In 2012, Matt Dwyer and his partner bought a house near the corner of 17th and Brown streets in Francisville for $400,000. The previous owner had rehabbed the property over the course of several years, Dwyer told me, and there was no tax abatement attached to the house at the time. But real estate values in Francisville were starting to spike, and the property has two parking spaces in the front—a premium in a town where car storage has replaced weather as the default topic of neighborly conversation.
They weren’t planning to move, but when Dwyer’s partner, who works in health care, got a job offer in Jacksonville, they decided they couldn’t refuse it. They put the house on the market on Friday, March 2, listed at $525,000.
“The buyers were like vultures all weekend,” Dwyer said. “We had people congregating outside the house, personal letters submitted with many of the offers, and people trying to get showings within an hour of the listing hitting MLS,” or Multiple Listing Service, which real estate brokers use to keep track of property listings.
By the end of the weekend, they had six offers on the house. Two of the offers came in at $550,000, nearly 5 percent above the asking price on a block where, prior to 2010, property records show, nothing sold for more than $200,000. But they turned down both of those offers in favor of another that was merely $10,000 above the asking price, because the buyer was willing to pay cash. Why leave $15,000 on the table? Because there’s a shortage of comparable sales in the neighborhood—“comps,” in the real estate lingo—meaning the appraisal that’s part of the closing process might return a different value, and bring buyer and seller back to the negotiating table. The cash offer was a sure thing.
“It was a breeze…” Dwyer said in a Facebook message. “Sad to go. Loved it here. Only things I won’t miss are the litter and the taxes.”
Around the same time, Jim Robertson, an agent with OCF Realty, had a buyer who wanted to bid on a new construction on the 1700-block of Titan Street in Point Breeze. The house hadn’t even gone on the market yet, but Roberston knew it was going to list at $525,000, and urged the buyer to submit a full-price offer. But by the time they did, another buyer had happened to walk down the block and see work being done on the house. They contacted the sellers and put in a full-price offer first. Two full-price, half-million-dollar-plus offers before the house went on the market, without parking space, on a block where nothing else has ever sold for as much as $250,000. The other buyers’ offer beat out Roberston’s clients’, but he eventually was able to make a deal to get his client into an adjacent new construction for around the same price.
“Twenty-four hours in this market is an eternity,” Robertson said.
Of course, it’s not news that the cost of housing in neighborhoods near Center City has been steadily creeping up over the last few years. In a housing report published in February, the Center City District concluded that while the record number of new rental units completed last year may slightly outpace demand, “The fundamentals of the homeownership market likely will remain very strong.” And if you view this growing demand from the perspective of the city’s overall financial health and the prospects for its tax base, it’s all so much positive progress. But more and more, if you want to stake a long-term claim in a neighborhood like Point Breeze, or Francisville, or Fishtown, or Northern Liberties, or Spruce Hill, you need more than mortgage approval. Especially this spring, as demand is high and the threat of rising interest rates looms, you’re likely to have to outbid a handful of other buyers, real estate agents say. And there are only so many ways you can set yourself apart.
The easiest and most obvious way to get a leg up on the competition for a new house—and really, this goes for every aspect of American life—is to simply have a lot of money in the bank. Even if you have a high income and good credit, you can still get beat for a competitive listing by anyone who offers cash, because the closing process is just that much simpler for the seller.
“I do see that [successful first-time buyers] are more well-capitalized,” Robertson said. “I see that they have more capacity to buy.”
Even buyers who don’t want to make a full cash offer off the bat have been removing their mortgage contingency clauses to make their offers more attractive, agents say. A mortgage contingency allows a buyer to call off a deal if she doesn’t get mortgage approval for the purchase in a certain amount of time. Foregoing the clause is a way of showing you can pay cash for the house, if you have to.
Some buyers are adding escalation clauses to their offers, showing that they’re willing to pay, say, $1,000 more than any other offer up to a certain amount. That sort of addendum gives your offer a little extra stretch. Gordon Stein, an agent with RE/MAX, said he encourages buyers to use the escalation clause, but that sellers, who are holding all the cards in the current market, sometimes want simpler offers.
“Sometimes the sellers and the agent are like, ‘I don’t want this bullshit. Give me your highest and best offer,’” said Stein, who also encourages buyers to think of a house as an investment first and foremost.
It’s not that every house is selling immediately, of course. On Sunday, I rolled through a handful of open houses in Fishtown to get a sense of what’s available. One home, on the 2400-block of East Norris Street, near Loco Pez and Reanimator Coffee, has been on the market for a month. And that’s probably because the owner is waiting for a buyer who also wants to purchase the adjacent vacant lot, said Ryan McManus, the listing agent.
Another home, a rehab on the 2500-block of Cedar Street, has been listed for about the same amount of time, and the price has already come down once. Jane Sutow, a Long & Foster agent who was showing the house, which is listed at $385,000, said it will probably have to come down again, because a similar property up the block recently sold for significantly less.
“That just kills our comps,” Sutow said.
But overall, especially but not only in neighborhoods like Fishtown and Point Breeze, stiff competition is the norm.
“My experience lately has been that for houses that are priced right, there are at least two if not five or six qualified, eager buyers,” said Karrie Gavin, an agent with Elfant Wissahickon. “The houses that are sitting are ones that tend to be overpriced.”
And it’s competitive at nearly every price range, Gavin said.
“I think Philadelphia was undervalued for so long that it’s had room to really go up. Only time will tell, but it seems to me that there’s still room for these values to increase on the whole, citywide, just because of what’s happening in the city, and because we’re the last affordable, wonderful city. And people are discovering that and demand is really high.”
This is sort of the paradox of a free real estate market. For the past few decades, Philadelphia’s main quality-of-life attractions have been that it’s largely walkable, the food is bangin’, and it’s affordable to live here, relative to other big cities. But if everyone who buys in wants to get a good return on their investment—which they do; that’s why people buy houses—then over time, the city won’t be so affordable anymore. Vast swaths of the the city’s properties are still valued very low or vacant altogether, so it could take a long time. But in an appreciating market, everyone who owns a home has an incentive to move away and sell to someone with more money.
“From what I see, the long game is—I don’t really know if anyone’s looking at the long game,” said Gordon Stein.
Kristin DiPasquo, who works with Keller Williams, said that the rising prices even bum her out, even though they’re good news for her industry. She bought a house on Juniper Street between Tasker and Morris, in Passyunk Square, in 2009. For a while she was able to help her friends buy homes in the neighborhood too. But now prices have gone up, and it’s hard for her peers to find anything in the area.
“You can make it a less appealing place to live,” she said, “but who wants that?”
When Dustin Maggard moved to Philly from South Florida a few years ago, he just wanted a cheap place to rent quickly. He landed in Cobbs Creek, paying a few hundred dollars for one room in a house. Right away he started noticing that comparable rooms nearby were renting for $400, $500, $600, and apartments were going for as much as $2,000.
He started looking around for houses in the $60,000-$70,000 dollar range, which still exist in that area, and making offers. It took him six tries before he got one under contract, he told me. At one point, he put an offer on a house that was on the market for one day, but before it could go any further, somebody swooped in and bought it sight unseen, during a blizzard, in cash, for the full asking price. Maggard says he didn’t come to the city looking to invest in property. But he saw the rents going up around him, and just wanted to avoid being priced out.
“I’m like, Jesus, this is insane,” he said. “I’ve got to buy something.”