Buying a home for $600,000 in the Washington area

Earlier this year we focused on first-time buyers trying to get a toehold in the housing market. This time, we are looking at a hypothetical move-up buyer.

In our scenario, a condo owner and her partner have decided to buy a place together. To afford a larger place, they will both need to sell their condos. They both have about $40,000 in equity. (Equity is the amount the home is worth minus the mortgage amount owed.) To put 20 percent down on a $600,000 home, they will need to each chip in $20,000 in savings.

We asked two experts — Anzoleaga and Mackenzie Horne, a real estate agent with McEnearney Associates — what advice they would give the couple who not only need to find a home to buy but also sell their condos.

“For some, it feels too overwhelming to be trying to list a home at the same time you’re trying to buy a home,” Horne said. “You want to be organized, and that’s your real estate agent’s job — to help lay out the process for you. Give you a timeline. Coach you on your options. … There are so many different strategies and levers that can be pulled in a market like this, and it’s important to work with somebody who knows how to be strategic and map out these processes.”

The first thing a couple needs to do is determine their price range with a lender.

“I want to start showing you homes,” Horne said. “I want you to really start getting out there and seeing the inventory ’cause there’s just not many options out there.”

After an initial meeting to determine why the couple wants to buy a house, Anzoleaga puts together a market analysis and personalized mortgage plan.

“A mortgage is a financial vehicle that generates wealth but it’s also a financial vehicle that’s the greatest hedge against inflation,” he said. “The correct advice combined with the best price is essentially how a consumer wins, not just on a monthly basis but long term.”

When deciding which homes to show clients, Horne homes in on their personalities. What do they do when they are at home? How will they use the home? But not every couple is aligned on their priorities.

“You are different people,” she said. “You have different preferences, and that’s okay. Let’s try to find something that is a compromise that does feel right. And it is a hard market because we’re not spending a lot of time in some of these homes.”

Horne uses an analogy when helping couples buy a home.

“We’re going to buy one pair of shoes,” she said. “And it’s the only pair of shoes that the two of you are going to wear for the rest of your life, or maybe 10, 15 years, for a long time. You have to agree on the style, and you have to pick the same size. And it doesn’t matter that your feet are different sizes, you have to pick the same size. Because it’s the only shoe you’re going to be able to wear. … I set them up with that expectation. There is no such thing as the perfect home. It doesn’t exist.”

Anzoleaga says buyers look at three criteria: location, style and price. If one is important, the buyer likely will have to compromise on the other two.

“Buying a house is not a process of selection,” he said. “It’s a process of elimination. … You’re going to have to be flexible.”

Once the buyers find a home, they need to be prepared to act quickly.

“Things are not lasting long on the market,” Horne said. “A lot of times we list them on a Thursday and they’re under contract by that Monday.”

For most buyers, a home is the most expensive purchase they will make in their lifetime. It is understandable to have qualms. But be decisive, Horne said.

“There’s a part where your gut is going to speak to you,” she said. “This feels right. … I’ve had experiences where I’ve said to my clients, ‘I don’t think this is the house for you.’ ”

Horne recommends having a trusted circle of people who can help you reach a decision, such as parents, close relatives or friends. Both Horne and Anzoleaga stress the importance of picking the right real estate agent, especially in a market where buyers are likely to face multiple offers.

Anzoleaga said sellers care about three things: relationships, strategy and execution. One of the first things a buyer’s agent needs to do is forge a good relationship with the seller’s agent.

“Twenty percent of the agents are moving 80 percent of the inventory,” he said. “Chances are the seller is associated with an agent that is moving inventory. Those are usually the ones that are winning the listings. So that agent is going to, for the most part, direct the entire transaction.”

Some agents have been known to advise their sellers to reject offers from buyer’s agents or lenders they are unfamiliar with.

Once a buyer’s agent has built trust with the seller’s agent, the agent should put together a strategy for a winning bid.

“We have to think about how the seller is going to view your offer,” Anzoleaga said. “Instead of approaching from a buyer’s standpoint, you have to approach this from a seller’s standpoint. The seller is going to try to mitigate risk as much as possible.”

The tried-and-true way to come out on top of a multiple offer competition is to offer the most money.

“First and foremost, it’s always price,” Horne said. “Most of the time sellers are looking for the best price. … But also sellers are looking for the right contingencies.”

But these days many buyers are waiving inspection, appraisal and financing contingencies and still not winning. Depending on the seller, Horne suggests offering what is called a “rent-back.” This allows the sellers to remain for a specified time period after their house is sold, which gives them time to buy their next home.

Another way to show a buyer’s commitment is to put down a large earnest-money deposit.

“How much is somebody putting down?” Horne said. “Because it gets to a point where everybody is waiving contingencies, everyone is doing the right settlement terms, what else can you do?”

Horne said she knows of cases where a hefty earnest-money deposit helped a buyer beat out a higher bid. The earnest-money deposit is applied to the down payment. It is money the buyer has already set aside for buying the home. However, there is risk. If a buyer walks away from the contract, the money is lost.

The last thing that helps buyers in a multiple bid situation is execution, Anzoleaga said.

The seller wants to know “how quickly can I get my money?” he said. “When you have a multiple offer situation, [a long settlement is] just not acceptable to a seller. Because they are trying to mitigate risk as much as possible. So the longer this process goes, the higher the chances of this thing falling through.”

Anzoleaga, whose team closed 210 mortgages worth $104.8 million in 2021, said the majority of the home loans his team worked on closed within 14 days. The industry standard is 30 to 45 days.

“This year we went down to 10 [days]” he said. “We also position [the buyer] in such a way that when you make an offer on this house you can tell the seller, ‘Hey, Mr. Seller, I’m essentially as good as cash.’ ”

One concern for many buyers in a market where prices are rising quickly is what to do when the home appraises for less than the sold price.

“There’s a dynamic tension between how an appraiser looks at a property compared to how a real estate agent looks at it,” he said.

In those cases, Anzoleaga puts together an appraisal gap strategy for his clients, such as reducing the amount of the down payment to bring extra money to settlement.

“It’s those types of strategies that inform the consumer to make an educated decision,” he said. “The math and the numbers, you essentially have that in front of you. Now you can make an educated decision for your family and not one based on someone’s opinion or feelings.”

Although it may seem like buying a home is nearly impossible in this market, Horne has successfully found homes for many buyers. She recently worked with a couple who had what she termed “a very popular budget” for buying a house in the District. She told them to be prepared, to expect the process to take several months, and that they might have to write five or six offers before they finally got an offer accepted. They went out on a Saturday and found two houses they liked. They wrote an offer and got it accepted that weekend.

“It’s an anomaly,” Horne said. “They were so shocked, and they almost weren’t ready. But that’s the thing you have to be prepared for — sometimes it works. That’s part of the decisiveness, too. If they had hemmed and hawed and said we’re not going to write on this,” they might still be looking for a house.

One piece of advice Horne and Anzoleaga give all home buyers is to have a team of professionals surrounding them, starting with a real estate agent and mortgage lender.

“We have to do the heavy lifting upfront with your agent to not only fall in love with the house and get you through the door,” he said, “but actually make sure that we’re making a sound financial investment here that we won’t regret 10 years from now.”

To see what $600,000 buys, click on the link below.