A house in Chevy Chase, Md., sold for $1 million above its asking price last month.
Bidding wars have been occurring and homes routinely have been selling above their list price in the lower half of the D.C.-area housing market. A house on Reno Road in Northwest Washington that listed for just under $1 million received 32 offers and sold for $1,336,000 on May 7.
But lately, this activity is creeping into the upper brackets as frenzied buyers are competing against one another to drive up prices.
“We are now seeing the comparable sales in certain neighborhoods are becoming irrelevant,” Thomas Anderson, co-founder and president of Washington Fine Properties, wrote in an email. “Ultimately, a home IS worth what someone is willing to pay for it, and right now, in certain hot neighborhoods with a scarcity of homes, that price is often significantly over asking price. [Year-to-date], just within our firm, 44.2 percent of our sales sold for over the listing price. It’s a great time to be a seller and more challenging to be a buyer, although there are opportunities for buyers in this market as well.”
While low mortgage rates and a desire — compounded by the pandemic — to upgrade one’s living arrangements are contributing to the housing hysteria, the main reason for the escalating prices is a severe shortage of homes for sale. As Daryl Judy, a real estate agent with Washington Fine Properties, wrote in a letter to his clients, “We simply don’t have enough homes for people to live. This is not going to change in The Capital Region. We don’t have land on which we can build, and we have height restrictions as well as city and county restrictions on building. The demand for houses is real, which is pushing prices for good homes in ranges we’ve never seen before.”
Listings dropped 20 percent year-over-year nationally in April, with just 1.16 million homes for sale, according to the National Association of Realtors. In the D.C. region, only 5,406 homes were on the market in April, down more than 13 percent from a year ago, according to Bright MLS, the area’s multiple listing service. The number of homes for sale in April was less than half the peak of 11,113 in April 2016. Even as vaccines become more widespread, some sellers remain reluctant to put their homes up for sale. Some don’t want strangers going through their homes. Others fear not being able to find another home to buy.
Decreased supply is leading to increased competition, which is pushing up prices. The national Case-Shiller home price index rose 13.2 percent annually in March, the largest year-over-year price increase since December 2005 and one of the largest increases in the index’s 30-year history. It marked the 10th month in a row of accelerating home prices. The median sale price in the D.C. area soared to $550,000 in April, up 8.5 percent from April 2020, according to Bright MLS.
Setting a price for the Chevy Chase house was a bit tricky for Kathleen Nealon O’Donovan of Washington Fine Properties who co-listed the house with Nancy Taylor Bubes. Typically, a real estate agent looks at comparable houses in the neighborhood that have recently sold and sets the price based on those sales. However, Chevy Chase Village doesn’t have many sales and those that sold recently were not as extensively renovated as this one had been. The house had been completely refurbished by architect Dale Overmyer and builder Peterson & Collins in 2018.
“Having grown up in Chevy Chase Village myself, I know these special homes do not come around often,” O’Donovan said. “So when they do, they go quickly.”
O’Donovan decided to price the house slightly below what she thought it would sell for in a hot market. Her sellers agreed with her pricing strategy. It helped that she had sold a house for them in the past.
“Maybe we’ll get multiples,” she told them. “I’m hoping we can but no promises. You don’t want to get too greedy.”
Once the house went on the market, O’Donovan was pleased by the response.
“There was a ton of interest and my phone was ringing off the hook all weekend from interested agents and their buyers so we decided to set a Monday deadline in order to give everyone the chance to do a pre-inspection if they wanted,” she said.
Judy’s clients were one of the six who lost out on the house. They initially wanted to offer $3.85 million for the house but he convinced them to offer $4.1 million. That still wasn’t enough.
“I think they were shocked, in terms of ‘I can’t believe this is where the market is,’ ” he said. “But I don’t think they were surprised because you could see by the competition.”
Nevertheless, his clients learned a lesson. The next house they found they beat six other offers for it.
O’Donovan has been on the other side as well. She has clients who lost out on the house on Reno Road.
“The market has been on fire the last few months,” she said. “There are multiple offers on homes in all different price ranges. It’s great to be a listing agent these days, but hard to be [a buyers’ agent]. … It is tough for buyers out there. You have to be prepared to come in clean with no contingencies and willing to escalate very high.”
Some buyers are willing to go to extreme lengths to entice sellers to accept their offer. Redfin CEO Glen Kelman tweeted out last week that “a Bethesda, Maryland home buyer working with @Redfin included in her written offer a pledge to name her firstborn child after the seller. She lost.”
Sellers who are thinking about taking advantage of rising home prices should keep in mind that not every house is generating multiple offers. Some houses have been sitting on the market for a while.
“This is one of the things that’s really difficult now in terms of the media and in terms of the public is that we have to look at every market, every micro-market, specifically,” Judy said. “Because the problem is, we have other [houses] that maybe don’t have that activity, that aren’t selling immediately.”
Pricing a house correctly can be the difference between it selling quickly or lingering on the market.
“Here’s the thing that I know is true today: You can’t underprice a house in D.C., Maryland or Virginia,” Judy said. “You can overprice a house. I’ve never seen more clear capitalism — it’s economics. It’s supply and demand — as the housing market. Because it’s completely supply and demand.
“You put something at a price that’s reasonable, that is priced where it should be or maybe a smidge below, the market will take it where the market sees it to be. You price it too high it will just sit.”