (26 square mile) community. Below are some interesting takeaways:

• 59.4% (1,316) of agents did one transaction in Arlington and just .6% (14) agents handled 20 or more transactions
• 1,496 different agents represented Arlington buyers with 1.1% (17) of them representing 10 or more buyers
• 1,258 different agents represented Arlington homeowners on the sale of their home with 2.1% (26) representing 10 or more homeowners
• Of agents who conducted two or more transactions in Arlington, the average agent conducted 4.5 transactions in Arlington
• Keri Shull and her team once again lead Arlington in total transactions and volume by a wide margin, representing 119 buyers and 76 homeowners/builders, for a total of just over $133M in total volume
• Other than Keri Shull’s team, no other agent/team represented more than 1% of the buyer or seller market in Arlington

Most studies suggest that consumers are less concerned with measures like sales volume and more focused on the strength of communication and trustworthiness of the agent they’re working with, but market expertise and experience are still important factors for most people.

While some may see the low barrier to entry to real estate licensing and high volume of agents as a negative, it also means that you have a lot of choices as a consumer and, with some effort, can make sure that you’re working with somebody who provides the type and style of service you’re looking for.

If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.

Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with RLAH Real Estate, 4040 N. Fairfax Dr. #10C Arlington, VA 22203, (703) 390-9460.

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: Can you provide some clarity on how mortgage forbearance works and whether that will negatively affect my credit score?

Answer: I’ve received quite a few emails from folks considering mortgage forbearance or asking for clarification on (usually) incorrect information provided to them from friends or family about the process. We don’t have all of the answers yet, but enough information is available to help people make more educated decisions about forbearance.

To explain forbearance and some of the unintended consequences, I asked one of the top mortgage lenders in the D.C. Metro, Jake Ryon of First Home Mortgage, to join as a guest columnist. If you’d like to talk with Jake about a loan, refinance, or any other mortgage related question you can contact him at [email protected].

Take it away Jake…

What is Mortgage Forbearance?

Congress passed the CARES Act, allowing those facing financial hardship due to COVID-19 to request a mortgage forbearance (pause in mortgage payments) for 180 days, with the option to extend for an additional 180 days.

The bill does not require you to provide proof that you’re suffering a hardship, but the CFPB makes it clear that if you can pay your mortgage, you should. However, not everyone is following that guidance and some borrowers who are able to pay are choosing not to and may suffer unintended consequences.

Mortgage forbearance is a temporary pause in payment; it is NOT forgiveness. All missed payments by the borrower must be paid back.

Repayment

Unfortunately, the repayment terms for a forbearance are vague. Statements from Fannie and Freddie indicate that you do not have to repay the missed payments all at once, but that it is for the borrower to work out with the servicer. If the payments are not paid back in a lump sum or over a designated period, but instead added to the end of the loan, the borrower is agreeing to a loan modification.

During a forbearance the servicer (the company you pay) is still advancing the monthly mortgage payments to the end investor. This has led to major issues for lenders, and as a response, tightened credit standards and made it more difficult to obtain a mortgage.

Unintended Consequences

While taking a forbearance is not supposed to negatively affect your credit, there are some unintended consequences I’d like to explain.

*Please note this is based on the most up to date information I could find and is subject to change as this is a fluid situation. Please reach out to your loan servicer directly for your options.*

Refinancing: This may vary by lender, but as I understand it, to be eligible to refinance, borrowers must be out of forbearance and current on their mortgage. This is a big concern if rates continue to fall throughout the year.

Repayment Terms: As mentioned earlier, there are options to repay the missed payments via a lump sum, over a repayment period, or modifying the term of the loan. Keep in mind the servicer must agree to the repayment plan.

I’m hearing that modifications are only being offered if there is documentation to show you’ve been adversely affected by COVID-19. This is going to be problematic for borrowers who didn’t lose their job and assumed their skipped payments would be tacked onto the end of their mortgage or forgiven.

Buying Your Next Home: Since this is so new, we haven’t seen any credit reports reflecting modifications as a result of COVID-19. It’s unclear how lenders and investors will treat these modifications when evaluating new loans.

For example, most investors want to see borrowers pay their mortgage on time for a minimum of 12 months after their modification begins. If someone takes the full 12 months of forbearance, they could be looking at a minimum waiting period of 2 years before obtaining a new loan.

Residual Effects to Your Credit: While the CARES Act says mortgage lenders won’t report you as delinquent during a forbearance, they can’t control how other lenders will view it. For example, if you’re a credit card company and you see a borrower is in forbearance, are you inclined to increase their credit limit or issue a new card? If your credit card debt is increasing and your available line of credit is staying the same or decreasing, it will most likely lower your score.

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This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: How did the April real estate market compare to what you would have expected if we weren’t going through the COVID-19 pandemic?

Answer:

Expectations vs Reality

The 2018 Amazon HQ2 announcement sent demand up and supply down, creating a frenetic real estate market across Arlington and Northern Virginia in 2019 (2019 Review One and Two). The party continued into 2020, with rapid price growth and intense competition amongst buyers, setting the stage for the market to establish new highs.

It also seemed that the volume of new listings would finally go up, after YoY increases in December and January, the first YoY gains since October 2018.

All of those expectations were put on hold when the Coronavirus outbreak shut down the economy two months ago. For the first 4-5 weeks, the market froze up, with buyers and sellers unsure if we were on the verge of a market collapse and how to safely navigate critical real estate activities. Over the last few weeks, demand seems to be coming back and there are signs that sellers are more confident in listing their homes, which should lead to more supply.

April 2020 Market Report

April was our first full month living with Stay-At-Home orders, so let’s take a look at how last month compared to April 2018/2019 and February 2020 (last full month of normalcy).

Extremely Low Supply

Low supply was part of every Arlington real estate conversation in 2018. Then Amazon came and supply got so bad that the County Board launched Housing Arlington, but 2019 felt like the trough. Then COVID-19 hit and April 2020 produced 18% fewer homes for sale than April 2019.

The condo market has been hit the hardest by low supply with an unfathomable 55% decline in condo listings in April 2020 compared to April 2018.

For additional context, new listings in April are usually 25-40% higher than in February, but this year they were only 10% higher and actually lower in the condo market.

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This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: How well prepared is the real estate industry to use technology and innovation to adapt to social distancing?

Answer: With around $2.3T in new and existing home sales in the U.S. in 2019, you would think that the real estate industry would be a catalyst for technology development and innovation to support the purchase and sale of the most valuable asset most people will ever transact.

Unfortunately, that’s not the case and the real estate industry often lags well behind other industries in technology adoption, innovation and consumer experience. Why is that?

Role of Tech/Innovation in Real Estate

The conversation starts with one critical question — what is the role of technology and innovation in residential real estate? I’ve noticed two schools of thought amongst start-ups and innovators. One is that technology should reduce or eliminate the role of professionals (broker/agent, title attorney, lender) in the transaction and the other is that technology should improve the quality of service and efficiency of those professionals.

I’ll save a lengthy discussion on the value of (professional) real estate agents for another day, but history and many failed start-ups have shown that most consumers want professionals advising them during a home sale or purchase, despite numerous DIY options. I’ll also save commentary on people hiring non-professionals for 6 or 7-figure transactions.

It’s my opinion that the prevailing goal of technology and disruption in residential real estate is to help professionals deliver higher quality service more efficiently, which will in turn improve the experience and reduce cost (commissions/fees) for the consumer. I think it’s important to also improve technology that allows buyers and sellers who prefer a DIY approach, but that isn’t where the lion’s share of investment should be.

#1 Challenge: Fragmented Buying Power

The biggest challenge start-ups face in residential real estate is the fragmentation of the industry’s buying power, which makes widespread adoption difficult and expensive. Most real estate agents are independent contractors who make their own decisions about what systems and technology to pay for so a start-up/entrepreneur with a great idea has to convert tens of thousands (or more) of individuals instead of just a handful of decision-makers with large spending power.

Most agents are loosely organized into offices, brokerages and brokerage franchises that theoretically have stronger buying power to support start-ups, but it can be difficult to find technology that will be useful for, or adopted by, enough agents and their clients to justify the cost of organization-wide implementation because of so many niche practices and the independent nature of agents.

As they say: technology made for everybody, is good for nobody.

Some brokerages implement top-down in-house technology development and have produced great platforms/systems as a result, but even those technologies lack the disruptive innovation industries need from start-ups because they can’t risk their core business on failed technology development.

Many of the large brokerages that practice top-down technology development suffer from common ailments like expensive systems becoming legacy systems before they generate enough value to justify the cost. The cost of in-house development is too high in many cases, which is why many of the technology/disruptor-branded companies announced the first and largest furloughs/layoffs in the industry just a few weeks into the COVID-19 pandemic.

There is a massive opportunity for disruptive technology in residential real estate, but the fragmented nature of the industry makes it difficult for great start-ups to get off the ground and reach profitability fast enough to survive.

This is one reason why VC money has poured into the PropTech (Property Technology, which also includes commercial real estate) industry over the last few years, with investments increasing from $491M in 2013 to $12.9B in the first half of 2019.

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This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: We want to make our time at home more enjoyable by improving our outdoor space. What are some of the most common landscape/hardscape improvements you see in Arlington?

Answer: After six weeks in a row of Coronavirus market analysis/updates, I thought it would be a nice change of pace to talk about some ways you can improve your outdoor space to make staying at home more enjoyable. A nicely landscaped yard can also provide a strong return on resale, especially while stay-at-home orders are fresh in buyers’ minds.

To provide the best perspective on popular landscaping projects around Arlington, I asked Robert Groff of Groff Landscape Design, an Arlington-based landscape and hardscape firm, to share some of the most popular projects they do.

Thank you for sharing your insights Robert, take it away…

Thank you Eli and hello ARLnow. If all of this time at home has inspired you to invest in your outdoor space, I hope some of these projects are an inspiration.

April Showers Bring…Wet Basements and Mosquitos

We’ve all been reminded lately to be prepared for possible threats. Now is the time to make sure rainwater is directed away from your home foundation and mosquito breeding grounds (standing water) are minimized.

Create Family Experiences

Patios — Patios are not only for dining and grilling anymore. Patio activities can include yoga, outdoor office, study space, play space or even an outdoor movie theatre! With infinite amounts of material options here are our top recommendations:

• Least Expensive: Concrete Slab. In our region, concrete cracks but when necessary it absolutely has its place.
• Most Dynamic & Most Popular: Concrete Pavers. We highly recommend Techo-bloc manufactured materials because of their lifetime warranty, density rating and wide range of colors, textures and styles.
• Favorite for Contemporary Style: Porcelain Tile for Exterior Use.
• Natural Stone: Flagstone is still extremely popular especially for our traditionalists!

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