Like many desperate house hunters in popular District neighborhoods, Robert Epstein and his wife Melanie Bixby experienced their share of disappointment when several properties that seemed ideal to them were snatched up by someone else in bidding wars.
During the past year, would-be buyers eager to take advantage of nearly record low interest rates have flooded the local real estate market. But the growing demand, coupled with historically low inventories, has pushed the price of the few houses that are on the market out of their reach.
Epstein and Bixby, nevertheless, managed to purchase a house in Cleveland Park by asking their real estate agent, Marjorie Dick Stuart, to try another strategy: wooing people whose homes they like but that aren’t for sale.
“The only reason we were able to get this place is that Marjorie found it for us before it went on the market,” Epstein says. “If we had waited, then there would have been multiple bids.”
Inventories in the Washington area are even tighter than they were a year ago. As a result, real estate agents say, they are stepping up efforts to find pre-sellers — people who are on the verge of listing and people who perhaps hadn’t considered listing but might be persuaded to do so with the right offer.
According to RealEstate Business Intelligence (RBI), a Rockville-based real estate data firm owned by MRIS, active listings in the Washington metropolitan area declined about 40 percent from January 2012 to January 2013.
In January 2013, 6,049 homes were listed for sale in the region, down from 10,095 a year before. Many of the houses that hit the market were snapped up quickly, another indicator of low inventory. From January to January, the average number of days on the market dropped by about 27 percent — to 63 days from 86 days.
The number of new listings in January dropped 4 percent, to 4,004, the lowest for that month in 16 years.
Soaring demand this year is expected to exacerbate the problem, according to Lisa A. Sturtevant, deputy director of the Center for Regional Analysis at George Mason University. The center projects that 42,000 new jobs will be created in the region this year, up from 36,000 last year.
Many of the new jobs, Sturtevant said, will be filled by people moving into the area who need homes.
Another reason for the lack of homes for sale is too many homeowners owe more than their property is worth. “Those homeowners can’t generate enough profit, especially after they pay the transaction costs of selling, for them to make a down payment on another property,” says John L. Heithaus, chief marketing officer of MRIS. “The only thing that will help these homeowners is for prices to rise faster.”
The challenge for desperate buyers is to identify potential sellers who have stayed on the sidelines.
To find them, real estate agents scour public records and online discussion boards, knock on doors and send letters on behalf of their clients to homeowners to see if they might be thinking of selling.
Gerry Dunn, an associate broker with Real Living/At Home in D.C., says this process is easiest in a condo building, where he can quickly identify all the two-bedroom units of a particular size and send a postcard to those owners describing his client’s interest in buying.
“I can target the unit owners that live there, but I also research tax records to find out-of-state owners who may be willing to sell,” Dunn says.
Dunn also helps home buyers interested in getting their children into the Chinese immersion program in Montgomery County’s Potomac Elementary School district. In Potomac, he narrows his outreach to homes by price range as well as school boundaries.
“The letter to owners has to be carefully crafted to emphasize confidentiality for the homeowners and must be written diplomatically yet with something specific about the buyers,” says Dunn. “You need to make sure the owners understand that you aren’t sending out a blind solicitation for a listing.”
While Dunn only sends out letters on behalf of a buyer, those letters can also generate future listings for him. Ricci Tan, a homeowner in the Potomac Elementary School district, received one of Dunn’s letters a year ago when she wasn’t ready to sell, but she recently got in touch with him now that she and her husband are considering listing their property.
“When I send a letter to homeowners, I am very careful to put in the caveat that ‘this isn’t a solicitation of services’ and that we really have a buyer we’re working with, because a lot of homeowners assume you’re just fishing for clients,” says Kay McGrath King, a real estate agent with Washington Fine Properties in D.C. “I also add that if they are working with an agent or brokerage that they can have their agent contact me. There’s just such a dearth of inventory that you have to try every means to find a place for your buyers.”
From a homeowner’s point of view, being contacted at a real estate agent’s initiative can make selling an attractive option. Some may discover they have more equity than they realized or that a potential sales price is higher than they think.
“I hadn’t been thinking about selling when I got a postcard from Marjorie Dick Stuart, but I called her because I was kind of a reluctant landlord,” says Frank Finamore, a condo seller in Woodley Park. “It worked out great because I didn’t have to worry about showing the property with a tenant in it or waiting until the tenants left. I contacted a real estate attorney just to make sure I was doing everything correctly and paid my former Realtor a small consulting fee to check out the contract.”
Finamore says he was able to negotiate the commission with Stuart and was satisfied that he received the highest possible price because he had recently had the condo appraised for a refinancing. While some sellers feel they will get a higher price on the open market, they may be able to keep more of their profit if they can pay a lower sales commission and if they can avoid extensive repairs before putting their home on the market.
Real estate agents must clearly state to the homeowners whom they are representing in a sale. Dunn has homeowners complete a form that allows him a one-time showing of the property to his buyers even though the property isn’t on the market, and he has the owners sign a form that states that if a sale occurs, the sellers will pay a specific percentage of the sales price for his commission.
“The vast majority of the time, both the sellers and the buyers have their own Realtor to represent them,” King says.
Some homeowners opt to complete the transaction without their own agent, Stuart says.
Laura Fall, principal broker of Fall Properties in Falls Church, writes letters to homeowners on behalf of clients once or twice a year, especially when the market is tight, but she also suggests checking for-sale-by-owner Web sites.
“Another angle is to try to find out if sellers are posting their properties on listservs, knowing that there is a good chance they could sell their home without going fully on the market with a Realtor,” Fall says. “Last year, I had clients who were lined up to list their home with me, but they found a buyer by posting their home online.”
Another option that agents use is to reach out to other agents who frequently list homes in a particular neighborhood.
“I recently did a blast e-mail to about 300 agents on Capitol Hill to try and smoke out any upcoming inventory in their pipelines on behalf of buyer clients who sold their house and have nowhere to buy,” says Morgan Knull, an associate broker with Re/Max Gateway. “I got a couple of leads, but — here’s the kicker — mostly e-mails back from agents asking me if I had any upcoming inventory in various neighborhoods.”
In that case, the few leads generated by Knull’s e-mail were not a suitable match for the buyers, but sometimes networking among agents can generate a match.
“I recently sold a home through agent networking before the first open house,” Stuart says. “We were listing the house at $1,195,000 — it sold for $1,285,000. An agent brought in a buyer who wanted to ‘stop the clock’ on the listing. In order to do that, the buyer had to come in with a big offer without contingencies.”
Buyers who are frustrated by the lack of available properties and by heated competition with other buyers should discuss the option of actively seeking sellers with an agent.
“You really have to be specific about your price range and where you want to live,” Epstein says. “If you want to buy in a sought-after area, it makes an enormous difference to have a Realtor digging around for you and talking to owners before they list their property.”
King says buyers must have a strong pre-approval from a lender as well as a comfort zone with their prospective monthly payments before looking for property. She recommends that buyers have a financial information sheet to share with sellers that includes information about their loan approval, employment, income and assets and that they know what they want to buy and where. In addition, buyers must have funds available for an earnest-money deposit and down payment.
“If the buyers and their Realtor have a strong sense of the neighborhood values, it gives them a decisiveness to move fast,” says King.
Real estate agents always recommend a home inspection even if a buyer is negotiating with a homeowner whose house is not on the market.
“You need to have a full home inspection to check out the roof and the home’s systems to avoid a disastrous situation, but you should make it clear to the homeowners that you don’t intend to be aggressive and ask to have every little thing fixed,” Dunn says.
As Dunn adds, “Extraordinary times in the real estate market need extraordinary means in order for buyers to be successful.”
Michele Lerner is a freelance writer.