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Many buyers, few houses drive Richmond-area real estate market to new highs, lows and has 'led us to this frenzied state'
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Many buyers, few houses drive Richmond-area real estate market to new highs, lows and has 'led us to this frenzied state'

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Alison Solomon’s “not anything glamorous” former 1970s-era home in Henrico County sold in a matter of days last month for $17,000 more than the listing price — and that wasn’t even the highest of the five offers she and her husband received.

They were asking $325,000 and got $342,000 — so it turns out that one bathroom that was never updated and the less-than-modern kitchen Solomon felt were detriments didn’t actually scare people away after all.

If the Richmond region’s housing market was a seesaw, it would be the sellers’ turn to joyfully reach for the skies while buyers would be feeling the lows and sitting in the dirt.

The supply of available homes for sale can’t keep up with the demand right now, and it’s causing the local real estate market to hit highs — and lows — when it comes to sales prices and inventory.

The median sales price — with half the houses selling for more and half for less — in the Richmond area during the first three months of 2021 was $310,000, up 16%, or $42,500, from a year ago, according to the Richmond Association of Realtors’ recent Central Virginia Regional Multiple Listing Service report, which came out in April.

That’s the largest median price increase in five years.

And the region’s median sales price has soared 44% — or $95,000 — in those five years from $215,000 in first quarter of 2016.

The city of Richmond saw the largest year-over-year jump, with home prices rising by 24% — or $58,000 — to $300,500 from last year.

Housing prices in Chesterfield County jumped 19.6%, or $52,100, from last year, while Hanover and Henrico counties each rose 8%, an increase of $24,000 and $20,000, respectively.

Those spikes are driven by a lack of inventory — fewer homes for sale and less time on the market when listings appear, real estate experts say.

At the end of March, there were 1,236 active listings in the metro Richmond area — that’s down 48% from the same time in 2020. Henrico saw the biggest drop in inventory with a decline of 52%.

The average days on the market was 20 during the first quarter of 2021, which is half of what it was at the same time last year.

Those factors create a perfect storm for buyers, who begin taking more pronounced measures to get their offers to stick, including paying more.

What people ended up paying for their homes versus the listing prices also went up from last year. Buyers are paying an average of 102.1% of the listing prices — more than the listing prices and, in some cases, a lot more — in order to get the homes they want, the Realtors group report showed. That’s up from 99.4% last year.

It’s both a blessing and a curse, area real estate professionals say, as sellers are reaping big benefits, while some buyers are frustrated by a market that’s increasingly moving too quickly for them.

“It’s an exciting time to be in real estate,” said John S. Finn Jr., senior managing broker for United Real Estate Richmond.

Despite COVID-19 slowing things a bit last spring, where other industries were hurt, “the real estate industry just seemed to take a great big deep breath, and then exploded,” Finn said, “and it just has not stopped.”

Where he used to have six months’ reserves in terms of inventory, he now has 45 days’ worth. Dynamics have changed dramatically for buyers and sellers and agents, too.

“Making an offer at list price in this market is not going to get you a house,” Finn said, not when others are offering way above list prices plus lots of other goodies to entice sellers to select them.

He’s seen some offers as high as $100,000 over list price.

His sellers are getting offers, sight unseen by the buyers. They are getting contracts that forgo inspections, or include additional money that makes up the difference between asking prices and appraisals.

Some have even received “love letters” in which buyers make their case for why they should be chosen for that house.

“It is creating an amazing number of creative ways to be the most attractive offer to a seller,” Finn said, though that means frustration for many buyers who can’t move fast enough or bring enough money to the table to even be considered.

“We really have to spend a lot of time in our initial consultations with clients [who are buying a house], helping them regulate their expectations [that they’re] going to be rejected — I’ve never had to say anything like that before,” Finn said.

In some cases, he calls a timeout if buyers continuously have their offers rejected.

“Nobody likes to be rejected 18 times [so] sometimes we take a break and we come back,” he said. As a Realtor, “there’s not a lot of explanation you can give ... when someone [else] offers $75,000 above list price — you just don’t have an explanation for people.”

***

A few factors are contributing to what’s happening in the residential real estate market, said Lisa Sturtevant, the chief economist for the Virginia Realtors organization.

On the demand side, mortgage rates continue to hit historic lows, often under 3%, so more people are trying to take advantage of that, including first-time homebuyers and, increasingly, millennials.

The average for the 30-year rate fell to 2.95% on Thursday from 3% a week earlier, mortgage buyer Freddie Mac reported. At this time last year, the average long-term rate was 3.15%. The rate for a 15-year loan hit 2.27% on Thursday, dropping from 2.62% a year ago.

Homeowners who suddenly found themselves and their whole families under one roof during the pandemic and realized they needed more space are taking advantage of low rates to find a bigger house.

Those who came out of the pandemic’s economic downturn unscathed also are looking to buy second homes or vacation homes, said Brian Haug, senior vice president of the Southern Virginia region for Long & Foster Real Estate, the Richmond area’s largest residential real estate firm.

“They’re borrowing money again,” Haug said. “They put the money they couldn’t use on vacations [during the pandemic] into a down payment on a second home.”

On the flip side, however, a trend that’s been happening for years, even before COVID-19, is that older homeowners aren’t selling their homes as fast, opting instead to stay in place, Sturtevant said. Adding to that were folks who didn’t want to sell their home during a pandemic and are still a bit leery to jump into the market.

There’s now a shortage compared to the demand, and “it’s led us to this frenzied state,” Sturtevant said, and it’s not just homes in the $200,000 to $300,000 price range that are selling quickly, even though those often go the quickest and are harder to find.

“Competition is at every price band,” she said.

For example, home sales of those listed at $1 million and up, while less than 1% of the overall home sales for the Richmond area, jumped from 0.65% of all homes sold between January and April 2020 to 0.89% for the same period in 2021.

That’s 31 homes that sold for $1 million or more in those four months last year, compared with 47 homes this year — a 51% increase.

Also, where buyers of million-dollar homes were paying an average of 98% of the asking price last year for those homes, they’re now paying just over 100% this year.

“I think it’s going to be competitive for the rest of the year,” Sturtevant said, though she noted there’s a bit of an uptick in listings coming on the market, which could indicate some breathing room for those looking to buy by year’s end.

That’s due in part, she said, to people who are more comfortable selling now that the pandemic fear seems to be lifting and more Americans have been vaccinated for COVID-19.

***

Local Realtor Stephanie Booker-Johnson with United Real Estate Richmond is taking matters into her own hands.

With supply so low, she routinely cold calls on homeowners in highly desirable neighborhoods that she knows well, usually in North Richmond or parts of Chesterfield, to inquire whether they have any interest in selling and to help residents who may have questions about selling their homes.

She looks for the signs that a homeowner might be getting ready to sell — a dumpster in a front yard or maybe a home she knows well that suddenly gets some sprucing up and curb appeal.

Her tactics might seem extreme, though occasionally, they pay off.

“I would turn the whole car around if I see a dumpster in the front yard,” joked Booker-Johnson, adding she did exactly that recently while driving through a Richmond neighborhood off Walmsley Boulevard.

She saw a home being cleaned out, stopped to talk to the homeowners and learned that they were getting ready to sell. She brought a client by and, ultimately, that individual bought the house for $175,000 before it even went on the market.

Booker-Johnson said she tends to look for homes priced at $300,000 and under “because it’s rare to see them and it’s still an affordable price.”

***

Back in Henrico, Solomon, who sold her house for over the asking price, said the pandemic pushed her family to sell.

With two adults and four children under one roof, “COVID made this house real small, real fast,” she said of her former home.

They were hesitant, she said, until they were convinced by their real estate agents that their home didn’t have to be perfect to be listed. They put some fresh paint on the walls and decluttered rooms. They listed it on a Thursday, went away for the weekend and came back to five offers, all above list price and added enticements.

Some offered to pay the Solomons’ closing costs, some put money toward inspection defects and others offered money to make up for any appraisal shortfalls.

They went with the second-highest offer, Solomon said, because it included provisions that were more financially beneficial for them.

They also managed to find a home nearby that fit their family perfectly. Solomon described her new home — they’ll close in June — as a bit “quirky” and on an oddly-shaped lot, which is maybe why it hadn’t sold after a week on the market and the price was reduced. They made an offer at asking price and it was accepted.

She knows their situation is “not normal for the market,” because many families right now are having issues finding a house. She’ll take her blessings.

“It was meant to be,” Solomon said.

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