Djana Morris, an agent with Keller Williams Capital Properties and a real estate investor, writes an occasional column about conditions in the Washington-area real estate market. This is the first of two parts.
I met my clients at a Sunday open house on the edge of Capitol Hill a few weeks ago. It was a beautifully renovated home, but was not in one of the coveted areas near Eastern Market or H Street NE.
The property had been on the market for five days. I arrived a bit early and in 30 minutes counted more than 35 groups of visitors. It was a mad house. Potential buyers huddled with their real estate agents out front and across the street, and I overheard several discussions of pre-offer home inspections and escalation clauses. By that evening, the deadline for offers had been set for Tuesday — two days later. I can only imagine the frenzy that created.
Although they liked the property, my clients decided to avoid the fray. My guess was that the final price would go well over asking with very few, if any, contingencies. Three weeks later, the home settled at a price more than 10 percent above the list price.
This story will be very familiar to anyone who is currently in the market for a home in D.C. or a popular close-in suburb. The current inventory of available homes is extremely low. Following is a list (updated late last week) of the current number of listed houses and condos in a variety of D.C. neighborhoods, as well as the percentage of total properties in those areas that have been on the market for more than 30 days.
|DC Neighborhood||Single family homes||Condos||Total||% on market for over 30 days|
|16th Street Heights||9||4||13||62%|
|Old City #1||30||15||45||47%|
|Old City #2||11||35||46||57%|
As you can see, the number of properties on the market in each neighborhood is very limited. To put things in perspective, Palisades has five properties on the market from among the 1,774 homes in the neighborhood. Trinidad has 14 homes on the market from among the 3,571 homes in the neighborhood. There is simply not enough homes available to accommodate all of the willing and able buyers currently searching for homes in the area.
But the high percentage of “stale listings” — properties that have been on the market for more than 30 days — is magnifying the effects of the already low inventory levels. Imagine going out every Sunday to open houses and searching the Internet daily only to see the same properties advertised week after week. That is the reality for most buyers in our market. But why do so many homes remain unsold in an environment of high demand and low supply? I believe sellers have misinterpreted the signals buyers are sending, leading to two distinct sets of co-existing real estate inventory.
Homes in Group A are nicely renovated or in good condition, and are priced at market value or slightly below; or they are fixer-uppers priced to compensate for their condition. These properties typically go under contract within two to 30 days of their listing date. Group B homes are priced higher than their market value for their condition or neighborhood and typically sell only after several price reductions and months on the market.
There is no doubt that the Washington market is strong and prices are rising, but it still is fundamentally different from the overheated markets of the past. Today’s house hunters are eager to buy, but they are also very savvy consumers and appear to have learned from the mistakes of the recent past. They research the market online before beginning their search, visit open houses, and have a sense of what properties are worth. They are not desperate. They view real estate as an investment as well as a home, and they are not willing to pay more than they believe the property is worth.
Unfortunately, many D.C. home sellers do not seem to have gotten this message. I’ve heard many sellers of overpriced homes say that eventually the right buyer, who is willing to pay their price, will come along. The truth is pricing your home hoping that one uneducated buyer will overpay is not a sound sales strategy. If a home doesn’t measure up to comparable homes in terms of location, condition and price, it will not sell. Sellers who want to entice buyers to make offers on their property will need more than the current scarcity of homes to be successful.
So, how do we get beyond the current stalemate between interested but value-conscience buyers, and home sellers who are resistant to lowering the prices of their homes, even with the lack of positive market response to their current pricing?
The solution involves educating sellers about the realities of this market and also showing those homeowners considering selling that this is an ideal time to do so, thereby increasing inventory.
Coming tomorrow: A roadmap for sellers to maximize their return while creating a win-win situation with buyers.
Djana Morris can be reached at www.WhereToLiveInDC.com.