In the Washington DC metro area, we have seen the real estate market begin to stabilize in 2011.
Prices haven't fully rebounded but many homeowners, both young and old, are getting the itch to
sell and move on with their life plans. The fact remains however that many homeowners have
seen the equity in their homes decrease significantly or evaporate altogether in the past four
years. For first time homeowners who are starting families and needing additional space, many
simply do not have the option to short-sell their home and many have no desire to walk away
from a home without any savings after making a significant down payment. Equally frustrating
is the scenario for retirees who watched their home values peak, made plans for retirement and
then saw those savings slip away as the bubble burst. I’ve come across these sellers, both young
and old, who have found solutions to moving on with life without having to sacrifice the selling
price of their homes.
When discussing solutions that worked for sellers this year, I was amazing to find one common
denominator among them all – they focused on their end goals. When it came down to it, their
goals were to move into larger homes, relocate for a new job or retire. Selling was just one
option but it didn’t necessarily have to be the only solution.
Example 1) Young couple owned a condo that was upside down. They were starting a family
and needed a bigger home. After properly staging their home and listing it for sale, they did not
receive a single offer for several months. They did however come across someone that was
interested in renting their condo. With a baby coming around the corner, the young couple found
the best solution to meet their goals would be to lease their condo until prices increased. Since
the couple did not have enough funds remaining for a new down payment, they opted to sign a
lease for a larger home. The great part is that they didn’t let the timing of the real estate market
affect the timing of their family plans.
Example 2) A retired couple living in Virginia owned a vacation home in North Carolina. They
listed their home for sale at a competitive price but did not receive any offers. They approached
me seeking a solution and I suggested offering seller financing. In today’s market where it’s
difficult to obtain a mortgage offering financing can be more attractive than being the lowest
priced home in the neighborhood. They advertised “seller financing available” and within a few
weeks accepted an offer just below their asking price. The buyers made a significant down
payment, made monthly payments equivalent to a 4% interest only loan and were given two
years to pay off the loan. Just recently I learned that the buyers decided to pay off the remaining
balance after only a year of ownership.
Despite the challenges homeowners face with lost equity and financing availability for buyers,
we’ve seen prices slightly increase throughout Northern Virginia, especially in regions like
Prince William County that saw significant decreases in home values (upwards of 50%)
throughout 2008 and 2009. This suggests it’s easier to sell today than a year or two ago.
However, many homeowners who have been waiting to sell and developers who have been
sitting on the sidelines for the past two years are now entering the market again. A steady supply
of new and existing homes for sale, along with current challenges in obtaining a mortgage, will
keep pressure on sellers for at least another year or two. I recommend that sellers in today’s
market look outside the box for solutions that meet their current goals in life, just like the couples
above. In addition, try not to focus exclusively on the price when you receive an offer. Look
into the details of a contract and ask the buyers questions to identify all of their goals. Every
goal has a level of priority and there may be room for negotiation on price if you can satisfy
other goals such as better financing, longer period to settle, paying for a new home warranty or
throwing in some furniture. If repairs or significant home improvements are requested before
settlement, I would recommend asking for an equally sizable non-refundable deposit than can be
applied towards the purchase price. Meeting a buyer’s goals may win them over but try not to
put yourself into a deeper financial hole if you can avoid it.