Development

How to Lose Your Dream House (with your agent’s help)

January 28, 2019 By Rick Jarvis

How to Lose Your Dream Home

Earlier this year (January to be exact) I was at the office on a Monday evening while one of our agents was wrapping up the details on a contract for a home she had listed.

She was notifying the agents who had made the losing offers (there were 10) and I overheard a rather testy exchange on the phone with one of the agents whose clients had made a particularly weak offer.

After the call, we discussed what had transpired –– and below you will find step-by-step instructions on how to not win a competitive offer situation and cost your client a home they really wanted.

The Home

I think it is important to understand the home in question.

The home was an uber-cute classically-styled 1930’s era bungalow an oversized lot in an area experiencing rapid price appreciation. The home is well situated in the direct path of investment and development, and had recently undergone a tasteful upgrade.

The price would be considered quite affordable by today’s standards (less than $300,000) and was located quite close to the urban core.

For anyone seeking a smaller, cute, move-in ready home, it checked a lot of boxes –– it oozed charm, was quite close-in, and had tons of upside.

Market Conditions

Now, if you are even remotely aware of the inventory conditions, you would know what the description above meant –– it meant that the house would be in high demand and that multiple offers (like a LOT of offers) were pretty much a certainty.

In fact, over 10 offers were received.

Know Your Inventory

Right now, the inventory in the City of Richmond is at all-time lows, with less than a 4 month supply overall. However, when you look specifically at the market segments below $400k, the supply drops to less than 2 months (1.4 months as this post is written).

1.4 months of inventory –– let that sink in for a moment.

To give it perspective, experts say that 6-8 months of inventory is considered a balanced market (i.e. the number of sellers equals the number of buyers) –– so the number of available homes could increase by 500% and the market would only be considered ‘balanced’!

That is insane.

So even if you are not a statistics nerd, the fact that about 50 people toured the open house (including the ones who lost their ‘dream house’ with their less than compelling offer) should have driven this point home quite vividly.

Apparently, it didn’t.

Contract Structure

nicksplat rugrats GIF — 10+ contracts in January –– what does that tell you?

Most people feel that the sole purpose of a contract is to establish a price for the home. While price is certainly one of the elements of a purchase offer (and a critical one at that,) the contract also establishes the remainder of the terms for the sale –– of which another +15 pages (plus several addenda) are required to establish them all.

So there are several key points (other than just price) that can be leveraged to create a far more attractive contract for the seller when a highly competitive offer situation is expected including:

Will the price change in the event of multiple offers? (i.e. escalation clause.)
How the property will be paid for / financed (mortgage, cash, amount of down payment)?
How any appraisal issues will be handled?
How the inspection will be handled?
When not just settlement –– but possession –– will occur?

In other words, there are a lot of other levers to pull to create an attractive offer.

Winner vs. Loser

So, assume for a moment that the price of the home is $300,000 and a seller receives multiple offers (again, the sellers of this home received more than 10 bonafide offers.)

The winning offer stated:

Want to know more about **Escalator Clauses**? Read here…

A price of $300,000 with an escalation up to a maximum of $315,000 if a higher offer was submitted
10% down payment, but the appraisal contingency was waived and a lender letter was submitted showing the proof of funds to make up the difference if the appraisal was lower than the contract price
A cap on inspections so that only large items would be requested to be addressed
The several items that were not supposed to convey with the sale were correctly excluded from the sale
A post-settlement possession was also offered to the sellers (but not needed by the seller)

The folks who lost submitted the following offer:

$295,000 with no escalation clause
Conventional financing with a 20% down payment
No waiver of appraisal
No modification to inspection
Zero reference to the items that were not supposed to convey
Seller to pay for a Home Warranty

Not Even Close

So when the agent was called and told that they had not won, they were incredulous and argumentative about why they were not allowed to up their offer.

Sorry, but when you have several offers in hand that exceed the asking price, calling the 8th place contract and asking them to raise their offer isn’t a consideration.

The fact that they did not seem to comprehend that is what feels incredulous to me.

Losing Professionally and Graciously

Now, I wouldn’t think that this would need to be said but apparently it does –– when, as an agent, you make every mistake possible with your offer and you are notified with a phone call that you didn’t win –– don’t be combative.

The following was the basic gist of the conversation –– and all of the supposed points were made in aggressive and accusatory tones:

Why weren’t the buyers given a counteroffer?? Well, because there were about 7 better offers.
Why didn’t you ask for our highest and best offer?? Again, you were the 8th best of the 10+ offers.
Why weren’t we informed of the multiple offers?? Well, listing agents are under no obligation to do so, but the line out of the door at the open house should have been a clue –– and 1.4 months of inventory should have been another. Oh, and by the way, the inclusion of a properly structured escalator clause is a perfect way to hedge your bet (which you did not include.)
Why was the listing agent being non-communicative?? Well, because analyzing 10 offers and presenting the best ones to the seller takes considerable time –– and your offer was one of the least competitive of the bunch. Sorry if you didn’t receive a call within 5 minutes of the contract expiration time to inform you that you finished behind 7 other offers. When the best contract was signed, you got a call.

Sarcasm aside, do you know what being chippy about losing did? Do you think it changed the outcome? Of course not. It simply put everyone involved on notice that this specific buyer’s agent was difficult to work with. I can assure you that their attitude will not help their chances when all other contract terms are held equal and the seller needs to choose between two offers.

Lesson? Or Blame?

Is it possible that this agent was acting at the behest of their client and their strategy recommendations were ignored? It’s possible, but highly unlikely given the agent’s overreaction. The overall tenor of the conversation made it fairly obvious that the agent had recommended the strategy and now had to go back to the client with egg on their face.

Furthermore, I can almost guarantee you that the buyer’s agent placed the blame at the feet of the listing agent with some sort of ‘they screwed you’ message. I can only hope that their client is astute enough to sniff out where the blame actually should be placed.

Blaming the other side is certainly convenient, but a very damaging long term strategy. Richmond is a small town and the agent community is even smaller –– word travels. Your reputation (good or bad) can impact the market’s willingness to work with you and your future clients.

Advocating hard is both expected and respected by your peers –– being a jerk isn’t.

Summary

At the end of the day, this market is in an extreme place –– and extreme conditions must be navigated with strong methods. Using 2015 contract structures with 2019 comps in January of 2020 is not a recipe for success –– especially not in the ‘affordable-urban’ market.

As we have stated repeatedly, the market conditions we are in, particularly at the middle and lower price points, is unprecedented, and best practices that were generally accepted even a few short years ago no longer apply.

Everyone acknowledges that losing the perfect home stings –– whether you are an agent or a buyer. But it happens to all of us and will continue to be a part of this market for the foreseeable future. All you can do is prep your clients, take your best shot, and accept the outcome –– graciously.

That said, being wholly unaware of market conditions or winning strategies is not an excuse for poor behavior. Take your lumps, learn the lessons, modify your strategies, and make the adjustment.

The good agents do.

2019 and the Return to Normalcy

December 30, 2018 By Rick Jarvis

2019 is going to be a transitional year.

In the same way that you might take your foot off of the gas when you see a yellow light in the distance, 2019 will likely be a year where we see some segments of the real estate market lose a bit of their momentum.

‘A Return to Normalcy’ was a phrase used by Warren Harding during his presidential campaign in the 1920’s to define the period of recovery after WWI …

For many, a slower pace will feel extremely odd. All we have known for the past 5+ seasons is rampant price increases and bidding wars. That said, 2019 is likely the year that the frothiest behaviors will subside –– at least in some segments (which we will touch on in a few paragraphs.)

In reality, what we are beginning to see is not a market in decline, but rather <gasp> the leading edge of a normal market.

Disclaimers

First, I need to disclaim a few things.

Nothing in this post is guaranteed to happen tomorrow, or probably even the next day –– most of the observations are longer-term in nature and represent a shift in direction, but not a bootlegger’s u-turn.
Also, recognize that an individual house value behaves differently than a set (or segment) of houses. Colors, condition, architectural style, yard, appliances –– they all matter to individual buyers and sellers and can impact the value of an individual home. But the behaviors being discussed below refer more to how groups of homes behave in the aggregate.
And lastly, any number of unforeseen events could change things –– and fast. Politics, trade wars, real wars, oil prices, and/or natural disasters all have massive impacts on our economy as a whole. And corporate acquisitions, sales, and/or relocations can all have impacts on our region, specifically.

So with that bit of throat clearing, I proudly bring you the ‘What is Going to Happen in 2019’ prediction post (and if you want to see how I did in prior years, you can find 2018’s post here.)

A Return to Comparative Normalcy

What is normal, anyway? Well, we wrote about that very question at the end of 2018. But the takeaway is that ‘what is normal’ is more of a relative question than an absolute one.

via GIPHY

If you asked ‘1993 Rick’ what I thought of a 5% interest rates and 5% appreciation, I would have been giddy with the excitement of how many properties we were about to sell. But when you ask ‘2019 Rick’ the same question, I think, ‘Yeah, 5% rates and 5% appreciation is sure going to be slower than the 4% rates and 10% appreciation of 2016.

The lesson –– it’s all relative.

Does Anyone Remember?

To give you an idea of what a historic version of normal will look like, imagine a market with the following metrics:

6 to 8% mortgage rates (instead of 3.5%)
3 to 4% annual appreciation (instead of 8 to 10%)
45 to 60 day marketing times (instead of 7 to 14 days)
2 to 4% seller discounts (instead of multiple buyers with escalator clauses)

You see, the period from 1990 to 2005 looked a lot different than 2005 to 2018.

If you asked 1993 me what I thought of a 5% interest rates and 5% appreciation, I would have been giddy with the excitement of how many properties we were about to sell…

And, yes, I get it that many of the inputs are different (demographics, population trends, preferences, architecture, inventory, regulation, materials), but the period of 2005 to 2018 was about as unprecedented as one could imagine.

Honestly, I think a little more stability in housing is a good thing. NASDAQ levels of volatility in housing just isn’t healthy for anyone.

Segments Matter

So in our end of the year meeting at One South, we spent a lot of time on the idea of market segments. Segmenting (stated differently) is nothing more than looking at smaller samples of how connected sales behave, and not aggregating all housing into one analysis.

Pro Tip here –– If you ask an agent, ‘How’s the market?’ and they don’t ask a qualifying statement like ‘Which segment?’ or ‘What area are you referring to?’ then you need to find a new source of your information.

In the same way that New York’s housing market behaves differently than Orlando’s, the new construction market in western Chesterfield should behave differently than Bellevue does –– and this will be key in understanding the new market.

Segments and the Impact of Population

For years, the City of Richmond’s population was in decline. Chesterfield and Henrico were experiencing explosive growth, but the City was not.

Around 2000, the City population trend officially reversed.

In the latter 1990’s, you could feel it starting to happen. VCU was gobbling up properties by the handful and many of the long ignored Downtown neighborhoods began to see construction activity and new businesses popping up.

The population of Henrico and Chesterfield now need to compete with the City for residents and can no longer sustain their growth based on the City’s exodus.

When the 1990’s gave way to the 2000’s, the City’s population began to stabilize at just below 200,000 residents. As we now enter 2019, the population of the City is approaching 230,000, and (by most studies I have seen) is projected to continue to grow.

The Impact of Growth

For the last 5 years, extremely tight City inventory levels and incredibly competitive bidding wars (the worst we saw in 2018 was 18 offers on one house near Carytown, no joke!), especially at the lower price points, has been the norm.

What do you get when your supply is fixed and demand increases? Price appreciation, that’s what.

The growth rate within the City has not only equaled the growth rates of the surrounding counties, but might have actually exceeded them. Any agent who works the more urban markets will tell you that the impact of the growth has been dramatic.

So as long as this trend continues, if you own property in the City, you are probably sitting pretty.

The Behavior of Various Segments

Now when we compare pricing for various segments, what we tend to see is the areas where pricing is the most affordable and closer to the urban core have appreciated the most dramatically. Areas that are further out and/or more highly priced are the ones where pricing has gone up at a slower rate.

Now, with all general statements, there are going to be exceptions, but overall, the statement holds true. Take a look below at 5-year appreciation rates in different areas of the Metro.

Appreciation_Rates_ — These figures only include resale properties, not new ones.

As you can see, the appreciation rate differs greatly.

Does that mean that you have made a mistake or are subject to deflation in the coming years if you live in a suburban area with new construction? Not at all. It just means that you shouldn’t expect that your neighborhood will behave the same as the one with a lower price point or on the other side of town.

And the Reasons, Please?

What do Fox Hall, the Deep Run High School District, and Hallsley all have in common? Fairly high prices to begin with and a great deal of new construction nearby.

What do the Museum District, Bon Air, and Church Hill have in common? Relative affordability and great difficulty in building new homes on any sort of scale.

Simply put, we can’t build houses where we need them most AND we can’t build them at the prices that the market can easily afford.

As we have stated many times before, the ability to provide housing is easiest where land is plentiful. So in areas south and west of Route 288, as well as points east in Henrico, where large tracts of undeveloped land are available, it is far easier to create new communities of scale.

Building is Getting Harder

But as any builder will tell you, not only are they being forced to build further away from the urban core, their costs are skyrocketing (both materials and labor) and the mandates placed on them by the counties are increasingly burdensome.

Take a look at the chart showing what has happened to the cost of construction (labor + materials). The builders aren’t lying when they tell you how much their costs have increased.

Furthermore, the arrival of several national builders is going to change the way new homes are sold in Richmond. DR Horton, Schell Brothers, and Stanley Martin each have the financial backing to build more homes in a quarter than most of the local builders could hope build in a year. The big national builders can gobble up lot inventory, they have their own sales force, and have the capital to build new models for each section of the communities in which they sell.

The Return of Strategic Mortgage Decisions

Let’s shift from home prices to borrowing money.

For the better part of a decade, choosing a mortgage product has been pretty much a no-brainer:

What mortgage product do you choose when 30-year fixed rates are at 3.5%? You take the 30-year fixed rate because of the 30-year guarantee.
What mortgage product do you choose when 30-year fixed rates are at 4.5%? You take the 30-year fixed rate because of the 30-year guarantee.
What mortgage product do you choose when 30-year fixed rates are at 5.0%? You probably still take the 30-year fixed rate because of the 30-year guarantee.

But what happens when 30-year fixed rates are at 6.25% but a 5 year adjustable is at 5% and you only plan on being in your home for 5 to 7 years? The question becomes trickier, doesn’t it?

Welcome to the new (ok, old) world of mortgage finance.

In the 1990’s, we saw clients make the fixed vs adjustable mortgage decision all of the time.

But since rates cracked the 5% floor in 2010, taking the risk of an adjustable mortgage seemed unnecessary.

Where are we currently? We enter into 2019 with rates hovering around the 5% mark. And while no one can claim to be a master of perfectly predicting interest rates, the majority of industry experts feel that 30-year rates between 5.3 and 5.8% (or even as high as 6%) by year’s end are a real likelihood.

So as the spring market emerges and the demand for money increases, the shrewd buyers will keep an eye on the mortgage products OTHER than the 30 year fixed rate mortgage to see how large the spread is.

At some point, the spread between fixed and adjustable mortgages may justify selecting shorter term mortgage products –– especially when the expected hold period is less than 10 years.

Cue the ARM (the Adjustable Rate Mortgage)

Wait, did you just say that ARM’s are good?!? I thought that ARM’s were the thing that caused the financial crisis in 2008?!?

Well, if you don’t underwrite an ARM properly, then yeah, an ARM is not a good product. But no mortgage is safe if it isn’t underwritten correctly –– ARM or otherwise.

So let’s not blame the ARM, let’s blame the true culprit –– shoddy underwriting.

The blue is the percentage of loans underwritten in each year since 2001 that were considered Sub Prime. As you can see, the percentage of Sub Prime is far lower than in the years preceding the crash in 2008.

In the financial crisis of 2008, a great deal of focus of was placed on the Sub Prime mortgage industry. And there was no more abused loan product by the Sub Prime industry than the ARM.

Today’s Arms are Actually Underwritten

The difference today is that the ARMs issued by Fannie Mae, Freddie Mac, and FHA are underwritten properly and also contain caps on the adjustments so that extreme swings in interest rates do not dramatically increase the risk of default. The Sub Prime ARM’s were neither underwritten with any rigor, nor were they capped in such a way as to minimize risk. (And in many cases, they were designed to fail, but that is another topic for another day.)

As an example, a 5/5 adjustable with a 2% cap means a mortgage with a fixed rate for 5 years with a maximum adjustment of 2% at then end of year 5, with another 5 years of the new rate before another adjustment. Is that overly risky? Not when applied correctly it isn’t.

What makes an adjustable mortgage product appealing? The rates tend to be lower –– especially the higher that the 30-year fixed rate becomes.

And while the spread between fixed-rate and adjustable rate products is not quite to levels that justify the switch, it might not be too far off in the future.

So if your loan officer suggests you take a look at an ARM, don’t reject the idea simply out your memory of 2008. An ARM, like a screwdriver or a shovel, is simply a tool. When you use a tool appropriately, they tend to work quite well.

Since 1991

So we (Sarah and Rick) have been in real estate –– as agents, brokers, lenders, developers, owners, and rehabbers –– for longer than we would like to admit. And consequently, we have had front-row season tickets to the booms, several busts, and each subsequent recovery.

We have had front-row season tickets to the booms, several busts, and each subsequent recovery…

What does that mean? It means our advice is based on experience that dates back to the early 1990’s.

In 1991, the median sales price of a home in the US was $120,000. It is now $315,600
In January of 1991, 30 year mortgage rates were 9.56%. They are now 4.75%
In 1991, the average rent was $649. It is now $1,450.
In 1991, there was no Zillow and no Trulia. As a matter of a fact, there was not even an online MLS

What else does it mean? It means our team is extremely excited to see times ahead where good decisions will rule the day, and not just momentum.

We love the fact that strategic decisions about mortgage are required, and not just blindly electing a 30-year mortgage, regardless of the situation
We love the fact that the need to make purchase decisions under multi-offer pressure will likely subside
And we love the fact that the data now exists to really help demonstrate the best course of action, and decisions are made based on information, not conjecture

Welcome to 2019, the leading edge of normal.

Things I Have Been Thinking About

September 26, 2018 By Rick Jarvis

For those of you who follow the blog, you know that most times it is a pretty deep dive into a topic usually related to inventory, pricing, or strategy.

Today’s blog is not one of those. This is a shallower dive on a few different topics that we’re keeping tabs on right now. I hope you enjoy!

Facebook and Fair Housing Laws

Facebook just got nailed for violating Fair Housing Laws.

Yep, good old Facebook can’t seem to get out of its own way lately.

Their ad targeting platforms are so good that they give anyone the ability to include — or exclude — any group based on every imaginable demographic, geographic or psychographic attribute. So if you would like to advertise to everyone except a specific religion, sex, familial status, race, or age, Facebook makes it possible.

The same vehicle that was supposed to connect us all and provide a forum for discourse actually provides really awesome tools to do the exact opposite.

Irony.

Opportunity Zones

Much like Historic Tax Credits were all the rage in the 2000’s, the Federal Government’s new Opportunity Zones have developers and investors extremely excited.

The basic gist of the program is that if you purchase a property in a designated ‘opportunity zone,’ it exempts exposure to the capital gain tax, either partially or wholly, depending on how long you hold it. And while all of the details are not fully fleshed out, it also appears that the opportunity zone program will also make it easier for partnerships who use the 1031 Tax Deferred Exchange technique to break up without penalty.

In layman’s terms, Opportunity Zones provide powerful incentive to free up a ton of capital currently trapped due to tax reasons and deploy the proceeds into areas that need a little push to jumpstart the revitalization momentum. Great idea, right?

In theory, yes.

But what is funny is that they used 2010 Census data to determine where the Opportunity Zones should be. Guess what? Scott’s Addition, with rents now approaching $30/SF, is in an Opportunity Zone.

Yes, there are many needy areas that will benefit greatly from the program. But Scott’s Addition? Really? Whoever was in charge obviously didn’t sign the bill while on the roof of The Hof, while playing shuffleboard at Tang and Biscuit, while drinking a cider at Blue Bee, or having a meeting at Gather, or an IPA at Ardent, or over dinner at Brenner Pass …

Classic.

The 2020 Census

The 2020 census is right around the corner and I think everyone wants to know what the population of the City of Richmond will actually be. We have heard estimates that the growth rate has been anywhere from 2 to 5% per annum, depending on which study you read.

From the 1970’s to the 2000’s, the City’s population was either declining or flat. When your population isn’t growing, the supply of housing, office space, and retail space can remain constant. But when your population begins to grow, you have to start thinking about the impact that has on demand for space.

Fast forward to today and you have roughly 230,000 residents in the City –– which is not as many as the 250,000 residents of 1970, but when you consider that the average number of people per household has dropped by an entire person, we might already have a housing need greater than we did in 1970.

And for a city that has no legal authority to expand, Richmond has to make due with what it has. That can pose a big problem.

Right now, developers are repurposing almost any available property they can find into residential apartment space. And while that has helped provide a solution for the renter, it has shifted the burden to office, retail, and industrial spaces, especially as the business climate has improved. If the Scott’s Addition rental rates are any indicator, the shortage has already begun…

And for anyone who has tried to purchase (not rent) an ‘affordable’ home in Richmond, you know how difficult that has become, too. In the last 5 years, homes priced below $400k in the Fan, Museum District, Jackson Ward and Church Hill have increased by $30/SF and marketing times have been cut by more than half.

Affordability is already wreaking havoc on the residential market, and it seems to be now bleeding into the commercial market as well.

Lastly, A Clean Bill of Economic Health

Last week, a bunch of (arguably) smart people got on a stage in Richmond and said that the economy is strong nationally, as well as regionally.

That makes me feel good because most economists believe that this growth cycle has already surpassed any previous growth cycle in our history.

The fact that we are already in uncharted territory should make everyone nervous, except that it doesn’t. Everything looks pretty solid.

All I can add is that the housing factors that caused the crash in 2008 simply do not exist right now. So if a crash is imminent, it will not come as a result of the housing sector.

So if it all falls apart tomorrow, you can’t blame residential real estate and shady mortgage practices this time!

That’s All, Folks…

So that is it for now.

You may now return to your regularly scheduled programming.

Why July Defines One South Realty Group

August 5, 2018 By Rick Jarvis

I will always have a soft spot in my heart for July.

My wife is a July baby.
My oldest daughter was born in July.
5 years ago, in July, we moved from our old office into our brand new renovated office in the Fan.

And ten years ago in July, we should have gone out of business.

Before the Bubble

In case you don’t remember, 2008 was the year everything changed for the real estate market. The economy that began to really gain speed in the early 2000’s still seemed to be robust, and though we were beginning to see some weakness at the upper price points, development was healthy and opportunities were all around us.

In the last half of 2007, we had made the decision to open One South. We saw an opportunity for a more progressive brokerage that had both a residential and commercial aspect to it. Everyone thought we were crazy. Perhaps we were; or perhaps just crazy enough to make it work.

We were actively recruiting, making hires, finalizing logos, and doing all of those tasks that you do when you are opening a company.

We were equal parts optimistic and oblivious.

One South is Born

So on January 2, 2008, we opened the doors and went to work. Our new signs went up on properties, our logo was proudly displayed on Main Street, and the Realtor community was asking ‘Who are these guys and where in the heck did they come from?!’

For the first 6 months of the year, we went gangbusters. We had convinced some really great agents to come over and were making a bigger splash faster than I would ever dreamed possible.

We represented numerous redevelopment projects — The Emrick Flats, The Reserve, Tribeca Brownstones, the Cary Mews, and the Marshall Street Bakery — and had quickly developed a reputation as the go-to city development folks. It was a great position to be in.

And then it happened: we had a purchaser of one of our condo units get their loan denied for no real reason. It was 2008 and the middle of July. And for the first time, I sensed that something was bad was happening and it was bigger than we could imagine.

July of 2008

When you are a Realtor in the spring, you are busy.
When you are a Realtor in the spring trying to sell and recruit, manage, market, hire, and grow, you are really busy. And you are aren’t really paying attention to the nightly news and the reports of rising defaults in the subprime sections of mortgage.

So when, on July 30th of 2008, former President Bush signed the Housing and Economic Recovery Act that gave the Treasury Department the ability to prop up a collapsing banking industry, it was the first inkling that this wasn’t a blip on the radar but rather, a long and cold winter was coming.

For a company as small as ours, with no history and little working capital, we had big problems on our hands.

We Were Lucky, and Good

Maybe it was fate, maybe it was intelligence, or maybe a little of both, but we had aligned ourselves with smart people and smart bankers. We all recognized that we needed to figure out the best way to get our collective exposure down and get the unsold units we were marketing sold and sold fast. And if Fannie Mae and Freddie Mac were not going to make loans, we needed to figure out a way.

We worked together. Price adjustments, creative incentives, some good hard nosed selling, and a dogged determination to succeed got us through and even earned us several new engagements. We developed a bit of a playbook for solving problematic projects (that we still use today) and earned the equivalent of a PhD in mortgage finance.

Slowly but surely, we managed to maintain growth despite a market that lost 30-50% of its value and a Realtor population that dropped by nearly the same amount by the end of 2011.

July of 2013

But by 2012, we could feel the change coming.

Inventory levels were falling. Prices were leveling out. Banks were coming out of receivership.

We decided to double down on ourselves and started looking for our next home. In December of 2012, we were able to secure 2314 W Main Street, the old Kicker’s HQ, known to all for the soccer player murals on the side of the building and construction began.

7 months later, in July of 2013, the renovation was complete and we took possession of a 8,000 SF mixed use industrial chic renovation in Richmond’s Fan District.

It was a proud moment and a testament to how far we had come.

July of 2018

We recently had an event in our space to celebrate One South’s 10th birthday. We invited many of our architect, contractor and developer clients who had allowed us to help them dream and execute their vision through the creation of new housing.

And in doing so, it gave us time to reflect back on what we had done in our first decade:

We opened with 5 agents and 1 staff member. We now are basically 100 agents and staff in two locations.
We sold a little over $20M in real estate in our first year. Last year we sold over $200M in real estate.
When we opened, we had 4 projects we represented. That count now exceeds 30.
Maybe 5% of our business came from the commercial side in 2008. We now have about 35% of our business come from our rapidly growing commercial team, including two $20M+ sales this year.
And finally, we have been named in Richmond Biz Sense’s RVA 25 for the past two consecutive years as one of Richmond’s fastest growing firms (the only real estate brokerage to make it back to back!)

July of 2028

So as we prepare for fall of 2018 (is it really August already?) and continue to fight the inventory shortage, we are full steam ahead.

We continue to work on creating a better experience for our clients and our agents, and to grow our own knowledge and capabilities. The real estate market is ever changing and the minute you think you have it figured out, you find yourself playing catch up.

We can’t wait to write the July update in 2028.

It’s Okay to Pay More

June 26, 2018 By Rick Jarvis

I know it sounds like it goes against everything in your core. Real estate is negotiable and a good deal means a big discount. Right?

Well, that is not necessarily true any more.

Price is Not Value

The price of anything — a house, a car, a gallon of milk — is the owner’s estimate of what they think their product can command.

But the value is what the market is actually willing to pay.

Ask yourself this: If every house on the market was simply labelled as ‘available’ with no set price, how would you, as a buyer, behave? In this market, that might be the best way to think about it.

Musical Chairs, Sorta …

Do you remember the game of musical chairs — where there is always one more person than there are chairs. Well, instead of ten people and nine chairs, imagine the game with ten people and one chair.

This is what the market has become. It’s a ridiculous comparison, of course, but it applies. Low supply and high demand means prices rise — and right now, the supply of homes has never been lower.

Show Me the Numbers

The fact there is an inventory shortage is pretty well known. The issue is very few understand how extreme it has become.

Check out how much the market has changed:

In May of 2008, there were 11,000 homes on the market and 1,200 under contract (a 9 to 1 ratio.)
By May of 2011, there were 8,800 homes on the market with 1,200 under contract (a 7.3 to 1 ratio)
By May of 2017, the numbers were 3,800 and 2,300. The ratio had fallen to a never before seen 1.65 to 1.
And now in March of 2018, 3,000 and 2,100 is where we stand for a ‘you have got to be kidding me’ ratio of 1.42 to 1.

And when you look at some of the mature urban markets, especially those that are supposedly affordable, those markets have actually inverted with more houses under contract than there are homes available!

Per the chart above, the Museum District and Windsor Farms area has only one house for every three buyers! (April 2018 shows 18 active listings vs. 56 pending sales.)

Competition is fierce, to say the least.

There is No Fix

Here’s the bad news, there really isn’t a fix.

For one, we are not going to build our way out of this problem.

Housing can only be built (in any substantial quantity) in areas where there aren’t already houses. In other words, the only place we can build houses is in the outer suburbs — further and further away from the urban core. And for many, what is quickly becoming a 40 or 50 minute commute simply isn’t an option.

On top of that, the price of home building materials has never been higher and the labor pool has never been smaller, resulting in correspondingly large cost increase in new construction.

Two, owners where houses are few and far between are electing to simply stay put. Why? Because once you sell a home, you have to go buy another one – and why would any seller in their right mind sell their home only to have to go and buy another one in this crazy market? Especially if they have a 3% 30 year mortgage and their equity is rising as rapidly as it is?

The situation we are in is going to be here for quite some time.

The Lesson — Don’t Mistake Tactics for Strategies

The decision to buy or sell is a strategic one. But how you buy or sell is a tactical one.

Paying over asking price does not mean you or your agent is a bad negotiator — nor does waiving inspections, or appraisals, or offering rent-backs (provided you are not putting yourself in financial danger!) All it means is that you are doing what you can to secure an asset that is in demand.
We get it, the inventory crisis is causing some of the most extreme market conditions in history, which is unnerving to navigate. And yes, we fully acknowledge that it takes a time or two to really figure out what you need to do to win.

But just know that the smartest people in any room want to own the most valuable assets available and will do what it takes to secure them. And for the best houses in the best neighborhoods, there is going to be intense competition. You have got to come correct if you want to win the battle.

I know it is difficult to hear, but today’s market doesn’t resemble the markets of the past – even the very recent past. Make sure to adjust yesterday’s strategies to today’s conditions and don’t mistake paying asking price or above with a poor decision.