Sarah Jarvis Team at One South Realty

at One South Realty

Market Values

The Lofts and Flats of Richmond, Virginia

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A lot of what we talk about on this blog is the condition of the market –– especially localized market conditions –– and how they are trending. We also spend a lot of time talking about pricing and valuation methods.

The high-end Decatur property is located in Manchester.

But today, we are going to take a break from the math and talk about a more fun topic –– the lofts and flats of Richmond VA.

(photo credits to Kent Eanes, Trevor Frost, Dennis Papa, and Bryan Chavez)

We All Love Lofts

I think that deep down, a little part of each of us wants to own a loft. Whether it is a small flat in an old industrial section of town or a fully renovated uber-loft with the perfect blend of new and old, lofts are just cool.

Think about it –– how many times have we seen a hip loft or groovy flat serve as a centerpiece for a movie or favorite TV show?

Often.

I mean, how can you forget the iconic scene in Big with Tom Hanks and Elizabeth Perkins bouncing on a trampoline in the young Hanks’ NY loft?

Or do you remember the scene in Wall Street where Daryl Hannah’s character (Darian Taylor) turns Charlie Sheen’s (Bud Fox’s) penthouse into a post-modern art museum (complete with the Talking Heads playing in the background)?

Or even Demi Moore and Patrick Swayze making pottery in their recently purchased dream loft in Soho in Ghost? (sorry, but that video was a bit too risque to show in this blog …)

Lofts are Cool

Admit it, each time we see a perfectly decorated loft, we think, ‘Wouldn’t it be cool if we …’

The answer is, ’Yes, it would be cool.’

The Mule Barn is located in an alley and is one of the Fan District’s only loft properties. And yes, the name reflects its history…

And the good news is that we can help you.

Where are Richmond’s Lofts?

The lofts in Richmond are primarily set in two Richmond neighborhoods –– Manchester and Jackson Ward. Yes, Church Hill, Shockoe, and Scotts Addition have a few options (and even a few can be found in the Fan District), but most of the spaces that can be called ‘lofts’ are located in the formerly industrial districts of Richmond.

Cary Mews
The Cary Mews was a newly constructed series of historic and newly constructed flats on West Cary Street.

The good news is that there is also a wide range of styles, sizes, and price options in our market. Unlike New York or San Franciso, where the lofts tend to be large and frightfully expensive, there are numerous options for smaller and more affordable lofts if your budget isn’t unlimited.

Here are some of our favorite spaces in Richmond.

The Decatur | Manchester

Have you ever heard of The Decatur?

The open design of the Connell-Brickner loft in the Decatur means skyline views from almost all of the main living area.

The Decatur is a niche 4 unit property in industrial Manchester abutting the Plant Zero/ArtWorks property between Hull and Decatur along 3rd Street.

Developed in the early 2000s, the Decatur is 3 residential spaces –– all designed in a different fashion –– and one commercial space.

The Decatur loft is currently for sale and can be found here

What makes The Decatur unique is that each owner bought their space in raw and then finished it according to their own wishes, and with some extremely high-end finishes (think ‘build to suit‘ loft!) Unit C, the Rodriguez-Chapman loft recently sold and Unit B, the Brickner-Connell loft (with private elevator) is currently on the market.

The views from the Decatur’s roof deck are some of the best in Richmond.

And yes, the roof deck must be seen to be believed, with some of the most expansive views in all of Richmond.

The Emrick Flats | Jackson Ward

In the early-mid 2000s, just as the development momentum of Downtown was heating up, a small group of developers decided that the concrete and glass former car dealership that they had just bought would make a really cool condo building.

And thus was born the unapologetically industrial and super-groovy Emrick Flats.

Emrick 32
Unit 32’s unique triangular shape means 3 sides of glass.

As condos go, Emrick occupied a very specific and edge place in the Richmond market. Emrick wasn’t for everyone –– it either spoke to you or it didn’t –– and you knew it immediately. It made the condos quite easy to sell, honestly, as you could tell within a few minutes how a buyer felt (I was lucky enough to represent the sales in the building.)

I always loved how the developer made the elevator an essential element of the property.

The beauty of truly industrial space is that almost any non-traditional aesthetic works. Minimalist works. So does contemporary. So does modern. So does eclectic. The ways each owner took what the condo offered and made it their own was really fun to see.

Emrick’s shape was driven by the irregular intersection of Broad Street, Adams Street, and Brook Road.

Emrick’s unit size tends to be a bit smaller (and so does the pricing) with the exception of a few of the top floor spaces. A few owners either combined multiple units or have multi-level spaces with private decks.

Availability will vary within the building so you have to keep an eye on the market to make sure you don’t let the perfect flat slip by. 

The Scudder Loft | Shockoe

When Steven Spielberg came to Richmond to film Lincoln, he needed something worthy of, well, Steven Spielberg.

The view from the north balcony is of Downtown.

Unit 1501 at the Vistas met the standard and served as his home for nearly a year as he filmed the epic bio throughout Richmond and Petersburg.

This what you see when you stand in the kitchen…

The Scudder residence at the Vistas differs from most of the loft spaces in Richmond in that it is located in a more polished part of town and within a newly constructed tower, as opposed to within an older building in one of Richmond’s revitalized industrial districts.

Despite the fact that the Vistas building was new at the time, the renovation was special.

Local architect, Dave Johannas’ team handled the re-design, as well as many of the selections, and helped execute the owner’s vision. For anyone who has had the opportunity to spend any time in the condo, it is spectacular, and (at least in my opinion) the views are the best in Richmond

Gotham | Downtown

In 2000, no one from Richmond was thinking about Downtown living.

The native Richmonder viewed Downtown as a place to work, and maybe eat (or drink) and then leave –– until Gotham.

The non-local developers of Gotham (Chicago and New York) purchased one of the ‘iron fronts’ at 12th and Main Streets and created 8 contemporary flats in a former office building that (I believe) was formerly owned by a printing company.

Of the 8 spaces, the two penthouses that front on Main are the most special.

(For a complete listing of condo projects and availability, check out our Ultimate Guide to the Richmond Condo Market).

The private elevator entrances, the multi-level living, the contemporary aesthetic, the first of Richmond’s roof decks, even the name ‘Gotham’ –– all of these features were effectively unseen before and when combined into purchasable spaces, changed Richmond’s view of itself.

Gotham deserves a lot of credit for showing Richmond that Downtown was, in fact, a really great place to live.

Other Lofts

The lofts (and projects) we listed above are a sample of what is available to the loft enthusiast, but there are others. 

Old Manchester Lofts
The Old Manchester Lofts did a great job with incorporating the interior features of the century-old warehouse into the common areas.

Properties such as the Old Manchester Lofts (Manchester), The Mule Barn (the Fan District), the warehouse side of The Reserve (Tobacco Row) and the Cedar Works building at Rockett’s Landing help satisfy the loft need in Richmond with smaller space options.

The Papa loft in Shockoe Slip.
The Papa loft in Shockoe Slip.

Other one-off renovations, such as the spectacular flat that local developers Tom and Angel Papa created in Shockoe Slip, or several other combined units at the Vistas, Riverside, and Rocketts Landing serve the need for larger spaces and come to market occasionally.

At the end of the day, Richmond’s loft market is a healthy one with more depth than many realize. And when combined with a diverse supply of new infill townhouses in many of the same neighborhoods, the Richmond housing market has never healthier.

What if Thanos Snapped His Fingers? (and other lessons in real estate supply and demand)

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Infinity Wars

Our family is pretty into the Avengers movies, especially our youngest. She knows all of the characters, all of the backstories, and all of the ways the storylines interact with one another.

And she has made us all fans, too.

Even if you haven’t seen Infinity Wars or Endgame, you can still read this since it really isn’t a spoiler post. It only references only one part of the overall plot line –– where Thanos, the ultimate in all-powerful galactic supervillains, obtains the final Infinity Stone. And just so you know, whoever controls all of the stones has virtually unlimited power over time and space.

Upon gaining control of the final stone, Thanos snaps his fingers and randomly destroys half of all life in the universe.

Real Estate and the Avengers

So, since I am a Realtor, I tend to look at all things from a real estate perspective –– and yes, that even includes summer blockbuster superhero movies (sorry, but I never really turn it off.)

Early in the movie, Paul Rudd (Ant Man), walks down an overgrown and now vacant San Francisco street (start at 1:14 of the trailer if you care to see the scene), and it hit me –– imagine how the removal of half of the buyers affected global property values?? And, then imagine what it meant to suddenly have half of all of the world’s housing effectively vacant??

We all thought that the implosion of the mortgage market in 2008 was bad, but it pales in comparison to what Thanos was able to do with a snap of his fingers.

Supply and Demand

Now, imagine yourself in this post-Thanos snap world. Do you think your pre-Thanos Zestimate would still be accurate? Or your $/SF? Or lot prices? Do you think you still need escalator clauses?

You get the picture.

Not to go all ‘Econ 101’ on you, but the supply of a thing and the demand for a thing are the two factors that drive the value of any asset. When supply is high and demand low, prices go down –– and vice versa.

Size, age, materials, etc. are measuring how one home compares to another –– but does not measure the demand for the home itself.

All of the other metrics we use to establish value –– size, age, materials, features, colors, dollar per this, assessed that –– they are measuring relative value. In other words, they are measuring how one home compares to another –– but not the demand for the home itself.

It is a subtle, but hugely important, distinction.

Signal to Noise Ratio

So you are telling me that $/SF doesn’t matter? Or my assessment? Or my most recent appraisal?

No, they matter, but just not in the way that you might think, and are distracting you from the bigger issue.

‘Signal to Noise’ (or the Signal to Noise Ratio / SNR) is generally used to describe the static or other interference that makes a specific sound difficult to hear. Ever tried to talk to someone with a hearing aid in a crowded restaurant? It’s kinda like that…

Signal-to-noise ratio is sometimes used metaphorically to refer to the ratio of useful information to false or irrelevant data in a conversation or exchange

–– Wikipedia

The concept of SNR originates from those who listen for a living –– astronomers, submarine sonarmen, soundboard engineers –– but has been adapted into other domains. The concept is especially applicable when describing the insane amount of information we now have at our fingertips and how to decipher that which is essential from that which is superfluous.

And without the ability to easily filter the important from the unnecessary, we are finding out that having access to more information doesn’t necessarily make us better decision makers.

Signal to Noise in Real Estate

The SNR concept, when applied to real estate, works like this: every measurement of size or count of features, every past sale, every website offering estimates of value, they are all noise and distract us from the only thing that matters –– the number of buyers seeking a certain type of home and the number of homes available.

Stated simply:

Signal = Supply and Demand

Noise = Everything else

Each time a buyer enters the market, they are subjected to differing inventory, differing competitive landscape, differing interest rates, and differing economic conditions — i.e. different supply and demand conditions.

Does the recent past have an impact? Of course, but it’s akin to driving your car while looking in your rearview mirror. It tells you where you recently were, but not necessarily where you are going.

Measuring Supply and Demand

Ok, then, how does one arrive at this magical supply and demand measurement you are espousing?

Approximately 65% of all sales that will happen in any 12 month period, happen between February and June –– leaving the other 7 months to fight over the remaining 35%.

–– From the Central Virginia Regional MLS

Measuring SUPPLY is easy –– you just count the available listings.

But estimating DEMAND is far harder. It literally requires us to look into the future and guess about events that are, by definition, yet to happen.

That is no easy task.

Estimating Demand

But if we use history as a basis, we can generally get a sense for the following:

  • How many homes historically will be absorbed in a specified time frame.
  • How many additional new listings have historically entered the market in a specified time frame.
  • How seasonality affects the market being examined.

Take a look at the charts below:

Available and Pending Listings –– Region
Available and Pending Listings –– City of Richmond

Both charts track the same two metrics –– the number of available listings, and the number of listings that are under contract (pending.)

The line showing the pending inventory rises sharply from February through April/May, and then falls quickly from June through October.

As I write this blog, it is June, and the market is in the throes of its seasonal adjustment. Distinguishing signal from noise is as important in the next several months as it will at any point during the year.

And as is readily apparent to the naked eye, the pattern tends to repeat itself year over year.

Seasonality

What you are seeing is the impact of seasonality over the course of a 12 month period. And while each year isn’t 100% similar, the peaks and valleys tend to follow a fairly predictable schedule.

To put some actual numbers to it –– approximately 65% of all sales that will happen in any year occur between February and June –– leaving the other 7 months to fight over the remaining 35%.

That is a massive difference.

Using the Information

So if you look at this information strategically, what do the shapes tell you about the demand for housing in the latter part of the summer?

  • If you have a goal of selling your home in the next 60 to 90 days, what course of action should you take?
  • If you see an additional 5 homes for sale, how would that impact your strategy?
  • If you see that inventory is lower than in past years and marketing times are still low, how might you counter an offer differently?

Having information matters. But interpreting the essential information correctly matters far more.

Summary

As I write this blog, it is June, and the market is in the throes of its seasonal adjustment. Distinguishing signal from noise is as important in the next several months as it will at any point during the year.

When you are the 5th best house in a segment where there are only going to be 2 more sales this year, it doesn’t matter what brand of stove you have.

It is human nature to lean into the quantifiable. Being able to point to a prior event and base a decision on it gives us a feeling illusion of certainty safety.

But being measurable and being important aren’t necessarily the same thing.

Do you know the worst part about living in this data-rich world? The important information doesn’t have the ability to raise its hand and tell you that it is important. Being able to quickly sift through the information and find what is important is a rare skill that few have.

Does $/SF matter? Or what your neighbor’s home sold for? Or what Zillow says? Or even what the appraisal said last month? Of course they do, but only when coupled with supply and demand.

The bottom line is that when you are the 5th best house in a segment where there are only going to be 2 more sales this year, it doesn’t matter what brand of stove you have.

‘I’m So Awesome’ (and how you can tell if a Realtor actually is)

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Agent: “I don’t mean to brag … but I’m awesome.”

Agent: “I sell soooo much real estate, and all of my clients love me. Look at this awesome review someone just left me on Zillow. Did you see it? Did you?!? Here it is again.”

Agent: “And just so you realize, I am an expert in your neighborhood, as well as the one just down the road. And, the one next to that one, too. As a matter of fact, I am an expert in Chesterfield, Henrico, Hanover, New Kent, Petersburg, Ashland, Short Pump, Goochland, and Chester. “

via GIPHY

Agent: “And in case you weren’t aware, I am also an expert in condos, luxury housing, land, foreclosures, relocation, first-time homebuyers, and commercial property, too! Oh, and new homes. And waterfront property. And historic homes.”

Agent: “I’m really good.”

Agent: “And I really don’t want to toot my own horn too much, but did you know that I sold millions of dollars of homes in my career? Like Multi-Millions. Like Multi-Multi-Millions…”

Agent: “Oh, and I love people. And houses. And pets. And Richmond.”

Realtor Marketing Sucks (Usually)

Please, make it stop.

As an industry, we do an absolutely terrible job of communicating our value proposition. What we call marketing is generally nothing more than bragging about our sales numbers (or even worse, the dreaded ‘HUMBLEbrag’) instead of explaining how our industry works and what is actually going on.

In lieu of debunking myths, offering true analysis, or identifying trends, we choose to thump our chests in a ‘look at me’ manner, tell everyone who will listen how many homes we have sold and put our face all over everything imaginable.

Sad…

The Realtor Award

Words like Platinum, Ultra, Mega, Master, and Million are the typical categories of ‘achievement’ –– which sounds more like a superhero convention or the latest scratch-off ticket from the lottery, if you ask me.

So why is it shocking that we (as agents) brag about sales levels to the public?

Somewhere along the line, our industry made the nonsensical assumption that those who sell the most properties are also the best Realtors.

Realtor Award Ceremonies sound more like superhero conventions or the latest lottery game … Mega, Ultra, Platinum …

Sorry, but that simply isn’t true.

Yes, getting things sold is an integral part of the job, but the manner in which you do so is equally as important –– if not more so –– and unfortunately, it goes largely unrecognized.

Measuring Success Correctly

So guess what we are going to do? Yep, we are going to take a look at some of the metrics that matter far more than just sales volume.

As we have stated many times before, MLS is a phenomenal database. Odds are, if you ask MLS an interesting question –– and if you are remotely fluent in database management –– you can make it spew out some fascinating answers.

MLS Data can be used to analyze agent and brokerage performance, not just housing and neighborhood values …

These answers can range from something simple like ‘what was the average sales price in a community last year’ to the far more complex, ‘what is the premium attached to new infill construction in an area whose average home is 100 years old?’

Tracking Agent Performance

So yes, we can ask MLS some quite interesting and powerful questions about housing and neighborhoods, but we can also use the data to analyze individual agent (and brokerage) performance, too.

Wait, what?!? You can look at individual agent and brokerage performance??

Yep.

screenshot from MLS of price reductions.
Few realize that the CVRMLS allows you to search for properties where the price has been reduced. You can then sort by the agent or by the brokerage to see who might be overpromising a price in order to secure a listing.

MLS offers the ability to examine both agent’s and brokerage’s historical performance when it comes to protecting their sellers, marketing times, how many of their listings require price reductions, as well as how many of their listings never actually sell.

MLS tracks a lot of groovy data.

So, without calling out anyone in particular, we thought we would just look at how we are doing relative to the rest of the market, and let our results speak for themselves.

Price Reductions and How Realtor’s ‘Buy’ Their Listings

Did you know that Realtors may ‘occasionally’ tell you that your house is worth more than it actually is in order to get you to list with them?

Why? Because telling a seller that their house is worth more than it actually is means likely securing the listing. Conversely, telling a seller their home is worth less than what the other agent says likely means losing the listing to the other agent.

As an agent, there is nothing more frustrating than when you tell a seller a realistic asking price and see them list with another agent at a higher price –– and watching the house sell later at the price you suggested after several price reductions…

Most agents know that listing a home at an unrealistic price isn’t overly problematic since you can generally convince a seller to reduce the price later. The problem is when you don’t win the listing and thus, inflating the listing price –– with the disingenuous intent of asking for a reduction later ––  is a strategy some agents employ in order to secure as many listings as possible.

The practice has been going on since the dawn of time –– it is called ‘Buying Listings.’

As an agent, there is nothing more frustrating than when you tell a seller a realistic asking price and see them list with another agent at a higher price –– and watching the house sell later at the price you originally suggested.

But the good news is that MLS tracks which companies and which agents reduce the price most often.

Tracking Price Reductions

No, we are not going to say who the most frequent offenders are –– but we are going to see how One South compares to the rest of the market.

One South’s listing prices are reduced at roughly half the rate of the overall market.

–– Per CVR MLS

We took a sample of 1,000 of the most recent sales in the City of Richmond (949 to be exact) and counted the number of instances where a seller had to reduce their price before selling the property.

  • Across the entire data set, 23.6% of the time, a seller reduced their price at least once before receiving an acceptable offer (which was actually a little bit higher than I thought, but again, another post for another day.) The highest number I saw for a brokerage was just over 40%.
  • When I went back and looked at the number of times One South Realty sellers had to reduce their price, it was less than 17% of the time.
  • Interestingly, the majority of the price reductions came from a single investor we work with who lists high and reduces quickly and incrementally as a part of his strategy. When we remove the investor, the number drops to 12% (or half of the market average.)

The bottom line is that One South agents don’t tell our clients what they want to hear in order to get the listing with hopes of reducing the price later, we tell them what they need to hear to get it sold the first time.

Measuring the Discount Sellers Take

Without trying to sound like one of those personal injury ads that talks about how they will fight for you, we are about to do exactly that by saying –– ‘We fight for our clients!’

How can we realistically say that and it not be hyperbole? Because we can measure it.

$4 Million Dollars …

Since One South opened in 2008, we have substantially outperformed the market when it comes to seller discount. In other words, our sellers capture a higher percentage of their asking prices than the rest of the market captures.

So, not only can we say that we fight for you, we can actually tell you by how much.

One South’s clients have saved over $4M since 2008 by capturing a larger percentage of their asking prices …

–– Per CVRMLS

The chart below shows what percentage of the ORIGINAL Listing Price the seller received.

Primary
Year		Seller Yield
(Market)		Seller Yield
(One South)		Difference
200997.1%97.7%+0.6%
201094.1%96.5%+2.4%
201193.3%93.2%(0.1%)
201295.1%96.4%+1.3%
201396.7%96.6%(0.1%)
201496.9%97.8%+0.9%
201597.6%97.6%+0.0%
201698.0%98.5%+0.5%
201798.6%100.0%+1.4%
201898.8%100.0%+1.2%
201998.4%100.0%+1.6%

In our decade of existence, we have beaten the market average by nearly a full point (.9% to be exact)!

When you apply that to all of our listings, we have literally saved our clients well in excess of $4M since opening a little over a decade ago.

Not too shabby.

Pricing homes correctly is certainly helpful, but so is market acumen and process knowledge. Being able to defend a home’s value by understanding construction, the competitive landscape, zoning, development trends, architecture, history, and builder reputation (to name a few) means the seller benefits.

The chart above demonstrates this fact well –– regardless of which way the market is moving –– the agents at One South have consistently driven more value for our sellers than the competition has for theirs.

Our Pricing

So, the naysayer would question the statistic above and say that we tend to price properties lower and thus, get a higher percentage of the asking prices.

We outperformed the market at our greatest rate when the market was in its worst conditions.

The facts don’t exactly bear that out. Take a look at the per foot prices for One South versus the market.

Year$/SF
Market		$/SF
One South		Difference
2009$124.00$170.00+37.1%
2010$114.00$157.00+37.7%
2011$108.00$150.00+38.9%
2012$111.00$153.00+37.8%
2013$114.00$161.00+41.2%
2014$118.00$155.00+31.4%
2015$122.00$159.00+30.3%
2016$127.00$177.00+39.4%
2017$134.00$171.00+27.6%
2018$139.00$170.00+22.3%
2019$147.00$179.00+21.8%

We generally sell homes anywhere from 20% to 40% higher on a per foot basis than the overall market.

So, not only do we get a higher percentage of the asking price –– we are getting higher percentages of asking prices at some of the more expensive price points in all of the Metro areas.

And, do you know what really stands out to me? During the darkest depths of the Great Recession (2009 to 2013), we outperformed the market by our widest margins. In other words, when the market was at its worst, we protected our client’s property values the most.

I think that is pretty cool.

Summary

So, did we just violate our promise not to brag by telling you about how great we are?

Yeah, probably. Sorry, it had to be done.

But, note that we didn’t brag about how much we sell, rather we chose to highlight the manner in which we sell –– and how it benefits our clients.

Know that we will stay focused on helping our clients gain a professional’s feel for the market while counseling them through an opaque and fluid process –– so that they develop the best strategy possible.

If we do that and do it well, then we don’t need to brag.

Uncertainty

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I have never met someone who loves uncertainty.

Making decisions under pressure, not having the luxury of all of the facts, guessing about the future  –– these are all unnerving feelings. But they are all a part of every real estate transaction.

Guess what I do for a living?

I am a broker of real estate. I am a purveyor of uncertainty.

Uncertainty is the Constant

Do you know the only guarantee that comes with buying a home? You own it. Most everything else is largely out of your control.

Your job could change.

Your health could change.

The economy could (ok, will) change.

The school district could change.

They could build an interstate in your backyard … or expand the airport nearby.

A parent might need to come live with you … or a child might move back in.

I could go on and on.

Yet, we ask ourselves to make one of the most important financial decisions of our lives when we really have no clue as to what tomorrow may look like.

Feels a little unsettling, doesn’t it?

So, if you are feeling overwhelmed by the sheer weight of the decision, here are some things to make you feel better.

The Market Tends To Rise

With the exception of The Great Recession (‘08 to ‘11) and the Great Depression (‘29 to ‘35), home values, in the aggregate, have risen.

Has every neighborhood and every house gone up in value? Of course not, but when you look at the overall market, the answer is that in roughly 80 of the last 90 years, home values have gone up year over year.

That is pretty consistent performance.

And just so you realize –– there has not been a 10 year period where home pricing was lower overall.

Hopefully, that should make anyone who takes a long view of housing feel better.

2008 Is Unlikely to Repeat

Many buyers, especially those who are entering the market for the first time, only know the results of the cataclysmic financial crash of 2008, and not necessarily the cause(s). While the fear of it repeating seems only logical, the conditions that led to 2008’s crash are nothing like the conditions of today.

One of my favorite scenes, ever (NSFW tho). The Big Short is a must watch if you want to see the 2008 crash from the inside out. And RIP Anthony Bourdain…
 

2008’s crash was about ridiculously loose underwriting (i.e – the creation of unqualified buyers) and a corresponding massive overproduction of unnecessary housing to keep pace with the artificial demand, coupled with some extremely fraudulent practices by Wall Street. Right now, getting a mortgage is more difficult than it has ever been, housing inventory is still down by 60 to 70% and the Dodd-Frank regulations have taken steps to ensure the fraudulent activities of 2008 don’t happen again anytime soon.

Could another unforeseen event cause an economic calamity? Of course, but NOT owning a home isn’t the defense.

Owning is Risky. Renting is Riskier.

Ok, so my house value is probably safe (especially over the long term,) but what happens if I buy a bad house? What if I buy a home that is poorly built or poorly renovated and requires thousands of dollars in repairs? Like what if the AC goes bad the day after I move in and I have to replace the entire unit?

All of that could happen for sure (home inspections tend to mitigate this occurrence), but I would ask the question –– what happens if you don’t buy a home and keep renting? Something worse, that’s what.

The cost of renting is far greater than the cost of even some of the most expensive repairs. Renting now costs anywhere between $12,000 to $30,000 per year … and getting worse. And, with home pricing increasing at roughly 3-6% per year, the cost of waiting 12 months is arguably anywhere from $25,000 to 50,000 depending on your rent and the price of the home you are purchasing.

In my nearly 3 decades in this business, I have yet to see an unexpected $25,000 repair, much less a $50,000 one.

So the risk of ownership, while it isn’t $0, it is far less than being a renter. Don’t believe me, ask your landlord’s opinion.

Perfect Information Simply Isn’t Available

Above, we only touched on the uncertainty of ownership and not the uncertainty inherent in the process.

Think about what goes through your head when you are involved in a transaction –– What is the right offer?? How many offers are they going to get?? Am I paying too much?? Will they accept less?? What if the market shifts?? What if my inspector misses something?? What if the appraisal comes in low?? What if my loan gets denied?? Is my escalator too high or not enough?? What if the perfect house comes out right after I go under contract??

While they are all legitimate questions, there are few concrete answers –– even after the fact. The lack of perfect information means never really knowing the answer for many of the questions we all wish we could answer. At the end of the day, you have to make peace with the vagary of the process and trust that making decisions without all of the facts is not as risky as it might feel.

Summary

While it is in our nature to want to avoid uncertainty, those who succeed the most in this world embrace the uncertainty around them and take advantage of it.

via GIPHY

Knowing that everyone is uncertain somehow makes your own uncertainty far easier to accept. For every question you have, so does everyone else –– and this puts us all in the same boat.

Is ownership for everyone? No, of course not.

Does every transaction work out? Again, no.

And are past results a guarantee of future performance? Nope.

But, right now there is nearly $16 TRILLION in home equity in the US.

via GIPHY

SIX-TEEN TRILLION DOLLARS!

That is $16,000,000,000,000 (if you would like to see it written in numeric form.)

$16T is a substantial number.

Owners get the benefit, renters do not.

So don’t overthink it. Acknowledge the uncertainty, do your homework, and take the long view. Good decisions in housing are surprisingly easier than you might think.

The Myth of the Inside Deal

By

An ‘Inside’ Deal. An ‘Off-Market’ Sale. The ‘Pocket’ Listing.

All of these are terms for the idea that (in certain neighborhoods) the best homes are acquired before they hit the market. They are sold either from a seller directly to the buyer (i.e. without an agent), or by an agent who never markets the property in an effort to control who purchases it.

Bigfoot walking and waving
This video proves that Bigfoot is not a myth …

As a buyer, when you are struggling to find the perfect home in a tight market, the idea that houses might be getting sold behind closed doors is extremely frustrating.

In the Know

The perception that houses are selling from one insider to another is most prevalent in communities that are considered to be ‘exclusive’ or are in the shortest supply. The premise is that unless you are somehow ‘in the know,’ you will never hear about the home’s availability and thus never have the opportunity to purchase it.

In order to determine how many properties transferred without the use of a Realtor, you can simply compare the number of transfers in the public records to the transfers of properties in MLS…

This feeling of frustration is compounded when it feels like every time you make an offer on a home, so does everyone else. Getting outbid time and time again makes every buyer feel that there has to be a better way.   

But is there?

How Common is the Inside Sale?

So how often does an insider deal occur? How can you track events that you don’t really know about? Well, it turns out, you can track it quite easily.

screenshot of tax records
The City of Richmond has a shockingly good website for Property Assessments and Transfers. You can find it HERE

Any time a property changes hands, whether with a Realtor or not, the transaction is recorded in the public domain. Stated differently, property transfers are matters of public record –– meaning they are recorded with the city or county where the property is located.

Anyone has the right to go to the assessor’s office and see property transfers. Or, if you have enhanced access to the public records as a part your local MLS (like Realtors do!), you can easily query property records from the comfort of your laptop.

So Let’s See What We See

In order to determine how many properties transferred without the use of a Realtor, you can simply compare the number of transfers in the public records to the transfers of properties in MLS.

MLS and tax printout
The list below shows all of the recorded sales in both MLS and the Tax Records for 2018 in Windsor Farms. The Sale Date column shows the date of sale in MLS and recording date in the Tax Records. As you can see, each Tax entry has a corresponding MLS entry. As a matter of fact, MLS picked up on a sale that the Tax Records did not.

As the above chart shows, the number of properties that changed hands without the use of a Realtor in this example was literally zero. Nada. Zilch. And bear in mind that this list if from one of Richmond’s most prestigious neighborhoods AND during one of Richmond’s most inventory-starved periods. The idea that some great swath of housing is changing hands clandestinely between anointed buyers and sellers simply isn’t supported by actual data.

The Full Shot

So if the large majority of the properties are changing hands with a Realtor involved, how many times is any individual agent controlling both sides of the transaction? In Realtor vernacular, when only one agent works the transaction and picks up both sides of the commission, it is called a ‘full shot.’

In reality, the idea that agents will change their behavior in order to earn both sides of the commission is a bit archaic…

This practice was far more common in days past when the idea of the Buyer’s Agent was still in its infancy and the Zillow’s of the world had yet to democratize listing information.

dice showing 12
The ‘Full Shot’ is largely a thing of the past.

How can you count ‘full shots’? Well, by using MLS to compare Agent ID’s and counting the occurrences where Buyer’s Agent ID = Listing Agent ID.

In 2018, in all of Zone 20 (Richmond’s Near West End) where home prices are the most expensive and the inventory the most constrained, only 7 of 355 (1.9%) of the sales were executed by the same agent (and only one agent did it twice.)

Pretty low, huh?

In reality, the practice is so fraught with conflicts of interest that in this litigious day and age, few agents are willing to take the risk. Furthermore, many brokerages have gone so far as outlawing the practice altogether.

Most good agents who are approached by a purchaser on their own listing will refer it to another agent for the duration of the transaction –– especially when multiple offers are expected.

So approaching a listing agent directly in hopes that the allure of a larger commission will somehow enable you to win the deal isn’t really a winning strategy either.

The Myth Persists

Every agent loves the public to think that they have inside information about available properties or can somehow find a deal ‘off-market’ that will be the perfect house and at the perfect price.

Elvis walking

Sorry to bust my own industry’s bubble, but that perception really isn’t accurate.

It is estimated that nationwide, 95% or more of homes transfer from seller to buyer with at least one agent involved (our example above showed that to be 100%.) Of those transactions, 95% or more involve the use of a Buyer’s Agent and a Seller’s (or Listing) Agent (our example above showed that to be 98%.)

Again, the perceived existence of a closed market simply isn’t supported by facts.

Off Market? No Thanks

The few off-market deals that do occur are typically when a seller who isn’t interested in selling is convinced by a buyer to sell.

How does a buyer convince an unwilling seller to change their minds? By offering a really high price, that’s how. Almost any seller can be convinced to sell their home if the buyer is willing to so grossly overpay that the seller would be foolish not to accept.

A quick note –– The ‘off-market’ sale is far more common in commercial real estate than it is in residential real estate. Often times, an investor, typically on the back side of a 1031 Tax Deferred Exchange, will make an unsolicited offer to another property owner whose property is not currently on the market. The purchaser would rather pay a premium for the acquired property than pay the taxes that are due on the existing one. The 1031 Exchange makes this possible and results in many commercial deals occurring ‘off-market.’

So … if, as a buyer, overpaying is your goal, then yes, we can find you an off-market home quite easily. But for the overwhelming majority of buyers, making intelligent financial decisions is the goal and thus, overpaying for an off-market deal is not the best path to ownership.

The Best Way

The best way to purchase into an extremely constrained or highly-competitive market is simply to be prepared to act quickly, make your best offer early, leverage your cash reserves, and be as flexible with your terms as possible.

Slow playing negotiations in a seller’s market isn’t going to win you many deals…

I wish there was a magic tactic, but there isn’t. The market for ‘good’ properties (close in, good schools, renovated, architecturally engaging, little new construction in the area) is heavily tilted in the seller’s favor. Slow playing negotiations in a seller’s market isn’t going to win you many deals.

scary forest pathway
Sometimes the path can seem daunting, especially in the most competitive times of the year. Stay the course.

And for those who are using highly leveraged mortgages to purchase, attempting to buy into a highly competitive market is especially difficult. Sellers, when they fear that a bidding war will drive the contract price above the likely appraised value, will simply take the highest cash (or substantially cash) offer to minimize the likelihood of the deal collapsing later due to a missed appraisal.

And for those who are using highly leveraged mortgages to purchase, attempting to buy into a highly competitive market is especially difficult…

Therefore, if you are a using highly leveraged debt (90% or more) to buy into a highly competitive community, you will experience some frustration, especially during a frothy spring market. Be patient, diligent, and intelligent about how you conduct your search –– and you will persevere. It just might take a while.

The Way it Works

The advent of Zillow (and Trulia, and Realtor.com, and others,) as well as increasingly sophisticated versions of MLS, means that the buyers know almost as soon as the agents do when new listings hit the market. Buyers only miss opportunities when they (or their agents) are slow to react or simply not paying attention.

MLS client gateway
Our MLS had an auto-notification function that sends any new listing immediately to all clients who have searches set for a property with the specified parameters. Furthermore, Zillow, Trulia, and other search sites don’t receive new listing information until well after MLS has alread sent out notifgications.

Furthermore, sellers have also figured out that the best way to get top dollar for their home is to expose it to the market, not hide it. Almost every property that is sold in an ‘exclusive’ or sought-after community is announced for sale for a period of time (aka – ‘coming soon’) to allow for demand to build. When buyers compete, sellers win.

When a seller (or their agent) undertakes actions that will decrease the likelihood of a bidding war, they are shooting themselves in the financial foot.

In Closing

I know I speak for Realtors when I say that I wish we had more ‘inside’ information than we do –– but the good news for the public is that we don’t. Our value comes not from having access to inside information (as in days past,) but from helping our clients interpret the ridiculous amount of information that is now available to everyone.

Does the occasional property change hands off-market? Of course they do, but the off-market sale makes up such a small percentage of the market that it’s not worth trying to chase.

An agent’s value comes not from having access to inside information (as in days past,) but from helping our clients interpret the ridiculous amount of information that is now available to everyone…

The bottom line is that in the overwhelming majority of cases, properties change hands through traditional channels and via traditional methods –– and thus the best thing a buyer can do is work with an agent that they like and trust, and who communicates with them in the manner that they prefer.

So find yourself a good agent who understands your needs, your goals, and, most importantly, your constraints –– and I can guarantee you that you will have the best outcome.

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
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