Submitted by gowhatyourself t3_101bxgh in rva
Hello and welcome to the hellscape that is real estate in 2023 I am your host and resident angsty real estate agent gowhatyourself. Like last year I thought I would offer up my personal and professional observations about the state of the market here in RVA, at a more macro national level, and offer up some predictions based on what I know while also maybe relying on some tea leaves/chicken entrails. I’ll answer questions where I can but I think first and foremost it's important to establish some baseline knowledge about how we got here for everyone to pull from and give context for us to work with. There is a loooot of ground to cover here and this thing is gonna be long compared to last year but I don’t want to gloss over anything I feel is important for buyers and sellers to know and understand.
Following the dumpster fires that were 2020 and 2021 last year was a bit of a rollercoaster ride for quite a few reasons that I outlined and speculated about in my last yearly thread which can be found here:
https://old.reddit.com/r/rva/comments/rwv7g5/rva_real_estate_q1_psa_omichronically_fked/
2021 - Fuel, meet Fire
Interest rates and inventory started off at historically low levels and everyone kind of held their breath to see whether or not sellers would give up some of their sweet sweet housing inventory. Home builders were aggressively raising prices, sometimes even after going under contract, yet they had trouble meeting demand because they seemed incapable of un-fucking their supply chains to meet their contractual obligations. Despite the rise in home values many home buyers still had a great deal of purchasing power with low rates, padded savings, and rabid FOMO. Remote work was still available to many and Richmond being the goldilocks city that it is became a prime destination for people who had the freedom to work from home, or who just wanted to be “close enough” to DC.
For anyone following along either on the sidelines or actively trying to purchase this meant a lot of people could throw a considerable amount of “fuck-you” money at their home offers in addition to offering massive concessions to sellers in order to sweeten up the deal. That being said the number of full cash offers, and by that I mean the home is fully paid for at settlement with a giant briefcase of bullion and Benjamins, weren’t nearly as common and Reddit might believe. What mostly ended up happening was that there were enough people with large amounts of cash that were able to cover what is known as an appraisal gap. A lot of people are unsure of what this is so let me explain.
Let’s say you’ve got a home with a list price of $300k. Maybe it’s in a relatively hot area like I dunno Bon Air or something. The home goes live on Friday and offers are due by Sunday at 5pm for sellers to review at 6pm. The listing agent will fuck off for drinks and forget to call anyone until 11pm that night because if you’re on the listing side professional courtesy is beneath you no I’m not salty why do you ask. A deluge of offers pour in most of which aren’t even close to being competitive but a few at the top are strong and well written. One offer is for $350k which is $50k over list price. Another offer is the same but the buyer is stating that no matter what the appraisal comes in at they will cover a gap of $50k in cash to make up the shortfall between the contract price and appraised value of the home.
For those wondering what an appraisal actually is it is when a neutral third party comes out on behalf of the lender to establish the fair market value of a property by…..who the fuck knows because appraisers have been all over the map for the last few years. Their word is the final word on what the home is worth because that’s how the system is set up for better or for worse. They also have to be assigned anonymously and cannot communicate with the lender due to federal regulation designed to prevent the inflated appraised values of the early 2000s. If you are financing the purchase (taking out a loan) an appraisal is mandatory. If you are purchasing with cash it is not. An assessment is done by the city/county for the purposes of taxation and has nothing to do with an appraisal. Totally different things. Anyway moving on.
So Buyer Big Money Bags is offering to cover the spread and provides proof that they have the funds (Usually a redacted bank statement) to make the down payment AND cover the difference in purchase and contract price. The home appraises for $330k and said buyer has to pay the $20k difference in cash. Many people mistakenly believe that this is a “cash” deal. It’s not. This is what is meant when people discuss appraisal “gaps”. This was incredibly common the last few years everywhere in the greater Richmond area. If you were shopping within city limits and didn’t have cash to buff up your offer and cover that spread you were almost always wasting your time unless you were looking on the eastern side of town, or south of the river in a few specific areas. Everywhere else was basically a blood bath.
If you were patient and proactive it was still very possible to get into a home you would be happy with and all of my buyers save for one got into a home they were hyped on. The one that didn’t simply did not want to compromise for less than exactly what they wanted and kept running head on into the problem of other people wanting the exact same thing except they had way more money to throw at the problem. Sometimes that’s just how it goes. Unless you are loaded beyond belief you will need to compromise. This is true in a slow market too just for different reasons.
One last thing I’ll touch on in regards to offer structures last year is the issue of waiving part or all of the home inspection. There are a few ways to go about this and I’ll just cover the basics because you can get really creative on this front and aside from the appraisal this is your best opportunity to lock down the deal. The first option is obviously you get a full inspection with no limitation on what you can ask for in your inspection addendum. The second option is waiving portions of the inspection which can either be putting caps on individual items ie we won’t ask for anything with a cost-to-cure of under $300 or you state you will waive the first X amount of dollars on the report. So you waive $2500 and the report says there are $3000 of repairs you have that $500 you can ask for. The third option is informational only so you can do an inspection but waive the right to ask for anything. The final option is no inspection just hope and pray the renovated 93 year old home in Brookland Park is in stellar condition spoiler it probably isn’t what were you thinking you fucking buffoon.
2022 - “Now I am become death” – Jerome Powell maybe
Last year consisted of buyers attempting to thread the needle of getting under contract using varying means of concessions through appraisal and inspection waivers, along with rent backs and extended closing timelines. As I said if you were looking in the city you bent over and took it sans lube like a champ but you had more flexibility in many of the suburbs. Inventory was stupid low and we had a massive pool of buyers which drove prices up and made sellers lots of money (Until they had to buy a home and get fucked same as everyone else!)
For a lot of buyers getting into a home was the only viable option too. As many of you know renting and trying to find an apartment is in many ways worse than trying to buy a home. One thing that has absolutely sent me flying off the rails is the practice of these management companies putting up listings for properties they have no intention of ever renting out. They take in as many rental applications as they can, pocket the fees, remove the listing for a few days so it looks like it’s no longer available and then put it back up to repeat the cycle. There aren’t any laws preventing this kind of behavior so these companies and individuals have been running the racket for years now. To loosely quote Thom Yorke if I am king they’ll be the first against the wall.
The rising cost of housing including both the purchase price of a home and the cost of renting contributed a massive amount to inflation and the federal reserve began to wonder if the predicted “transitory” inflation brought about by extenuating circumstances around COVID/Ukraine/supply chain constraints etc was becoming permanent. The Fed’s best known tool in the toolbox to tackle inflation is raising and lowering the federal funds rates in an effort to constrict or loosen the supply of money in the economy. It’s not a 1 to 1 relationship when referring to mortgage rates but there is a strong correlation to what the market does as rates rise and part of that is interest rates on home purchases going up. I won’t get into the minutia of all that so the long and short of it is the Fed raised rates, mortgage rates went up, and suddenly the cost to finance shot up way quicker than what the market was fully prepared to absorb. The fed was also buying up pools of mortgages during covid which was artificially DECREASING rates, and they stopped doing that right around the same time as increasing the fed funds rate. So it was a double “fuck you” to the housing market in order to reign in pricing and inflation.
Why though? I thought everyone was in good shape financially? Well yes and no. The sharp rise cut the buyer pool for the average purchase price of a home nationally (around $400k yes I know that’s a lot) by nearly half. At 3% you had around 50 million home buyers that could afford that much on paper based on their debt to income ratio and how much they had to put down. At 6% that number dropped to around 30 million. That is a massive hike in the cost of ownership that we’re still in the middle of right now seeing as we’re hovering a bit over 6% at the moment. That’s less competition.
2023 - “I'm half crazy all for the love of you.”
So that brings us closer to the here, the now, and what is to come. The canary in the coal mine over the summer was the home builders. Up until that point they were rolling in dough barely keeping up with the demand that had been pouring in from people who didn’t want to fuck with the resale market. You don’t lock your rate in when you go under contract with a home builder. Typically you wait until you are 60 days out from closing to do that or around the time of your pre-drywall inspection. Technically you can lock in sooner but it’s crazy expensive and even then builders can still miss the target date. Larger production builders like Ryan, Toll Brothers, or DR Horton have their supplies and timelines locked in. You can estimate a 5-6 month completion time and be relatively certain you can hit that. Many other builders couldn’t do that because finding appliances, garage doors, lighting fixtures, truss plates or any number of things you need to finish a home was next to impossible being a smaller builder. This pushed closing dates back by a huge amount. In some cases it would take up to 1.5-2 YEARS to get to closing.
So if that 60 day mark is “who fucking knows” and you’ve watched rates double in the last 6 months how certain are you that you’ll be paying the price you thought you’d be paying when you signed the contract? Cancellation rates started skyrocketing nationwide especially in super hot markets like Boise, Denver, parts of Texas, Des Moines etc. We’re talking going from 10-15% all the way up to 30-35% of all new homes being cancelled mid construction. Suddenly buyers were exhibiting signs of hesitation that didn’t exist before. Slowly new construction started coming back to planet earth.
There is no crash though and I don’t think there is one coming especially in Richmond. A crash would mean sellers are forced to sell and buyers are unable to buy so prices have to come down to create an equilibrium. Jobless claims haven’t shot up. Mortgage delinquencies are about where they’ve been for the last two years (historically low levels). A lot of people are also just casually chilling in their homes with no reason to sell with ridiculously low interest rates they picked up in the 2010s too. Things are just on pause at the moment. There isn’t much on the market right now but we’ve actually been sitting at higher inventory this fall and winter than we have going back the last few years because that buyer pool has shrunk considerably. Unless rates drop without warning going into the spring I think we could see what most could consider a “normal” market where the people who need to move do so and buyers have more leverage to get repairs and a few concessions out of sellers. This is a good thing. We need this desperately because the market has been savagely unhealthy for years.
If you are planning on making a purchase you have to be mindful of a few things. First and foremost you have to make sure you dial in your financing well ahead of when you are going to start looking and build the expectation of rate/home price increases based on how far out you’re thinking. If you want to buy mid summer then assume rates will either hover where they are or maybe even go up a bit. Home prices will rise but I doubt it will be at the rate we saw going into 2022. So if you’re looking at the $300k home at 6.3% build some cushion in for $320k at 6.5 or something. You do not need 20% down to purchase and depending on your financial situation grants may even available to cover most or all of your downpayment. Speak to a lender NOW ( u/gracetw22 is the resident reddit lender. We’ve done many deals and she is one of the finest loan officers I’ve ever worked with) so that you can figure out what you’re comfortable paying and to see if there is anything you can do to improve your score and get a better rate.
Find a not-shit agent that is familiar with the entire Richmond area because only knowing a few square miles of the city means that agent could have some massive blind spots in the market. It will still be tough out there and that might mean keeping Henrico. Chesterfield, or even Hanover as a back up plan and if the person you are working with can’t speak with any knowledge on those areas then they will not be properly equipped to serve you. I strongly recommend staying away from teams as well. Many times you will just have a veteran agent sitting at the top taking a cut of everyone’s earnings with newbies or buyer-only agents handling the grunt work of showings and contracts. This is how many agents get their start in the business and you do not want to be someone’s trial balloon. Or maybe you do in which case godspeed and good luck. There will be people on here who disagree with me on this paragraph and to that I say eat shit and die because there is enough self-serving bullshit in this industry as it is. Fight me. You know I’m right.
If you made it this far you might be jones-ing for some hope and hear me when I say that hope is not dead. Yes rates are higher and homes are more expensive, but as a buyer you’re not going to have to hit some invisible moving target that’s more dependent on how desperate everyone else is than how much you want to pay. People were paying the prices of homes today (often more!) over the last few years by going way over list and giving everything away in the process. With stability in the market buyers and sellers are going to be on more even footing. You’ll know what you’re going to pay. You will likely get shit repaired before closing. You might get some closing costs or other favorable concessions from the seller. You probably will not need to pony up an ass load of cash because an appraisal fell short by tens of thousands of dollars. 120 day rent backs won’t be much of a thing. I really do think it will make a world of difference in our market.
If you are thinking of selling your home things are a little different now. It will most likely take longer than it did the last few years and while you may still get multiple offers they most likely will not be as strong as they were in the spring of 22 relative to your list price. This is okay though because you’re still reaping the benefit of increased home values over the last few years so who gives a shit if you have to fix a few things before closing? Agents on the listing side will try and tell you how they are superheroes that have gotten a bajillion dollars over list price for all of their clients and leave out the fact that they artificially priced all their listings low to pad their numbers and let their poorly trained office admin handle most of the work while they fucked off to the Rivah’ week after week. If you’ve been on the listing side at all the last few years (which by the way if you are looking for a buyers agent make sure they list property as well) then you’ve been on easy street. It’s been easy as hell to get a home under contract for a good price and anyone painting it to be some monumentally difficult task is either lying to you or extremely bad at their job.
Whether you are buying or selling turn your bullshit detector on. Be smart. Talk to a few people and get a feel for the different personality types in the industry. Find someone you jive with. Find someone who you will be comfortable with when they tell you when you’re wrong, or tell you to pump the brakes, or will be a good person to call up to talk you off a ledge at 10pm on a Tuesday. This is what we are here for. It’s our job. The same goes for lenders. Cap Center will charge you zero closing costs and then ignore you and your agent’s calls over the weekend when you need them the most. Your bank will probably have higher rates than smaller firms, but if you’re a member of a credit union don’t forget to run a pre-qual with them as well because sometimes they have the best rates in the business.
I think that’s all I have for now. I know this is a lot to digest but there are so many things to keep in mind and I just don’t want people to be wandering around aimlessly not knowing what to do next or what’s going on. I’ll answer questions as best I can but I’m going to try and keep my answers in a format that will be open enough for others to maybe pick some additional info along the way.