Welcome everyone! What a fine springtime afternoon to discuss real estate. My sense, based on Q1 listings and sales, is that 2014 is going to be an interesting year for buyers and sellers (and their agents).
With residential real estate, every transaction involves a different set of variables, in terms of the personalities and the specific property and the timing involved. So it's impossible to model (or, as I prefer, to "game theory") with complete accuracy. It's often intuitive and ad hoc in ways that necessarily go beyond where data sets of comps and analysis leave off. Real estate is, in short, a rather inefficient (and stressful!) commodity to sell.
I'm looking forward to answering your questions over the next hour. Please fire away...
What should I look for in a lender? I've lost three houses to other buyers and was told my lender wasn't as good. Trying to figure out how to increase my chances next time.
Excellent question. For buyers, a lender is an essential part of the team that helps with getting an offer accepted. In competitive situations with my buyer clients, I often ask the lender to reach out directly to the listing agent to vouch for the buyer. And the buyer's choice of lender often is seen as reflective of the buyer's capacity to get the deal done. Sellers and listing agents are apprehensive about out-of-town lenders, for example. It's best to use someone local and to make sure the approval letter includes a cell phone number.
How is the townhouse market nowadays? We are trying to decide between continuing to rent our townhouse in Howard County, or selling it. We would prefer to sell it, but are not sure where the market is in terms of demand (we don't want it to sit empty for months and months before getting an offer). Thank you!
When a rental property turns over, a lot of owners ask this question, because they're what I call "involuntary landlords" who have been renting only as a placeholder strategy, until the market improves enough to sell. In HoCo, and everywhere else, that's a question best answered by an agent who sells in your community and closely tracks inventory and sales. Good luck!
Hello - we bought a townhouse in Columbia Heights in 2006 and rode through the ups and downs of the real estate market since then, refinanced, and now have a relatively cheap mortgage and our house is probably worth a little more than what we bought it for. Now my family is looking to possibly either relocate overseas or buy a new house in DC and in either scenario we are interested in renting our current house. The location is excellent, near a lot of good retail, and we could rent it for about double our current mortgage. My question is, do you see any reason that we should sell our house now instead of renting? Thank you.
It depends on whether you'd like to be a landlord or not. Obviously real estate can be a valuable part of an investment portfolio, but it doesn't manage itself. If you would have as positive of a cash flow as you suggest, my advice would be to hire a professional property manager and pay the prevailing management fee, so you don't have to self-manage the townhouse yourself. But also be sure to familiarize yourself, if you haven't already, with landlord-tenant law and TOPA, as these may implicate your future ability to sell the property when you want to. Also, remember that to be legal in DC, rental units must be registered with the city and the owner must obtain a business license. But a property manager can assist with this too.
We were looking to buy a home in a quiet neighborhood, we found a house an purchased it in August 2013. We have upgraded it, invested on renovation, and it is now a lovely home. However, our neighbors on one side have been a challenge (loud, disrespectful, kids are uncontrolled), I am very unhappy and I want to sell the house.The house is perfect for a family with 3 kids. I am looking for advice, I don't want to loose money, I would like to break even (purchase + renovation), Should I wait to sell? Thank you. LB
Tough question. I sold a personal residence on Capitol Hill a decade ago due, in part, to a neighbor's barking dog. Legally there may be recourse if the neighbors' behavior and noise rises to the level of a "private nuisance." Practically, though, it's sometimes easier and less stressful to sell. It sounds like an unfortunate example of how real estate can be implicated by one's neighbors on either side (or, in the case of multi-family housing, above or below).
Hi Morgan, I bought a condo in Ashburn in 2004. Not at the top of the market, but not at the bottom. With 0% down. Dumb, just dumb. Had to move in 2006 and made the choice to rent it out (Other option was foreclosure/deed in lieu/etc). Have been paying it down and would end up walking away from the table with very little at current prices and considering real estate agent fees. Well, nothing but a lesser debt load. This feels like locking in a loss in the stock market. Any opinion on that? Would you be willing to give your Top 3 reasons I should I sell this spring and Top 3 reasons I should not sell this spring? I feel like I'm not the only one in this boat (Though others may have stayed put, but are catching their breath from being underwater for so long as I am) Thanks for taking my question.
Well, as my friends know, I'm not really into lists (with due respect to Washingtonian Magazine). But the logic you share here is similar to many "involuntary landlords," who have been renting as a placeholder. And then there's also the psychological desire to "win back" the money you've dumped into the rental since 2006. There actually are psychological studies of home sellers and their struggles with letting go of the "sunk costs." My advice is either to sell now, because you can, or to commit to keeping it as a rental for a long time to come.
With interest rates projected to rise later this year, do you foresee an increase in sales this spring for those buyers trying to capitalize on the low interest rates?
It's obvious, I think, that the window on low interest rates is closing. There was the bump above 4% last spring, and the tremors last month, which fortunately have since stabilized. A lot of buyers are motivated to purchase and lock in today's rates before they rise further, but it's impossible to predict when that'll happen. At the same time, we're seeing marginally more inventory come on the market, as sellers are motivated (or just plain able) to sell due to the gradual recovery of housing prices.
I know your specialty is close to DC, but do you know how the outer MD suburbs doing? I know there aren't bidding wars in Anne Arundel, Calvert, St. Marys, etc., but are the markets relatively healthy or still slow because of the drawn out Maryland foreclosure process? Thanks.
I will have to punt this question to an AACO or Southern Maryland specialist but it's worth noting that the Maryland suburban counties are divided, for the purpose of Fannie/Freddie conforming loan limits, between the Washington and the Baltimore housing markets. Those counties associated, for statistical purposes, as part of Baltimore --- such as AACO or Howard --- have significantly lower conforming loan limits, even though their average housing prices may still be steep.
Is there such a thing any more as a "Bridge loan"? how are contingencies viewed in the current market (Gainesville area in VA)? what is the usual length that a contingency might be considered?
Bridge loan, such as they exist today, are most likely to be found through a small, locally-owned bank or a credit union. More generally, sellers with equity in their property may be able to orchestrate a home equity line of credit from their existing residence in order to apply towards the down payment or construction of a new residence. It can be complicated but it's worth exploring and asking around to see what options may exist in your particular case.
I previously owned in NYC, where the RE agents show properties and negotiate a price to reach a deal. Each party then hires a lawyer to negotiate the contract and take care of closing. I then bought in DC, where the RE agents handle everything. I was a little uncomfortable with that but was told by many people that that was the norm. Now I am looking to buy in VA. Is the procedure the same as DC? If yes, is there any reason not to hire a lawyer to review the documents?
My lawyer friends would be happy to review your purchase or sale documents, for a fee, but such legal representation is not required in DC-MD-VA. As I advise my clients, when a lawyer gets involved in a transaction, it's usually because something has gone wrong. But there's no downside, except cost, in retaining legal counsel.
I know the conventional wisdom is that in a 3 bedroom house, two bathrooms are better than one and a half. But I have a split level with the half bath in the lower level with the den and utility room, no bedroom, so would putting in a shower stall be a good decision? There's room for it but it seems like having someone shower down there only to go upstairs to one of the bedrooms to get dressed wouldn't really work. Maybe I should just accept that I have a small house that will appeal to a limited pool of buyers and only needs to appeal to one anyway, for the price of what it's worth.
Two full bathrooms always are better than one. Ideally, of course, two bathrooms located on the bedroom level. But that's often impossible in older homes, and the basement can be the most logical place. And it can offer great utility, as a second bathroom for family members to use or for guests. But specific to your home and neighborhood, you should reference what predominates among the other homes to make sure you're not overimproving your house. Future recoup is important.
HI we have an older house we bought about 1.5 years ago in Falls Church. It has a 350 sq ft sunroom original to the house off the kitchen. The room is not finished & has no heat or air conditioning. It needs about 30K to make it an all season room. How much will this improvement add to the resale cost of the house? Is it worth it to do? We will be selling in 6-9 years max when I retire.
That's a very nicely sized sunroom. Of course it's impossible to predict the real estate market 6-9 years from now, but I'd encourage you to finish the space and make it year round if you'd derive use and enjoyment from it now. And maybe consider going with a ductless, mini-split HVAC unit to conserve costs while adding heat and air conditioning.
When did it become acceptable to buy a house without requiring an inspection? Even if a purchaser was so unwise, why would a bank lend to such an unwise person?
There is no requirement by Fannie/Freddie, HUD, or the Veterans Administration, for the purchaser to conduct a home inspection in order to obtain mortgage financing. All conventional and government-insured loans require that the property meet certain minimal conditions (it needs to have a roof, a working kitchen and fireplace, working heat source, etc.) but this is not the same as a requirement for a home inspection. For what it's worth, the last two homes I purchased involved waiving the inspection because I planned to renovate after purchase. For those more risk-averse, you might consider doing a "general inspection" contingency that reserves the buyer's ability to cancel the contract without penalty if the inspection goes badly.
I just bought a house in Stafford and am now discovering major problems that should have been picked up in the home inspection. Counter to my instructions (inspector must be licensed & bonded/insured), my realtor, who also represented the seller, hired an unlicensed home inspector to inspect the house. He only identified cosmetic issues in his report. Do I have recourse against either of them or both?
Without knowing all the specifics of your situation, this sounds like every buyer's worst nightmare. The liability for most home inspectors is limited to the cost you paid for the inspection itself, but you should look at the contract you signed at the time of the inspection. DC-MD-VA have different regulatory practices as it concerns the licensure of home inspectors, but at a minimum you should ensure that your home inspector is a member of ASHI, which is the professional home inspector trade association. ASHI's website has some excellent information for home buyers, in terms of what to expect and look for in a home inspector.
Hi, Morgan. It is certainly a matter of personal preference, but what are your thoughts on size versus location when it comes to home value? Do you recommend someone going for the large house in the suburbs, or a smaller/historic home in Old Town, Georgetown or elsewhere in the District?
Such a subjective question, but I think home buyers --- especially those relocating to the Washington region --- often underestimate the importance of good location. Our traffic is chronic and only getting worse, and it erodes the lifestyle of living in far-flung places, no matter how large or posh your house may be. Also remember that during last decade's real estate bust, the locations and neighborhoods closer-in held their value much better (or, in the case of DC itself, the neighborhoods that already were substantially gentrified did).
One often hears kitchens and bathrooms sell homes. What are you finding buyers look for concerning counter top and floor materials? Are there any materials that should immediately be replaced before putting a home on the market? P.S. this is a great chat today.
Thanks for your kind words. Regarding kitchen and bathrooms, I find that today's buyers, at almost any price point, are more savvy and knowledgeable than any of us were back in the early 2000's, when I first began my career. I give HGTV and similar media the credit for better educating the public about interior finishes and design choices. And the rest of the credit (if that's the right word for it) probably can be ascribed to our costly real estate prices, which creates higher expectations on the part of buyers. The most important thing is to avoid the generic and sterile look; if it's "builder grade" it's going to be a turnoff for most buyers. Many of my clients have been inspired, in their renovation and design choices, by their travels and particularly by staying at nicer hotels.
Hi Morgan. I just went under contract on a home. During this process, I've been offered a new employment opportunity that would begin before I close. My current employment situation is awful and I really want to leave, but I also do not want to impact my financing prior to close. How do lenders tend to handle these types of situations? Would you recommend I try and push back the start date?
Oh my. This is something to sort out ASAP. If your new job is in the same profession or line of work as your current job, it may not create any problems for you, because it's seen as a lateral move. But if you're jumping from one industry to a completely different one, it could be a no-no. These days, most lenders will re-verify your current employment in the immediate days preceding your settlement date, so if you'd switched jobs in the interim, you could be in for a bad surprise. What about accelerating the closing date on the purchase and offering the seller a rent-back if necessary?
Earlier this week the high school rankings were released by the Washington Post. Do you see much impact in the real estate market based on these rankings in terms of people all of a sudden wanting to move to community XYZ? Also, how much can the elementary-middle-high school pyramid influence buyers and should sellers go above and beyond in highlighting the schools in their listings?
Schools are a huge but not controlling factor with real estate prices, and there's considerable variance in practice because, in some neighborhoods, it's almost a foregone conclusion that private or parochial education is going to be necessary and budgeted for. But if the property is located within a jurisdiction that has excellent schools, those homes located within the boundaries of the more esteemed schools will sell for a premium. Of course, nothing is foolproof --- note that many local jurisdictions, including Arlington, Fairfax County, and DC itself, are in the process of rezoning the schools to better balance the current population of students.
Are there options for financing a fixer-upper without having to have cash for the renovation? I'm aware of the FHA 203k program - but then I would either have to refinance or be stuck with PMI. Anything I'm not aware of?
There are no good options, unless you have access to private cash, such as intra-family lender (or social lending). Once the house is renovated, of course, you'd potentially be in a position to do a cash-out refinance, but you have to get there first. The FHA 203k program, and the conventional equivalent offered by lenders like Wells Fargo, is a costly and bureaucratic way to go, and just isn't commonly used in our region.
We have a 1930s small 1BR condo in a popular location (Cleveland Park, close to the Red line) that it has an outdated kitchen. Do you have any thoughts on whether to renovate the kitchen (and spend say $10K-$15K)? While we'd of course like to be able to recoup a good bit of money if we were to sell, we'd also like to enjoy it in the meantime. Thank you!
If you live in Cleveland Park, Connecticut Avenue is your kitchen! But, seriously, spending $10-15K on updating a kitchen for the new century is money well spent and is likely to be recouped at the time of sale. It's the $50K and $100K kitchens that give me pause, in terms of recoup.
We're going to be putting our house up in June or JUly, preparatory for a move across country. The bones are good- we've replaced the A/C, furnace, and the kitchen appliances- but the kitchen counters and cabinets and the bathroom is the same as when the house was built. We're not sure whether to replace that stuff, drawing down on our limited cash, or try to sell the house hoping that buyers will see past those things, to what they could do with it. If we are going to replace/upgrade we'd need to get back almost dollar for dollar what we put in it. Do you have general advice for people in situations like this?
This is an excellent question for real estate agents and also for home stagers who help you prepare your house for sale. If you have to prioritize, for budgetary and/or time reasons, what to renovate or update in advance of listing for sale, you should always begin with flooring (replacing or refinishing, as the case may be, dated flooring) and fresh paint, and then proceed to the kitchen and bathrooms, with the emphasis on the master bathroom, if you have one. There is a difference between updating and gut-renovating, and you should reference both your budget and also what the competing and comparable houses in your neighborhood have to offer, in this regard. There's a very good recoup when you make smart updates and renovations, and not such a good recoup when you make overimprovements or eccentric design choices.
I'm an Australian citizen looking to purchase an investment property in the US. What are your recommendations regarding obtaining a US bank account and mortgage given I don't have a credit history in the US (I own 2 houses in Aust and my Aust credit is perfect) and are there any particular tax laws relating to foreign nationals owning property that I should be wary of?
There are different rules, depending on your particular employment and visa situation, for foreign nationals being eligible for mortgage financing. For an investment property, in your case, I suspect it would be challenging but not impossible. One interesting fact: Among the hardest mortgages to secure are those for foreign nationals who have diplomatic immunity in the US.
I am closing on my first purchase next week. The property is in need of renovations and I got a decent price as a result. As I start doing work on it, are there any resources you'd recommend that have advice on what renovations are most worth the investment?
My advice is not to rush with the renovations. If you're moving in immediately, get to know the house, in terms of its spaces and sunlight and quirks. That'll help you renovate more sensibly once you're ready to begin. Also, continue to check out open houses and online tours of houses for sale. It's OK to imitate the design choices and finishes that you see elsewhere, and it's no risk to you at that point either.
I do wish people understood how that is a very common issue in DC. My own credit union would not refinance my condo due to high level of renters. However, I know that 95% of them are involuntary landlords due to new jobs, getting married, shipping overseas - it drives me nuts that this is a worse option than a high number of foreclosures. I was finally able to get my mortgage refinanced but had to do a lot of leg work myself despite having a credit score of 810 and no other debt beyond my mortgage and a condo in Old Town, Alexandria....
Yes, for better and for worse (because it's both) real estate is what economists call a "sticky" commodity because it's not always easy to sell. Although, for the same reason, the value of real estate rarely evaporates overnight, in the way that stock can become nearly worthless in a heartbeat. One thing that homeowners don't always realize is that lenders have gotten strict about the criteria for using an existing home's potential rental income as a basis for qualifying for a new purchase loan. Currently, it's necessary to either have substantial equity in the property or to have two years of prior demonstrated rental use.
Is it ever acceptable to over improve? Say you want to add a bed and bath to your house (4 bed/3 bath) but the houses in the area are 3 bed/2 bath. But you plan on living in your home for the forseeable future and adding the extra bed and bath with make staying more comfortable.
It's always acceptable to overimprove, as long as you know what you're getting yourself into. One of my clients, a remarkable person who works at a think tank, custom renovated her Eastern Market rowhouse to give the most space to a large library or study, and consequently downsized the master bedroom. That's a very customized thing to do, but it meets her lifestyle and taste. And when it's time to sell, we'll just have to market the home to other think tank scholars...
In the 90s, it seemed everyone was going with gas inserts instead of woodburning fireplaces. With carpets just about completely gone in favor of wood flooring, have you seen any similar trend with using or not using the chimney?
It's incredibly subjective, based on the buyer. I've had buyer clients who insist upon the house having a wood-burning fireplace, as well as those whose first question is whether a gas insert can be added in lieu of wood. Regardless, I always advise against electric fireplaces, which we sometimes encounter in condos. Bad kitsch.
Can you share some of the most unrealistic requests/demands you've heard from clients? I'm thinking of something like "we are looking for a 3 BR, 2 bath rowhouse in Georgetown for $150,000". Or maybe "We'd like a house with a barn where we can keep horses but it has to be in NW DC and out budget is $250,000". Any true ones you can share?
Oh there are so many "war stories," some that involve downright clinical insanity and more that involve expectations that don't align to reality. We really try to nuture our clients and help them through the stress and anxiety of buying or selling. It requires a lot of patience for everyone involved.
Long story short: We were relocated abroad and decided to rent our house. The first year everything went well, the second year new tenants move in and it's been a nightmare. They never pay on time and when they do so, never pay the full amount. We have talked to them respectfully, we have sent them letters and one of us travelled there to see what was happening. They were apologetic and wanted a second chance and we give it to them, but once again the pattern started. They breached the contract a while ago, so how do we proceed now? We want to sell our house but we want to get the money that they owe us, before they decide to leave the house without paying!
What an awful story. Depending on which jurisdication your property is located in, you may have greater (or lesser) legal recourse against the tenants. Regardless it sounds like you will need to vacate the house in order to sell it, and that probably should be your first objective. You can always pursue back rent and damages from the tenants later, through court.
Thanks to all for an excellent hour of questions covering the whole gamut of our local real estate market. Yes, all real estate is local (and success comes through persistence). I appreciate the Post hosting today's chat, and please feel free to continue this conversation by visiting my website at www.morganknull.com.