Looking for Low Inventory Solutions

When Meredith Margolis, a Realtor® with Compass in Chevy Chase, Md., signed on as a buyer’s agent for a couple with a budget ceiling of $600,000, she knew she needed to cast a wide net to help them move out of their condo and into a Northern Virginia single-family house.

“We looked at an untouched estate sale in Arlington that needs   lots of love but is a bit over their budget, with the idea of making a lower offer and fixing up the basement as a rental unit for awhile to make it more affordable,” says Margolis.

The couple looked in D.C. and other neighborhoods in Northern Virginia, but found themselves priced out of many communities where they would prefer to live.

Low inventory, a persistent plague on the housing market for the past few years, is anticipated to continue throughout 2018 and beyond.

“Inventory was down 15 percent at the beginning of 2018 compared to the beginning of 2017 in the D.C. region,” says Nela Richardson, chief economist with Redfin brokerage in D.C.

Several issues create a worsening inventory situation, including lagging new construction. Richardson says that 2017’s 1.2 million new units, below the historic average of 1.5 million units, should be 2 to 2.5 million units to appropriately meet the demand for houses across the nation.

“Zoning issues are slowing construction, especially in places with job growth,” says Richardson. “A lack of labor is also hurting builders, since a lot of people left the industry during the recession, and many left the country and are unlikely to return due to immigration issues.”

Realtors® and buyers need to be creative to overcome the obstacle of limited homes for sale.

FINDING PREMARKET OPPORTUNITIES

One way to manage competition is to identify potential properties before they are listed.

“I’m digging into expired listings for anything remotely possible for my buyers, and then I contact their former listing agent rather than the homeowners,” says Carol Temple, a Realtor® with Coldwell Banker Residential Brokerage in Arlington. “Sometimes the owners have brought in a short-term tenant or have taken the property off the market temporarily, so it’s good to know that from their former agent before contacting them. It’s also been a great way to make friends with other agents.”

Sometimes buyers find out about potential future listings when they ask people living in their preferred neighborhood if they know of anyone planning to move, says Bethany Ellis, a Realtor® with Long & Foster Real Estate in McLean.

“It’s important for buyers to work with a neighborhood expert, too, who will know about what’s coming on the market and know about the community,” says Ellis.

Agents often have contacts who thought about selling a year ago or so and then decided to wait, says Stephanie White, a Realtor® with Compass in Arlington.

“In some respects we’re going back to old-fashioned ways, reaching out to our network of other agents and clients and relying on word of mouth to learn about people who might be willing to sell,” says White. “I also have an organized database to use to ask people if they know someone planning to move in the future.”

Margolis says she relies on agents in her brokerage and communications within a network of top agents for premarket listing information.

“It’s important to be active in your market to know what’s coming,” says Margolis. “Even if your buyers can’t buy something before it comes on the market, they can at least see it before others and decide if they want to compete for it.”

Many Realtors® send letters to homeowners in a particular neighborhood or development on behalf of an interested buyer.

“I only send letters to owners when I can send a personal letter about a specific buyer,” says White. “I also reach out to agents who farm that neighborhood to see if they know someone who might be interested in selling.”

BUMPING UP THE BUDGET

While no one wants buyers to overspend or struggle to afford their home, budget discussions are a natural part of helping buyers find a property to buy.

“When buyers can’t find anything within their established price range, I actually set their parameters both lower and higher,” says Ellis. “I set the price range lower by about $50,000 to see if we can find something that could use some work. That way they have some room in their budget.

“I also look at properties above their budget by $25,000 or $50,000 or so to see what’s available,” she said “About 50 percent of the time this works, especially since interest rates are so low that the difference in the monthly payment isn’t that major.”

Almost all of Temple’s buyers increase their budgets to find something they want, she explained.

“They nudge themselves up a little when what they want isn’t available, either with some extra cash or additional financing,” says Temple.

Some buyers, particularly young first-time buyers, opt to buy a place with extra space and rent it out to bring in income, says Ellis.

“Rents are so high right now that this can be a good option for some people who are willing to rent out a room or an English basement,” says Ellis.

But buyers need to be aware of the potential restrictions on short-term and even long-term rentals depending on where they buy, as well as the responsibility of becoming a landlord.

Another option is to pool buyer resources.

“I’m seeing more generations coming together to buy homes, sometimes for affordability reasons and sometimes for the lifestyle,” says White. “That can be another way to increase their budget.”

ADJUST BUYER PRIORITIES

Very few buyers find the perfect house in their ideal neighborhood at the right price, so most individuals need to define – and sometimes redefine – their priorities.

In some cases, buyers need to look at what others don’t want.

“If you’re not prepared to get into a bidding war, then don’t even look at properties if they’ve been on the market for less than two weeks,” says Richardson.

Look for properties that are nice but mispriced, says Margolis, because sometimes that’s the only reason the house has been sitting on the market.

“For most of my buyers, location trumps everything,” says Temple. “Most buyers are prepared for competition in close-in neighborhoods, but sometimes they may change the idea of what they started looking for.”

Very few buyers find the perfect house in their ideal neighborhood at the right price, so most individuals need to define – and sometimes redefine – their priorities.

Temple says agents should find out why a particular feature is a priority for their buyers to help them find something that could work for them.

“I was working with buyers who really wanted a two-car garage, which is tough to find in their price range in Arlington,” says Temple. “It turns out they have antique cars, so this was more than just a wish for extra space. I found them a split-level in Falls Church that they ended up buying even though they had said they didn’t really like split- level houses, because this one had a two-car garage and a carport.”

White says a few buyers, particularly those who work from home, are willing to move farther from the city. However, most of her buyers will give up a garage rather than move to a more distant location. Also, the desire to live within a preferred school district is a non-negotiable requirement for some house hunters.

The pool of possible homes is larger for buyers willing to overlook a few flaws.

Buyers, in the age of HGTV’s influence on people’s expectations, often want a home in perfect condition, says Ellis.

“Some buyers don’t have the vision to see what a house could be with just a little work,” says Ellis. “If they do, I recommend bringing in my contractors on a second visit before they make an offer or during a home inspection, so they can get a quick estimate of what it would take to fix up the property. That’s a good option, but some people don’t have the time or the money for a fixer-upper.”

Teardowns are sometimes mentioned as an option for buyers who can’t find the right property, but competition from developers makes those properties unattainable for most buyers.

“With teardowns, you need time as well as money,” says Margolis.

BUMPS IN THE ROAD?

Mortgage rates are anticipated to rise to 4.5 percent or possibly 5 percent by the end of the year, and the revised tax code has implications for the housing market. Yet those two factors are not expected to make much of a difference in inventory levels.

“Northern Virginia will look a little better than Maryland to buyers who are comparing the costs of living in Bethesda or Arlington, because Maryland has higher taxes than Virginia,” says Richardson. “That may sway a few people towards Northern Virginia, but most buyers already have their minds made up as to whether they are Maryland people or Virginia people.”

Since interest rates are still low, Realtors® don’t anticipate much drop in demand during the coming year. Continued high demand and low supply means Realtors® will need to work hard on behalf of their buyers and assist them in developing strategies to find appropriate properties and then present a winning offer.