How to Buy a House in DC

As soon as the federal layoffs began, everyone said it would kill our real estate market and economy here in Washington DC would tank. Guys and Gals, this isn’t happening. In fact, not only did it not kill the real estate market, things here are pretty wild. Let’s look at what is happening on the ground, right now, in Washington DC’s Real Estate Market.

Slowdown? What slowdown? It is still very competitive for real estate in the DC Metro area, and I’m not just saying this. We have too many people in metro DC and not enough houses. What we also have here is not just one giant real estate market, but a ton of micro markets. What is happening in one area may not be happening in the adjacent area. 

Does this mean you can’t get a house? Not at all. I have clients getting houses as we speak. They have learned that you have to be a quick study, assess and analyze the market and position yourself in the best way to get a home. This is not the market for months of leisurely house-hunting. If that’s what you want to do, I would highly recommend you sit this out for a while. No matter how thick your skin is, there’s nothing more depressing than casually looking. Why? Because you will half-ass find a house you love, and then watch someone else who was more prepared get YOUR house because YOU weren’t whole-ass looking. You were only half-ass looking. 

But if getting a house is your goal, and you have a relatively short time frame in which to do so, listen up because this right here is for you. I’m showing houses most days of the week. This is exactly what is happening in the DC Real Estate market right now.

Buyers are Waiving Home Inspections

For many years, we endured here in DC what we called the “pre-inspection.” That was a home inspection that a buyer would do prior to the offer deadline. The general process went like this – homes were listed on Thursday. Buyers flooded to see the house and then immediately scheduled an inspection before an offer deadline of Monday. In those days, I had buyer clients who elected to do pre-inspections on homes where up to 12 other people were also doing pre-inspections. Inspectors lined up three-deep to look at the water heater or the HVAC. 

In the rare event there wasn’t a bidding war, and a buyer ratified a contract with an inspection contingency, it was impossible to get a home inspector scheduled. They were all so busy doing pre-inspections. All this extra inspection work also brought out a lot of subpar inspectors. I watched one miss a structural problem and tell his buyers that the house was in “great shape.” Then he handed me his card, while my highly competent inspector was busy NOT missing the structural problem. 

I hated those days. But I hate what’s happening now even more.

Now, more than half of buyers in some areas are fully waiving a home inspection. It’s hit or miss whether sellers and their agents will even allow the buyers time to do an inspection prior to offer deadlines. Don’t kill the messenger. This is where things are. I don’t know who these people are who are straight up waiving the home inspection, but this is what’s happening in many areas. Vienna, Burke, Springfield, Reston – people are straight up waiving the inspection entirely.

Buyers Have Cash

Somewhere between one out of every four to five buyers has cash. This used to be price-range specific. Buyers at the entry level price points, which in this market are $400,000 to $500,000, didn’t have cash. They were one or two-income families and bought in the range where they qualified. If someone was sitting on $400,000 cash, they were buying a $1M home and putting 40% down.

Now, people at all price points have cash. I had clients beat out by cash in the $500,000 price point in Springfield. I had clients up against a cash offer at $600,000 in Silver Spring. Now that rates are up, these buyers are buying what they can afford in cash instead of getting a 3% mortgage loan. They are dialing it back and just paying cash for a smaller, less expensive house.

Some Loan Types Will Never Have an Offer Accepted

This is terrible news for people. It hurts – a lot. This is another “Please don’t kill the messenger” statement. VA and FHA loans have no chance of getting chosen in a multiple offer situation. None. Zero. Zip. Nada. Why? Because these loans have contingencies built in that cannot be waived. 

The appraisal contingency for example, runs for the life of the contract. Sellers all have a universal goal of signing the offer with the highest price and no contingencies. Absent that, they at least want to be able to check contingencies off as it gets closer to the closing date. The problem the sellers view with the appraisal for FHA and VA is twofold. First, if the property doesn’t appraise, the buyer can always walk away at any time up to the closing date. The seller can’t ever check off that contingency. Second, the appraisal can come with a list of repairs that the seller contractually has to pay for.

I had buyer clients lose out on their dream home because they had a VA loan. Once I explained the realities of this market to their loan officer, he crafted a change to their strategy. They shifted to a 20% down conventional loan, began doing pre-inspections and it put them on a level playing field with most of the other buyers out there. The only thing that could beat them out would be a higher priced cash offer.

Ugly Houses Get Multiple Offers

This is not the time or the market for nitpicking houses. This may be an option where you live now, but in the DC area, people will buy ugly houses that have all kinds of issues. Neon paint, nasty wallpaper, dirty wall to wall carpet – it’s like everyone’s standard for acceptable living conditions has dropped to college-dorm levels and no one finds anything wrong with this. 

My favorite is when one of my clients buying in the $1.5M – $2M range says, “Well, I don’t hate it.” I always say, “Yes, that’s exactly what I want to hear you say before you drop close to $2M on a house.” I want you to love it! But you might not love it right now. You will need to look past that, especially in competitive areas and competitive price points – which is everything up to $1.75M.

The Off-Market Market is a Golden Opportunity Right Now

Real Estate Rules used to strictly forbid us from marketing private exclusive properties to anyone outside our brokerage. This always seemed incredibly stupid that we couldn’t market our listings the way we want provided the seller was on board. Thanks to the infamous NAR / Commission Lawsuit, that changed. So now the off-market or private exclusive outlets are hopping. And for some buyers, this is the only way they can actually secure a home.

Just because something lands at your feet though, doesn’t mean that you don’t have to try. The seller may just be in a position where they would prefer to not get the home ready to sell, or deal with people tracking through their house so accepting an early offer may work for them. If you get this opportunity, please cherish it for the opportunity it is and don’t screw it up!

You must put your best foot forward. You still must treat this as a competitive situation. You can’t just say, “Oh they want $600,000? Okay, I’ll give them $585,000, and I want to do an inspection with the right to negotiate for repairs, and I’d like to also have my appraisal and financing contingency, and can we ask them to dog sit Fido when we go away every summer?”

Lots of Sellers Want Rent-Backs

Also called a “Post-Settlement Occupancy,” sellers who are listing their homes likely need to buy a new home. They want to close on their house, get the money in the bank, close on their new house and then paint or make any updates needed. There are a lot of requests for “rent-backs” in the properties listed now. If this isn’t inconvenient for you and it’s something you can make work on your end, THIS is an opportunity. 

When you close on your home, you won’t make your first mortgage payment on the first of the following month. You have a grace period the month after closing, and then the next month the first mortgage payment is due. Closing date is April 15? Your first payment is due June 1. This means you can usually have a period of 6+ weeks with no mortgage due. You can offer a rent-back for free to sweeten your offer. This is a nice gesture that doesn’t cost a lot.

You Snooze, You Lose

Sad but true. There will be a couple houses that just don’t get offers the first weekend. If these homes cycle to a 2nd week on the market, don’t assume something is wrong with them. It’s just how things go sometimes. People get into this psychological cycle, thinking “Well if nobody else wants it then I won’t either.” Cut that out. Get out of your own way. Take a second look and see if it could work for you. And then write your offer right away. I just saw this happen with clients and they are kicking themselves for not acting when a house was on the market for eight days. That’s considered a long time here, but it’s not a death sentence. It went under contract the 9th day.