In the highly competitive D.C. housing marketplace, the big question most buyers’ agents are going to ask the agent with a new listing is: “How many bids do you have?”
The expectation is that for every new, well-priced property that comes on the market in the District below $1.2 million, there will be more than one buyer, and often as many as five or six buyers and sometimes as many as 10 or 11 buyers.
We have limited supply and tremendous demand, and it has caused a run on the market. While it is not clear why we still have such low inventory, there are lots of good reasons why buyers choose the District as the place to live: the high level of cultural and entertainment assets in the city, walkability (even with Metro’s current problems), and the desirability of our housing stock in a beautiful setting. When compared to many other popular locations in the country, we have a great number of houses, townhouses, co-op and condo buildings that are architecturally significant near appealing circles and squares, monuments, and on tree-lined streets to give each neighborhood its own special character.
And, we have jobs with nice salaries attached to them. So our buyers are financially secure and they want to be here, or as close in as possible to the District. Arlington or Bethesda are often second on lists, and if they cannot afford those two locations, Hyattsville or Cheverly, are a few of the up and coming locations.
Buyers face tough choices when they are confronted with a multiple bid situation. If they have to get a loan, it will be very hard for them to compete with an all-cash offer. If they haven’t had the time, inclination or money to do a pre-inspection, their offer will be hampered by including a home inspection contingency. If they have limited cash, they will want an appraisal contingency, and this also pushes them back to the end of the line. Financial contingencies are not as serious a limitation, because the listing agent will be able to evaluate their ability to borrow based on the financial information submitted, as well as the quality of the lender’s pre-approval letter. If this sounds like a lot of requirements, it is. But submitting a clean offer, with good cash and borrowing power, and few if any contingencies, is what’s required to win in competitive bidding situations.
Buyers enter the field of play not fully believing or understanding what they have to do to “win.” Sometimes it takes two or three failed offers before they understand they have to bid as high as possible, with a few or no contingencies, to win. Oftentimes, buyers’ parents get involved to supply gift letters and necessary cash to give these buyers the competitive edge they need.
Then, there are the escalation clauses, which are widely used in our area, but not popular in many other areas of the country. The escalation clause is a contingency clause, where the buyer promises to pay, for example, $2,000 over any other competing bid, not to exceed a ceiling of “X” dollars. This way the buyer knows how high he may have to go (the ceiling) and will know the amount of money ($2,000) he is willing to pay to outbid other competitors. Some buyers will not use escalation clauses on their first bid, but they soon find out that it is usually necessary to be competitive.
In this challenging marketplace, here is one great piece of advice for all buyers, first-time or otherwise: get a good real estate agent to represent you. Knowing the terrain and knowing what to expect in each situation is critical for the buyer’s chances of success. Most important, unlike the buyer, agents retain their objectivity and can keep buyers on track, reminding them of their goals, limitations and objectives, even when the heat is on and the going gets rough. Having a good agent makes all the difference in being successful, sticking to your game plan, surviving with minimal stress, and making the purchase that fulfills your personal objectives. Hang in there and happy house hunting!
Donna Evers, firstname.lastname@example.org is the owner and broker of the largest woman-owned and run real estate firm in the Washington Metro area.