If you’re a home seller in the Washington area, you probably feel like you have it made. Real estate agents are regularly seeing bidding wars, and prices have soared over the past several years. The simple fact of the matter is there aren’t enough homes for sale.
How bad is it? In the broader DMV, the number of homes for sale is down 18.9 percent compared to this time last year, with homes going under contract 18 days faster. And, yes, prices are up — 7.2 percent compared to last year — while Redfin real estate agents are seeing bidding wars on 57 percent of properties we’ve helped our clients make offers on.
How do you price in a market like this?
If you’re in a particularly hot neighborhood, it can make sense to price your home lower than market price, have several open houses over the course of a weekend, and then have an offer deadline early the next week.
This is a relatively common tactic that draws droves of interested buyers who are willing to bid against each other using escalation clauses to make their highest and best offers. There are often reduced or eliminated contingencies in these offers, meaning that as a seller you’ll not only maximize your price, but you’ll also likely get to dictate closing terms.
However, for this strategy to really pay off, you need to be in a red-hot area, where you can reasonably expect 10 or more offers within days of listing. Even in the greater DMV, that’s not everywhere.
Another successful strategy is to do your research and price at fair market value. This is the most common strategy we see, and it’s one that often still results in multiple offers. It also has the benefit of telegraphing exactly what you think the home is worth and how much you’re expecting. And if you do get multiple offers, you’ll likely still get favorable terms for closing.
The last strategy is intentionally pricing above market value. This is not something I commonly advise, since the home could be on the market for an extended period of time and may develop a stigma as a result. Also remember that there’s no redo if you decide to drop the price — when a home first lists is when it gets the most interest, as this chart shows.
In my experience, if you’re listing over market value, you need to have a plan in place for what you’ll do if there isn’t foot traffic or interest in the home, and you need to be comfortable with a possible price drop. That said, this strategy does occasionally win a high price, and for people who aren’t pressed to sell, or who are testing the market this strategy may make sense.
Some say a home in this market will sell itself. That’s true, but only if it’s priced strategically, staged well, photographed professionally and marketed properly. That’s why it’s important to pick the right real estate agent. Here’s what to ask when interviewing candidates:
• How many sales have you closed in this jurisdiction in the last 12 months?
• What is your average days on market, sales-to-list ratio and number of price drops per listing?
• What is your marketing plan to maximize exposure to people searching for properties like mine?
• Can you explain your breakdown of commission and what services (professional photographer, 3-D scan, staging) you provide?
• How would you handle an unrepresented buyer? Would you try to represent them as well as me? What is your stance on dual agency? (If legal in your jurisdiction.)
If the agent has detailed, strong answers to all the questions that show that he or she is not just concerned about winning your business, but also about helping you make the best decision for your needs, you may have found your real estate agent.
If you’re like most sellers, you’ll also have to buy in this market.
Therein lies the rub. There are several ways people manage it. And this is where working with an agent (or brokerage) that’s experienced will be doubly important.
If you need the equity from your sale to make a competitive offer, one common practice is finding temporary lodging after you sell, whether that means moving in with a relative or friend, or taking a month-to-month lease. The main advantage is you won’t have to put a home-sale contingency in your offers, but you’ll have to move twice in quick succession, and nerves can fray in a temporary situation, particularly if you’re moving in with someone.
One alternative is to negotiate a lease-back when you sell, which is where you rent your own home back from the buyer for a specified amount of time. You won’t have to move twice, and you’ll have the equity you need to make strong offers. In normal markets a buyer would likely not agree to this scenario — but in this market, you may have the leverage to make it work.
If you want to buy your new home first, you could take out a bridge loan, a short-term loan that lets you cover that gap between buying your new home and selling your old home. That way, you won’t have to write a home-sale contingency into your offers, making them far more competitive. Another way to buy before you sell is carrying two mortgages for a time. It requires a lot of capital, but also gives you maximum flexibility.
Lastly, you can plan to buy your new home using money you expect to get from the future sale of your current home. But be warned: In such a competitive market, most sellers will prefer to work with buyers who don’t have a home-sale contingency. As a result, you’ll need to be flexible and accommodating. The seller will ask for the price you’ll list your home and when you’ll be on the market. Your home should be ready to list even when you just start your search, just in case, and you’ll need to be a little conservative about the price, to assure it will sell quickly.
Between finding a solid agent to advocate on your behalf, making sure you’re pricing right, and navigating selling and buying, the real estate space in the DMV is still challenging, even for sellers. That’s why it pays to come to the market prepared, rather than just assume that selling your home will be a snap.
Marshall Park is a real estate broker at Redfin in Virginia who writes an occasional column on the local real estate market.