Sarah Jarvis Team at One South Realty

at One South Realty

Rick Jarvis

The Best Time to Build a House –– EVER!

By

The world is weird right now –– no one will argue that.

The world is also quite uncertain now, too –– and I don’t think you will get an argument there, either. 

But that said, there has never been a better time to build a house –– and I will gladly engage in an argument as to why that is true.

Disclaimer

Now, when I say it is a great time to build, I am talking about the market, and not necessarily about the individual. 

If you are on an uncertain financial footing, then, no, it might not be a great time to build. Those whose industries are in the midst of a major reset or have exposure to a resurgence of COVID, then any long(er) term plans should probably be put on hold and liquid assets hoarded.

But for those whose financial positions are solid, there has not been a better opportunity to build a home in the last 50 years, if not longer.

Inventory 

Let’s begin with housing inventory.

Simply put, inventory was at record lows headed into COVID –– and COVID only exacerbated the problem.  

In the latter part of February and early March, inventory locally (and nationally) hit all-time lows. To give you a sense of the level of low, look at the chart below. 

The chart below shows inventory by MONTH

The chart below shows inventory by UNIT COUNT

Some submarkets had roughly 1 month of inventory, with most still operating with as little as 3. (For context, a market is considered balanced when it has 6 to 8 months of inventory.)

Each year that we have distanced ourselves from 2008, inventory has become increasingly more rare –– and 2020 was shaping up to be even lower than a record-low 2019.

Now, instead of the normal increase in resale inventory that typically appears for the spring market, COVID caused many homeowners to wait and NOT bring their properties to market.

NOT HELPFUL, COVID!

The traditional ‘March to May’ bump in available homes never materialized this year, and thus, the market has even fewer choices than last year’s ridiculous record low.

Perhaps the decision to sell will come later, but for now, the houses that we need to satisfy even a somewhat tempered spring demand are simply not there. 

The spring of 2021 will be absolute insanity.

Production and Housing Starts

So pretend for a moment you are a banker –– what is the first thing you do when the economy goes sideways? 

You stop lending, of course.

Credit contraction is the first reaction to economic upheaval and the one thing that the Fed and Treasury need to combat in order to minimize the impact of any financial crisis. 

So if you are a bank, are you going to encourage new home construction when you really have no idea how COVID will play out? Of course not. 

And therein lies the rub …

The homes that are currently under construction are almost all a result of contracts written last fall and this spring prior to COVID. 

In our market, roughly 50% of the homes built in any given year are ‘speculatively’ built (in other words, the home is started without a contract in hand in ‘speculation‘ that a buyer will emerge prior to completion.)

Housing starts had just started to recover to historically normal levels (see the chart above) in an attempt to make up for the decade long deficit in new home production –– oh well, so much for building the number of homes we need to.

So just to make sure you realize –– the market for new homes had been undersupplied for close to a decade AND the normal number of new homes that would have been speculatively built to try to handle the demand are not going to be started!

Uh-oh.

The lack of speculative building will manifest itself in the spring of 2021 and will mean a greatly reduced pool of new homes to choose from. With inventory levels already stressed, the lack of new homes will make homeownership even more challenging.

Preference Shift

One of the more interesting patterns to emerge from COVID is the population exodus from the large east coast metropolitan areas to smaller cities and/or suburbia.

Click the image to read the article.

COVID punishes density and places like NYC are already seeing a population electing to flee vertical properties, public transportation, and high cost of living for some grass, the (perceived) safety of their own car, and overall affordability.

Besides the safety aspect, Zoom and other virtual meeting platforms have proven that expensive office space and cumbersome travel is not as necessary as we thought to connect with clients.

Furthermore, the leading wave of the Millennial home-buying generation was already poised to begin the transition out of the cramped 1 bedroom apartment anyway –– COVID is simply accelerating the emergence of the trend.

This demographic shift will not be felt as acutely as some of the others discussed here, but over the longer haul, it will impact the need for more new construction and alter the distribution of population along the eastern seaboard.

Material Costs

So guess what COVID did to global demand? It basically killed it.

As much damage as COVID has done to the US economy, it pales in comparison to what happened (and is still happening) in China, Russia, much of Europe, and the Middle East.

Click the image to read the article.

In the latter part of 2019, much of the world was already arguably in a recession, and the onset of COVID has devastated what was already a weak global economy.

We’ve all heard about COVID’s impact on oil markets (literally negative pricing), but the cost of the other commodities has also plummeted. Metal (steel, iron, aluminum, copper), wood products, and other essential commodities are all down sharply due to lack of demand and will likely stay down as global demand abates.

So the good news here is that the cost of building a house has actually come DOWN for the first time in decades –– and that spells opportunity for those in position to take advantage of it.

Fear

Just so you realize, the largest one month drop in the Builder Confidence Index happened in April. 

Housing Market Index

BCI is now on par with the years immediately following both the Financial Crisis of 2008 and the 1987 Crash.

New construction sales have slowed precipitously, and the majority of the work in residential construction is the work that was contracted during the 2019 fall and early 2020 spring. 

So while I don’t think I would call builders desperate, I would call many of them concerned, and the opportunity to secure a good price is far greater now than it was even a few months ago. 

As Warren Buffet is so fond of saying, ‘When others are cautious, be bold.’

Interest Rates

And of course, there is the interest rate.

Whenever financial interruptions occur, the first thing the Federal Reserve and/or Treasury do is to relax monetary policy. In other words –– they make borrowing money cheaper.

Why? Because cheap money (typically) encourages economic activity. 

In the same way that the cost of oil is in everything, so is the cost of money –– and when borrowing is cheap, it makes a lot of sense to borrow for long term purchases. 

If you are going to borrow money, now is a phenomenal time to do so.

No Bidding Wars

So the cute little renovated bungalow you have been waiting for just showed up in MLS and showings start Sunday. You ping your agent and several texts later you are set to see the property at noon on the first day.

Buying today can feel like an auction

When you show up, you find out that you are one of 20 showings that day and the seller already has 3 offers in hand (2 are over the asking price,) and they are expecting another 5 more.

Ugggg.

Just so you realize, the scenario I just described is not as uncommon as you would think –– it is due simply to the lack of inventory.

So in order to be the winning offer, a purchaser will need to waive the inspection contingency, the appraisal contingency, and put down as much cash down as possible. And did I mention that you will probably also have to offer more than the asking price?

For many, that is next to impossible.

Now, imagine a scenario where you get a new home, with a full set of warranties, no waiver of inspection or appraisal contingencies, and you are the only offer.

I fully recognize that new homes tend to be built in new communities and the appeal of the 1950s renovated bungalow in a mature walkable neighborhood is powerful. But winning a competitive offer scenario is beyond many people’s means.

So if you are not in a position to win a competitive bid, then building a home can make a lot of sense.

Summary

Yes, I get it. It is hard to look at the condition of the world and think, ‘Hey! I have an idea –– let’s build a house!’

That said, the US economy is far less tied to the world’s economy than most realize, and thus, pay more attention to what is happening within our borders than outside of them. The news abroad is ugly for sure, but the US tends to be the exporters of recessions, not an importer of them.

There is still a reset that needs to occur for sure –– hospitality, travel, office space –– they all need to figure out what the new normal is. That will take some time for sure and cause some pain, but it will get worked out.

Other economic impacts aside, when you step back and take a long view, you will realize that the housing market was already massively undersupplied –– and COVID actually worsened the problem, not helped it.

So to repeat:

  • Resale inventory is at an all-time low
  • New home speculative building has largely ceased
  • A demographic shift away from the crowded northeastern urban markets is already underway
  • The cost of materials is at or near 20-year lows
  • Builders are a bit fearful and likely to be aggressive to win deals
  • Mortgage rates are stupid low
  • No bidding wars

I simply cannot imagine a better time to build a house. 

What if Warren Buffett was a Realtor?

By

Seriously, what if?

For anyone who studies investing, Warren Buffet is a household name. 

Buffett’s investment company, Berkshire Hathaway, is considered one of the most respected in the entire world. A single share of the company is worth in excess of $300,000, and Berkshire’s investors tend to hold their shares for decades, if not for life.

Warren Buffet Quote | Jahangeer Ansari | Flickr

According to most studies, Buffett is America’s 3rd wealthiest individual –– ahead of even Facebook’s Mark Zuckerberg. Buffett built his wealth not on a single company like Jeff Bezos (Amazon), Bill Gates (Microsoft) or even Zuckerberg, he built his wealth by investing in other’s companies. 

In other words, he is a pretty good judge of investing.

Buffett: Your Realtor

So imagine if you went to the local real estate office, asked if an agent was available, and up walked a genteel looking elderly man (gold jacket, name tag, business cards with gold embossing, of course!) and introduced himself as Mr. Buffett.

فائل:Warren Buffett Signature.svg - آزاد دائرۃ المعارف، ویکیپیڈیا

What do you think he would have to say about the housing market right now?

Buffett Quotes

Well, it is actually easy to imagine what he might say, considering he is one of the most quoted investors of all time.

When you read some of his most frequent sayings, you begin to notice several themes:

  • Invest in quality
  • Invest for the long haul
  • Invest more heavily in down (or fearful) markets

And man do they ring true right now!

My Favorite Quotes

When you look at what Buffett is saying, he is not just talking about stocks, he is talking about a philosophy that applies to all investments –– including housing.

So (you can tell already where this is heading) here are some of my favorite Buffett quotes –– especially the ones that capture the current state of the world and (of course) housing.

“If you aren’t willing to own a stock (house) for ten years, don’t even think about owning it for ten minutes.”

Meaning –– ‘think long-term.’

Too often, we get wrapped up in trying to time the housing market –– don’t.

The only time where true price declines occurred was in the wake of 2008 –– due to a complete abandonment of underwriting standards. But over the following decade, once underwriting normalized, the market recovered and by 2016, most segments were back to where they were before the crisis.

Are we due for a small adjustment due to Coronavirus? Perhaps, but the fundamentals of housing were strong before CV showed up –– and that has not changed. 

“Buy into a company (house) because you want to own it, not because you want the stock (price) to go up.”

Man, that one is sooooooo true.

Housing provides so much more than just a return:

  • It provides shelter, stability, and peace of mind
  • It allows access to education
  • It creates a network of friends and peers
  • It becomes a source of memories
  • It grants an expression of self
  • It offers control of your own destiny

Somewhere along the line, we stopped treating housing as, well, ‘housing,’ and started treating our homes as if they were 1,000 shares of IBM or Apple.

Simply put –– treating housing speculatively is not the correct strategy.

“Our favorite holding period is forever” and “Someone’s sitting in the shade today because someone planted a tree a long time ago”

Both are pretty self-explanatory –– another way to say think ‘long-term.’

‘The light can at any time go from green to red without pausing at yellow’

Corona, anyone?

Markets shift –– they always have and always will –– and they are under no obligation to give you fair warning.

Warren Buffett Rich Money - Free image on Pixabay

I think the lesson in this one is that quality decisions are far more immune to rapid shifts than decisions made due to market momentum. 

“Price is what you pay. Value is what you get” and “It’s far better to buy a wonderful company (house) at a fair price than a fair company (house) at a wonderful price.”

Yep.

Again, focus on quality.

“Risk comes from not knowing what you’re doing.”

I love that one, too.

  • Just because you can cook, it doesn’t mean you should open a restaurant
  • Just because you love IPAs, you shouldn’t open a brewery
  • Just because you won your fantasy football league, you shouldn’t buy an NFL team

Too many buyers feel that real estate pros are unnecessary because access to Zillow, Quicken, and HGTV programming are satisfactory replacements –– it is unfortunate. Having access to information is one thing –– understanding it is quite another.

Times like these are when a pro’s advice matters most.

And continuing the theme … 

“It’s only when the tide goes out that you discover who’s been swimming naked.

Brilliant.

So many agents, lenders, builders, and flippers –– as well as buyers and sellers –– entered the market AFTER 2008, and have never lived through a market that is changing direction.

When markets rise, especially over prolonged periods, mistakes are hidden by appreciation. In up markets, leverage matters far less than reserves, bad operators can make good livings, and being active is mistaken for being strategic.

But when the direction changes –– especially when it changes abruptly as it just has –– every weakness, regardless of how small, becomes exposed.

If you are naked right now, the world is about to figure it out.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” and “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

And finally, the concept of being an opportunist. 

When you make a series of good decisions over a prolonged period of time, the reward is being able to take advantage of opportunities when they appear.

Now –– I wouldn’t mistake that statement for saying that he tries to ‘time the market’ as much as he tries to take advantage of opportunities when they present themselves. No investor can truthfully claim that they see tops and bottoms, but the astute investor recognizes quality –– regardless of where they are in a market cycle.

Right now, there is a great deal of uncertainty, fear, and frustration in the market –– and that presents an opportunity for the shrewd investor.

WWWBD?

So, what would Warren Buffett do? 

Well, if you believe in his quotes, I think he would say something along the lines of –– ‘Well, since all investments should be viewed over the long term, and the market seems a bit fearful currently, it is a great time to purchase a great home. But that said, if your position is solid, a good home is always a good investment, regardless of market sentiment.’

No, I did not call him and ask him that, but I think he would concur.

Summary

I don’t want to be tone-deaf and simply say that it is a great time to buy a home for everyone ––  because, for many, it isn’t. Jobs are still at risk, consumer behavior will change, lending is not as fluid as it was, and the tax bill that is coming for this debacle will be staggering.

But for those who are on solid footing, this is a pretty amazing opportunity.

And in case you wanted to know, the market is actually doing surprisingly well. Yes, it is not the spring we anticipated, but March and April of 2019 and March and April of 2020 are not as different one might think.

While new listings are down a bit, purchase activity is still extremely high, mortgage rates are still low and the real estate community is able to function, albeit in a more virtual way than before. 

Don’t fall for the hype and let those without facts influence what you do –– make an informed decision. 

As a really astute investor from Nebraska with about $80B once said, “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.“

The Coronavirus Post

By

I didn’t think I’d ever write a blog like this, honestly.

The idea that, in less than 2 weeks, a heretofore unheard of virus, named similarly to a beer you drink on vacation, could essentially toss a monkey wrench into our lives … well, that wasn’t really on my radar.

Worldometers.info/coronavirus is a fabulous resource for this

But it has, and here we are.

So if you would like to know what we are hearing and seeing relating to real estate and the local market, here you go (and if you make it to the end, there is something funny awaiting you!)

A Week Later…

Last week, we held a meeting about COVID 19 and went through a slide deck laying out what was known and what the future would likely bring. 

I think that the presentation got a lot of stuff right, but maybe I took a bit of an optimist’s view of things? The events of the last few days have convinced many of us that a bit more caution is probably appropriate. (Oh, and I do know how to say ‘authoritarian’ despite how badly I butcher it in the audio)

An Economic Sickness

One of the most difficult things to do in this day and age is to separate the signal from the siren. Twitter, Facebook, YouTube, and an endless supply of blogs and media outlets mean that pretty much anyone with an opinion has a platform. Essentially, this means that you can find a narrative to reinforce your world view. 

So, whether you fall in the camp of ‘this is the black plague and we are going to die’ or the ‘this is the common cold and this all about nothing,’ the fact remains that COVID is a virus for which we have no immunities, and as long as it is around, we will need to engage in economically damaging actions in order to contain its spread. 

Stated differently –– the only way to combat the spread of COVID is to decrease face-to-face interactions substantially –– which really hurts commerce. 

And that is the core issue.

Richmond’s Economy

In 2008, Richmond got beat up pretty badly … but so did everywhere else. In the grand scheme of things, our market hit was in line with the average across the US. Places like Florida, Arizona, and California all took much bigger hits.

In COVID 2020, Richmond will probably be hurt less than many other places due to the fact that very little of our overall economy depends on travel and tourism. Richmond’s economy is underpinned by government, education, banking, and many other white collar jobs.

Places where travel and tourism are integral parts of the local economy will feel the impact of Coronavirus tremendously and those segments will likely be in shambles for the foreseeable future.

WaPo and NY Times have written several articles about the RVA Food scene.

That said, Richmond’s restaurant scene is one of the country’s most prolific, and I am concerned about its ability to survive a prolonged slowdown intact. The best way to not come in contact with an infected individual is to avoid public places –– like restaurants. I sincerely hope that those who have the power to reduce the heavy tax burden borne by our restaurant community do so.

The restaurants are going to feel the pain first, the worst, and probably the longest.

Real Estate

From our perspective (real estate), we have not seen a notable difference –– yet –– but we do expect things to change in the following ways:

Sales Activity –– If you look at the YTD numbers, the market was roughly 20% ahead of last year in terms of transactional volume. Our MLS has tracked roughly 800 more contracts in 2020 than it had during the same timeframe in 2019. Demand was robust and inventory had dropped to all-time lows. 

I would be hard-pressed to imagine this rate will maintain itself at the same pace. Expect activity to slow down, but rates being as low as they are will continue to drive many into the market.

Mortgage Activity –– Up until the financial market’s crash beginning a few weeks back, mortgage originators were already super busy with the spring market’s volume. And then, rates dropped to unfathomable levels, which triggered the most refinance business ever.

In other words, the mortgage industry was operating at full capacity BEFORE the refi boom and now it is operating at 150 to 200% of capacity. No business can continually operate above their capacity levels –– and especially not if ‘work-from-home’ becomes the norm.

Expect delays.

Underwriting –– Yes, demand is robust, but the good news is that demand isn’t ‘fake demand’ like it was in 2008 –– it is real. Underwriting guidelines are reasonable and no ‘subprime-type’ lending is propping up the market. In other words, legit buyers are in the market, and they are using fixed-rate mortgages. That is a good thing.

Mortgage underwriting is healthy.

Fundamentals –– If you watch the embedded video above, you will get a sense of where the underlying market fundamentals are. In short, despite the recent turmoil in the financial markets, the real estate market is healthier than it has ever been:

  • Low inventory means no overhang if demand slows
  • A nationwide deficit of 3.5M new homes means demand is still far greater than supply
  • Low mortgage rates mean increased buying power
  • Low oil / gas prices mean more disposable income
  • Lower global demand means material prices for builders may come down
  • Better home equity means enhanced ability to upgrade
  • Low unemployment means more buyers

And, did I mention the stimulus that DC is pumping in the market as we speak? It is 2008-esque.

Right now, the market will likely slow some (it is inevitable) but once things return to normal –– Look Out! It will be insane.

Recommendations

Based on what we know and what we think is still to come, here is what we feel are the best courses of action:

  • All buyers and sellers –– please have patience and above all else, HAVE A PLAN B. Mortgage companies are going to miss dates and that has a domino effect. Also, employers might look at reducing staff (or at least hours) which can impact a buyer’s qualification –– even after the contract has been ratified and loan application submitted. Expect delays and even higher-than-normal contract fall out.
  • Sellers at upper price points –– be patient. The upper-end buyer tends to have more exposure to the financial markets and likely has lost a significant percentage of portfolio value. Expect traffic to slow and buyers to be cautious. So if you need to sell and sell now, moderate your stance on lower offers and inspection items. 
  • Sub $400k buyers –– there was less than 2 months of inventory in early March at the middle and lower price points. Multiple offer scenarios were common with in excess of 10 offers in many cases. Even if 50% of the demand goes away, that is still 5 offers. Don’t expect the more affordable price points to change dramatically.
  • Mortgage borrowers –– get in front of the loan process. The system is moving as fast as it can so don’t expect it to be able to pull off miracles if you are behind in your paperwork and documentation. Get your stuff to your lender early and respond to requests immediately. I cannot stress this enough.
  • And to everyone regardless of price or side –– work together to get deals done. If your counterparty needs time, give it. If you need to offer a rent back or restructure an offer to make up for a loss of cash in the market, you should. Renegotiating during the contract will become more commonplace in the interim –– so maintain a big picture view. Situations are changing rapidly and playing hardball will not yield the result you are looking for.

Summary

The sooner we can get this damned virus out of our system, the better for all of us. Yes, I get it that more people die from car accidents, cancer, and other maladies than COVID, but as of right now, we have to deal with it to move forward. 

As I like to tell my kids, many times things aren’t your fault, but they are your problem, and telling me what should have happened isn’t going to fix the issue. Fix the problem now, get mad about it later.

That is what we all need to be doing.

No, you needn’t sweat the real estate market falling off a cliff –– this is not 2008. In 2008, the market was leveraged to the hilt and largely incapable of fixing itself. In 2020, the market was far healthier when Corona showed up.

Once this clears, we will return to a real estate market with fundamentals as strong as ever. And as a matter of fact, real estate may even benefit from the virus due to stimulus packages and a global economy in a recession. Despite how we look at the end of this thing financially, I guarantee it looks better than everywhere else on the planet.

So remember to take the long view. The hype is real, but hopefully short term. It may take a few months and some substantial behavioral changes to stop the spread of this thing, but we will.

Laughter is the Best Medicine

And lastly, a bit of levity.

Yesterday, the talking heads on CNBC almost lost it when the one announcer asked a guest if he ‘likes stimulus.’ Sorry for the adult humor, but this really struck me as funny (fast forward to about :22 to get to the funny part) and I think they found it funny, too.

Sources:

worldometer.info/coronavirus –– This site has become my go-to for all things COVID. It shows the numbers in the aggregate and by country. Yes, China and some other countries might not be entirely forthcoming in their reporting, but you can get a sense of where all of this stands.

Web Traffic –– This site tracks web traffic to various websites and I am keeping an eye on Zillow’s traffic to gauge the public’s attention to housing. As this blog is written, I don’t see a dip in traffic, but that could change.

One South COVID Presentation –– The market stats are good at showing market strength. This presentation was from March 4, and the spread of the virus was not as prevalent in the US at the time ––perhaps a bit more pessimism should have been included in retrospect. Also, I have now learned how to say ‘authoritarian’ better than I did in the video…

Real Estate Negotiations Aren’t What You Think

By

I think we all recognize the tough, gruff, and staunch business owner as a negotiator archetype. You know the ones –– they sit across the table, fists clenched, barking ‘take it or leave it,’ and constantly drawing lines in the sand. They threaten, cajole, and otherwise issue demands fully expecting the other side to cave in and accept the exceptionally one-sided offer.

vin diesel dom GIF

We also hear about the power-broker talent agents in their silk suits –– working from some expansive office on the 50th floor –– concocting devilishly devious plans to get their client the lead role in a blockbuster movie with the multi-million dollar payday.

But are they real?

Perception or Reality?

michael douglas GIF
Gordon Gekko sure loved information …

Popular lore –– history, literature, film –– they have all taught us that a great negotiator is equal parts Ari Gold, Don Corleone, and Gordon Gekko. Time after time, we see the negotiator depicted as a user of bravado, intimidation, inside information, and Jedi-mind tricks in order to get their way.

Sorry to disappoint you, but negotiations in real estate do not, in any way, shape or form, resemble Hollywood, Wall Street, TV, the NFL or even the Godfather.

Let’s look at the differences.

Perfect information

Do you realize how much access to information levels the playing field? When all parties have the same database at their fingertips (MLS), any informational advantage is negated.

information GIF
We all have access to the same housing information.

The buyer, seller, both agents, as well as the appraiser (and even Zillow!) –– they all draw from the exact same housing data. Thus, the difference between what a home is worth and what people will pay for it is not large.

Years ago, before online MLS and Zillow, you could occasionally exploit an informational advantage. But today, the ability to convince someone to sell their home at a 10% discount to fair market value (or even a 5% discount) is pretty much nil and the true lowball offer generally gets laughed right out of the room.

(Quick Note –– Don’t mistake a 5% discount from asking price for a 5% below market sale. If someone’s property is priced 5% above market and you negotiate a 5% discount, that isn’t a negotiation.)

The Sheer Number of Transactions

Do you know how many really good NFL QB’s will become free agents this winter? Maybe 2?

Any idea how many Hollywood blockbusters are in production? A couple? A handful?

Or how many Internet startups will go public this year? 3? 5? 10?

GIF by SB Nation
Think a good QB makes a difference? Just ask the Jets about the infamous Butt fumble…

But do you know the number of homes that transfer in our region this year? Oh, about 25,000.

Yeah, that changes things a bit.

When there are 25,000 transactions in any marketplace, no one feels compelled to make any single deal. Buyers and sellers know that there is a high likelihood that another opportunity is only days or weeks away –– and thus, feeling the pressure to accept a well below (or well above) market offer isn’t there.

When the number of transactions is in the thousands, the impact of negotiation delines significantly.

The Similarity of Housing

The difference between Tom Brady and the worst QB in the NFL can be a Super Bowl victory or last place. The difference between Leonardo DiCaprio and Tom Arnold can mean box office smash or flop. But is the difference between 1234 Main Street and 1235 Main Street really that much?

leonardo dicaprio dance GIF

Of course not.

In theory, each home is unique. In reality, the difference between one house on a street and the next one isn’t nearly as great as the difference between actors, quarterbacks, or even IPOs.

When you are looking at the 5 housing options between $350,000 and $375,000 –– all of which have 4 bedrooms and a 2 car garage –– are you really going to be irreparably harmed if you only got your 2nd (or even 3rd) choice? In the grand scheme of things, not that much.

Besides, you can look at a variety of sources and predict the frequency that similar homes will come to market –– and act accordingly.

Face to Face or Inbox to Inbox?

In the old days (before the World Wide Web!), face to face presentation of offers was fairly common –– and perhaps there was a little more posturing between agents over deal points.

Today, that practice is largely non-existent.

Atp Tour Reaction GIF by Tennis TV
Ever watch negotiations?

Offers today are generated digitally, signed digitally, and delivered to the other side digitally. Yes, agents might chat a bit on the phone, but the notion that one agent sits down across the table from the other and some type of point/counter-point back and forth negotiating tennis match ensues is archaic.

Market Imbalance

Lastly, the idea that you, as a buyer, can sit back and play coy and eventually end up with the house you want is extremely low. Why? Because there is a housing shortage and odds are you are one of about 10 people seeking the exact same thing.

When inventory creeps below 3 to 4 months, buyers don’t have much leverage.

Remember, a market tends to be populated with as many sellers as there are buyers –– but an auction (intentionally) has but one seller being pursued by as many buyers as possible. And trust me, buyers do not like auctions.

Due to the prolonged inventory shortage, purchasing real estate in this day and age far more resembles an auction than it does a balanced market.

Then What in the World Are We Supposed to Do?

Ok then, wise guy. If none of the negotiating techniques that every other industry seems to use work, then how do you do it?

For Buyers

work student as homework grades GIF
Do your homework

As a buyer, it is simple –– do your homework so you know values, act quickly and decisively when the time comes, leverage your cash reserves to make your loan as appealing as possible to the seller, and use the other terms of the contract to tip the bid in your favor.

Things like –– flexible closing dates, rent backs, and fast inspections –– all of these are ways to make your offer more appealing than your competition’s.

For Sellers

And if you are a seller, do everything you can to create a bidding war –– when multiple buyers compete for your home, you will end up with not only the best price, you will also end up with the best terms. 

When you entice a 2nd, 3rd (or more) buyer to any buying process, the buyers are no longer negotiating exclusively with you, they are negotiating against each other (I cannot express how much this is and TO YOUR BENEFIT!) Negotiating against a third party undermines almost all of the purchaser’s leverage. USE IT TO YOUR ADVANTAGE!

Far too often, we see sellers undermine their own position with poor timing, backchannel sales efforts, poor/unclean property conditions, and/or pricing the home at a premium (in order to ‘leave some room for negotiations.’) When a seller misses the opportunity to exert pressure on their ENTIRE buying pool, they miss out on more money AND better terms.

Having more than one offer is ALWAYS the optimal situation for the seller. 

Summary

Look, is there an art to writing an escalation clause? Or an inspection addendum? Or a way to write an ‘as-is’ addendum that doesn’t put you at risk? Or a way to look at MLS and get a sense for demand?

jimmy fallon whisper GIF
Want to know our secrets to win negotiations? You’ll have to ask.

You bet.

And is there an art to positioning the offer? Or the perfect time to deliver it? Does the lender matter? And does the agent’s reputation matter?

Of course.

And, as a seller, is there a way to create a multiple offer situation on your listing?

Again, yes, if you know what you are doing.

But we will reserve our best tactics and strategies for our clients and not publish them in a public forum.

That said, the key is to know a) what is the value of what you are buying and b) where you stand in the market. None of these techniques matter if the fundamental offer isn’t already strong.

Without understanding both sides of the equation, making a good decision is next to impossible and no negotiation tactics can change the outcome.

What to Expect in 2020

By

Forgive me, readers, for I have sinned. It has been 4 months since the last blog. Got busy, you know? Had a lot going on this year.

I’ve been busy …

But that said, there is no better time to jump back on the writing horse and no better topic than the predictions for the coming year, which has become a bit of a tradition on the blog.

So without any further adieu, here are the things we are keeping an eye on and some trends we are seeing (and feel we will continue to see) as we move through the next 12 months.

Navy Hill

For those of you who are not aware of Navy Hill –– well, you should be. Navy Hill is the proposed redevelopment of the Richmond Coliseum and the surrounding blocks into a new 18,000 seat arena plus beaucoup office, residential, and retail space.

When completed, it stands to be the most transformative project the city has seen in 50 years.

Photo courtesy of Navy Hill.

To say the least, it is a pretty big deal.

Opposition is Loud

Any development project will bring with it its share of opposition, whether it is a simple townhome project or a large planned community –– that is the nature of development.

But when you start talking about a project on the scale of Navy Hill ($1.5B, if you are asking), then the opposition increases exponentially.

And thus it is with Navy Hill.

So as the noise gets louder, make sure to separate logical and thoughtful opposition from the ‘I don’t like change’ opposition. Sometimes it is difficult to tell the two apart.

Decision on 2nd Dominion tower looms large over Navy Hill project
Want to know more? Our good friends at Richmond Biz Sense are, as always, on top of things.

So 6th Street Marketplace Redux?

So what makes this project different than, say, the 6th Street Marketplace debacle of the 1990s, or the ‘comedy-of-errors-effort’ at building a baseball park in Shockoe Bottom, or even the horrible deal cut with the Redskins for training camp?

Well, two basic reasons:

  • The development team is extremely accomplished at sports arena/ballpark redevelopment
  • The city isn’t acting as developer, they are SELLING the land to a private development group

The TIF (not the TIFF!)

The basic deal is that the city is selling the land to the developer and then using a form of financing called a TIF Overlay District (Tax Incremental Financing) to pay for the new arena and infrastructure.

The tax revenues from the improved values in the district would be what pays off the debt –– and once paid off, the city would not only own the arena outright, but they would have an insane amount of new tax revenue flowing into their coffers.

Map courtesy of Richmond Biz Sense

Good News. Bad News.

The good news ––  the City will NOT be the developer. The City of Richmond has repeatedly shown that they are terrible at playing developer. And (more good news), they will have activated a tremendous amount of taxable land in the middle of Downtown that currently brings them no revenue.

The bad news –– well, what if it doesn’t work as planned? And don’t the schools need money now?

Yeah, there is that …

Ambitious, But Transformative

The plan is ambitious for sure, but the development team is extremely accomplished. The lead architects were involved in some of the most high profile sports arena developments in the US –– Quicken Loans (Cleveland Cavaliers), Staples Center (LA Lakers, Clippers, and LA Kings), and America West (Phoenix Suns) to name a few.

Another project from Future Cities. The new home of the Golden State Warriors

I, for one, would love to see it happen. The number of concerts, sporting events, and other entertainment productions that skip Richmond currently is frustrating –– especially for a lifelong Richmonder accustomed to seeing of the best shows ever right here at our own Coliseum.

Furthermore, the idea that something like 10 Downtown blocks are currently NOT providing revenue (it actually costs money to maintain so it is technically a drain on revenues, but who cares about such minor details) to a city in such desperate need of fixing its crumbling schools also appalls me –– especially when you see the impact that a sports/entertainment district anchored by office, retail, and residential development has had on other cities.

Yes, the schools are in dire need of additional funding, but so is every other department. When your revenues are fixed, paying Peter means robbing Paul.

So stay tuned –– there is a lot more to be said and written about Navy Hill.

Moving East

Have you ever really looked at a map of Richmond’s development?

If you have, you are one of the few.

Red means old. Green means new. Can you see the difference in the direction of development?

By and large, it moves from the fall line of the James River (i.e. Downtown) and moves primarily up the river (west and north) and out Midlothian Turnpike, Hull Street, Broad Street, and along 95.

What it does not do is move east at anywhere near the same pace as it does in the other directions (see the map.)

Well, that is starting to change.

The Rise of the East

Back in the days when the cleanest air and water were upwind and upstream, moving west made a lot of sense.

Today, the impact of pollution isn’t nearly the same as it was in say, 1930, and thus the need to continually go west isn’t nearly as strong. And the quest to find reasonably priced housing that isn’t 45 minutes from urban Richmond is leading the change in attitudes.

The first chart shows the $/SF of the two easternmost high schools in Henrico County (Varina and Highland Springs.) Look not at the amount per square foot –– but the rate of change –– when compared to the two westernmost high schools in Henrico (Godwin and Deep Run.)

Bet you didn’t expect that, did you?

Now, take a look at what is happening in the North Church Hill neighborhoods, as well as those to the east of Chamberlayne between Laburnum and Brookland Parkway.

Notice anything? Oh, just pricing that is up anywhere from 3 to 5x since 2011.

Wait, did you say 300 to 500% since 2011?!? Yep.

Affordability

What is driving the change? Affordability (well, at least for now.)

As the prices for entry to the Fan District, Museum District, West End, and even the new home communities in Midlothian and Moseley are reaching into the middle to upper $400’s, people, especially the first-timers, are looking for housing that is both affordable and close in.

Check out the pricing for new housing in four of Chesterfield’s largest new home communities on the chart below:

Cue ‘the east.’

Pricing below $400k, 10-15 minute commutes, and a rapidly growing amenity base are what is underpinning the growth –– and as more and more investment occurs at points east of 95, the better the appreciation will get.

The smart investors are already there.

Inventory

A Growing Metro

Question –– do you know what the rate of population growth is right now in the Richmond region? (And by region, I mean the City of Richmond and surrounding counties)

Regional Demographics
Some interesting stats about our region.

Answer –– Depending on what you read, the population growth in the region is between 1% and 1.5%.

Now that doesn’t sound like a big number until you do the math.

1.3M people x 1% = 13,000 new people each year.

That is a little over 1,000 people per month.

And that is roughly 35 people per day.

Think about that number for a second –– 35 new people per day are moving to Richmond. WHERE IN THE WORLD ARE THEY GOING TO LIVE?

Now you see the problem.

Median Income

Want me to blow your mind even more? The median income in our region is $65,000.

$65,000 translates to roughly a $250,000 to (maybe) $300,000 home in terms of buying power.

Guess what? There is less than 2 months of inventory below $300k in the Richmond region.

Spoken differently, there is twice as much inventory ABOVE $300k than there is below it.

So here we are.

Crisis Mode

Several years ago, we wrote about the coming affordability crisis in housing. Well, it is finally here –– and inventory (or the lack thereof) is the primary culprit.

To quote the great Roger Daltry –– Meet the new boss, same as the old boss! (and I start the video right at his famed scream …)

So until we either find another 1,000 acres in the middle of the city (not going to happen,) or we rewrite mortgage financing to allow for vertical development (not happening fast enough,) we are going to keep seeing prices spike –– especially in the more affordable segments.

Manchester

We were just in Manchester doing a video shoot for one of our listings and man, it has gotten tall. Like really shockingly tall. And I would like to think that I know a lot about Manchester and even I was shocked.

It is tall.

< Don’t believe me? Check the references to ‘Manchester + Tower‘ in Richmond Biz Sense >

For those who do not know much about Manchester, you should. It is basically becoming an entirely new city.

The Terraces at Manchester recently sold for $30M

The amount of development that has occurred in manchester is unprecedented, especially by Richmond standards. Towers, towers, and more towers are now the norm, as is new retail, new residential, and new office.

And did I mention the towers?

Housing

So what impact do you think all of this development had on house prices in Manchester? Yeah, you guessed it –– they went UP!

If you haven’t been to Manchester in a while, I highly suggest you walk the T Pot Bridge, grab a beverage at Legend, and take a look. You won’t believe the activity.

What We Didn’t Talk About

So we left off several topics in hopes of a) making this post of reasonable length and b) leaving something else to talk about over the coming year.

But here are some of the things we did not touch on:

  • iBuying –– having a company like Zillow buy your home
  • Building Costs –– still going up!
  • Politics –– sorry, I don’t have the stomach to write about it
  • Scotts 2.0 –– the Westwood Tract redevelopment (i.e. the industrial neighborhood just west of Scotts Addition)
  • Sauer Center –– can I please just have my Whole Foods?!?
  • 2020 Census –– should be interesting, to say the least

So look for us to tackle a few of these topics in the coming months.

And Finally …

2019 was another banner year for One South. We got a lot done.

Performance Metrics

We broke our prior year’s record for transactional volume.

We cracked the Top 10 in volume (by office) in our MLS.

And we still outpace the market averages in pretty every important metric:

  • Median Days to Sell –– 8 days
  • Median Percentage of Asking Price –– 100% (yeah, that’s not a misprint)
  • $/SF –– $31 above the market average
  • Price –– $30k above the market average.

AND we have continued to conduct our business in an ethical manner (i.e. –– another year of a spotless record with all of the governing bodies.) That makes me especially proud of not just One South’s agents, but of the management team and staff who play a huge role in both our agent’s success and our consumer’s experience.

So to summarize –– more transactions at higher prices with smaller discounts and at a faster rate than the market, all while maintaining the highest level of ethical behavior –– not too shabby.

Expansion

We also grew geographically.

Our new office in White Stone, moments from the Rappahannock River

We recently opened another satellite office in White Stone, Virginia (along the Chesapeake Bay) and are in the process of partnering with a videography firm to even better promote the listings we carry and the neighborhoods we frequent (more on this soon.)

Commercial

And did I mention how well our commercial team is doing? Just read Biz Sense and you will get a sense of how well …

Salomonsky sells Shockoe Slip apartments building for $8M
Oh, just another $8M sale…

The One South Commercial team continued to grow their name and presence with more high profile sales, additional team members, and a new best for volume.

In Closing

We fully expect 2020 to be another banner year for us as the economy remains strong, interest rates low, and our region continues to attract new residents.

Most prognosticators expect the market to get started even earlier this year (but that also depends on the sellers and the weather, so stay tuned.)

And while we expect to see a bit of a slowdown around the election (it happens every election year), don’t sweat it –– just plan accordingly.

Thanks and we look forward to serving you in the coming year!

804.201.9683

How Do I Schedule a Showing?

I am Kendall C. Kendall, Client Care Coordinator for the team. I am a licensed Realtor and it is my job to answer questions and schedule showings for the properties shown on our sites. Here's our call policy.
kendall@richmondvamls.net

804.909.0184

How Do I Determine What I Can Afford?

With over a decade of mortgage industry experience, Chris knows what it takes to provide the very best service for each of his clients and truly believes in forming lasting relationships with his customers.
Cowens@southerntrust.com
Southern Trust Logo

Equal Housing

The Sarah Jarvis Team agrees to provide equal professional service without regard to the race, color, religion, sex, handicap, familial status, national origin or sexual orientation of any prospective client, customer, or of the residents of any community. Any request from a home seller, landlord, or buyer to act in a discriminatory manner will not be fulfilled.

IDX Disclaimer

All of the information displayed here is deemed to be gathered from reliable sources but no warranties, either express of implied, are made part of this site. Additionally, the IDX Feed for listing information may contain descriptions of properties not represented by One South Realty, its agents or staff and any violations or misrepresentations are the sole responsibility of the listing brokerage of the subject property in violation.