DC Homeowner Associations And Condo Boards

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

This primer on Condo boards’ roles, their impact on homeowners, and steps new condo owners need to take when forming a board is crucial reading for new construction condo buyers.

Overview

Condo associations and HOAs are often structured as not-for-profit corporations. They are initially created by developers of residential housing communities prior to a sales offering for the purpose of controlling the appearance, management and budget of the community and this is their ongoing purpose after homeowners take control of the board.

The association not only provides services and manages the community, it also has the authority to enforce regulations, levy assessments and impose fines for infractions by property owners. condo or HOA boards may also create subcommittees for such things as neighborhood watch, landscaping and architectural review, even social committees.

Members pay dues and assessments and must follow the rules set forth in the association’s Covenants, Conditions and Restrictions (CC&Rs). The CC&Rs of the association are recorded at the time the property is subdivided and legally “run with the land” so that each subsequent owner of a property is bound to them as long as he or she is a property owner in the community.

It’s important to know the functions, duties and powers of association boards, and to review its CC&Rs, or public offering statement if purchasing new construction, prior to purchasing.

Differences Between Associations

• Condominium members own individual units and joint ownership interest in common areas such as grounds, lobbies, recreational facilities, etc., as well as Limited Common Elements, for example parking spaces. balconies and decks allocated for the exclusive some units.

• A co-op association owns the units, common areas and facilities of the property. Residents own shares in the cooperative corporation and are allowed to occupy a unit, use amenities and vote for the Board of Directors.

• A Homeowners Association is typically associated with fee simple properties in PUDs (Planned Unit Developments), of which there are few in DC. Members own individual dwellings and lots, and common areas are owned by the association, with no joint ownership interest.

Association Finances

Property owners in a community governed by owners associations pay a share of common expenses. The association’s operating fund is devoted to the operating expenses of the association and its reserve fund exists to cover common area assets maintenance, repair and replacement costs. If the reserve fund is well-funded, it will minimize the chance of special assessments being levied against property owners should a large common area repair or replacement, among other costs, become necessary. It’s important to review the budget, operating and reserve funds prior to purchasing a home controlled by a condo or home owners association in order to ensure that the association is healthy.

Association Tips For Home Buyers

• It is almost always required by an association’s restrictive covenants (part of the deed restrictions) that you become a member of the association;

• It’s your responsibility to review resale documents and new construction public offering packages when purchasing a condo or cooperative unit. Make sure you understand how the association operates and review the responsibilities of homeowners. Pay strict attention to the Covenants, Conditions, and Restrictions (CC&Rs) and By-Laws. They can contain provisions such as architectural restrictions, recreational vehicle parking restrictions, restrictions for commercial vehicles (even cars or vans with advertising displayed), pet restrictions, lawn maintenance requirements, and more;

• Assess the financial health of the association when purchasing, including budgets, pending and/or recent assessments, reserves, legal actions (pending or recent), and any other financial documents such as annual income and expense statement and balance sheets. If you don’t understand these documents, call on a professional for help;

• Association operating expenses are typically collected evenly among owners. These assessments can be due on an annual, semi-annual, quarterly or monthly basis. If you don’t pay your assessments as required, you will likely incur late fees and possibly a lien by the association, even foreclosure in some cases. Review your documents carefully to learn exactly when and how the assessments are to be paid, and what remedies the association has if they’re not paid as agreed;

• The association’s Reserve Fund is an account for future capital improvements. Uses for this money can be private street maintenance, parking maintenance, repairs, replacement or maintenance for roofs and common building exteriors, clubhouses, pools, tennis courts, fitness centers, lakes, ponds, marinas, etc. The minimum reserve fund balance has been set at 10% for some time, however the 2026 underwriting guidelines changes by GSEs Fannie Mae and Freddie Mac now raise that base to 15%;

• Special Assessments occur when associations don’t maintain elements on a regular basis, or when a major common element requires major repair or replacement and the Reserve Fund won’t cover it. Special Assessments get passed on to homeowners in addition to regular assessments. They can occur once, or be recurring. All owners are required to pay their share of a special assessment;

• Almost all associations incorporate architectural restrictions in their rules. Homeowners often have to submit written requests for approval of changes. These can include additions to the dwelling, remodeling, addition or changes to fences, outbuildings, garages, pools, playground equipment, and even extend to exterior finishes, windows and doors as well as their hardware, paint colors and mailboxes.

Questions To Ask | Existing Associations

• Who manages the association? Associations can be managed by a developer, a contracted management company, or can be self-managed;

• How are meetings conducted? Are homeowners welcome to attend? Attend a meeting if you have the opportunity;

• Do homeowners and the board seem to have good interaction, or are they at odds?

• How well does the board respond to homeowner issues and maintenance/repair requests? Are they professional in their interaction? Talk to homeowners;

• What is the current investor ratio?

• What is the percentage of delinquent dues and how delinquent are they?

• Is there any pending, upcoming or recently resolved legal action involving the association?

• Review minutes from the past 6 board meetings. Are there ongonig issues that haven’t been resolved, discussion about repairs, replacements, and/or potential (unlevied) special assessments?

• How often are dues raised?

• Who was the original developer of the property?

• When the initial unit owner-elected board assumed comtrol from the project developer, were engineering and/or architectural evaluations performed to identify construction defects? Is the transition deficiency study available for review? What subsequent actions were taken, if any?

• Are there any deferred repairs that might cause lending underwriters to deem the property ‘unwarrantable?’

Who Regulates District of Columbia Condo Associations?

• The Condominium Act is administered by the D.C. Department of Housing and Community Development (DHCD) Conversion and Sale Division (CASD).

• DC Condo Act

The Office of Administrative Hearings (OAH) has authority to hear and decide certain cases under the Condominium Act.

Who Regulates District of Columbia HOAs?

There is no single regulatory entity for District of Columbia home owners associations.

Several DC laws govern homeowners’ associations (HOAs) and condo associations:

• Horizontal Property Act of the District of Columbia

• DC NonProfit Corp Act

• DC Condo Act

The Horizontal Property Act of the District of Columbia is a statute that governs the formation, management, powers, and operation of HOAs, particularly not-for-profit organizations.

The DC NonProfit Corp Act applies to some DC home owner associations.

DC Condo Act of 1974 establishes the guidelines and rules for operation of home owner associations and cooperatives.

Section § 42–1903.08 of the Act defines the powers and rights of condominium associations.

Unlike Virginia, Washington DC has no ombudsman office to field complaints concerning associations. Property owners must seek private legal council if their dispute can not be settled with the appropriate association entities.

Virginia

There is no single regulatory entity for Virginia home owners associations.

Virginia HOAs must comply with various state, federal, and local laws, including the Virginia Property Owners’ Association Act, which regulates common interest communities run by Property Owners’ Associations (POAs). The POA creates and enforces rules and regulations outlined in the HOA’s governing documents.

The Office of the Common Interest Community Ombudsman provides guidance and answers questions related to common interest community law and regulations. The Ombudsman is responsible for receiving notices of adverse decisions from association members.

New DC Condo Boards

One reason you chose new construction over a resale was its ‘plug & play’ aspect–nothing to do once you’ve gone to settlement, right? Um… no.

When the owner’s board takes control from the developer, a laundry list of vital decisions must be made within a fairly short period of time. If board members are inexperienced or unaware, their failings will be at the expense of all owners–current and future. Here’s what new boards should know:

New Condo Boards | Initial Steps

Incremental Control

DC Condo Act §42-1903.02(d)(1) provides for the election of up to one-third of unit purchasers for board membership during the period of developer control. Two election meetings are held:

• When 25% of the total condominium units have been conveyed

• When 50% of the total condominium units have been conveyed

When the period of developer control ends, the entire the board membership is elected by the unit owners. DC Condo Act §42-1903.01(b)

Transition Committee

According to DC Condo Act §42-1903.01(b; A transition meeting is held for the purpose of board member election when the developer’s control period ends. Per the statute, this transition occurs when:

• 75% of the undivided interests in the common elements have been conveyed by the to purchasing unit owners

• Three years from the date the first unit is conveyed by the developer to a purchasing unit owner, or two years for *non-expandable condominiums. (DCCA §42-1903.02(a).

*A “non-expandable condominium” is one for which no future expansion is possible because the property boundaries are fixed and cannot be added to or expanded with additional land in the future. The condominium is limited to the existing parcel of land upon which it was initially built.

The Transition

The typical association has a board comprised of appointees and elected officers. At the inception of the home owners association, the project developer appoints members of the board and is in full control. As homeowners incrementally join the board, the developer maintains a majority voting share by retaining the most seats through appointees.

At tthe transition stage, the developer transfers full ownership of the association to the homeowners and no longer has legal or financial responsibility, except under the provisions of DC’s Code § 42-1903.16 Warranty against structural defects; limitation for conversion condominiums; exclusion or modification of warranty.

Contract Termination

Upon transition, the new board may consider the termination of contracts established by the developer, specified in DCCA §42-1903.02(b), including contracts with developer affiliates, employment contracts, management contracts, and parking space leases. Contracts included under this subsection may be terminated without penalty upon not less than 90 days’ written notice. DCCA §42-1903.02(b)(1).

Code § 42-1903.16. Warranty against structural defects

Board members and owners should familiarize themselves with the warranty required of the developer in Code § 42-1903.16. and of the warranty provisions in their purchase contracts.

DC law requires developers to file a performance bond or other security in the amount of 10% of the estimated cost of constructing the condominium, to be available to satisfy the developer’s warranty liability under the DC Condominium Act for a two-year period from the date of the first sale. Keep that deadline in mind when dealing with large, or delayed, projects that take years to sell out.

Developers can’t be exempted from this warranty by using “sold as is” language for any residential condo unit. For conversion condominiums sold “as is,” the warranty applies to any components installed, or work done by the developer unless a more extensive warranty is given by the developer in writing.

Defects in residential construction are common. Board members must know how to compel the project’s developer to remedy defects, or face the potential of substantial homeowner assessment for expensive updates and/or repairs. Board members should not delay in identifying and addressing building defects and deficiencies which would otherwise result in increased damage and deterioration, necessitating greaater expenditures in the future.

A board should select and hire qualified professionals to evaluate the construction quality of the project while the enforcement period for any statutory or other rights is still in effect. Evaluations should be made by independent structural engineers, architects and contractors with particular training and experience in evaluating construction quality, vetted and selected by the Board–not the developer.

It is also strongly recommended that the board research legal representation independently of the developer and the developer’s appointees. Should it become necessary, consult with attorneys on how to proceed and hire representation as needed.

There are detailed guides provided by experts that boards should follow to assess the project and hold developers accountable for any issues discovered in the process. Here are some samples:

Structural Defect Primers

An article, titled Structural Defects by the Cowie Law Group in Washington DC focuses on the warranty against structural defects and explains how warranties work and how to make claims against the developer’s security to fund warranty repairs.

Associations are not always aware of their rights when their projects are impacted by defective construction and may not know how to remedy the defective conditions, in particular, how to compel the project’s developer to address them. It is well worth the cost of attorney consultation to learn these facts.

Transition Studies And Legal Claims

In “Transition Studies And Legal Claims, A Guide for Washington DC Condominiums,” Nicholas Cowie, of Cowie Law Group, P.C. explains how newly constructed and converted condominiums in DC often contain concealed or “latent” construction defects. Left undetected and unrepaired, defects in the construction of a condominium can cause extensive damage over time, requiring associations to assess their members substantial repair costs that could have been avoided by making timely developer warranty claims.

The article provides a general overview of how Washington DC condominium associations transitioning from developer control can proactively and successfully identify defects and resolve construction defect claims with condominium developers and builders.

Red Flags

• Is the developer controlling the association’s management company, or functioning as the association’s management company?

• Is the association’s attorney the developer’s attorney?

Research the association’s ability to replace both in this conflict of interest scenario as soon as possible. Get legal advice on how to proceed, and how to address oversights that have already occurred.

Notes For New Boards

New Construction Conversion Warranties

Primary Source: Survivor’s Guide To Construction Defect Resolution

Express Warranties

Express warranties are the warranties found in your sales contract. Their duration is short, and they typically require unit owners or associations to take formal enforcement action prior to their expiration, which is often just one year. This provides limited value since serious defects may not become visible for several years, by which time warranty rights may already have terminated.

Statutory Warranties

The Condominium Act provides a statutory warranty of two years against structural defects, which are broadly defined. For common area defects, it usually commences with the sale of the project’s first unit. For structural defects within individual units, it begins with the sale of each unit.

Prior to selling units, developers are required to post a performance bond or other security in the amount of 10% of the estimated cost of construction. To file claims against this bond or security, owners and/or associations Condominium associations and unit owners must file warranty claims with the DC Department of Housing and Community Development’s (DHCD’s) Rental Conversion and Sale Division (CASD) by submitting an email to dhcd.casd@dc.gov and provide all of the following:

• A signed letter making a formal structural defect warranty claim;

• A detailed report from a structural engineer, including proof of DC licensure, of the structural defects;

• Copies of correspondence to the developer regarding the structural defects prior to the expiration of the applicable statutory period which documents the developer’s failure or refusal to resolve and/or repair the structural defects in a timely manner;

• Three detailed cost estimates from contractors authorized to complete the repairs of each identified structural defect.

*This is why boards should initiate such inspections and bids as soon as they assume control of the board.

DHCD decides on the validity of the claim, if the defects are structural in nature, and their scope. If the developer refuses to do the work required, DHCD will hire a contractor to perform it, fund it with the surety, up to the amount of the bond.

If the claimant or surety disputes DHCD’s determination, a lawsuit can be filed in DC Superior Court to overturn the determination.

The Act fails to address common problems:

• The bond or surety amount is insufficient to correct the structural defects, or, in some documented cases, the surety was never actually posted

• The defect is determined not to be structural in nature

• The defect is initially hidden (latent), resulting in the notice of claim being filed outside the two year warranty period.

• Condo Act Warranty

The two year warranty against structural defects applies to newly constructed condo projects and conversion projects if a structural defect relates to work performed by the converter.

Again, DHCD will enforce the warranty up to the amount of the surety, and a detailed notice of claim must be filed within the two year warranty period.

If the claim is not properly filed within the warranty term, or the bond amount is insufficient to fund repairs, the claimant can file suit against the developer directly for the full amount of the repair cost within five years from commencement of the warranty period.

Common Law Implied Warranties

If the association/unit owner fails to claim within five years after commencement of the warranty term, they lose the right to enforce the Condominium Act warranty against structural defects, but may have a claim under “common law implied warranty of habitability”.

*Application of the common law implied warranty of habitability to the sale of condo units is not settled law, though it has been debated since the 1970s. Therefore, it is unclear whether DC courts would apply the doctrine to condominiums, and under what terms and conditions, if so.

Negligence Liability

The Condo Act warranty applies to the developer, not the constractors and sub-contractors performing the work on the developer’s behalf. Suit can be filed against contractors for negligent work, but the District appellate court ruled in 2014 that it was adopting the economic loss rule for negligence claims.

*It is currently unclear how DC courts will interpret and apply the economic loss rule with regard to claims for negligent real estate construction.

Liability Under the Consumer Protection Procedures Act

The CPPA provides that a developer may be liable to an association and/or unit owners for failure to disclose significant defects at the time units were sold--regardless of whether the developer actually knew of those defects.

A three year statute of limitations applies to CPPA claims, commencing with “discovery” of the defect(s);

• The CPPA opens the door to possible recovery of treble damages;

• Under the CPPA, a punitive damage award may also be possible;

• D. Under the CPPA, a prevailing plaintiff may be entitled to an attorney fee award. Such an award normally is not possible under a Condo Act warranty claim, a common law implied warranty claim or a negligence claim.

Filing A Structural Warranty Claim In DC

DHCD offers a pdf outlining the steps to filing a condominium structural warranty claim.

Board Transition | New Construction & Conversions

Primary Source: Survivor’s Guide To Construction Defect Resolution

Initial Transition Steps For Boards

Transition begins with a special meeting held to elect homeowners to the Board of Directors. The developer’s control over the functioning of the association ends, but the developer’s interest and responsibility to it does not. The project may still be actively marketing and selling homes, and the developer may retain a seat, or seats, on the Board.

As awkward as it may seem, the newly elected board of owners must carry out their responsibility to owners, a process that may seem to be in opposition to the developer’s interests. As uncomfortable as this might be, the Board must insure that:

• The developer provides the association with any and all pertinent information and disclosures (see Checklist below);

• The association reviews that information and questions the developer on any vague or ambiguous issues;

• The Board develops a strategic plan to move forward with due diligence.

The strategic plan should include:

• Audit of the association’s financials. It is important for members of the Board, as well as all the owners, to satisfy themselves that while the developer was in control, all income and expenses were properly accounted for. That includes, but isn’t limited to, financial obligations of the developer, Aggressive pursuit of delinquent accounts must be taken at this point;

• Hiring of a professional engineer licensed in the District, to perform a comprehensive inspection of the property and provide a detailed report. This helps identify warranty defects that may be the responsibility of the developer, serves as the basis for a repair and replacement reserve analysis, and provides documentation for a defect warranty claim against the surety. The analysis will also estimate the useful life of components like a roof, the projected cost to replace it, so funds can be set aside to ensure that future special assessments are not necessary for the purpose;

• Hiring of independdent legal counsel to protect and represent the association’s interests.

• Obtaining detailed bids from at least three contractors for remedy of defects, as recommended by legal counsel.

Checklist of Developer Documentation For Board (recorded and non-recorded)

• All recorded documents relating to the development and association

• Recorded copy of Declaration or Master Deed

• Articles of Incorporation

• Copies of filings

• Certificate of Good Standing

• Copies of annual reports filed

• Bylaws

• Complete set of Board meeting minutes

• Duly adopted rules and resolutions

• Schedule of recordation dates

• All other files and records

• An accounting of association funds and financial statements, from the date the association is first entitled to receive funds through the date the developer/declarant control period ends.

• Any audits performed during the developer control period

• Current operating budget

• Copies of all past budgets

• Current statement of account balances, including that of developer

• Current accounts payable information

• Invoices both past/paid and outstanding

• Current reserve/replacement schedule

• Association bank accounts, checking accounts, certificates of deposit, etc.

• All association insurance policies

• Complete roster of unit owners and their addresses, as shown on the official records of the association

• Roster of mortgagees by unit, with addresses, to the extent that the association has such, and to the extent the information is available

• All documentation relating to common elements and limited common elements (storage, parking)

• Any and all contracts in which the association is a contracting party.

• All association books or records held by or controlled by the developer.

Warranty And Physical Facilities Items

• Complete set of site plans and as-built drawings, including detailed measurements and dimensions

• Unit floor plans, blueprints, common area plans

• Any approved landscape plan

• Recreational facilities plan

• Storm and sewer system plans and diagrams

• Roads and parking areas

• Written warranties of the contractors, subcontractors, suppliers, and manufacturers, if any, involved in the construction and/or maintenance of the association’s facilities

• List of manufacturers of products and specifications used in the maintenance, repair or replacements in or on common areas or common elements

• Copies of any bonds or letters of credit posted with any state or local agency

• Schedule of quantities of the following:

• Square footage of roof

• Square footage of all paved areas on the association property

• Square footage of lawn surface

• Square footage of exterior surface of each building

• Confirmation of compliance with the local authorities

• Completion bonds, either in place or already released

• Traffic and safety regulatory signage

• Fire code compliance

• Designation of roadways and site lighting, both public and private

*Additional documentation may be applicable. Consult your association legal counsel.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Washington DC Cooperatives

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

A Washington DC cooperative, or co-op, is housing that is collectively owned and managed by its shareholders. Instead of owning the unit itself, co-op owners purchase shares in a corporation that owns the building, giving them the right to lease a specific unit.

Cooperative Structure

Here are a few important details about the cooperative structure:

• The number of shares owned is dictated by the size of the leased unit

• The lease grants permanent right to occupy the unit and make use of the common elements of the property

• Owners share the work involved in running the co-op

• Shareholders pay association dues and abide by the rules and restrictions outlined in the Bylaws and CC&Rs (Covenants, Conditions, and Restrictions).

One key aspect of co-ops is their all-inclusive monthly fees, which typically cover maintenance costs, property taxes, utilities, and, in some cases, a shared building mortgage These fees might appear higher than condo fees at first glance, but it’s important to remember that they often consolidate expenses that condo owners pay separately.

Perception vs Reality

Washington DC co-op housing may be seen as the less advantageous alternative to condominium ownership, but in some cases, ownership in a cooperative can offer greater benefit.

The perception of co-op ownership in Washington DC before 2008 was that they were unduly restrictive in terms of property use and ownership criteria and that assessed dues were much higher than condominium dues. But the restriction gap between co-ops and condos has narrowed considerably since the early 2000’s, primarily because condominiums have implemented new rules.

In response to the housing market crash of 2008, when investor defaults threatened the financial stability of condominiums, condo associations began to place stricter limits on investor ownership and institute rental restrictions similar to those which helped cooperatives weather the crisis.

In late 2018, the District passed legislation regulating short-term housing, and they were banned by condominiums and cooperatives alike.

There are distinct benefits to cooperative ownership that condominiums can not match:

• Washington DC cooperatives pay lower real estate taxes since they’re assessed on a smaller percentage of appraised value. The savings is enjoyed by all shareholders in cooperatives, while condominium owners’ assessmemts are based on the attributes of individual units;

• Cooperatives can mortgage the entire property utilizing blanket financing to fund renovations, systems upgrades and major repairs, providing tax deductions for eligible shareholders. A portion of the blanket mortgage is assigned to each unit, with payment of the principal and interest being added to the shareholder’s monthly co-op fee. Members may take tax deductions for the interest on their portion of the loan. This unit-specific portion of the blanket mortgage is called an “underlying mortgage” the unpaid balance of which is deducted from the shareholder’s proceeds when their shares are sold, and assumed by the buyer of the shares. The underlying mortgage is factored into the financing and sales price. Condominiums, on the other hand, must raise dues and levy taxable special assessments on all unit owners when adequate reserves aren’t available to cover repairs and improvements. Higher dues tend to damper unit sales values, and special assessments are typically the responsibility of the seller to pay before the unit transfers ownership;

• Cooperative owners enjoy a greater degree of privacy than condominium owners in relation to their ownership. Public records of ownership are related to the corporation, not individual shareholders.

Co-Ops vs Condos In DC

Cooperative Pros

• Typically, Washington DC cooperatives have a lower price per square foot than condos

• All-inclusive co-op maintenance fees (the equivalent of condo dues) cover property taxes and some or all utilities, plus limited maintenance

• Many co-op fees are tax deductible

• Property taxes are lower for co-ops

• Homestead and senior/disabled deductions are applied to the corporation, to the benefit of all shareholders

• Co-ops offer shareholders a degree of control over how their investment is managed and encourage participation in its operation, fostering a sense of community

• Co-ops offer shareholders the ability to determine the qualifications for those purchasing shares

• The cooperative’s maintenance team handles specified repairs condo owners would pay for individually

• There are likely to be fewer investor units in co-ops than condominiums since DC cooperatives encourage owner-occupancy

• Closing costs for DC co-ops are slightly lower versus those for a condo purchase. Pre-2009, because co-ops represent a stock purchase, not a transfer of real estate, hefty DC transfer and recordation costs were not applied to co-op transactions. But in late 2009, the District chose to withdraw that exemption and now demands the same transfer and recordation charges applied to condo real property transfers. Cooperative share purchasers do, however, save on title fees and insurance, along with escrows for property taxes

• Some of the most beautiful, historic, and ‘best address’ buildings in Washington DC are cooperatives

• The co-op board approval process is generally not as onerous as the ones we hear about in New York City. A basic application is typical, and the interview often consists of a welcome, an orientation on the cooperative, and invitation to join various community clubs or groups.

Compare these points to the ‘cons’ on the right. You may find that many are not ‘downsides’ as much as they are ‘options.’ Choosing between a condo and co-op becomes easier when buyers understand which options might work best for their needs and circumstances.

Cooperative Cons

• When it’s time for a co-op shareholder to sell their shares, they may find that the bylaws dictate who they can sell to. There may be requirements for buyers’ income, debt-to-income ratio, and other financials, employment history and background. To some degree, depending on the specific cooperative’s guidelines, prospective buyer may be vetted by the board of directors, who must comply with DC’s extensive Equal Housing laws. Some cooperatives have very few rules pertaining to purchasers, others are more stringent;

• Similar to condominium rental restrictions, co-op sub-letting of a shareholder’s leased unit may be restricted, and there can be limits on how many shareholders can sublet at a time. Read the bylaws, rules and restrictions for both condos and co-ops before purchasing;

• There may be restrictions on renovation or remodeling of cooperative units. Co-op owners may not be able to install a new bathroom, update the unit’s kitchen or reconfigure the space as easily as a condo owner might, though many simply require similar design/architectural board approval to that required by DC condominiums;

• Financing interest rates and down-payment may be slightly higher for co-ops than for condominiums

• Co-op monthly dues often appear to be higher than those of condominiums, primarily due to inclusion of the property taxes a condo owner pays separately (but remember that co-op property taxes are lower). The fee also includes some or all utilities and maintenance and potentially services like Internet. This ‘higher fees’ misconception can lead to a longer listing cycle when co-op shares are sold;

• Shares in a co-op association are considered intangible personal property, which is why co-op financing requires a special lending process. This means lines of credit or home equity loans probably aren’t an option;

• There are fewer co-op lending and title options in DC than for condos;

• Those who qualify for senior/disabled property benefits such as homestead deduction or tas relief will not individually receive the benefit, which applies to the corporation, instead, but the upside is that all shareholders reap the benefit.

A Brief Washington DC Cooperative History

Washington DC’s first cooperative building, The Concord, appeared in 1891, whereas DC’s first condominium didn’t arrive until 1962-63. Though cooperatives preceded condominiums in Washington DC by more than forty years, condominiums have multiplied at a much faster rate and are more widely understood than cooperatives. One possible reason for this is familiarity among buyers with condominiums due to saturation in suburban areas. Most cooperative projects are located in high-density housing areas of large cities such as New York, Chicago and Washington DC, while condominiums are built and sold in many suburban areas across the United States.

That’s not to say that cooperatives aren’t a great concept. Edmund Flynn thought so. He helped developed the first housing cooperatives in the District of Columbia, beginning in 1920, while he was employed with the Allen E. Walker firm (the first real estate brokerage to specialize in co-ops). Soon afterwards, Flynn founded the Edmund J. Flynn Company, which has developed and converted more than sixty DC market rate cooperatives.

Cooperative rental and down payment restrictions were also pioneered by Flynn. Most early cooperatives were so-called “luxury cooperatives”, which allowed renting for profit, and typically had high monthly carrying costs. Flynn called his model the “100% cooperative ownership” plan. It required high down payments, low monthly carrying charges and a 100% owner occupancy rate.

Early DC cooperative buildings include The Concord (demolished in 1962), 2852 Ontario (“The Ontario”; still standing) the Porter, the Westmoreland (built 1905 and converted 1948), Presidential, and the Broadmoor. There are approximately 120 co-op buildings in Washington DC today. If you’re shopping for a condo, have 10% or more for a down payment, and may benefit from some of the tax perks associated with co-ops, you owe it to yourself to investigate further.

Cooperatives Q&A

The following are some common questions about cooperatives:

Can I borrow against my shares?

Cooperatives may limit how much shareholders can borrow against their shares, or nix equity lines. Check the co-op’s bylaws to see if this is the case, since many Washington DC cooperatives do allow home equity lines of credit (HELOCs).

What’s a limited equity cooperative?

An LEC (Limited Equity Cooperative) is a project in which a government agency or nonprofit limits the resale price of membership shares in order to keep the housing affordable to incoming low and moderate-income members.

Residents purchase shares in the cooperative and commit to reselling their shares at a price determined by an appreciation formula that maintains affordability over the long term.

When the LEC is created, initial affordability is usually aided with a government-sponsored program offering incentives such as construction subsidies and low-interest financing. The price restrictions built into the resale formula limit the equity that LEC residents can achieve when they sell their ownership share. Some limited equity cooperatives allow little or no growth of homeowner equity, while others adopt a shared equity approach, balancing the twin goals of long-term affordability and individual wealth creation.

In 2018, the District of Columbia announced the creation of Limited-Equity Cooperative Task Force to provide the DC Council with policy recommendations on how the District can help form new LECs and help existing ones succeed.

DC has approximately 4400 units of LEC housing in 99 co-op buildings, with many located in gentrifying and gentrified neighborhoods.

Tell me about market rate and equity

The property’s equity is distributed equally across each share and owners are at liberty to sell their shares, relinquishing their proprietary lease. Share price is determined by the current market rate, so when DC home values rise, so does the value of a cooperative unit, according to its individual attributes and those of the co-op as a whole.

What is limited equity?

Price-limited membership shares. An LEC (Limited Equity Cooperative) is a project in which a government agency or nonprofit limits the resale price of membership shares in order to keep the housing affordable to incoming low and moderate-income members.

Residents purchase shares in the cooperative and commit to reselling their shares at a price determined by an appreciation formula that maintains affordability over the long term.

When the LEC is created, initial affordability is usually aided with a government-sponsored program offering incentives such as construction subsidies and low-interest financing. The price restrictions built into the resale formula limit the equity that LEC residents can achieve when they sell their ownership share. Some limited equity cooperatives allow little or no growth of homeowner equity, while others adopt a shared equity approach, balancing the twin goals of long-term affordability and individual wealth creation.

In 2018, the District of Columbia announced the creation of Limited-Equity Cooperative Task Force to provide the DC Council with policy recommendations on how the District can help form new LECs and help existing ones succeed.

DC has approximately 4400 units of LEC housing in 99 co-op buildings, with many located in gentrifying and gentrified neighborhoods.

What Are Leased Cooperatives?

The co-op doesn’t own the building, or perhaps the property it sits on, instead it leases from another entity. There is no equity build for members in this type of arrangement.

Financing DC Cooperatives

• Instead of a conventional mortgage obtained to purchase a condominium unit for which the unit itself is collateral, co-op purchasers typically obtain a “share loan,” with their membership certificate or stock share and occupancy agreement as collateral.

• Share loans are not widely available in Washington DC. Financing for cooperative shares can theoretically be obtained from banks or other institutional lenders, however many DCMA lenders do not finance co-ops. Additionally, individual co-op boards have recognition agreements lenders must enter into in order to provide financing to buyers. These agreements define the relationship between the lender, co-op and borrower, and create the priority for claims if the borrower falls into arrears on fees or the mortgage.

• Co-ops may carry an underlying mortgage. which is the initial mortgage taken to establish a cooperative. A good number of DC’s cooperatives have underlying mortgages. When renters and/or developer decide to create a cooperative, shares in the new entity are sold to owners, who sell the building(s) by transferring its debt to the corporation. If there is a mortgage needed to supplement share sales, the cooperative obtains the loan and all shareholders service the debt. Even co-ops that can afford to pay off their underlying mortgages may not want to do so because the shareholders receive a tax benefit from their shares of the monthly interest payments. It’s important to have an expert evaluate the financials of a Washington DC co-op before purchasing shares. Your lender will also want to review them to determine percentage of maintenance represented by debt service and underlying debt per unit compared to average unit sales price, among other factors. A reasonable quantity of debt is not unhealthy for a cooperative. According to experts, debt lower than $15,000. per unit is acceptable and debt above $30,000. per unit is seen as an issue. It is important to note that each situation is different and debt guidelines change.

• Each cooperative may implement their own rules regarding down payment percentage, as well. Some require between 10% and 15% minimum in order to purchase.

• FHA financing is not available for co-ops. At one time the FHA 203N mortgage loan was offered for the purchase of cooperative shares, but it is not currently among the products available from the Federal Housing Administration.

• When an individual cooperative loan is fully paid, the lender will return the original stock and lease to the purchaser and forward a “UCC-3 Termination Statement” filed by the borrower in order to terminate the bank’s security interest.

Additional Financing Considerations

• The owners/members of a cooperative may decide to mortgage the co-op to fund major building improvements. This differs from fund-raising methods used by condominiums, where fee increases and/or special assessments are utilized to raise funds for unforeseen expenses. The co-op version is called such a “blanket” or “master” mortgage. A portion is allocated to each unit, assumed by the purchaser, and deducted from the seller’s proceeds at the time of settlement.

• Real estate taxes and interest on blanket mortgages are paid by the cooperative, then allocated to owners/members. They are tax-deductible.

Resale Certificate Packages

This package provides buyers of cooperative shares with a overview of the property’s finances, rules and regulations, pursuant to “DC Code Section 42-1904.11. Resale by unit owner.” Here’s what’s typically included:

The unit owner shall obtain from the unit owners’ association and furnish to the purchaser on or prior to the 10th business day following the date of ratification of the contract of sale, a copy of the condominium instruments and a certificate setting forth the following:

• Appropriate statements pursuant to Section 42-1903.13(h) and, if applicable, Section 42-1903.15, which need not to be in recordable form;

• A statement of any capital expenditures anticipated by the unit owners’ association within the current or succeeding 2 fiscal years;

• A statement of the status and amount of any reserves for capital expenditures, contingencies, and improvements, and any portion of such reserves earmarked for any specified project by the executive board;

• A copy of the statement of financial condition for the unit owners’ association for the then most recent fiscal year for which such statement is available and the current operating budget, if any;

• A statement of the status of any pending suits or any judgments to which the unit owners’ association is a party;

• A statement setting forth what insurance coverage is provided for all unit owners by the unit owners’ association and a statement whether such coverage includes public liability, loss or damage, or fire and extended coverage insurance with respect to the unit and its contents;

• A statement that any improvements or alterations made to the unit, or the limited common elements assigned thereto, by the prior unit owner are not in violation of the condominium instruments;

• A statement of the remaining term of any leasehold estate affecting the condominium or the condominium unit and the provisions governing any extension or renewal thereof; and

• The date of issuance of the certificate.

If the required instruments and certificate are not furnished to the purchaser on or prior to the 10th business day following the ratification date of the contract of sale, the purchaser shall have the right to cancel the contract by giving notice in writing to the seller prior to receipt of the condominium instruments and certificate, but not after conveyance under the contract.

Right Of Rescission

The corporation or association/ representatives must furnish to the unit seller for delivery to the purchaser the certificate detailed in §(a) of DC Code Section 42-1904.11. upon the written request of the unit owner or purchaser within 10 days of the receipt of request.

If the resale instruments and certificate are furnished to the purchaser on or prior to execution of the contract of sale by the purchaser, the 3 business-day period for review commences when the contract is executed by the purchaser.

Except as provided in p.5 of § 42–1904.11., the purchaser has the right for a period of 3 business days following the purchaser’s receipt of the resale instruments and certificate (i.e. not counting the date of receipt), whether or not receipt occurs within the time period described in §(a), to cancel the contract by giving notice in writing and returning the resale instruments and certificate to the seller.

If the contract is canceled, the purchaser shall receive back any earnest money or other deposit without delay or deduction.

From and after the earlier of:

• Expiration of the 3 business-day period for review

• Extension of the 3 business-day period agreed to in writing and signed by the parties

• Conveyance under the contract;

If the required instruments and certificate are not furnished to the purchaser on or prior to the 10th business day following the ratification date of the contract of sale, the purchaser shall have the right to cancel the contract by giving notice in writing to the seller prior to receipt of the condominium instruments and certificate. If the purchaser has not exercised the right to cancel prior to conveyance, the contract is not cancellable by the purchaser.

(Please read the full statute for clarification as this section of our has been paraphrased)

Exceptions

Smaller associations and self-managed associations may not be required to offer the same resale packages as larger, professionally managed associations. Check the provisions in the DC Condo Act for clarity, and consult a professional to assist you with review.

Buyer Due Diligence

Resale Certificate Package

• Current budget and financial condition, reserve funds

• Current Bylaws, architectural guidelines and CC&Rs (Covenants, Conditions and Restrictions) that define the rules and regulations for co-op shareholders

• Association Fee Breakdown

• Master Insurance Policy coverage

• Occupation limitations (number of people who may occupy a unit)

• Statement of unpaid fee assessments, special assessments, and/or upcoming assessments

• Records of any pending legal action or judgements by or against the association

• Certification of filing for the association’s annual report to state board (some associations exempt)

• Records of approved alterations to the unit

• Violation notices to current unit shareholder(s)

Pay Particular Attention To:

• The financial condition of the association or corporation managing the property. Financial statements and budgets

• Do board members have term limits?

• How long have the units listed for sale been on market? What are the challenges in re-selling a unit in the cooperative?

• Are there any levied or upsoming special assessments?

• Are there any liens or judgements against the cooperative?

• Are there any repairs in progress, or a schedule of planned repairs?

• Check the frequency of dues increases, and their increments. Is there an annual cap on raises?

• Does the association have sufficient reserves for major repairs or improvements?

• Ask about the age and condition of major components such as roofs, HVAC systems, plumbing and electrical.

• Ask for copies of association meeting minutes for the past 3-6 meetings. Review for discussions of expenditures, repairs, legal proceedings and other issues that might shed light on the association’s future spending and assessment plans, or issues the association or residents are experiencing.

The DC Homestead Deduction

Owners of cooperative shares are not eligible to receive the benefits of the District of Columbia Homestead Tax Deduction individually. If the unit occupant qualifies, the benefit goes to the cooperative association instead.

To qualify for the Homestead Deduction in the case of a cooperative housing association, the unit must be occupied by the shareholder (or member) as his/her principal residence (domicile), and the benefit is granted to the cooperative (which will supply and collect the applications).

In the case of property transferred to a trust, the property may qualify for the Homestead benefit if:

• The property was eligible for the Homestead benefit before the transfer;

• The property is transferred to a revocable trust;

The transfer is not for money (or other consideration); and

The property remains the principal place of residence of the applicant/transferor/trustor before and after the transfer.

The DC Condo Act & Legislative Updates

The Act

The DC Condo Act of 1974 regulates condominium and cooperative creation, association governance and affairs.

Legislative Updates

• The District of Columbia Condominium Act of 1974 was amended in 2016. The Condominium Owner Bill of Rights and Responsibilities Amendment Act of 2016, became effective April 7, 2017.

• The Act was previously amended in 2014

Cooperative-related Sections Of The Act

Code of the District of Columbia

Chapter 9. General Cooperative Associations

• § 29–901. Short title.

• § 29–902. Definitions.

• § 29–903. Incorporators.

• § 29–904. Purposes for incorporation.

• § 29–905. Powers of association.

• § 29–906. Articles of incorporation — Contents.

• § 29–907. Articles of incorporation — Amendments; vote required for proposal, amendment approval

• § 29–908. Bylaws; adoption, amendment, or repeal.

• § 29–909. Bylaws — Contents.

• § 29–910. Meetings; regular and special.

• § 29–911. Meetings; regular and special — Notice.

• § 29–912. Meetings; regular and special — Units of membership.

• § 29–913. Voting — Number permitted by each member.

• § 29–914. Voting — Proxy prohibited.

• § 29–915. Voting — By mail or by electronic mail.

• § 29–916. Voting provisions — By mail or electronic mail.

• § 29–917. Voting provisions — Application to voting by delegates.

• § 29–918. Directors.

• § 29–919. Officers.

• § 29–920. Removal of directors & officers; vote required for approval

• § 29–921. Referendum on acts of directors.

• § 29–922. Limitations upon the return on capital.

• § 29–923. Eligibility & membership admission.

• § 29–924. Subscribers.

• § 29–925. Share & membership certificates; issuance & contents.

• § 29–926. Transfer of shares and memberships; withdrawal.

• § 29–927. Share and membership certificates — Recall.

• § 29–928. Share & membership certificates — Exemption for attachment, execution & garnishment.

• § 29–929. Liability of members.

• § 29–930. Expulsion of members; procedure; purchase of holdings.

• § 29–931. Allocation/distribution of net savings.

• § 29–932. Bonding of officers & employees.

• § 29–933. Audit.

• § 29–934. Dissolution; methods; vote required for approval; distribution of assets.

• § 29–935. Existing cooperatives; acceptance of act; filing & recordation of bylaws, amended articles

• § 29–936. Foreign corporations and associations; admission to do business.

• § 29–937. Compliance with chapter; not in restraint of trade.

• § 29–938. Chapter 3 of this title applicable to associations.

• § 29–939. Taxation; annual license fee.

References

§ 29–901. General Cooperative Association Act of 2010. July 2, 2011, D.C. Law 18-378, § 2, 58 DCR 1720

Section References

This section is referenced in § 42-3401.03.

Cross References:

Homestead housing preparation program, “condominium or unit owners association” defined, see § 42-2103.

Rental housing conversions and sales, “cooperative” and “Cooperative Act” defined, see § 42-3401.03.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Touring Virginia Homes

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

Unrepresented buyers may request showings from a listing agent, who represents the seller. If the agent has no obligation or intent to represent that potential buyer, and is acting on behalf of the seller, the buyer does not need an agency agreement to view the home. The agent facilitating the showing will, however, require the buyer to sign a Disclosure of Brokerage Relationship stating that the unrepresented buyer understands that the representative works for the seller, not them. Virginia law says this document is needed if you contract on the property in question, prior to settlement.

See § 54.1-2138. Disclosure of brokerage relationship in residential real estate transactions

Why It’s Important To Know The Rules And Law Relating to Agreements

Even agents are confused by the rules, which apply to all MLS participants, not just members of NAR, but which may come into conflict with state or local laws. If you understand the rules and law for your search areas, you’ll have an easier time facilitating your search and engaging an agent when you’re ready.

Virginia law requires written buyer-broker agreements before offering real estate services. Showing homes to a potential buyer when not acting as a representative of the seller constitutes performance of real estate services, and an agreement is required.

An agent representing the seller, but who performs real estate services on behalf of a potential buyer as well, is practicing dual agency and both the seller and buyer are required to formally agree to this in writing before any work is performed.

So, to recap:

• An agent who represents the seller is contacted by an unrepresented buyer who wants to tour the property the agent has listed. Is an agreement required? No, as long as the agent does not perform any real estate services for the buyer. But there is a disclosure form required from the buyer;

• An agent who does not represent the seller is contacted by a buyer who wants them to show a home. Is an agreement required? Yes.

Who Is Required To Follow These Rules?

The rule applies to any MLS Participant “working with” a buyer will be required to enter into a written agreement with the buyer prior to touring a home, including both in-person and live virtual tours.

While it has long been a recommended “best practice'“ for agents to obtain a signed agreement prior to performing any work for a home buyer, it is no longer optional. The National Association of REALTORS® settlement, which is enforced by REALTOR® controlled Multiple Listing Services, requires all MLS participants working with buyers to have a written agreement prior to home tours. This applies to NAR members, and other real estate agents, as well.

Types Of Agreements

Various types of agreements exist, and which ones are used depend on location, circumstances and the brokerage involved. The NAR settlement does not dictate:

• The type of relationship between the broker and potential buyer (agency, non- agency, exclusive, non-exclusive, subagency, transactional, customer)

• Term of the agreement (one day, one month, one house, one zip code)

• Services to be provided (ministerial acts, a certain number of showings, negotiations, presenting offers)

• Type or amount of compensation charged;

however many brokerages are specific as to which types of agreements and compensation they offer as part of their practice.

All agreements must include the following:

• A specific and conspicuous disclosure of the amount or rate of compensation you will receive or how this amount will be determined, to the extent that you will receive compensation from any source.

• The amount of compensation in a manner that is objectively ascertainable and not open-ended.

• A term that prohibits you from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and

• A conspicuous statement that broker fees and commissions are not set by law and are fully negotiable.

Open Houses, Ministerial Acts And More

Attending Open Houses

Buyers can search third party sites like Redfin and Zillow for a general overview of the market in their desired locations before deciding on representation, and attend open houses to see what various price points offer in the way of condition, square footage, finishes and other property attributes.

Open houses are the only exception to the requirement for an agreement prior to touring.

But while buyers will be able to tour the homes, they will not be able to obtain more than rudimentary information, as anything more can constitute providing real estate services, which requires an agency agreement.

Hosts of open houses are not necessarily the listing agent working on behalf of the seller. It may be an agent associated with the listing agent. These are agents affiliated with the same brokerage, perhaps on the listing agent’s team. They are interested in meeting buyers who have not yet chosen an agent, or who are acting as a fill-in for a listing agent unable to host. Hosting agents are not the experts on the homes they host, that would be the listing agent. Hosting agents must be mindful of the restrictions involving providing service without a written representation agreement, and crossing the line into dual agency territory.

Unrepresented buyers may experience difficulty or delays in touring homes without an agent, not for any nefarious reasons, but because of the practicalities involved. While listing agents want to facilitate all possible showings for their seller, touring unrepresented buyers poses vetting and scheduling difficulties as well as safety risks:

• Unrepresented buyers have not been vetted by an agent or lender. The listing agent can not be sure they possess the qualifications to purchase the home, intend to proceed with a purchase in a timely manner, or are even who they say they are;

• Listing agents may not be available, particularly on short notice; to meet a buyer for a showing. In the past, this task would often be assigned to another agent, who would hope to gain the buyer’s business. Now, however, that agent can’t show the property as a representative of the seller without an agreement, either;

• Some brokerages may allow the use of touring agreements for unrepresented buyers. This practice may or may not involve a fee, and the terms of these agreements vary according to their source;

• Buyers can’t count on attending open houses to access the full scope of available inventory since only a percentage of listings hold open houses;

• Northern Virginia real estate often sells quickly. Delays of any kind can cause a buyer to lose the opportunity to purchase a home;

• Unrepresented buyers will need to source off-market listings. Over a million off-market homes have been sold in the U.S. this year. A significant portion of DCMA real estate is sold as ‘pocket listings’ or ‘private exclusives’ on broker networks.

We suggest that unrepresented buyers wishing to tour a listing:

• Be prepared with a pre-approval letter from a local, reputable lender whose contact information is included on the letterhead and offer it to the listing agent;

• Provide your name, phone number and email address when making the request and include a brief description of your home search;

• Advise the listing agent of your status regarding agency: unrepresented, or working with an agent who is unavailable to facilitate the showing (provide the agent’s name and contact information as the agent should be the one to arrange the showing);

• Request tours as far in advance as possible;

• Request tours during normal touring hours;

• Ask if there are any showing restrictions (such as 24 hour notice to tenant, or showing days/times restricted by homeowner occupant);

• Put the showing request in writing in addition to making a phone call for the best chance of receiving a timely response;

• Attend an open house if one is available.

• Find an agent willing and able to effect a touring agreement to show the property.

What Are ‘Ministerial Acts’?

A ministerial act is an action performed in a specific way and according to legal authority, without using personal judgment or discretion.

Ministerial acts are performed by person or persons who follow explicit instructions from a statute or other legal authority. In general, ministerial acts are routine tasks that a real estate licensee can perform for a person without using their own judgment or discretion. These tasks are administrative in nature and support the transaction without providing advice or representation.

According to NAR’s definition of ‘working with the buyer’, listing agents are permitted provide access and answer general questions without any document being signed. Beyond those two things, the listing agent would be considered ‘working with the buyer’ and a Buyer Agency Agreement must be signed.

“Ministerial Acts”, as defined by code In Virginia:

The term “ministerial acts” means those routine acts which a licensee can perform for a person which do not involve discretion or the exercise of the licensee’s own judgment.

Code of the District of Columbia | Real Property

§42-1702”

Subchapter I. General §§ 42-1701 – 42-1709

*We cannot interpret this code relating to particular acts. Consult a legal expert.

Procuring Cause

What is ‘procuring cause’ and how does it affect buyers and sellers?

Procuring cause as it relates to real estate identifies the brokerage earning compensation as a result of an uninterrupted chain of actions that assisted the buyer in purchasing a property.

The agent who initiates a series of events or activities that leads to the sale is considered the procuring cause. This could include activities such as finding interested buyers, arranging showings, negotiating offers, and facilitating the transaction. This does not mean that showing the property defines procuring cause.

The agent who tours the property with the prospective buyer is not necessarily the procuring cause of the sale, and the fact that an agent was not the one to cross the threshold with the buyer for the first time does not prevent an agent from being the procuring cause. Instead, factors in procuring cause are timing, efforts and influence, and the entire course of events.

In a procuring cause dispute, an arbitration hearing panel reviews these factors to determine which broker qualifies as the procuring cause of the sale.

Buyers And Procuring Cause

• If a buyer enters into multiple non-binding touring agreements, enters into non-exclusive buyer agency agreements with multiple brokers, or changes agents during an offer or sale transaction, a dispute regarding procuring cause may arise.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

Your right to withdraw from a DC condominium transaction within a specified number of days without penalty. Rescission periods vary for resale and new construction.

DC Real Estate Rescission Periods & Document Review

By definition, “rescission” is the revocation, cancellation, or repeal of a law, order, or agreement.

The Washington DC Condominium Act (D.C. Code § 42-1901.01 through § 42-1904.18) grants home buyers of condominiums the right to review public offering statements, association documents and/or resale certifications for a specified number of days from date of receipt and withdraw from an applicable Washington DC real estate transaction should they not find details acceptable.

Non-Waivable Right: The statutory review period is a consumer protection measure designed to ensure the buyer has time to fully vet the association’s financials, rules, and potential liabilities. It cannot be waived or circumvented by a mutual agreement to “close early.”

New Construction

Public Offering Statement Review

Buyers of new construction condominiums are afforded a 15 day right of rescission from the date of receipt of the Public Offering Statement (POS), or after signing the purchase agreement, whichever occurs later.

The day of receipt of the Public Offering Statement (POS) package or ratification of the purchase contract, whichever is later, is not counted as part of the rescission period. The first day of the 15-day rescission period begins the following day.

Unlike the statutory provision for resale condominiums, the 15-day right of rescission period for new construction condominiums in Washington DC does not exclude holidays or weekends.

Note: Some online sources (LLM) state that the 15-day cancellation period for a new-construction condominiums does not exclude weekends or holidays; “There is one important caveat. Under general D.C. legal principles for calculating time, if your final (15th) day falls on a Saturday, Sunday, or a legal holiday, the deadline is extended to the next business day.”

Buyers should not rely on that statement. The D.C. Condominium Act provides no such extension; it says the purchaser may cancel “within 15 days” and elsewhere expressly uses “business days” when that is what the law intends. D.C. Superior Court Civil Rule 6 contains a next-business-day rule, but by its own terms it applies to a statutory period only when the statute “does not specify a method of computing time.” Buyers should therefore treat the new-construction cancellation period as 15 calendar days, including weekends and holidays.

If you have questions about the terms of your rescission period, refer to your purchase agreement and/or the D.C. Condo Act. You may also consult a real estate attorney for an opinion. Do not rely on Internet sources.

What Is A Public Offering Statement?

A public offering statement discloses the characteristics of the condominium and the units, and all unusual and material circumstances or features affecting it.

DC Code § 42–1904.02 provides that from the time of registration to the time that all units have been conveyed to purchasers, settlements for new construction condominiums can not occur unless the current public offering statement has been delivered to the purchaser and the 15 calendar day review period has expired without cancellation.

A public offering statement is not considered current unless any necessary amendment is incorporated or attached. If the purchaser elects to cancel, he or she may cancel by notice hand-delivered or sent by U.S. mail, return receipt requested, to the seller. The cancellation is “without penalty,” meaning and any deposit made by the purchaser is promptly refunded in its entirety.

What is Contained In A District of Columbia Public Offering Statement For The Purchase Of A New Construction Condominium?

A District of Columbia Public Offering Statement (POS) for a new construction condominium must fully and accurately disclose the physical, financial, and legal characteristics of the project under D.C. Code § 42-1904.04.

Instruments

• A copy of the condominium instruments, including copies of the declaration, bylaws, and any rules and regulations for the association;

• A copy of any management contract, lease of recreational areas, and any other contract or agreement substantially affecting the use or maintenance of, or access to all or any part of the condominium with a brief narrative statement of the effect of each such agreement upon a purchaser, the condominium unit owners and the condominium, and a statement of the relationship, if any, between the declarant and the managing agent or firm;

• An initial one-year estimated operating budget, detailing projected monthly condo fees, anticipated utility consumption rates, and common element maintenance expenses;

Information

• The developer’s name, address, and the form, date, and jurisdiction of organization, along with the address of each of its DC offices, and the names and addresses of all general partners (partnerships), all directors and owners of 10% or more of the beneficial interest in the stock of applicant if applicant is a corporation;

• Names and addresses of the attorney primarily responsible for the preparation of the condominium documents, the general contractor, if any, all contractors primarily responsible for construction, reconstruction or renovation of the electrical, plumbing or mechanical systems or the roof of the condominium, and the architect and engineer primarily responsible for the design, construction or renovation of the condominium

• The total number of units planned and offered in the condominium, along with plats and architectural plans;

• Information regarding any existing liens, mortgages, or encumbrances affecting the property, and details on enforcement of association fees and defaults;

• Specific disclosures regarding developer warranties on units and common elements.

Statements

• A general statement of status of construction, project’s compliance with zoning, site plan and building permit regulations, source(s) of financing available and the estimated amount necessary to complete all improvements shown on the plats and plans as “not yet completed” or “not yet begun”

• Projected date of completion of construction or renovation of the major amenities of the condominium

• Significant terms of any encumbrances, easements, liens and matters of title affecting the condominium, significant terms of any financing offered by or through the declarant to purchasers of units in the condominium, provisions and any significant limitations of any warranties on the units and the common elements

Other required information: Read the full text

Resale

Resale Certificate Package

Commonly known as “condo documents,” this package contains the disclosures, reports, budget, bylaws and other documentation that inform buyers about the condition of the association and its rules and regulations.

Right Of Rescission For Resale Condominiums

Buyers of resale condominiums or cooperatives are afforded a 3 business day right of rescission beginning the day following the date of receipt of the resale package.

The 3-day clock begins the day after the buyer acknowledges receipt of the resale package. It counts only business days, explicitly excluding weekends and legal holidays. Settlement can legally take place only on or after the day immediately following the expiration of that window.

Non-Waivable Right: The statutory review period is a consumer protection measure designed to ensure the buyer has time to fully vet the association’s financials, rules, and potential liabilities. It cannot be waived or circumvented by a mutual agreement to “close early,” however the provision may be extended by agreement of all Parties.

The exact text of Code of the District of Columbia § 42–1904.11. reads: “(4) From and after the earlier of (i) the expiration of the 3-business-day period for review prescribed pursuant to paragraph (2) of this subsection, or an extension of the 3-business-day period agreed to by the parties in a signed writing, or (ii) conveyance under the contract, if the purchaser has not exercised the right to cancel, the contract shall not be cancellable by the purchaser under this subsection.

Code of the District of Columbia § 42–1904.11: Resale by unit owner; seller to obtain appropriate statements

The Seller is required to obtain required documents from the association and furnish them to the purchaser. If the mandated condominium instruments and certificate are not furnished to the purchaser on or prior to the 10th business day following the date of execution of the contract of sale by the purchaser, the purchaser may cancel the contract by giving notice in writing to the seller prior to receipt of the condominium instruments and certificate, but not after conveyance under the contract.

The purchaser receives any earnest money or other deposit paid without delay or deduction upon cancellation.

What’s Contained In the Resale Certificate Package?

Code of the District of Columbia § 42–1904.11.

A copy of the condominium instruments and a certificate including the following:

(1) Appropriate statements pursuant to § 42-1903.13(h) and, if applicable, § 42-1903.15, which need not to be in recordable form;

(2) A statement of any capital expenditures approved by the unit owners’ association planned at the time of the conveyance that are not reflected in the current operating budget disclosed under paragraph (4) of this subsection;

(3) A statement of the status and amount of any reserves for capital expenditures, contingencies, and improvements, and any portion of such reserves earmarked for any specified project by the executive board;

(4) A copy of the statement of financial condition for the unit owners’ association for the then most recent fiscal year for which such statement is available and the current operating budget, if any;

(5) A statement of the status of any pending suits or any judgments to which the unit owners’ association is a party;

(6) A statement setting forth what insurance coverage is provided for all unit owners by the unit owners’ association and a statement whether such coverage includes public liability, loss or damage, or fire and extended coverage insurance with respect to the unit and its contents;

(7) A statement that any improvements or alterations made to the unit, or the limited common elements assigned thereto, by the prior unit owner are not in violation of the condominium instruments;

(8) A statement of the remaining term of any leasehold estate affecting the condominium or the condominium unit and the provisions governing any extension or renewal thereof; and

(9) The date of issuance of the certificate.

Fee Simple

Statutory Right of Rescission For Resale of Single-Family Homes Governed by an HOA

In the District of Columbia, there’s no required right of rescission for the resale of a single-family home, including townhomes, governed by an association. These DC homes are generally governed by recorded covenants and the D.C. Nonprofit Corporation Act, and District law does not mandate an automatic post-receipt cancellation period for HOA packets.

Buyers and sellers may negotiate an explicit HOA contingency addendum into the purchase agreement giving the buyer a specific window (typically 3 to 10 days) to review HOA documents and cancel without penalty. This would be a stipulated in the form of an addendum to the purchase agreement, and require agreement between all parties to the contract.

Under D.C. Code § 42-1301, residential home sellers of one to four-unit properties must complete and deliver a standardized Seller’s Property Disclosure Statement detailing known material defects before a purchase contract is finalized, but the lack of a statutory HOA rescission provision means protection relies on the terms of the real estate contract.

If HOA documents aren’t provided prior to ratification of contract because the owner claims they don’t have a copy;

• Buyers might request that the owner search for CC&Rs and bylaws on OTR’s Recorder of Deeds Online Public Records portal by entering the association or subdivision name;

• Buyers might write offers ‘subject to’ examination and approval of the HOA’s financial records, rules and regulations within a specified period of time. These HOA documents must be made ‘reasonably available’ to the association’s home owners and their authorized agents.

Fee-simple properties within HOAs are governed by their recorded covenants, declarations and bylaws.

District of Columbia homeowner associations (HOAs) are regulated by the D.C. Nonprofit Corporation Act of 2010 if they choose to organize and incorporate as nonprofit entities.

District of Columbia homeowner associations are fully subject to federal and local fair housing laws, but only selectively bound by the Americans with Disabilities Act (ADA).

No District of Columbia government agency comprehensively regulates all fee-simple homeowner associations.

Cooperatives

Statutory Right of Rescission For Cooperatives In The District of Columbia

In the District of Columbia, there’s no statutory right of rescission for the resale of a cooperative unit as they fall outside the scope of the District of Columbia Condominium Act. Cooperatives are governed by corporate laws and individual cooperative association documents, which do not carry the same statutory resale rescission mandates. Purchase of shares in a cooperative corporation provides buyers with a proprietary lease to occupy a specific unit, not the purchase of the physical property.

Cooperatives are governed by corporate laws and individual cooperative association documents, which do not carry the same statutory resale rescission mandates.

It may be possible for purchasers of cooperative shares to negotiate a document review period as an addendum to the terms of their purchase agreement, which would require agreement of all parties to the transaction.

Resources

D.C. Nonprofit Corporation Act

Chapter 4. Nonprofit Corporations

Code of the District of Columbia | Chapter 19

• Subchapter I. General Provisions.§§ 42-1901.01 – 42-1901.08

• Subchapter II. Establishment of Condominiums.§§ 42-1902.01 – 42-1902.30

• Subchapter III. Control and Governance of Condominiums.§§ 42-1903.01 – 42-1903.21

• Subchapter IV. Registration and Offering of Condominiums.§§ 42-1904.01 – 42-1904.18

Virginia Rescission And Review

Virginia

Days For Review| All Properties

§ 55.1-2312. Cancellation of contract by purchaser

The purchaser may cancel the contract:

1. Within three [calendar] days, or up to seven days if extended by the ratified real estate contract, after the ratification date of the contract if the purchaser receives the resale certificate, whether or not complete pursuant to § 55.1-2310, or a notice that the resale certificate is unavailable on or before the date that the contract is ratified;

2. Within three [calendar] days, or up to seven days if extended by the ratified real estate contract, from the date the purchaser receives the resale certificate, whether or not complete pursuant to § 55.1-2310, or a notice that the resale certificate is unavailable if delivery occurs after the contract is ratified; or
3. At any time prior to settlement if the resale certificate is not delivered to the purchaser.

Significant Changes to Resale Certificates/Disclosure Packets Effective July 1, 2023

Passage of Senate Bill 1222 and House Bill 2235 in 2023 resulted in significant changes to requirements for providing of resale certificates and disclosure packets. All provisions for resale certificates (condominiums) and disclosure packets (property owners’ association) from the Virginia Condominium Act (§55.1-1900, et seq.), the Property Owners’ Association Act (§55.1-1800, et seq.), and the Virginia Real Estate Cooperative Act (§55.1-2100, et seq.) are now contained within a single act with all resale provisions: the Virginia Resale Disclosure Act (§55.1-2307, et seq.). This created several significant changes to the provisions for providing resale documents. Please refer to the legislation in its entirety for more information.

Virginia Resale Requirements

§ 55.1-2309. Resale certificate; delivery

A. The seller shall be required to obtain the resale certificate from the association and provide such resale certificate to the purchaser.

B. Unless exempt pursuant to § 55.1-2317, the association, the association’s managing agent, or any third party preparing the resale certificate on behalf of the association shall deliver such resale certificate within 14 days after a written request by a seller or seller’s agent.

C. The association, association’s managing agent, or any third party preparing the resale certificate on behalf of the association shall deliver the resale certificate to the seller, or to such person as the seller may direct, either printed or in a generally accepted electronic format as the seller may request.

D. The information contained in the resale certificate shall be current as of a date specified on the resale certificate. The seller or purchaser may request an updated resale certificate as provided in § 55.1-2311.

§ 55.1-2311. Updated resale certificate

If a resale certificate was issued more than 30 days but less than 12 months before settlement, the seller or the purchaser, upon proof of being the contract purchaser of the unit, may request an updated resale certificate. The updated resale certificate shall be delivered to the person requesting it, or as such person may direct, in the format requested. The updated resale certificate shall be delivered within 10 days after the written request.

The updated resale certificate shall contain current information for all items that may have changed from the original resale certificate or a statement that there are no changes.

A settlement agent authorized by the seller or purchaser may request a financial update and the association shall provide such information within three business days after the written request.

2023, cc. 387, 388.

§ 55.1-2312. Cancellation of contract by purchaser.

The purchaser may cancel the contract:

• Within three days, or up to seven days if extended by the ratified real estate contract, after the ratification date of the contract if the purchaser receives the resale certificate, whether or not complete pursuant to § 55.1-2310, or a notice that the resale certificate is unavailable on or before the date that the contract is ratified;

• Within three days, or up to seven days if extended by the ratified real estate contract, from the date the purchaser receives the resale certificate, whether or not complete pursuant to § 55.1-2310, or a notice that the resale certificate is unavailable if delivery occurs after the contract is ratified; or

• At any time prior to settlement if the resale certificate is not delivered to the purchaser.

Written notice of cancellation is to be provided to the seller in accordance with the terms of the contract. The purchaser has the burden to demonstrate delivery of the notice of cancellation.

If the unit is governed by more than one association, the timeframe for the purchaser’s right of cancellation shall run from the date of delivery of the last resale certificate.

Cancellation shall be without penalty, and the seller shall cause any deposit or escrowed funds to be returned promptly to the purchaser.

Read the full text for all provisions as worded by the Act.

§ 55.1-2313. Liability for resale certificate

A seller providing a resale certificate pursuant to § 55.1-2310 or 55.1-2311 shall not be liable to the purchaser for any erroneous information provided by the association and included in the certificate or for the failure or delay of the association to provide the resale certificate in a timely manner.

A purchaser shall not be liable for any unpaid assessment or fee greater than the amount set forth in the resale certificate, updated resale certificate, or financial update.

The association shall, as to the purchaser, be bound by the information provided in the resale certificate or updated resale certificate as to the amounts of current assessments, including any approved special or additional assessments, and any violation of the governing documents or rules and regulations as of the date of the resale certificate, updated resale certificate, or financial update unless the purchaser had actual knowledge that the contents of the resale certificate were in error.

Read the full Chapter for all provisions.

Chapter 23.1. Resale Disclosure Act

§ 55.1-2310. Resale certificate; form and contents.

A. The association shall include the completed resale certificate form, developed by the common interest community board pursuant to subdivision 3 of § 54.1-2350, with supporting documentation set out in the following order:

1. The name, address, and phone numbers of the preparer of the resale certificate and any managing agent of the association;

2. A copy of the governing documents and any rules and regulations of the association;

3. A statement disclosing any restraint on the alienability of the unit for which the resale certificate is being issued;

4. A statement of the amount and payment schedules of assessments and any unpaid assessments currently due and payable to the association;

5. A statement of any other fees due and payable by an owner of the unit;

6. A statement of any other entity or facility to which the owner of the unit being sold may be liable for assessments, fees, or other charges due to the ownership of the unit;

7. A statement of the amount and payment schedule of any approved additional or special assessment and any unpaid additional or special assessment currently due and payable;

8. A statement of any capital expenditures approved by the association for the current and succeeding fiscal years;

9. A statement of the amount of any reserves for capital expenditures and of any portions of those reserves designated by the association for any specified projects;

10. The most recent balance sheet and income and expense statement, if any, of the association;

11. The current operating budget of the association;

12. The current reserve study, or a summary of such study;

13. A statement of any unsatisfied judgments against the association and the nature and status of any pending actions in which the association is a party and that could have a material impact on the association, the owners, or the unit being sold;

14. A statement describing any insurance coverage provided by the association for the benefit of the owners, including fidelity coverage, and any insurance coverage recommended or required to be obtained by the owners;

15. A statement as to whether the board has given or received written notice that any existing uses, occupancies, alterations, or improvements in or to the unit being sold or to the limited elements assigned thereto violate any provision of the governing documents or rules and regulations together with copies of any notices provided;

16. A statement as to whether the board has received written notice from a governmental agency of any violation of environmental, health, or building codes with respect to the unit being sold, the limited elements assigned thereto, or any other portion of the common interest community that has not been cured;

17. A copy of any approved minutes of meetings of the board held during the last six months;

18. A copy of any approved or draft minutes of the most recent association meeting;

19. A statement of the remaining term of any leasehold estate affecting a common area or common element, as those terms are defined in §§ 55.1-1800, 55.1-1900, and 55.1-2100, in the common interest community and the provisions governing any extension or renewal of such leasehold;

20. A statement of any limitation in the governing documents on the number or age of persons who may occupy a unit as a dwelling;

21. A statement setting forth any restriction, limitation, or prohibition on the right of an owner to display the flag of the United States, including reasonable restrictions as to the size, time, place, and manner of placement or display of such flag;

22. A statement setting forth any restriction, limitation, or prohibition on the right of an owner to install or use solar energy collection devices on the owner’s unit or limited element;

23. A statement setting forth any restriction, limitation, or prohibition on the size, placement, or duration of display of political, for sale, or any other signs on the property;

24. A statement identifying any parking or vehicle restriction, limitation, or prohibition in the governing documents or rules and regulations;

25. A statement setting forth any restriction, limitation, or prohibition on the operation of a home-based business that otherwise complies with all applicable local ordinances;

26. A statement setting forth any restriction, limitation, or prohibition on an owner’s ability to rent the unit;

27. In a cooperative, an accountant’s statement, if any was prepared, as to the deductibility for federal income tax purposes by the owner of real estate taxes and interest paid by the association;

28. A statement describing any pending sale or encumbrance of common elements;

29. A statement indicating any known project approvals currently in effect issued by secondary mortgage market agencies; and

30. Certification that the association has filed with the Common Interest Community Board the annual report required by law, which certification shall indicate the filing number assigned by the Common Interest Community Board and the expiration date of such filing.

2023, cc. 387, 388.

Maximum Fees

Maximum fees for resale documents:

• Includes Fees Updated January 12, 2023, Amended July 1, 2023

Consult a CPA and real estate attorney for review of your condominium or cooperative resale package, and review of the association’s financials

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Section: Investor Intel
Author: Susan Isaacs, Washington DC Real Estate Strategist

Buying New Construction Condominiums

The new home purchase process is much different than the resale purchase process.

Steps To A New Home Purchase

Sales Centers & Representatives

Visit sales centers after first researching the project and developer and always accompanied by your agent.

Sales Centers typically offer an overview of the project, a model and/or diagrams of the site, common area layouts and floor plans of individual units.

You’ll attend your first meeting with your agent, who will register you as an interested buyer, obligating the developer to pay some or all of your agent’s compensation should you purchase.

You’ll get a tour of the project if construction has progressed far enough, and discuss pre-construction pricing and potential escalation or tiered pricing, timeframe for delivery, and other pertinent details. If bluebrints and plans are available, we will ask to see them. You’ll see samples of fixtures and finishes, and learn about options and upgrades.

Once you have sufficient information, including floor plans and pricing, you can weigh the benefits and drawbacks, and make a purchase decision.

Partner With A New Construction Expert

The lure of new systems, finishes & fixtures, pristine common spaces and out-of-the-box appliances can be strong. And the purchase process seems simpler than buying a resale home. But is it? Buying new condos in DC isn’t as simple as it appears.

Be sure your agent is expert in new construction. A licensee may have represented other new home buyers without actually understanding development, new home sales, and buyer-related risks.

You’ll want an agent with training and first-hand experience in the building and sales processes. To be really effective, they’ll need to understand construction quality, timetables, construction sequences, sales strategies and potential pitfalls so they can let you know if something is atypical. Knowledge of DC developers, their history and projects is also beneficial.

Ideally, your buyer agent will have actually worked for developers in the past. They’ll then know how to protect your interests and set realistic expectations.

Other agents often contact me for project information and buyer registration for developments I don’t represent. This tells me they don’t have the knowledge they should possess to adequately represent new construction buyers’ interests.

Did You Know?

Visiting a sales center or registering with a developer’s sales rep without your agent can cancel developers’ comittment to pay your agent’s commission.

Always let your agent make new construction inquiries and appointments for you, and be sure your agent accompanies you on the first appointment at the sales center.

Reservation Or Contract

Some developers will accept a non-binding hold on a unit prior to finalizing their public offering statement package. This reservation may or may not require a deposit.

More often, developers wait until their documents are in hand to begin selling. Not only does this motivate buyers to make a buying decision quickly, it assures the developer that your decision is binding since you’ll be signing a purchase agreement.

Contracts may be delivered electronically, or the developer may require an in-person meeting for signing. It is preferable to have the development representative review the contract rather than interpreting it yourself. New construction contracts vary by project and developer. They are written by attorneys for the developer, with terms favoring the developer. Since real estate agents are not permitted to interpret legal language, the sales representative--who should possess a thorough understanding of the developer contract--is better equipped to explain it.

Contract And POS Clauses To Note

Take note of these provisions that may appear in your development contract or POS:

Financing Contingency

It has become popular among developers in recent years to eliminate the financing contingency in new construction purchase agreements. This can be dangerous, considering that loss of employment, uncontrollable events (like the Covid pandemic), health issues or anything else that can affect credit and loss of income, can cause your lender to deny your loan. Without a financing contingency, buyers can be held in default and lose their initial deposit.

Use of lender and title company

Developer conditions for use of their preferred title company are often made in the form of a ‘stick’ instead of a ‘carrot.’ Previously, the norm was for developers to offer a concession for use of their preferred service providers, but now these provisions are often tied to a penalty, usually in the form of tax stamp payment, for choosing an ‘outside’ title company. See Lender And Title Company below.

Disclosure of Association Fees

Association fees will increase. Associations are just a framework before a new building starts to deliver and people move in, so developers have historically underfunded them. Monthly fees will escalate significantly once the association is fully established, common areas are being staffed and utilized and services are engaged for cleaning, maintenance, concierge staffing, etc. With implementation of the new underwriting guidelines issued by Fannie Mae and Freddie Mac (see below), that is likely to change. Initial dues will most likely be higher going forward.

Fannie Mae And Freddie Mac Underwriting Guidelines For New Homes

Fannie Mae’s updates significantly overhaul project standards, reserve funding, and insurance mandates for new construction and established condominiums.

When a condominium association is brand new, it has no historical financials or saved reserves. To meet the 2027 Fannie Mae reserve guidelines under Lender Letter LL-2026-03, the developer’s initial projected operating budget must be built with structural financial safeguards from day one.

A newly formed association must fulfill the specific components below to achieve conventional financing eligibility:

Budget Allocation

For loan applications dated on or after January 4, 2027, new association projected annual operating budget must explicitly allocate at least 15% of the total budgeted assessment income directly to a replacement reserve line item.

For new construction condominiums, the 15% reserve allocation cannot simply exist on an internal spreadsheet. Fannie Mae requires that the developer’s project standards and complete financial data be formally disclosed in the core regulatory documents provided to early buyers and conventional underwriters.

Both the reserve allocation and its funding structure must be clearly cited and cross-referenced in the buyer disclosure package:

• The Developer-Initiated Reserve Study Alternative. If the developer chooses not to use the flat 15% budget rule, they must commission an independent, professional capital reserve study during the initiation of the development.

• The budget must reflect the highest recommended reserve allocation outlined in the study and can’t use a “baseline funding” strategy designed to keep reserves just above zero, a standard practice that Fannie Mae explicitly banned as of August 3, 2026.

• Separate Working Capital Fund Account: Fannie Mae distinguishes between replacement reserves and initial cash liquidity. For new construction projects undergoing a Full Review or Project Eligibility Review Service (PERS), the developer must establish a Working Capital Fund.

• Funding Amount: This fund must equal at least 2 months of regular assessments for each individual unit.

• Co-Mingling Not Permitted. This fund is utilized to cover early emergency expenses or structural oversights before the HOA is fully handed over to the owners. It may not be counted toward meeting the 15% annual replacement reserve budget requirement.

Developer Subsidy Transparency

If the developer plans to subsidize the brand-new association’s operating expenses during the initial sales phase, these subsidies must be fully documented. Lenders evaluating the new project via Fannie Mae’s Condo Project Manager (CPM) require a signed developer subsidy agreement. This ensures that the 15% reserve requirement is calculated based on the actual, true cost of maintaining the property once developer control terminates.

Other Key Provisions Of The New GSE Underwriting Guidelines

• Elimination of Limited Review: Effective August 3, 2026, Fannie Mae eliminated the streamlined “Limited Review” process for most attached condo projects, requiring a Full Review for developments that don’t qualify for a project review waiver;

• Expanded Project Review Waivers: A “Waiver of Project Review” is now expanded to include small new and established condo projects with 10 or fewer units (provided projects with 5–10 units are not part of a larger master association);

• New Construction Presale Requirements: For new construction or newly converted condo projects (apartment-to-condo or office-to-condo) utilizing a Full Review, the strict requirement remains that at least 50% of the total units (or units within the specific legal phase) must have been conveyed or under contract to owner-occupant or investor buyers;

• Substantially Complete Mandate: The project or subject legal phase must be “substantially complete,” with all units and buildings in that phase finished except for buyer-selection items like non-essential fixtures and finishes;

• Stricter Reserve Allocations Effective January 4, 2027: For loans requiring a Full Review, associations must allocate a minimum of 15% of their annual budgeted assessment income toward replacement reserves (increased from the previous 10% baseline);

• Reserve Study Overhaul Effective August 3, 2026: If an association relies on a capital reserve study instead of the flat 15% budgeting rule to prove financial health, baseline funding models are strictly prohibited. Lenders must use the highest recommended funding model identified in the study;

• Insurance and Deductible Caps: Master property insurance policies now permit per-unit deductibles up to $50,000 as long as individual unit owners carry sufficient supplemental (HO-6) coverage to bridge any potential gap. Actual Cash Value (ACV) settlements are now explicitly permitted for roofs.

It is recommended that new construction home buyers engage a CPA to review the buyer disclosures and budget during the 15 day review period to ensure that compliance requirements have been met.

It is also recommended that, during this period, buyers contact their H06 insurance provider for a written coverage opinion on the per unit deductible contained in the contract and applicable subrogation clause relating to loss, if any. Make sure you’d be insured.

Red Flags

Identify red flags in developer contracts:

• Are EMD funds being held outside of escrow, or with an escrow company owned by the developer?

• Does the contract prohibit any/all access to the property during construction? This includes inspections .

• Is the developer funding a reasonable percentage of association fees?

• Is the developer’s bond in place?

• Is there a scope of work addendum describing specs and materials?

• What are the warranties and guarantees?

• Is the project held in an LLC? If so, is the LLC transparent as to the name of its owner(s)?

Timetable

Consider the projected delivery timetable against the current construction stage. If the project is in the very early stages, and you’re purchasing from plats and plans, for instance, you’re assuming more risk.

Your contract will stipulate that the developer may delay, or even cancel, the project under certain circumstances. Know what those are.

Price Negotiation

Price negotiation is case-by-case, but for larger projects, price is often non-negotiable.

Keep in mind that the price of new construction is higher than that of comparable resale homes because of building costs, including land price, permits, labor, materials and builder profit, as well as the value of new materials, mechanicals and structure. The lifespan of a new home should be greater than the remaining lifespan of a resale home, and require less maintenance and fewer repairs and replacements.

Deposits

You’ll be asked for your deposit at the time of signing. The amount varies by developer and project, but it is typically 10% - 20%. Once the rescission period expires, this deposit is nearly always non-refundable.

In cases where selections, upgrades and customizations are offered, you may be asked to pay, in full or in part, the cost of options chosen aside from the base unit. An additional deposit may also be required for parking spaces sold separately.

Selections, Fixtures And Finishes

Developers stipulate that they may make substitutions in fixtures and finishes, change layouts and make other alterations to the common areas and/or units during the pre-construction and early construction phases.

Lender And Title Company

Preferred Lenders

Many developers strike agreements with one or more lenders to provide mortgage services for their projects. You’ll want to check their rates and fees against those in the pre-approvals and worksheets you obtained at the onset of your home search.

Lenders tied to a development project will have all the information necessary to approve a new construction loan on that particular development, but ‘preferred’ lenders don’t always offer the best programs, rates or customer service to buyers. They’re chosen by developer because they have experience with new construction projects, but their loan terms may not be as advantageous than those from a lender of your choosing. Also, you may not experience the same degree of privacy from preferred lenders, who are more likely to share detailed information about your qualifications and loan with the seller developer than would an ‘outside’ lender.

On the positive side, preferred lenders sometimes offer buyer incentives, and sometimes the preferred lender for a development project is the same lender you may have already shortlisted for your purchase.

Preferred Title Company

A preferred title company is used by the developer because that title company has already done the title preparation work on the property and holds all the documentation. Unfortunately, the DC title companies most often chosen by developers are not those that offer the best buyer experiences. There are also concerns around working with a title company affiliated with a property.

Choice of title company is the buyer’s legal right according to RESPA law. But there’s a gray area when it comes to the penalty or reward clause in developer contracts. Read about it from a legal perspective:

A Legal View

Public Offering Statements

According to DC code § 42–1904.04. you’ll receive a copy of the public offering statement (plats and plans) at the time the purchase agreement is signed.

A public offering statement (POS) is a document, or package of documents, that disclose(s) information about a condominium and its units.

“During any period when registration of a condominium is required by this chapter or until the time that all units in the condominium have been initially disposed of to the bona fide purchasers, a declarant may not dispose of any interest in a condominium unit not previously disposed of unless there is delivered to the purchaser a current public offering statement by the time of the disposition.”

Right of Rescission

Code of the District of Columbia § 42–1904.02

Your rescission period for review of the material contained in the contract of sale and POS begins on the date the buyer signs the contract or receives the public offering statement, whichever is later. It is common practice for developers to deliver the contract and POS simultaneously, but it is not required.

“The disposition shall be expressly and without qualification or condition subject to cancellation by the purchaser before conveyance of the unit, within 15 days after the date of execution of the contract for the disposition, or within 15 days after delivery of the current public offering statement, whichever is later. A public offering statement shall not be current unless any necessary amendment is incorporated or attached. If the purchaser elects to cancel, he/she/they may cancel by notice hand-delivered or sent by United States mail, return receipt requested, to the seller. The cancellation shall be without penalty, and any deposit made by the purchaser shall be promptly refunded in its entirety.”

DC code § 42–1904.02.

Exercising Your Right Of Rescission

Code of the District of Columbia § 42–1904.02

During any period when registration of a condominium is required by this chapter or until the time that all units in the condominium have been initially disposed of to the bona fide purchasers, a declarant may not dispose of any interest in a condominium unit not previously disposed of unless there is delivered to the purchaser a current public offering statement by the time of the disposition.

The disposition shall be expressly and without qualification or condition subject to cancellation by the purchaser before conveyance of the unit, within 15 days after the date of execution of the contract for the disposition, or within 15 days after delivery of the current public offering statement, whichever is later.

A public offering statement shall not be current unless any necessary amendment is incorporated or attached. If the purchaser elects to cancel, he or she may cancel by notice hand-delivered or sent by United States mail, return receipt requested, to the seller. The cancellation shall be without penalty, and any deposit made by the purchaser shall be promptly refunded in its entirety.

Your Due Diligence

• Research the project and developer. Be aware that the quality of some builders can vary from project to project, along with price point and margins. Understand that if you seek anecdotal information from project homeowners while the community is still selling, you may get feedback that paints an unrealistically rosy picture since buyers will want to protect their investment.

• Ask the sales rep how many units are being sold per month. Your agent won’t be able to get an accurate count on Bright MLS (DC Metro Area) because it favors developers in its Clear Cooperation Policy. You won’t always get a straight answer from developer reps, either. Sometimes new home sales reps ‘encourage sales’ with less than accurate information on availability and prices, or their responses to this question can be vague.

• Ask ahout the allowed investor ratio in the community and restrictions related to rentals. Low investor ratio is important to your HOA health and future resale value. If the ratio threatens the warrantability of the project or limits financing options for new buyers, a purchase could be a poor investment.

• Research the developer’s previous projects. Are the associations levying special assessments to cure issues? Litigating against the developer? Are the developer’s projects appreciating well or stagnating a few years down the road?

• How long has the project you’re interested in been under construction and selling? Have there been prolonged delays? Why? This may indicate some physical or financial issue that could prove to be a problem.

• Don’t stop at the developer. Does the general contractor have a good reputation? Research then on dc.gov.

Public Offering Statements

Public Offering Statements (Code of the District of Columbia § 42–1904.04) n addition to items noted earlier on this page, should include:

• The characteristics of the condominium and the units offered, including all unusual and material circumstances or features affecting the condominium;

• The name and principal address of the developer and the condominium;

• Names and addresses of the attorney primarily responsible for the preparation of the condominium documents, the general contractor, if any, all contractors who are primarily responsible for the construction, reconstruction or renovation of the electrical, plumbing or mechanical systems or the roof of the condominium, and the architect and engineer primarily responsible for the design, construction or renovation of the condominium;

• A general narrative description of the condominium stating the total number of units in the offering; the total number of units planned to be sold and the number of units to be rented; the total number of units that may be included in the condominium by reason of future expansion or merger of the project by the declarant;

• A copy of the condominium instruments, with a brief narrative statement describing each and including:

• Projected budget for at least the first year of the condominium’s operation (including projected common expense assessments for each unit);

• Provisions for enforcement of liens for assessments;

• A statement of the amount, or a statement that there is no amount, included in the projected budget as a reserve for repairs and replacement;

• The estimated amount of any initial or special condominium fee due from the purchaser on or before settlement of the purchase contract and the basis of such fees;

• A description of any restraints on alienation, including restrictions on the rental of units;

• A description of any service not reflected in the proposed budget that the developer provides or expenses the developer will pay that may become, at any subsequent time, a common expense of the unit owners’ association, and the projected common expense assessment attributable to each of those services or expenses for the association and for each type of unit;

• Copies of the deed to be delivered to a purchaser to evidence his or her interest in the unit and of the contract of sale that a purchaser is required to sign;

• A copy of any management contract, lease of recreational areas, and any other contract or agreement substantially affecting the use or maintenance of, or access to all or any part of the condominium with a brief narrative statement of the effect of each such agreement upon a purchaser, the condominium unit owners and the condominium, and a statement of the relationship, if any, between the developer and the managing agent or firm;

Also required:

A general statement of:

• The status of construction;

• The project’s compliance with zoning, site plan and building permit regulations;

• Source of financing available and the estimated amount necessary to complete all improvements shown on the plats and plans as “not yet completed” or “not yet begun” which declarant is obligated to complete; and

• The projected date of completion of construction or renovation of the major amenities of the condominium;

• The significant terms of any encumbrances, easements, liens and matters of title affecting the condominium;

• The significant terms of any financing offered by or through the declarant to purchasers of units in the condominium;

• The provisions and any significant limitations of any warranties provided by the declarant on the units and the common elements;

• A statement that the contract purchaser of a condominium unit may, prior to conveyance, cancel the purchase transaction within 15 days following the date of execution of the contract by the purchaser or the receipt of a current public offering statement, whichever is later.

In case you missed it earlier, here’s a link to POS law: Public Offering Statement

Home Inspections

Developers often try to discourage outside home inspections, and they can throw up a lot of road blocks to the process. Don’t be fooled by the old sales rep’s line: “You’ll have an inspection prior to settlement with our construction supervisor (or an independent company contracted by the developer).” This procedure is not an inspection, it is a walk-through conducted by someone who works for the developer, not you. This is not a disinterested third party. They’re not invested in finding issues, especially not major ones. In fact, these contractors may be bonused if they report zero issues.

Your home inspection should be performed by a qualified, licensed general home inspector you hire.

Two inspections, possibly three, are recommended during the process:

• Pre-drywall inspection If you purchase in the early stages of construction, a pre-drywall inspection is valuable. An inspector familiar with new construction can easily see how the home is built and spot inferior or flawed foundations, framing, materials, wiring, plumbing, and so on. Builders are reluctant to allow this inspection, or flatly refuse, usually with the excuse that their insurance carrier will not allow it.

• If a pre-drywall and/or post-drywall inspection is allowed and reveals non-cosmetic issues requiring correction, you should have the right to hire your inspector to return and inspect the corrections before they’re covered by drywall.

• A pre-closing inspection of the finished unit is usually restricted by the developer to the date and time of the final walkthrough.

Getting approval for all but the last is very difficult, sometimes impossible.

All inspection issues should be added to the developer’s punchlist to be addressed prior to final walkthrough. You’ll often find a clause in the developer’s contract that says the developer isn’t required to address them. You and your agent should negotiate to have them all remedied.

A final walk-through should take place 7-10 days prior to settlement. This gives the builder time to make punchlist corrections. It’s ideal to have all items completed prior to settlement. Almost all developer contracts state that they may complete punchlist items after closing, but getting corrections made following settlement can be an invasive, delayed process. All your leverage is gone if you’ve closed the transaction, so your agent should press the sales rep and construction supervisor for pre-settlement repairs.

Is There A Required Builder Warranty In DC?

The District of Columbia Condominium Act requires developers to provide a minimum 2 year warranty against structural defects for individual units and common elements.

The warranty period begins just following the unit’s settlement, when the deed is recorded and the unit officially conveys to the buyer:

The two-year warranty period for common areas begins on the later of two dates:

• Upon conveyance of the first unit in the condominium projectl

• When the specific common element is completed.

Some developers may specify the types of defects that are covered, extend the warranty period, or include other provisions. It’s important to read these clauses carefully.

About The Warranty

Condominium Developer Warranty Security

For new construction or converted condominiums, DC law requires developers to post a warranty security equal to 10% of the estimated hard construction and conversion costs:

• Purpose: To guarantee funds are available to fix structural defects or code violations harming health and safety during the mandatory statutory warranty period;

• Duration: Covers individual units for 2 years from conveyance and common elements for 2 years from completion or first conveyance, with claims allowed up to 5 years.

• Form: This can be fulfilled via a surety bond, irrevocable letter of credit, or cash filed with the D.C. Department of Housing and Community Development (DHCD).

General and Custom Home Contractor Licensing Bonds

If the builder is operating as a contractor building a custom home or doing residential work, they must hold specific licensing bonds through the D.C. Department of Licensing and Consumer Protection (DLCP):

• Home Improvement Contractor Bond: A $25,000 surety bond is mandatory for a 2-year license term if doing residential repair or home improvement work where advance payments or deposits are handled;

• Specialty Trade Bonds: Plumbers, gas fitters, and HVAC/refrigeration contractors must post separate trade-specific bonds (typically $5,000) to satisfy licensing compliance.

Should I Trust What Developer’s Sales Reps Say?

About as much as you would trust the person selling you any product. Those friendly new home sales reps are licensed agents who represent the developer (seller), and their duty and loyalty are to them, not you.

They’re trained in what to say, and what not to say. And there’s a lot they may not know themselves.

Unfortunately, that can leave new construction buyers in the dark about important factors like timeline, sales requirements, the developer’s commitment to delivering the project as condos, and more.

What New Home Sales Rep Won’t Tell You

What Should New Condo Boards Know?

This is a huge one, and a question few condo buyers ask.

Once you take possession of your new condo, you’ll want to participate in forming the new board. Whether you sit on the board or not, it is essential that new condo owners understand what’s required when owners take over a board, why each step is important, and how the new boards’ actions, or its failure to act, will affect all owners in the future.

Here’s a detailed explainer: DC Condo & HOA Boards

Flips Aren’t New Construction Homes

Don’t confuse ‘flips’ with new construction

“Flips” are homes that have been purchased by a rehabber and “improved” for quick resale. Unfortunately, a good number of flippers focus more on cosmetic aspects of the home and less on its structural integrity or soundness of electrical, plumbing and mechanical elements. Their goals are speed and profit, not care and concern. And that’s the good news. Some unscrupulous DC and NVA flippers have been caught drywalling over serious structural issues that later became homeowner nightmares. While some flippers do a good job, flips are an area of great concern and should be approached with extreme caution. Their popularity has exploded in DC, as have the number of serious construction issues and lawsuits.

With improved, but still inadequate regulatory oversight for permitted and non-permitted residential construction in DC, bad behavior can be commonplace.

There are no qualifications set for flippers. Anyone who purchases a property can decide to flip it, whether they know what they’re doing, or not.

Flippers often hire contractors for their low bids, not their high quality and sterling reputation. Contractors, in turn, hire subcontractors, and even day labor. As a result:

• It is difficult or impossible for the homeowner to track who is working on the home, their names and credentials, and to verify licensing for each

• Permits may or may not be pulled

• Permits can be vague regarding scope and work beyond the permit scope is often performed

• DCRA inspections are often ignored when permitted work is completed. Without the inspection(s), you have no way of knowing if the work was performed properly and to code

• When work is not permitted and inspected, so the permit can’t be closed out by the DOB. When the builder’s crew leaves, the new owner becomes liable for the work, permitting and inspections. You can be cited, fined and even forced to remove the work, even if it is a finished basement, rear addition, a garage, ADU, deck or every permit-required update made to the entire home.

Additional Risk

Adding to the risk of purchasing a flipped home, are:

• Flip properties are typically held in LLCs to limit liability, so there may be little or no legal recourse if you experience problems.

• Flips are classified as renovations rather than ground-up construction, so they’re subject to spotty regulations rather than the more rigorous building code to which new projects are expected to adhere.

• Buyers of ‘flips’ should have multiple inspections by expert providers. But it is never enough. Inspectors can not see through walls, floors and ceilings. They aren’t able to perform acts that have the potential to cause damage, no matter how slight or cosmetic. General Home Inspectors are not structural engineers, surveyors, master plumbers, master electricians or roofers. And even specialty experts can not adequately assess a home without performing some disallowed invasive acts. Home buyers sometimes decide they don’t want to pay for every inspection allowed them and/or choose inspectors based on price instead of expertise and service types.

• Buyers may not be equipped to adequately assess permitting documentation and inspection results.

Taking every safeguard will not prevent the purchase of bad ‘flips’ and renovations.

Still thinking about purchasing a flipped home? Read these stories, then make up your mind:

FLIPS THAT WERE FLOPS

• DC Condo Crumbles

• Buyer BewareLessons of a bad home purchase – Popville

• WAMU House Flipping Part I

• WAMU House Flipping Part IIWashington Post – Quest to Profit

• Couple Who Renovated DC Rowhouses

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Assumable Mortgages

Section: Investor Intel
Author: Susan Isaacs, Washington DC Real Estate Strategist

About Assumable Mortgages

An assumable mortgage is one that can be transferred from the current mortgagee to a qualified buyer, reassigning the terms agreed upon when the loan was first originated.

If a homeowner obtained a mortgage when rates were substantially below the current market rate, and the loan is assumable, buyers may be offered that lower rate under the terms of the existing mortgage, for the remaining balance of the original loan.

To determine if a mortgage is assumable, sellers must start by reading the loan contract, then contact your mortgage lender to confirm and define the terms, requirements, restrictions, costs and the process for assumption.

Assumptions Are Popular When Rates Rise

When mortgage interest rates climb, buyers look for creative financing solutions. One of the best is assumption. If a mortgage is assumable and carries a low rate, sellers are likely to realize a higher sales price when mortgage interest rates are high. Buyers benefit by taking over a lower-cost mortgage for the bulk of the purchase price, enjoying significant savings over the life of the loan.

How Does Assumption Work?

An assumable mortgage allows many home buyers to assume the current principal balance, interest rate, repayment period, and any other contractual terms of the seller’s mortgage.

Assumable loans are desirable when interest rates rise, but buyers can only assume the balance of the existing loan. The longer the seller has paid toward the loan , the lower its balance will be, and buyers will have to make up the difference in cash or take out a second mortgage at prevailing market rates to cover the difference.

The list price of a home in DC is likely to be higher than the remaining mortgage balance. The amount of that difference depends on the length of time the home has been owned, the terms of the existing mortgage loan, and the current market value of the property.

Not all buyers can take advantage of a loan assumption opportunity. Investors, for instance, can not assume an FHA or VA mortgage loan as these programs are specific to owner-occupants.

Here are the basic steps for offering of an assumable mortgage:

Step 1

Seller determines if the loan is assumable, and initiates the formal process required by the existing lender to offer the assumption to buyers;

Step 2

Sellers must obtain formal permission from the current mortgage lender in order to offer loan assumption. Most mortgages include a “due on sale” clause, making the full balance of the loan due when the home is sold. A seller who wishes to offer their home for sale with the provision of an assumable mortgage first must secure permission from the lender so the ‘due on sale’ clause isn’t triggered.

Sellers will also want the lender’s participation in transferring the mortgage (novation) because the buyer’s assumption in itself does not release the seller from responsibility for loan payments after the transaction closes. The lender must release the seller from liability in writing at the time of closing for the seller to be free of responsibility.

When listing the home with a confirmed assumable mortgage, the seller should advertise the fact that the loan is assumable, and in what amount.

Step 3

The buyer must apply to the existing lender to assume the mortgage, just as they would make a loan application for any mortgage loan, except that qualification will be for the terms of the original loan, and show ability to pay cash or obtain a second mortgage (typically at a higher interest rate) to make up any difference between the balance of the existing loan and the purchase price (less down payment).

The buyer must meet the lender’s standards of creditworthiness, income, debt-to-income ratio (DTI), etc. in order to qualify for one or both loans;

Step 4

At closing, the seller signs a warranty deed transferring title to the home to the buyer and the buyer signs a loan agreement and other lending documents assuming the existing loan. The buyer will also bring a second mortgage or cash to cover the difference between the loan assumed and the purchase price, if any. The lender releases the seller from further loan responsibility with the novation transfer.

There Are Two Types Of Assumable Mortgages

“Simple” and “Novation”. They have different implications for the buyer, seller and lender:

Simple

A Simple Assumption is a private transfer of responsibility for the mortgage from seller to buyer to which the mortgage lender isn’t privy.

The lender doesn’t put the buyer through the underwriting process or participate in transferring the loan, so if the buyer fails to make payments or otherwise breaches the mortgage contract with the lender, both buyer and seller are liable.

Novation

In a Novation assumption transaction, the mortgage lender agrees to and participates in the full transfer of liability from seller to the buyer for the existing loan.

The lender is able to take the buyer through the underwriting process, and therefore is willing to release the seller from all future responsibility for the mortgage.

Are All Mortgages Assumable?

No. Only certain types of mortgages are assumable.

The majority of conventional mortgages aren’t assumable, but it’s certainly worth buyers asking in the shopping phase of their home search. In the past, buyers have not concerned themselves with the type of mortgage loan the seller was carrying, but that’s now a question buyers should have at the top of their list. And sellers carrying assumable mortgages with advantageous terms should absolutely be having that conversation with their agents and using that perk as a top marketing item.

There are some non-conforming conventional loans that are assumable and adjustable rate mortgages (ARMs) from Fannie Mae and Freddie Mac can be assumable, but these tend to be unicorns.

According to Michelle Davis of Prosperity Home Mortgage, in crafting ARM programs, lenders start their basis of underwriting on Freddie Mac and Fannie Mae guidelines, so many ARMs carry the same restrictions against assumption that conventional 30 year-fixed loans carry. Davis says she doesn’t know of a single ARM that is assumable.

Government-insured loans such as FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) are assumable as long as specific requirements are met and the seller obtains lender approval.

Advantages of Assumable Mortgage Loans

A buyer can adopt financing with a lower interest rate than the current market rate for the balance of the existing loan so this can make your home more marketable when rates are considered high

Because the buyer is getting a lower rate for the principal balance for at least a chunk of the purchase price than they’d get buying another home with a new loan, and since assumable mortgages carry lower closing costs, borrowers can apply these savings to their second mortgage and the seller may be able to realize a higher sale price.

Disadvantages of Assumable Mortgage Loans

• Buyers may need substantial down payments when the equity is high

• Lenders may not cooperate when a second mortgage is needed

• With two mortgages, the risk of default increases

• Unless released, the seller can be held liable in the event of default by the buyer

VA And FHA Assumable Mortgages

FHA

• FHA loans are assumable when seller and buyer both meet the requirements for the assumption

• The property must be used by the seller as their primary residence

• Buyers must verify the FHA loan is assumable & apply as they would for an individual FHA loan

• Seller’s lender will verify the buyer meets the qualifications, including creditworthiness.

• Unless the seller is released from the loan, they’re still responsible for it and can be held jointly liable if the buyer defaults

VA

For sellers with VA loans, VA entitlement can cause a potential issue. With a VA loan, the government guarantees repayment of part of the balance if the borrower defaults. The VA limits this guarantee, which it labels “entitlement.” Depending on the loan amount, some or all of the borrower’s entitlement remains tied up in the home with the assumed mortgage, even after the sale, so the seller might not have enough entitlement remaining to qualify for another VA loan to buy the next home. If the VA seller sells to another VA-eligible buyer, the buyer can then substitute their own entitlement for the seller’s and the VA restores the seller’s full entitlement.

The Department of Veterans Affairs offers mortgages to qualified military members and spouses of military members, but assumption buyers don’t need to be a member of the military to qualify.

•The lender and the regional VA loan office will need to approve the buyer for the loan assumption

•For loans initiated before March 1, 1988, buyers don’t need VA approval to assume the mortgage

Should You Work With A Real Estate Agent When Purchasing A Property With An Assumption?

Absolutely. A loan, assumption or otherwise, is just one part of a real estate transaction. It is still a home sale and purchase transavtion in which all the associated practices apply. But because an assumption sale and purchase can be even more complex than the average transaction, there is ample reason to have a real estate professional on your side.

Sources

• Rocket Mortgage

• Investopedia

• Quicken Loans

• Lending Tree

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Adjustable Rate Mortgages

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

Considering An Adjustable Rate Mortgage In 2026

The DC market offers a healthy supply of inventory, but interest rates pose a barrier to homeownership for many. When mortgage rates rise, purchasing a home in a high-value area like Washington DC seems prohibitive, but don’t nix long-term benefits due to a short-term issue. Adjustable loans might be just the fix homebuyers need to make homeownership a reality this year.

What Is An Adjustable Rate Mortgage?

An adjustable-rate mortgage, also known as an ARM or ‘variable rate mortgage’, is a mortgage loan with an interest rate that adjusts with the market.

Often with an initial rate lower than a conventional, fixed-rate mortgage loan, ARMs fluctuate with market rates, so if interest rates go down, an ARM rate can lower, but if rates go up, so does your rate.

There are a variety of ARM types; 3/1, 5/1, 7/1, 10/1, 5/6, and so on; each with a fixed and adjustable period:

• Fixed: The first 3, 5, 7 or 10 years of the loan, during which your interest rate won’t change;

• Adjustable: The remaining years of the loan, when your interest rate can go up or down based on changes in the benchmark rate (an interest rate which serves as the standard by which other interest rates are assessed).

What Is The Benchmark Rate?

The benchmark rate represents the lowest interest rate, fluctuating with a wide variety of pressures. Two key benchmarks are:

• The federal funds rate set by the Federal Reserve;

• The prime rate, which is set by banks.

The Fed’s benchmark rate influences other benchmark rates throughout the economy, such as the prime rate set by banks.

The ARM index is often based on a benchmark rate such as the prime rate, but it can also be based on LIBOR, Secured Overnight Financing Rate (SOFR), or the rate on short-term U.S. Treasuries.

With a couple of possible exceptions, the rate on the ARM after the initial rate period ends equals the most recent value of a specified interest rate index, plus a margin. The index plus margin is the “fully indexed rate.” The index rate can change, but the margin stays the same. Example: If the index is 5% and the margin 2%, the interest rate on the mortgage adjusts to 7%. If the index is at only 2% the next time that the interest rate adjusts, the rate falls to 4% based on the loan’s 2% margin.

What Does The Second Digit Represent?

The second digit in the ARM type (3/1, 5/1, 7/1, 10/1, 5/6) refers to the frequency of the rate adjustment after the fixed period.

A 5/1 ARM adjusts once a year. On a 5/6 ARM, the rate adjusts every 6 months. A 30-year ARM with a 5-year fixed period would have a low, fixed rate for the first 5 years of the loan adjust with the market the remaining 25 years.

What’s The Difference Between Conforming And Non-Conforming ARM Products?

There are conforming and non-conforming ARMs, just as there are for conventional mortgages:

• Conforming lARMs meet Freddie Mac and Fannie Mae underwriting guidelines;

• Non-conforming ARMs do not.

Non-conforming loans carry their own set of risks and it is important to carefully assess the loan terms and lender before committing to a non-conforming loan.

Two of the most common non-conforming mortgage loans are jumbo loans, FHA, VA and USDA. These loans, except the jumbo, are guaranteed by the government.

Be sure to consult with several lenders to learn about their adjustable rate mortgage programs as well as other programs that might benefit you.

Tell Me About Annual Rate Caps

ARMs may carry rate caps, which restrict interest rate increases over the life of the loan. Typically 5%, this cap means the rate can never be five percentage points higher than the initial rate. The cap can vary by lender, so this is an important factor to evaluate with each ARM loan program.

An annual ARM cap is a clause limiting increase in the loan’s interest rate during each year. The cap, or limit, is usually defined in terms of rate, but dollar amount of the principal and interest payment may be capped as well.

Annual caps protect borrowers against sudden and excessive increases in monthly payments when rates rise sharply over a short period of time, such as we’ve experienced in 2022.

There are actually three kinds of caps:

Initial adjustment cap. This cap says how much the interest rate can increase the first time it adjusts after the fixed-rate period expires. It’s common for this cap to be either two or five percent – meaning that at the first rate change, the new rate can’t be more than two (or five) percentage points higher than the initial rate during the fixed-rate period.

Subsequent adjustment cap. This cap says how much the interest rate can increase in the adjustment periods that follow. This cap is most commonly two percent, meaning that the new rate can’t be more than two percentage points higher than the previous rate.

Lifetime adjustment cap. This cap says how much the interest rate can increase in total, over the life of the loan. This cap is most commonly five percent, meaning that the rate can never be five percentage points higher than the initial rate. However, some lenders may have a higher cap.

The CFPB says:

Compare rate caps when comparing ARMs. Two different lenders may have the same initial interest rate but offer different rate caps. Even if you think you’ll move or refinance before the adjustable period starts, it’s a good idea to know how much your rate can change.

Types Of ARMS

There are a variety of ARMs offered, primarily Hybrid, interest-only, and the payment option.

Hybrid

Offers a combination of fixed and adjustable rate periods. The interest rate is fixed initially, then adjusts at a specified time, such as one year, as we outlined above.

Interest Only

With an ‘IO’ borrowers pay only the interest on the mortgage for a specific time frame, then both interest and the principal on the loan. The longer the I-O period, the higher your payments will be when it ends. We classify this as an ‘expert only’ loan. Only those with sufficient acumen should consider it, under very specific circumstances.

Payment Option

A payment-option ARM offers borrowers the ability to make payments covering principal and interest, paying down just the interest, or paying a minimum amount that does not even cover the interest. Also dangerous because the lender must be paid in full by the date specified in the contract and interest charges are higher when the principal isn’t being paid down. Not recommended except for the most disciplined, informed borrower, and then only in certain circumstances.

Pro Tips

Things to consider before making any decisions about purchasing with an adjustable rate mortgage

There is a booklet authored by the CFPB (Consumer Finance Protection Bureau) explaining adjustable rate mortgages. Read it before contacting a lender so you’ll know what questions to ask about ARM programs offered in the Washington DC area.

The CFPB recommends borrowers ask their lender to calculate the highest payment you may ever have to pay on the loan you’re considering. You can also find this information on your Truth-in-Lending disclosure, which lenders are required to provide you within three business days after you apply for a loan, (but by this time you’ve committed to a property and paid an Earnest Money Deposit and a loan application fee. Best to get this information up front).

Qualifying For ARMS

General Qualifications For ARM Loans

Contact several lenders to get program requirements for each ARM type you’re considering. In general:

• Minimum 3.5% – 5% down payment

• Minimum qualifying FICO® Score of 580 – 620

• Debt-to-income ratio (DTI) of no more than 50%

• Maximum loan-to-value ratio (LTV) of 95%.

Refinancing ARMS

What Are The Costs of Refinancing An ARM?

Specialty loan programs have a cost of their own and the ARM is no exception.

You can refinance your adjustable-rate mortgage into a fixed-rate mortgage when it comes time for your rate adjustment, even into another ARM, but know that there are fees and closing costs associated with any refinance. Fees are particular to the new loan program you choose, and closing costs can be anywhere between 2% – 6% of the loan amount, although they tend to be lower on a refinance. Here’s a Rocket Mortgage explainer on the Pros And Cons of ARMS.

Pros

For some borrowers, an ARM can be the solution to a market issue.

• The initial rate is usually lower than a fixed-rate mortgage, making monthly payments more affordable and qualification for a higher loan amount possible

• Caps limit how much your interest rate and payment can rise over the life of the ARM loan

• Pay off the loan in full, refinance, or sell your home, before the adjustment period kicks in if it is disadvantageous

• Build reserves to offset higher rates when they come if you stay in the home post-fixed period. A catastrophic life event such as job loss, serious illness or severe market conditions can impact your ability to meet the payment of any mortgage loan, or for that matter, rent (which also rises). Having reserves eases the stress

• You can match the initial fixed-rate period to length of time you plan to own your home if it is not long term

Payment may adjust down if interest rates fall.

Cons

As with any type of loan or financial investment, risks apply.

• Payments Increase If interest rates rise, your payments will also rise after the adjustable period begins

• Unplanned Events Planning for future financial events can be iffy. Even careful planning can fail to take into account unexpected events such as a job loss, serious prolonged illness. or severe market events. If you’re unable to sell or refinance, you’ll have the added stress of making higher payments or going into default. This is the reason having minimum 3-6 months of reserves for rate increases is important

• It’s not simple ARMS are more complicated than a standard conventional mortgage loan, where you know what payment to expect throughout the life of the loan. Make certain you understand the rules, fees and terms of the loan

• Rate difference may not be worth it As Rocket Mortgage explains, “as interest rates go down, there tends to be a narrowing of the yield curve. This gets a little bit technical, but basically the yield curve deals with the difference between fixed- and adjustable-rate mortgages. If you’re saving a significant amount on the front end of the loan by going with an ARM, it can be worth it. If the difference is 10 basis points (10 hundredths of a percentage point), not so much.”

Due Diligence Checklist

Determine which type of variable rate mortgage is right for your circumstances

• Check the rate, fixed & adjustable periods

• Check the cap

• Check the loan cost

• Calculate the highest possible payment and determine if this ‘worst case scenario’ is acceptable to you

• Remind yourself that personal, local, national and global economic factors can impact your ability to pay your mortgage

• Build minimum 3-6 months of mortgage payment reserves to help offset rate increases

• Never enter into a mortgage loan of any type that you don’t understand fully, or aren’t certain you’re financially capable of fulfilling.

Call your loan officer for a worksheet on your numbers and the terms of ARMS they offer.

Disclaimer

Posts are offered for informational purposes only and should not be construed as financial or legal advice, design or construction advice. Home buyers and sellers must always perform their own due diligence and seek counsel from licensed professionals such as CPAs and attorneys when making choices relating to a real estate transaction. We do not endorse individual service providers and citations should not be considered endorsements.

Buying a home in Washington DC

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

How To Begin A DC Home Search

Ready to purchase a home in Washington DC but don’t know where to start? Here’s a ‘best practices’ list to set you on the right path to home ownership.

Prioritized Steps

What should take priority as you begin your home search in 2025? Begin by researching your local market. Interview reputable mortgage lenders and obtain a pre-approval. Select an experienced, skilled buyer’s agent to help you structure your home search in a way that promotes efficiency, a smooth process and satisfaction with its outcome.

1. Mortgage Loan Pre-Approval

What Is A Mortgage Loan Pre-Approval?

A mortgage pre-approval is a statement lenders provide asserting your eligibility for a mortgage loan. Pre-approvals are based on your mortgage application and verified income, credit score, debts, and employment history. The pre-approval letter should include: the lender’s name and contact information, your maximum loan amount, estimated interest rate, loan term and an expiration date.

When Is A Pre-Approval Needed?

Before meeting with agents and signing an agency agreement, you’ll want to be sure of your ability to purchase, price point, need for concessions, if any, and understand the cost of borrowing.

• A pre-approval shows prospective agents you’re serious about your intent to purchase and have the ability to assume responsibility for broker compensation

• A pre-approval helps your agent define criteria for timeline, feeds and showings

• Your Pre-Approval should come with a worksheet that helps you estimate transaction costs accurately

• If you find the right property quickly, you’ll have the letter needed to write an offer.

Consult Three Lenders

We recommend that DC home buyers contact three lenders for mortgage pre-approvals and worksheets. Request pre-approvals for the home type(s) you plan to purchase, at the mid-range and the very top of your price point. This will allow you a working estimate for your desired price point, and a ‘worst case scenario.’ Better to be well-informed than panicked at the last minute!

You’ll want a pre-approvals from a local, reputable lenders. You can get a pre-approval over the phone & online.

Review DC homebuyer loan programs for those that may benefit you. You may also qualify for down payment assistance, home buyer tax credits or DC tax abatement.

Don’t make a lender commitment until you’ve contracted on a home. DC condos, new construction, co-ops, and single family properties all qualify differently. Your priice point also makes a difference. Lenders offer a variety of programs. You’ll want to match your loan to the property you want to purchase.

12 Questions To Ask Lenders

1, What loan options are available to me, including local home buyer programs?

2. What is the maximum purchase price I qualify for? Which loan category does this loan fall into (jumbo or conforming conventional, or other loan type)?

3. What is the current interest rate and associated costs for this type of loan?

4. What will my monthly mortgage payment be at the maximum approved price, and what loan fees apply?

5. Can you provide me with a cost estimate worksheet similar to a Closing Disclosure, detailing all the costs of a transaction at this price?

6. How do my options change if my downpayment is increased or decreased?

7. When is a rate lock available, what is the duration, and do you offer a free ‘float down’ during the loan term? What is your fee for a rate lock?

8. Are there any restrictions for down payment gifts or source of funds?

10. Will my loan be sold after closing?

11. Does this loan have a prepayment penalty?

12. Is this loan assumable?

What You’ll Need To Provide

• Sufficient information to complete a loan application

• Credit review. Your lender will run your credit reports.

• Provide copies of your W2s, tax returns for two years, three months of recent bank statements, and any other information requested by lenders.

• Discuss loan options with your loan officer, and make sure to request a worksheet showing all costs of your transaction, and a preapproval letter, both at the highest approval amount.

If you’re paying cash for property, you’ll still need a verification of funds letter from your financial institution showing liquid funds in the amount of the intended purchase price. This letter or document must be submitted with your offer.

2. Partner With An Agent

The biggest transaction of a lifetime is no time to wing it. Now more than ever, make sure you have an experienced pro to guide you from search, negotiation and transaction management to closing and beyond. Before taking further steps, interview Realtors to find the professional best suited to your needs and sign an agency agreement.

Quality Representation

New market, new rules, new economic climate. 2025 is a time when real estate expertise is needed more than ever. A skilled agent can acquaint you with the latest changes to real estate practices, provide expert market knowledge, property valuation tools and information, navigate complex negotiations, offer access to exclusive off-market listings, help you identify potential property issues, and ultimately save you time and money by guiding you through the often intricate home buying process, especially in a unique market like Washington DC.

Benefits Of Working With A Buyer Agent

• Market Expertise:
  Agents have deep understanding of local market trends, pricing, and current conditions, helping buyers make informed decisions based on accurate data. This is especially important in a market with fluctuating rates and diverse options

• Negotiation Skills:
  Agents can effectively negotiate on your behalf, securing the price and terms that work for you while ensuring you don’t lose your desired property to another buyer.

• Access to Off-Market Listings:
  Agents may have access to off-market properties that don’t appear on search engines, providing you with an expanded array of options.

• Technology:
  Digital tools, AI and data play significant roles in real estate, and a skilled agent can leverage them to enhance your search, property valuation and transaction.

• In a competitive market, your agent can provide effective strategies and help structure strong offers persuasive to sellers.

• Property Evaluation:
  An experienced agent can spot potential issues with a property that might not be obvious to a buyer

• Streamlined Process:
  Agents manage forms, contracts and other paperwork that may be unfamiliar to buyers. In addition, your agent can guide you through contingencies, inspections, rescission periods, and appraisals, freeing up your time and minimizing stress.

Questions To Ask:

• How are DC real estate market conditions right now?

• Why is a written agreement required for us to tour homes?

• What is the value of a buyer’s agent in the current market?

• What are my buyer broker compensation options in 2025?

• Does your brokerage charge an ‘admin’ fee? How much is it? Is it negotiable?

• What are your broker compensation rates? Are they negotiable?

• How do you manage offers when cooperative compensation is not provided?

• What’s your strategy for negotiating buyer broker compensation with a seller and listing agent?

• What if I can’t afford to pay my broker and still cover closing costs and downpayment?

• What are the risks of not working with a buyer’s agent?

• Explain new buyer agency forms

• Does a seller concession for buyer broker compensation count against Fannie Mae or Freddie Mac caps?

• Can I pay my own broker and still use a VA loan?

• What tools do you use for the home search process?

• How much time should I expect my home search to take?

• How will I know if my goals are realistic and achievable?

• Will I be able to view off-market listings?

• Do you handle my full transaction personally, or will I be working with someone else most of the time?

• What’s your communication style and what communication tools do you use?

• How many years have you practiced real estate in Washington DC?

• What experience do you have assisting buyers in my pricepoint and preferred neighborhoods?

• Please explain how appraisals can affect my transaction

• What do I need to know about home inspection contingencies in the current market?

• What expectations would you like to set with me?

What You May Be Asked

• Do you have a pre-approval letter issued within the past 30 days? Who’s your lender? (You’ll be asked to provide a copy of the pre-approval letter)

• Are you working now--or planning to work--with other agents?

• Have you toured homes or consulted with other agents?

• If so, can you furnish a copy of your agreement(s)?

• What type of financing will you use, or are you paying cash?

• Do you have any credit, tax or other issues that may affect your ability to obtain a mortgage loan?

• Do you have available funds for an Earnest Money Deposit, closing costs and broker compensation?

• Do you understand new buyer/broker compensation rules and practices, and how they affect you?

• How much will your downpayment be?

• What are your expectations for your home search?

• Do you have any concerns about working with a buyer’s agent?

• Do you understand what buyer’s agents do, don’t do, and how they benefit your search?

• What are your desired locations, “must-haves” & “wish list?”

• Pets? Parking? Metro proximity?

• What’s your timeline?

• What else is important to you?

Buyer Agency

Interviewing and hiring an agent should accomplished before reviewing listings and touring homes. In fact, new rules require it. Read about buyer agency and how it affects you.

3. Strategy And Search

Review your wish list, timeline, price point and other important factors with your agent. Discuss market conditions and how they align with your goals. Your agent should provide various strategies to help you accomplish your goals, and explain the pros and cons of each. Reach compromises where necessary.

Identify the search targets your agent will need to create your search feeds. If you’re working with a Compass agent, you’ll receive invitations to a private Collection of listings that match your search criteria. All the latest listings will generate automatically, and you’ll get updates in your Inbox as often as you choose. You will also be able to view off-market opportunities on the Compass network.

You and your agent will discuss the merits of each listing of interest amd you’ll create a shortlist of favorites. Once you’ve identified the homes you’d like to tour, prioritize them and your agent will set up a tour. This process continues until you identify a home you’d like to own.

Your agent may inquire about buyer broker compensation, create and review a comparative market value analysis (CMA) and outline an offer strategy. Strategy for offers differs with each property.

4. Offer And Contract

Your agent will draft your offer and attach all necessary disclosures, then send it to you for signature. Once signed, the offer will be ‘packaged’ and submitted to the listing agent.

A ratified offer exists when all terms are agreed upon in writing. During the contract phase, you’ll exercise your contingencies, if any, perform your due diligence and review any additional documentation required or provided. There may be some additional negotiation involved, for contingencies such as inspection and appraisal. Once all contingencies are satisfied, you’re on your way to settlement.

5. Settlement And Post-Closing

At settlement, you’ll take legal possession of your new home. Your title company will facilitate the closing, during which you’ll sign loan documents, if any, and other settlement paperwork. At the end, you’ll be handed the keys.

Post-settlement, your agent may check in to make sure your move went smoothly and all is as expected with your home. Many clients appreciate having access to acontractor and vendors list for improvements and repairs.

Tips

Earnest Money

Earnest Money Deposits typically range from 3% to 20%, depending on the situation and price point. The lower end of 3% commonly represents an amount equal to a special mortgage program, or relates to a low-priced property. EMD at the higher end commonly relates to sums for cash transactions, high-value purchases and/or deposits relating to multiple offer scenarios. EMD is presented with your offer in the form of a photo of a check, and credited toward your downpayment if the contract goes to settlement.

Note:

• EMD will be lost if you default on your contract.

• EMD is held by the title company and deposited when a contract is ratified

• EMD percentage affects the strength of your offer.

Down-Payments

Down Payment amounts vary. In the DC Metro area, down payments typically range from as low as 0% down for qualifying VA borrowers, to 3.5% for FHA loans, 3% to 5% for specialized mortgage loan programs, 10% to 20% for co-ops, and conventional loan programs from 5% to 25%. In a multiple offer situation, down payment percentage affects the strength of your offer.

Note:

• Downpayment amount can affect the strength of your offer

• If in doubt of your down payment %, err on the conservative side. You can always increase downpayment, but reducing can trigger contract issues

• Consult with a mortgage professional to determine your downpayment options. Always consult with a mortgage professional to determine your downpayment options.

Closing Cost Budget

In addition to down payment, you’ll pay for transaction closing costs, which can be estimated at approximately 3% to 3.5% of the purchase price of the home, plus broker compensation. Transaction costs vary based on loan product, type of home, and purchase price. Ask lenders for one or more worksheets detailing costs to make apples-to-apples comparisons. Provide your lender with basic worksheet information such as top price (worst case scenario), condo fee if applicable, tax zip code and loan type.

Note:

• Three pre-approvals from different lenders are recommended for best comparison

• Be sure to use the same criteria for each pre-approval for best results in estimating closing costs.

• Worksheets should be as close as possible to a Closing Disclosure.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Paying Cash For DC Real Estate

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

Cash can be the deciding factor in multiple offer scenarios. It means buyers can write non-contingent offers, purchase properties restricted by lenders, and bypass appraisal. Paying cash for DC real estate also allows buyers to save on transaction costs such as loan fees. Cash offers sometimes mean lower purchase prices.

Why Make An All Cash Offer?

It’s faster, easier and often more successful. Here are the top reasons to make a cash offer on real estate in Washington DC:

• No-contingency offers are attractive to sellers

• Fast closing due to elimination of loan processing period

• Appraisals aren’t required for cash offers

• No inspection requirements

• Cash buyers may achieve a lower purchase price

• Buyers pay lower costs by avoiding loan fees, loan interest

• No required mortgage underwriting restrictions

• Ability to purchase any type of property in any condition

• Flexible settlements. Cash buyers can sign electronically.

• Competitive advantage in multiple offer scenarios

What Do Sellers Expect From A Cash Offer?

No-Contingency Offer

One of the primary advantages of a cash offers for DC real estate is the ability to write a no-contingency, or ‘clean’, offer.

Sellers can be assured that an accepted cash offer will not fall out of escrow due to loan denial, low appraisal, or inspection issues. While buyers writing cash offers are not precluded from adding contingencies to their offers, most will forego all but inspection, (and often even that provision), in order to procure the home they want at the best possible price.

Funds Verification Letter

Proof of funds is required with a cash offer.

The seller will expect confirmation that available funds exist to cover the entire purchase price of the property plus closing costs. The POF is included with the buyer’s offer to purchase.

Proof of funds can take a number of different forms, including:

• Bank Statement (hyper-personal information redacted) generated by the buyer’s banking or other financial institution, dated, including bank officer contact information for verification purposes;

• A verifiable copy of the buyer’s money market account statement;

• An open equity line of credit verification;

• Security or custody statement;

• A certified financial statement;

• Pre-approval letter from a mortgage lender;

• And the easiest of all, a cash buyer can simply deposit all funds required for closing into the transaction escrow account within 72 hours of contract ratification, stipulating the portion to be allocated as ‘earnest money’ according to the terms of the contract.

Qualifying POF funds must be liquid capital. Sources such as retirement accounts, mutual fund accounts, life insurance, funds from others, stock shares and bonds are not appropriate forms of proof of funds.

Earnest Money Deposit (EMD)

Earnest money will still be required. Sellers will expect a healthy deposit into an escrow account when your contract ratifies. This sum is forfeited by the buyer and awarded to the seller as damages if the buyer defaults on the contract, unless contract terms dictate otherwise. The EMD amount is typically 7% – 10% of the purchase price, more under certain circumstances. The Earnest Money Deposit is held by the title company of the buyer’s choice and will be credited against the purchase price of the property.

Short Escrow

Because there is no loan processing period to extend the term of the transaction, Washington DC home sellers will expect a short escrow period when accepting a cash offer.

Allowing time for the title company to complete its title search, a seven to 10 day period is common for cash sales, 14 days at the outside.

Only sellers who are owner-occupants, or those with tenants occupying the property will desire a longer escrow period in order to deliver the property vacant.

What Defeats The Advantage Of A Cash Offer?

Lowball Offers

‘Cash Is King’ is still true, but it won’t make up for lowball offers.

Some buyers are surprised to learn that cash purchases are quite common in the DC real estate market, and that theirs isn’t the only one sellers are likely to receive in a multiple offer scenario. Sellers in the District are not so impressed by a cash offer that they’ll accept a low offer, even one with great terms.

Unrealistic Terms

Contingencies, demands for property improvements or major repairs, stipulating seller payment of buyer closing costs, inclusion of furnishings and other personal property, and dubious source of funds can sour sellers on a cash offer.

Every contingency weakens an offer. Loading a cash offer up with contingencies can negate its key advantages to the seller. There’s one exception; Inspection. Deadlines for offers set just a few days after properties are listed can make pre-offer inspections next to impossible. Therefore, a short (3 day) inspection contingency in an offer for a home that is not being sold ‘as is’ may be the sole contingency sellers will accept from a cash buyer in a multiple offer situation, especially if the inspection is no-negotiate, or ‘walk away.’

Disadvantages of Cash Offers

Commonly cited ‘cons’ to paying cash for a home are:

• Diminishing liquidity

• Investing significant capital in one asset class

• Foregoing leverage afforded by a mortgage if property appreciates

Virtually all the ‘cons’ can be mitigated by leveraging the property after closing, having achieved all the goals of the sale transaction.

2024 Proposed FinCEN Changes Affecting Cash Transactions

February 16, 2024: Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking titled Anti-Money Laundering Regulations for Residential Real Estate Transfers. The proposed rule imposes reporting and record keeping requirements on certain persons involved in real estate closings and settlements for non-financed (cash) residential real estate transactions.

Certain professionals involved in real estate closings and settlements (title companies, attorneys, escrow agents) would report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts.

FinCEN’s proposal is tailored to target residential real estate transfers considered to be high-risk for money laundering, and it would not require reporting of transfers made to individuals.

“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” according to FinCEN Director Andrea Gacki.

Foreign Investment In U.S. Real Estate

• International buyers made up about 1.9% to 2.5% of total U.S. existing home sales in recent tracking periods according to NAR

• Buyers who reside abroad account for only about 1.4% of existing home sales.

• Roughly 56% to 60% of foreign buyers already live in the U.S. on temporary visas, as students, or as recent immigrants.

Rule Vacated And Suspended

The FinCEN Residential Real Estate Rule is currently vacated and suspended nationwide following a federal court order.

Current Legal Status

• On March 19, 2026, the U.S. District Court for the Eastern District of Texas ruled in Flowers Title Companies, LLC v. Bessent that FinCEN exceeded its statutory authority under the Bank Secrecy Act and vacated the rule nationwide.

• According to FinCEN’s Official RRE Guidance, reporting persons are not currently required to file Real Estate Reports for non-financed entity/trust transfers, and there is no liability or penalty for non-filing while the court order remains in force.

• The U.S. Department of Justice has appealed the ruling, but until further notice or an appellate stay, the rule has no legal effect. FinCEN states that if the order is eventually overturned, transactions that closed while the order was active will not be subject to retroactive filing requirements.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

DC Real Estate Buyers Final Walkthrough

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

The Homebuyer’s Final Visit Before Settlement

Perform the final walkthrough to verify that the home is in ‘substantially the same condition’ as the date of contract or inspection, that everything intended to convey is still in place and that the seller has not left unwanted items behind for you to dispose of at your expense. You’ll also take this time to confirm that the seller has provided all keys, fobs and remotes.

Not An Inspection

Your final walk through is not a home inspection performed by a professional home inspector. Hopefully you had one of those before or during the contract phase of the process, along with a re-inspection if repairs were required prior to closing. A re-inspection performed within five days of settlement could be considered a final walk-through, however, especially if the home has been vacant, but it’s always safest to hold a walkthrough after the seller or occupant’s move out.

Allow Ample Time

Block out the time necessary to give the property a good going-over. Open and close windows and doors, make sure appliances are still in working order, run water, flush toilets, turn lights on and off. Operate the HVAC system as weather permits. Check floors and walls for new damage. You’re looking for significant changes from the condition of the home since contract or inspection, not small cosmetics, but rushing through a walkthrough could lead to an unpleasant surprise when you return with the keys.

Since the implementation of TRID on October 3 2015, a final walk through should no longer be scheduled for the morning of settlement. It is recommended that buyers conduct their final walk through four to five business days prior to the settlement date. If there is an issue, this will give the seller time to correct without causing a reset of the regulated timetable for loan disclosure and settlement.What To Bring

Bring your sales contract, addendum(s) and inspection reports for reference. You’ll also want to make notes on the appropriate sheets that you can refer to later, or complete a walk-through checklist as you proceed. Use your phone camera to document any issues.Inclusions And Exclusions

Refer to the Inclusions | Exclusions of your purchase agreement to verify which items are to be conveyed to you, and which are not, and confirm conveying items are present during your walkthrough.

Missing items such as mirrors, light fixtures, remote controls and garage door openers, electronics, shelves, window coverings and window covering hardware are among the most commonly disputed items.

If an item specifically included is found to be missing, your agent will notify the listing agent and take additional steps, which might include drafting a last-minute Addendum to instruct title to hold an amount of Seller’s funds.

• DC Home Inspections

• Steps To A DC Home Purchase

• Buy

• DC Title Insurance

• Why A Good Agent Matters

“After a bad experience with another agent left us in a very tough position, Susan turned everything around. She did a thorough evaluation of the property, offered expert advice and helped to prepare the condo for sale. She worked very hard, used local connections and communicated with us well. Despite the tough August market, we sold in less than 2 weeks.”

Visually Inspect

As you walk through the property, look at walls, flooring, ceilings, cabinetry, baseboards, windows, and stairs. Run water, turn lights on and off, check that appliances are operational.

• Check alarm status and make sure keys or fobs for all locks are present. If they are not present, make a note of all locks requiring keys or fobs and perform an inventory at the settlement table, where keys should be left if not at the property. For condos and co-ops, it is particularly important that mailbox and storage area keys and/or fobs are present.

• Check the home’s exterior for any significant damage or changes since your contract or inspection date.

• Check the front, rear and alleyways for disposed of debris or bulk items trash collectors won’t take. Are trash cans overflowing? Additional steps may be needed if so.

• Make sure the basement, crawl space, attic, garage/parking spaces and sheds or other out-buildings are free of debris and intact per contract terms.

• Be alert for substituted items throughout the property, such as door handles, appliances, fixtures and finishes that contractually should have remained, but have been substituted with others. You’ll need before and after documentation of this (photos).

It is recommended that buyers take a series of photos for each room to document condition and any issues serious enough to require actoin prior to closing.

Systems Tests

Make sure HVAC systems are operating as they were on the date of contract or inspection (per contract), check to make sure water heaters or boiler are also operating. Weather permitting, check AC operation.

Pre-Settlement Inspections

A pre-settlement inspection may be needed to confirm repairs contractually agreed to by the seller. Your inspector will return to the property for an additional fee to confirm the repairs were made properly, or cite omissions or faulty repairs and replacements. Depending on the significance of the repairs in question, buyers may want to bear this added expense, or forego it if the repair or replacement provides a warranty and can be easily seen/tested by the buyer at final walk-through. If the pre-settlement inspection is to be performed close to the settlement date, it can also be considered a final walkthrough if you complete all the steps of a final walkthrough during the visit.

Addressing Issues

It’s important to address any final walk-through or pre-settlement inspection issues immediately.

If contractually agreed-upon items are missing, debris or personal belongings have been left on the premises, if there are defects that should have been addressed by the seller and weren’t, or defects weren’t properly addressed, there are appropriate remedies. We’ll assess the situation together, and take steps to effect a solution that satisfies the issue(s). This often occurs without delay in settlement.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

DC Home Inspections

Section: Buyer Playbook
Author: Susan Isaacs, Washington DC Real Estate Strategist

Pre-Offer Inspections & Inspection Contingencies

In a scenario involving multiple offers, a pre-offer inspection can make your offer more competitive. When your offer is not pitted against others, an inspection contingency may be used. Each option has its own advantages and disadvantages, but the greatest disadvantage is not obtaining an inspection at all.

The ‘General’ DC Home Inspection

General DC home inspections provide an examination of the visible and accessible components of the home you’re purchasing. Inspectors are not able to create openings in walls, ceilings or floors, pull toilets, hardware, sinks or appliances to inspect or scope plumbing, wiring or interior components. Inspectors are typically not structural engineers, master plumbers, electricians or contractors. Some inspectors are members of ASHI and INACHI, some are not. Some offer additional features such as infrared thermography, some add it for an additional fee, and some do not.

You’ll receive a written report, photographs from some inspectors (others don’t provide them), and you’ll hear the inspector’s comments as he inspects the home if you attend inspection (highly recommended). There are a few categories that require your particular attention:

• Major defects (these should be noted as “significant” on your report)

• Issues that contribute to major defects

• Issues your lender may require you or the homeowner to address in order to provide loan approval (often related to FHA and VA loans, but not exclusively)

• Safety hazards and/or code infractions

If warranted, these items should be addressed, either by you, the new home owner, or by the seller if you have included a standard inspection clause in your contract and they can be successfully negotiated in the form of repairs or credits.

All District of Columbia residential real estate is now sold effectively “as is”, with sellers only required to provide a disclaimer in lieu of a disclosure. GCAAR contract changes over the past decade eliminated “Section 7” requiring mechanicals to be in good working condition, safety hazard items to be addressed, etc. Now, sellers are under no obligation to negotiate to make repairs unless the contract specifically requires it.

No home is a ‘perfect 10’ and with the advanced age of homes in many areas of the District, we see more 4’s, 5’s and 6’s than 9’s. There are a huge number of pieces and parts to the average home, some made by fallible machines, some by fallible humans, all installed by humans. Time, weather, wear and maintenance affect the condition of a home through the years, decades and centuries. Some settlement, deterioration and dated components are inevitable. Even a new home is not exempt from issues.

Remember that homes are generally priced with condition in mind. Maintain perspective on the home’s value in the market and try not to overreact to inspection issues. Almost anything can be repaired or rebuilt, it’s just a question of cost relative to the purchase price of the home and the end market value.

Types Of Inspections

There are a number of ‘specialty’ DC home inspections buyers may consider in addition to a general inspection. Some are required of particular property types, such as pest inspections for single family dwellings, and condo inspections for condos and co-ops.

Roof Inspection

If the property is a fee simple, single family home and sufficient documentation has not been provided to disclose the age, type and condition of the roof, a buyer may want to order a roof inspection. A company specializing in roofing will offer a detailed analysis and can provide estimates for repair and replacement. Roof inspections are ordered separately from the general home inspection.

While your general inspector will typically view the underside of the roof through available interior hatches or attics to ascertain whether or not there may be active leaks (staining, wood discoloration and deterioration) from the roof and whether or not insulation and ventilation are sufficient, only a roofing specialist will carry the 20-40’ ladders and insurance necessary to access and fully inspect all heights and types of Washington DC roofs. The roof inspector will assess the condition of all viewable components, including masonry, and provide a report and recommendations.

Reports generally take 24-72 hours to obtain once the inspection is completed and may or may not include photos, depending on the inspection provider and type of roof inspection ordered. Some providers conduct inspections free of charge and some charge a fee. It is preferred that you are present (on the ground) during a roof inspection to gain full insight as to the condition of the roof if your inspection contingency deadline is brief.

Pest Inspection

A pest inspection is desirable on a fee simple home whether or not your lender requires it. These inspections include examination of the property for carpenter bees, rats, mice and termites, among other pests. The inspection should identify any new or existing damage resulting from pests. Under the standard terms of the GCAAR contract, the buyer or seller (depending on designation) pays for the inspection and the seller pays for required repairs/remediation. We recommend the buyer pay for the inspection in order to control the choice of inspection provider and to ensure that the company is working for the buyer, not the seller. Pest inspections average between $80 and $175., depending on the provider and property. You’ll receive an inspection report within a few days of the inspection. A pest inspection should be performed 7-10 days prior to settlement for the most recent termite report possible and to leave time for the seller to effect repairs, if needed.

Condo Inspection

A condo and co-op inspection differs somewhat from a fee simple general home inspection. Inspections take place within the four walls of the unit. This is the area of responsibility for the condo and co-op owner. Common areas, such as exteriors, rooftops, landscaping, hallways and what’s inside the walls, under the floors and in the ceilings (slight variations may be specified in some condo and co-op resale package documents) are all the responsibility of the association and therefore not subject to inspection. These inspections primarily include assessment of the operational condition of appliances, electrical outlets and light fixtures, the HVAC elements designated as the owner’s responsibility and overall functionality. Cosmetic issues, unless they are a hazard, should not be included in an inspection. While condo and co-op buyers are not responsible for maintenance of the common areas of the project, there should be some concern for the quality and scope of building maintenance, as well as its funding, since these can lead to higher fees and special assessments. Rather than an inspection issue, investigating maintenance and repair budgets outlined in the resale certificate package is part of a buyer’s due diligence.

Sewer Scoping

Sewer scoping, or “camera” inspections for single family homes can be an advantage in detecting breaks in the sewer line. Replacing a sewer line is a major expense and damaging to the adjacent landscaping. All pipe condition will reflect the home’s age, but the pipe’s condition can also be affected by its material, maintenance, and usage, as well as vegetation in its surrounding area. Tree roots are one of the main causes of sewer line breaks. Sewer line scoping is a way to determine the extent of breaks and wear and to flag areas of concern that can be mended or replaced before a break occurs.

Unfortunately, many DC scoping companies have stopped performing pre-ownership inspection sewer scopes since the seller must authorize and take responsibility for any resulting damage (pulling sinks and toilets to apply scope if there is no clean-out option) and lost camera equipment. Sellers are almost always unwilling to do this. Even if a buyer is unable to obtain a sewer scoping prior to taking ownership of the home, it is recommended to have one as soon as possible following settlement. It will not only help the new home owner to create a budget plan for future repairs, but a good sewer scoping provider will be able to track the line for the home owner, providing a valuable roadmap to non-invasive landscaping and maintenance.

Structural Inspection

If you have concerns about the structural integrity of a fee simple home, engage a structural engineer to perform an inspection. This type of inspection can be expensive, so it is a good practice to have your general home inspector assist you in pinpointing areas of particular concern and limiting the scope to those areas.

Pre-Settlement Inspection

The pre-settlement inspection is used to identify issues that have, or have not, been corrected following an earlier inspection as part of a resale transaction. Your inspector will return to the property for an additional fee to test the repairs, or cite the lack of them. Depending on the significance of the repairs in question, buyers may want to bear this added expense or forego it if the repair or replacement provides a warranty and can be easily tested by the buyer at walk-through.

Pre-settlement inspections may also be used as a primary inspection for new construction purchases if the buyer missed a contractual opportunity for a pre-drywall inspection, or wasn’t allowed one by the builder. Developers often refuse to commit in writing to remedying all inspection items listed on an outside inspector’s report. They’ll say they don’t know which inspection provider you’ll be using or the inspector’s level of expertise, whether or not the inspector understands new construction, and how realistic the list will be. That’s fair, but buyers do need some protection. Make sure your agent is knowledgeable and experienced in negotiating with developers for outside inspections.

“As is” properties prevent buyers from making purchases contingent upon inspection or asking for remedy for defects. “As is” means exactly what the term implies; no right to negotiate and no requests for seller credits. If you have included or agreed to this clause in your contract along with a “courtesy” or “informational only” inspection, you may have an inspection but you have already agreed not to request corrections or credits. Buyers may also choose to conduct a pre-offer inspection, if allowed by the seller. In this case, it is recommended to have every possible inspection performed, as applicable to the property type.

If you’re buying a “flip” (a home a renovator has purchased and upgraded or renovated for resale), we recommend every inspection you can obtain in the time you have to inspect before making an offer, or during the contingency period. Highly recommended are inspections by a structural engineer, HVAC, plumbing and roofing specialists. Their ability to make determinations will be limited by access.

Buyers should also research DCRA records pertaining to permit applications, permits granted, permit-related inspections, surveys for fencing and other potential encroachments, etc. You can find links for permit research in our Tools section.

Your agent will not perform this research for you or make representations as to the quality of the work, permit requirements, code requirements, etc., it is part of a buyer’s due diligence.

There are two inspection types buyers can choose from

Inspectors typically offer “walk through” inspections and full inspections.

Walk Through inspections require that the buyer or a representative be present at the inspection and follow the inspector through the process. The inspector will explain issues and point out conditions as the inspection progresses. No written report is included with this type of inspection. Because the inspector doesn’t have to take notes and photographs, the inspection takes less time, this type of inspection is less expensive. Sometimes the cost difference isn’t significant, however, and buyers will benefit from having a report to refer to later if they want to have vendors correct items, and when they resell. If an inspection contingency is included in the buyer’s contract provisions, a written report will be required.

Full inspections do not require that the buyer or a representative be present at the inspection (though it is recommended). The buyer will typically wait until the inspection is completed abefore reviewing a shortlist of significant issues with the inspector, who will issue a written report within 48 hours, usually including photos. This is the standard inspection most buyers request.

Inspection Tips

Here are some tips that will help make your home inspection more informative and useful:

HVAC & Other Mechanicals

Pay close attention to the age and condition of the home’s mechanical components. Have they been regularly serviced? Are they showing signs of undue wear or failure? Are they reaching or past the end of their life expectancy? Mechanicals are some of the most costly components of a home.

Roof

Discuss the condition of the roof with your inspector. A general inspector will not typically carry the 20-40’ ladder that many roofs in the District require for access, and interior access may not be available. Your inspector will not attempt to access the roof in poor weather conditions such as rain, snow or icy conditions, so if the roof is a major concern, leave enough time in your pre-offer inspection period or contract contingency for a specialty roof inspection.

Water Pressure

Be sure to stand by when your inspector runs the shower and faucets to make sure the pressure suits your needs. Ask about remedies for weak pressure.

Windows

Don’t operate windows yourself as this can lead to damage or injury. Stand by as your inspector tests each one. You want to make sure they’re all operable and make note of any issues. Windows are a costly component of a home.

Repair Costs

Your inspector won’t give quotes as they are not vendors, but an experienced inspector can suggest a cost range for various repairs and replacements. This can be valuable information if you have an itemized inspection contingency, or if you plan to get bids for work after closing.

Float Potential Renovation Ideas

Your inspector isn’t a structural engineer and won’t guarantee you can pull a wall down or expand the rear of the home, but they should have a fair working knowledge of home construction that would allow them to weigh in casually on whether or not your renovation idea will fly. If renovation is key to your purchase, you’ll want to have a qualified structural engineer inspect the home, and ideally your contractor would walk it with you pre-offer, as well.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Why A Good DC Buyers Agent Matters

A skilled agent will guide you through the home buying process, saving you time, money and angst. In addition to the many advantages gained by working with a real estate consultant with years of demonstrated expertise, your home search and transaction will be less stressful and more successful.

About Buyer Agency

Buyer agency works’s in the buyer’s best interests, not the seller’s, with the buyer’s agent providing the fiduciary duties of loyalty, reasonable care, confidentiality, disclosure and obedience to legal instruction.

Buyer agency was created to protect consumers. The Buyer Agency Agreement outlines duties, broker compensation and fees, as well as protections afforded the buyer, such as loyalty, confidentiality, fiduciary responsibility and fulfillment of disclosure requirements. Without it, agents are acting as sub-agents of the seller, and buyers are left to fend for themselves.

What Do Buyer Agents Offer?

Market Knowledge: Real time market data and trends, in-depth knowledge of DC real estate market practices, values, pricing and inventory--all of which are are key to your transaction.

Data & Technology: Technology and data significantly impact today’s real estate market by providing access to vast amounts of market information, enabling data-driven decision making, streamlining transactions and utilizing AI to analyze property values and predict market trends.

Negotiation Skills: We understand how to make deals work in one of the nation’s most complex and aggressive real estate markets.

Networking: Our network of contacts in the real estate industry, including lenders, title attorneys, stagers, contractors and vendors, even other agents, can be valuable when buying or selling a property.

Property Evaluation: Nearly two decades of experience in new construction and residential resale helped us amass a wealth of knowledge that includes property evaluation and presentation.

Paperwork Management: Real estate transactions involve a lot of paperwork and legalities. We help you navigate the process with ease, ensuring that contract terms are written with your goals and protection in mind, and that both parties comply with all relevant practices, laws and regulations.

Guidance and Support: Buying or selling a property can be a complicated and stressful process. We provide guidance and support throughout, helping you avoid common pitfalls and ensuring the smoothest possible transaction.

We’re experts working in the field daily

• We’ve trained in the laws, practices and protocols of Washington DC real estate for over a decade. How much training have you had?

• We’re continually transacting in DC neighborhoods, garnering information that benefits our clients in the process. How often are you assessing market conditions throughout the District?

• Our specialized tools and resources are necessary to making informed decisions and executing successful transactions. We spend thousands of dollars annually for the software, hardware, memberships and resources that allow us to provide you with accurate data, real time on and off-market property listings, hidden listing information accessible only to agents, access to listings (both on and off-market), the knowledge and brokerage technology that enhance your search and transaction and reduce risk, as well as immediate access to brokers, title attorneys, business partners and other experts. You’re at a disadvantage without them.

Assessing local markets online by skimming charts and articles on listing aggregator and financial news sites isn’t going to cut it. When you need accurate market information and opinion, seek a qualified local agent with the right tools.

Many people don’t realize how much work a good real estate agent does. Property search & price negotiation are just two small components of a complex home purchase process; and nearly all the remaining portions of a transaction are negotiable. If you don’t know what the other factors are, or what outcomes can occur based on each choice you make (or fail to make), you will benefit by having an expert guide you through the process. The seller or developer of the property you purchase will have professional representation, shouldn’t you? This is one of the biggest expenditures you’ll make in your lifetime. Don’t shortchange yourself.

A Full Time Job Requiring Specific Knowledge & Tools

A great deal of time, effort and consideration goes into a home search and purchase transaction, including:

• Defining buyer needs, preferences and abilities

• Education and advice on market and strategies

• Reviewing goal-relevant and transaction-specific topics

• Screening and reviewing listings in real time

• Identifying off-market opportunities

• Performing market and property research

• Arranging tours

• Assessing seller offers of broker compensation

• Touring homes

• Evaluation of homes toured

• Providing market value opinions

• Researching and drafting CMAs

• Drafting, packaging, and negotiating offers

• Negotiating price, terms and concessions

• Reviewing contracts

• Opening title, instructions to title, interfacing with title

• Transaction management and oversight

• Attending inspections, additional visits, walkthroughs and settlements and providing guidance and administrative support through each step

• Engaging in communication with listing agents, developers, lenders, title companies, home owner associations, contractors and vendors, and more

• Negotiating addendums to the contract

• Monitoring contractual deadlines and other time-sensitive contract provisions

• Boiling everything down to effective client communication.

Even if you had the knowledge, expertise and tools required to do all these things well, it’s doubtful you could devote the time and attention your home search and transaction deserve. That’s why we’re here.

“I’ll Just Hire An Attorney”

Of course you may hire an attorney. Hiring only an attorney, however, would be short-changing yourself.

Profit-hungry lawyers like the one from Minnesota identified as having helped launch the actions that led to the NAR settlement say; “Now you can hire an attorney for $1,500, instead of paying a $50,000 commission.” Clearly this attorney does not understand the differences between the practice of law and the practice of real estate, only a small part of which is law. So why would he be the best choice for representation?

None of the same services are provided by attorneys and Realtors and the two have entirely different skill sets. As to the math, is that $50k broker compensation based on both the listing and selling side of a $1M transaction at 2.5% per side, one listing side at $2M or something else? Why specify a $1500. legal fee, is that a fixed price? What do you get for it?

The truth is that buyers and sellers have always had the choice to substitute legal services for real estate services in a transaction. Most elect not to because they know attorneys can’t provide the same knowledge, services, expertise, license or tools a skilled real estate agent offers. Buyers and sellers want full service representation by a qualified person for the largest transactions of their lifetimes.

For fun, let’s game out what happens if you hire a $1500. lawyer in lieu of a licensed real estate agent in Washington DC--one of the nation’s most aggressive, complicated and expensive real estate markets:

• Real estate lawyers are not licensed to perform the real estate transaction duties Realtors provide. They do not possess the training, memberships, tools, knowledge, skills, expertise or experience to replace a Realtor. In most jurisdictions, only licensed real estate agents can list property for sale, show homes, and provide buyer services in a transaction;

• A real estate lawyer can review real estate contracts, draft legal language to be added to a contract, provide legal advice, and represent clients in real estate disputes, whereas real estate agents are prohibited from practicing law. Hiring a lawyer can be beneficial if complex legal issues arise;

• A $1,500. fee may not even cover a full review of your offer. It certainly wouldn’t include the strategic counseling research and value opinion an agent contributes. You wouldn’t receive the numerous other vital services and functions involved in a transaction, either, such as a needs assessment, help obtaining pre-approvals or funds verifications, education on market practices, trends and options, off-market property search tools, active listing search tools, per-listing research on cooperative compensation and its negotiation on your behalf, or expert step-by-step guidance from property search to offer, contract, and settlement that licensed agents provide, including neighborhood information, market data and sales trends, property histories, tour coordination and showings, comparative market analysis and property price evaluation, strategy and negotiation guidance, offer packaging and presentation, along with the ten to twenty additional steps that follow. Lawyers are not local real estate practitioners. That’s why they hire us to help them buy and sell their own homes!

• Listing agent’s ministerial duties are limited to such acts as sending or forwarding forms, and providing access for inspectors.

So, you’d be largely on your own, while the seller enjoys the advantage of an experienced representative employed to position the seller ahead of you each and every step of the way. If that sounds disadvantageous, it’s because it would be.

Added Bonuses:

You Can Relax Knowing You’re In Experienced Hands

It’s part of your agent’s job to quell emotion and minimize stress in real estate transactions so you’re able make objective, smart decisions. We wish we could say that all real estate transactions are simple, smooth and easy. They’re not. We wish we could say that all parties act fairly. They don’t. We wish we could say that all sellers stick to agreements. Sadly, no.

Make sure you’ve got a professional on your side who knows the playbook; how to read the signals, guard against issues when possible, and manage them when they occur.

It’s More Fun

This is no small thing! Real estate transactions can be stressful. When the pressure’s off, you can start to enjoy what should be one of the biggest thrills of your lifetime--at the very least it’s going to be one of the most expensive.

Partnering with us to manage your transaction frees you to enjoy the experience. We’ll guide you through the process, do the legwork, run pertinent research and provide support, making your home purchase process less time-intensive and far more fun.

Disclaimer

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Win Against Cash Offers In DC

What is the Easiest Way to Win Against Cash Buyers?

Buy your way out of second place.

One solution to winning against cash offers in the District is to throw an insane amount of money at it. Cash buyers rarely want to escalate sales price beyond the point of reason. In fact, they usually expect a better price for paying cash. So if you want a property badly enough, and you are certain it’s going to be a property that will appreciate well and one you’ll retain for many years, it’s a viable option.

But rarely is this the best option. There are other ways, depending on your situation, to compete and truly come out ahead.

We evaluate how your goals align with the market, and the ways they diverge, creating strategies that meet top priorities first.

Why Cash Is ‘King’

Here are some of the reasons DC home sellers prefer cash offers to those with financing:

• It’s worry-free. A pre-qualification is not a guarantee of lendability. Financed transactions, even those without contingencies, carry a degree of risk to the seller. Cash sales with proof of funds assure the seller to the best possible extent that the transaction will not fall out of escrow for lack of funding. This is huge, because properties that re-list after a canceled transaction often ultimately sell for less than they would have had another competing offer been selected. No one wants to have multiple escalated offers only to end up with nothing.

• Shorter transaction cycle: The turnaround time for cash transactions is much shorter than a financed transaction, which is lengthened to allow for loan processing time. Cash transactions can close as quickly as the title process can be completed and, if it is a condo or coop purchase, the required rescission periods expire. Five to ten days, on average.

• No appraisal requirement. Sellers don’t have to worry about the buyer’s willingness or ability to cover the difference between a low appraisal and the contract sales price. The cash buyer typically opts to forego appraisal, whereas a lender requires one most of the time. With GCAAR discontinuing use of the Buyer Financial Information Statement in 2022, sellers are more concerned than ever about buyers’ appraisal resources.

• Fewer contingencies on cash offers. Because there is no danger of a loan denial, cash buyers can make an offer as ‘clean’ (sans contingencies) as they wish.

• No underwriting conditions. If, for instance, a house needs significant or structural repairs, more than 35% of a condo or 35% of the building in which the project is located is commercial space or allocated to mixed-use, a condo has an investor ratio that exceeds underwiting limits, an association is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation, the transaction is ‘ineligible’ according to Fannie Mae underwriting guidelines,. There are many conditions that affect warrantability with a financed transaction, while a cash buyer can sail on with the transaction regardless of these conditions.

• Start with a pre-approval

• Marshall all your financial resources

• Partner with an experienced agent

• Prioritize needs + wants before searching

• Discuss market conditions with your agent

• Be realistic

• Don’t waffle when opportunity knocks

• Buy

• DC Mortgage Lending

• DC Market

• Why A Good Agent Matters

Offer Approaches

“All In”

• Extremely aggressive offer price and 100% clean offer. This happens in highly competitive situations where the buyer absolutely must have the property in question, either because it is uniquely suited to their needs, an above-average investment, or because the buyer is simply emotionally committed to it. The buyer will ‘overpay’ for the property, usually with the understanding that they will retain it well past the breakeven point to cover future listing and selling expenses, and achieve a profit. We recommend a pre-offer inspection, structural engineer’s report and possibly a pre-offer appraisal, if time allows. This is an option for those with extremely solid financial resources who are supremely confident their loan will be approved. Not for the faint of heart or those with concerns about their financial resources.

Aggressive But Measured

• Offer over list price commensurate with value of the property, both documented (past) and perceived (projected), with a modified appraisal contingency, otherwise ‘clean,’ with added incentives that matter to the seller, such as closing cost coverage (often more valuable in part to seller than higher offer price because as the price rises, so do seller costs like commission, transfer tax, etc.), or a free rent-back. We recommend a pre-offer inspection, structural engineer’s report and possibly a pre-offer appraisal, if time allows. This is a popular option for those with solid financial resources who can make up a portion of a low appraisal and are highly confident their loan will be approved. With this tactic, buyers may lose a few properties before finding success.

Avoid Competitive Situations Altogether

• These strategies carry their own sets of provisions and risks, so we evaluate options carefully with our clients, tailoring their use to that client’s position and goals.

• See below

If Resources Are Limited

What about first-time home buyers who may not possess significant resources?

• Drop your price point: Be the big fish in a smaller pond;

• Increase your price point: Are you in a “tweener” price range? Try competing at a slightly higher price point that will be on the lower end of the next tier. You may find there’s less competition there;

• 25%+ downpayment: If you’re trying to keep your monthly payment low, but have funds to put toward a larger downpayment, sellers may have more confidence in your financing outcome. Sshowing you have resources and a lower payment could also trigger an appraisal waiver by your lender’s automated system, and waiving appraisal is a benefit to sellers;

• Omit the appraisal contingency: Even without a greater downpayment, buyers can forego an appraisal contingency, removing much of sellers’ concern about financed offers. You must have the funds to make up for a low appraisal if it should occur, on top of your downpayment and closing costs. This is paid as cash as the closing table, so this strategy is dangerous if you don’t have the resources to make up the difference, or you have escalated price well beyond the ‘comp’ range;

• Eliminate as many other contingencies as is safe: What’s ‘safe?’ We evaluate that with you, and it’s per property and buyer. This strategy almost always includes a pre-offer inspection, so don’t stall on that because time for this is always extremely short and last-minute inspections are difficult to get;

• Escalate price: But know when to stop on escalation: Don’t put yourself into a position where you could be ‘upside down’ on home value for years to come just to snag a pretty property. Think of your purchase as an investment first, a prize home second. Sometimes ‘winning’ is walking. Do understand when to escalate as far as you can, though. Escalation is common in DC and some properties are priced low to emcourage competition. Sometimes, in certain circumstances and price points, there really won’t be another house--or the next house (and every one after that) will be even more expensive. Your agent is key in this discussion;

• Search stagnant properties: Stop competing for the homes everyone else is bidding on and shop around that house. Sometimes there’s a good property in the same neighborhood or building as the shiny object everyone else is bidding on. It may have listed at an inopportune time, not be presented well, or lack one component others think they need, but you don’t. That’s the property to focus on. As it racks up days on market, the price is more negotiable. Here’s your chance to get a ‘deal’ in a seller’s market!

• Find Fixers: Many DC buyers are looking for turnkey properties and flippers are looking for properties they can buy for a song because they require a greater level of renovation than most buyers can handle. Find an in-between property; a structurally sound home that seems to require mostly cosmetic updates and relatively straightforward repairs/replacements such as HVAC, flooring, kitchen & bath makeovers, landscaping, new deck, and/or new roof. If it’s in the right location, you’ll build equity faster than the buyer who bought the highly-escalated property you yearned for and you’ll live in the same neighborhood. Inspections and permit research is key, along with an understanding of updating costs and the ability to fund them after closing;

• Private Exclusive inventory: We saved the best for last. Guess what? There’s a huge pool of inventory the rest of the public doesn’t know about. Compass has a massive back-channel of PE and non-public ‘coming soon’ listings we make available to you with a click of a button, tailored to the neighborhoods and property types you want. Shop off-market, find your home, make a persuasive offer to take it off the market. Most often, you’ve come out ahead on price by avoiding a bidding war. The ultimate win!

There are nuances to all of these approaches, and they represent just some of the ways to win in a competitive situation against cash buyers in the DC real estate market. There is no ‘one size fits all’ solution and each buyer’s circumstances and tolerance for risk are slightly different.

Disclaimer:

We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.

Touring DC Homes For Sale

DC Metro home buyers entering or re-entering the real estate market this year will find that stagnant mortgage interest rates, pricing fluctuations and revised broker compensation mandates are the new normal. Even the rules for touring homes have changed.

New Rules For Prospective Home Buyers

Touring And Agreements

What does ‘home tour’ mean?

Home tours are in-person or virtual showings of a home that is for sale. Touring affords buyers the opportunity to assess the home’s floor plan, style, condition, attributes and drawbacks. as well as to see the immediate neighborhood firsthand.

Homes can be toured in other ways, as well; via virtual tours and videos utilizing drone technology, anv during open houses.

Tours of properties listed by brokerages must be arranged via the listing agent. Typically the buyer’s agent makes these arrangements. If the buyer is unrepresented, it is still necessary to arrange private tours through the listing agent. Buyers may also attend open houses when advertised.

Must I Sign An Agreement Before An Agent Shows Me A Listing?

That is now a definitive requirement , yes. As a direct result of the National Association of Realtors (NAR) settlement with class action parties, real estate brokerages now require a signed agency agreement before touring homes with buyers. This may even affect how open houses and practices relating to ‘ministerial acts’ for unrepresented buyers are managed.

Not Just For REALTORS®

The rule applies to any MLS Participant, not just members of NAR. Those “working with” a buyer will be required to enter into a written agreement with the buyer prior to touring a home, including both in-person and live virtual tours.

While it has long been a recommended practice for agents to obtain a signed agreement prior to performing any work for a home buyer, it is no longer optional. The National Association of REALTORS® settlement, which is enforced by Realtor-controlled Multiple Listing Services, requires all MLS participants working with buyers to have a written agreement prior to home tours. This applies to NAR members, and other real estate agents, as well.

Witten agreements may include, but are not limited to, the GCAAR Buyer Agency Agreement, a one-time showing agreement, a limited services agreement, a ‘touring agreement’. Brokerages dictate which types of agreements and agency their affiliated agents may use.

The home buying process should begin with prospective buyers obtaining a pre-approval letter or funds verification letter (cash buyers) from a local, reputable lender, then interviewing agents and discussing agreements.

Open Houses And Ministerial Acts

Attending Open Houses

Buyers can search third party sites like Redfin or Zillow for a general overview of the market in their desired locations before deciding on representation, and attend open houses to see what various price points offer in the way of condition, square footage, finishes and other property attributes.

Open houses are the only exception to the requirement for a Buyer Agency Agreement prior to touring. Agents hosting open houses must be mindful of the restrictions of answering questions and providing information without a written representation agreement, so information provided at an open house is minimal. Buyers should also understand that the hosts of open houses are typically agents interested in meeting buyers who have not yet chosen an agent. They are not experts on the homes they host, and, like the listing agent, they are bound by the aforementioned restrictions. Many sellers do not offer open houses, or hold only an initial open house when the property is listed.

Unrepresented Buyers

Touring Homes As An Unrepresented Buyer

Touring homes as an unrepresented buyer creates numerous challenges for both the buyer and the listing agent.

Listing Agents

While listing agents want to facilitate all possible showings for their seller, touring unrepresented buyers creates issues for the listing agent:

• Unrepresented buyers have not been vetted by an agent or lender. The listing agent can not be sure they possess the qualifications to purchase the home, intend to proceed with a purchase in a timely manner, or are even who they say they are. They will, therefore, typically be vetted by the listing agent before a showing is arranged;

• Touring an unrepresented buyer increases liability for the listing agent. They risk accidentally breaching their duties to the seller or creating an unintended fiduciary relationship with the buyer. Accidental Dual Agency is a real concern. This occurs when a real estate agent unintentionally creates fiduciary duties to both the buyer and the seller in a transaction without proper disclosure or written consent by inadvertently giving too much information or advice, counseling, or strategic help to an unrepresented buyer, making the buyer feel the agent represents them. A violation of Accidental Dual Agency can result in loss of license, hence the reluctance by many agents to accept the risk;

• Agents are tasked with ministerial duties when an unrepresented buyer writes an offer, frequently without additional compensation;

• Listing agents may not be available, particularly on short notice, to meet a buyer for a showing. In the past, this task would often be assigned to a buyer agent, who would hope to gain the buyer’s business. Under new rules, however, a second agent can’t show the property without an agreement;

• Some brokerages may allow the use of “touring agreements” for unrepresented buyers. This practice may or may not involve a fee, and the terms of these agreements vary according to their source. Agents participating in this practice are often new licensees who are hoping to gain business in this manner.

Unrepresented Buyers

• Buyers can’t count on attending open houses to access the full scope of available inventory since only a percentage of listings hold open houses, or hold only an initial open house when the listing debuts;

• Unrepresented buyers will not have access to off-market listings as they are not displayed on third-party websites. A significant portion of DC real estate is listed, at least initially, as ‘pocket listings’ or ‘private exclusives’ on broker private networks;

• Unrepresented buyers will not be the beneficiaries of fiduciary protection. Listing agents legally represent the seller. Their duties to the seller include securing the best possible price and terms. The unrepresented buyer has no advocate;

• Listing agents may not have the urgency of a dedicated buyer agent to schdule private showings;

• Unrepresented buyers risk accidental dual agency;

• Without independent market insights or objective guidance, buyers can easily misjudge property conditions, overpay, or miss critical contractual deadlines.

Best Practices For Unrepresented Showings

We suggest that unrepresented buyers wishing to tour a listing:

• Be prepared with a pre-approval letter from a local, reputable lender whose contact information is included on the letterhead and offer it to the listing agent, or proof of funds (cash buyer) from the buyer’s financial institution;

• Be prepared to sign a disclosure agreement or waiver;

• Request tours as far in advance as possible to accommodate the listing agent’s schedule;

• Ask if there are any showing restrictions (such as 24 hour notice to tenant, or showing days/times restricted by homeowner occupant);

• Put your request in writing (email or text) in addition to making a phone call for the best chance of receiving a timely response;

• Attend an open house instead if one is available;

• Find an agent willing and able to effect a touring agreement to show the property.

What Are Ministerial Acts?

A ministerial act is an action performed in a specific way and according to legal authority, without using personal judgment or discretion. In District of Columbia real estate practice, ministerial acts are routine tasks that a real estate licensee can perform for a person without using their own judgment or discretion. These tasks are administrative in nature and support the transaction without providing advice or representation.

According to NAR’s definition of ‘working with the buyer’, listing agents are permitted to:

• Provide access and answer general questions

without any document being signed.

Beyond those two things, the listing agent would be considered ‘working with the buyer’ and a Buyer Agency Agreement must be signed.

Defined By Code

“Ministerial Acts”, as defined by DC code:

The term “ministerial acts” means those routine acts which a licensee can perform for a person which do not involve discretion or the exercise of the licensee’s own judgment.

Code of the District of Columbia | Real Property

§42-1702

Para. 8A; Subchapter I. General §§ 42-1701 – 42-1709

DC code also includes the following:

(3) A licensee engaged by a seller in a real estate transaction may, unless prohibited by law or the brokerage relationship, provide assistance to a buyer or potential buyer by performing ministerial acts. Performing such ministerial acts that are not inconsistent with this subsection (a) of this section shall not be construed to violate the licensee’s brokerage relationship with the seller unless expressly prohibited by the terms of the brokerage relationship, nor shall performing such ministerial acts be construed to form a brokerage relationship with such buyer or potential buyer.

Code of the District of Columbia

Duties of real estate brokers, salespersons, and property managers

§ 42–1703

In Virginia:

The term “ministerial acts” means those routine acts which a licensee can perform for a person which do not involve discretion or the exercise of the licensee’s own judgment.

Code of the District of Columbia | Real Property

§42-1702”

Subchapter I. General §§ 42-1701 – 42-1709

Procuring Cause

What is ‘procuring cause’ and how does it affect buyers and sellers?

Procuring cause as it relates to real estate identifies the brokerage earning compensation as a result of an uninterrupted chain of actions that assisted the buyer in purchasing a property.

The agent who initiates a series of events or activities that leads to the sale is considered the procuring cause. This could include activities such as finding interested buyers, arranging showings, negotiating offers, and facilitating the transaction. This does not mean that showing the property defines procuring cause.

The agent who tours the property with the prospective buyer is not necessarily the procuring cause of the sale, and the fact that an agent was not the one to cross the threshold with the buyer for the first time does not prevent an agent from being the procuring cause. Instead, factors in procuring cause are timing, efforts and influence, and the entire course of events.

In a procuring cause dispute, an arbitration hearing panel reviews these factors to determine which broker qualifies as the procuring cause of the sale.

Buyers And Procuring Cause

• If a buyer enters into multiple non-binding touring agreements, enters into non-exclusive buyer agency agreements with multiple brokers, or changes agents during an offer or sale transaction, a dispute regarding procuring cause may arise

• Offers of seller cooperative compensation are no longer guaranteed by the MLS

Disclaimer

Posts are offered for informational purposes only and should not be construed as financial or legal advice, design or construction advice. Home buyers and sellers must always perform their own due diligence and seek counsel from licensed professionals such as CPAs and attorneys when making choices relating to a real estate transaction. We do not endorse individual service providers and citations should not be considered endorsements.

Washington DC Schools

Schools are an important component of your DC real estate purchase decision, but finding and comparing the options in various neighborhoods can be time-consuming job. That’s why we compiled a list of DC school resources.

How does the DC school system operate?

DC schools operate on a boundary and feeder system. The system determines:

• Which school students attend

• Rights students have to remain in their school of choice

• Rights students have to transfer to a different school

A feeder pattern school shows which schools a student has the right to attend.

SY25-26 School Feeder Patterns

Boundary School Changes

For more information about your boundary school changes, please visit the DME website.

DC School Lottery

My School DC facilitates a common lottery that determines placement for new students at all participating schools. Criteria for student-school matches includes:

• Number of available spaces at each school

• Sibling, in-boundary, and other lottery preferences

• Student ranked choices

• Student’s random lottery number

*DCPS selective high schools and programs select students based on specific criteria.

• DC has a boundary & feeder system

• DC offers a common lottery

Washington DC School Ratings, Reviews & Resources

Browse the links to ratings, information and data you need to research District of Columbia schools.

Primary Resources

• EBIS School Assignment (By Address)

• DCPS

• DCPS School Profiles

• School Digger School Ratings

• Great Schools School Ratings

• My School

• KIPP Schools

Additional Resources:

• Kids Count

A project of the Annie E. Casey Foundation, Kids Count is a source for data on child and family well-being in the United States. Access hundreds of indicators, download data and create reports and graphics to help make informed decisions about children and families.

HomeSchooling In DC

Homeschooling in DC provides resources, support, information and ideas to parents considering homeschooling in the District of Columbia.

DC Real Estate Title Insurance

What is title insurance and how does it benefit you? Are buyers required to obtain it? Let’s delve into it.

What Is Title Insurance?

A Washington DC title insurance policy is a ‘contract of indemnity’ that agrees to pay for losses up to the face amount of the policy under the following circumstances; if the state of the title is different than is set out in the policy, and if the insured suffers a loss as a result of the difference.

Your title company’s policy insurance is guaranteed by its underwriter.

Home buyers can be at risk for serious financial loss due to title defects. U.S. law recognizes many rights, claims, interests and encumbrances for real property. The CFPB says: “Legal claims could come from a previous owner’s failure to pay taxes, or from contractors who say they were not paid for work done on the home before you purchased it.”

Title insurance identifies issues with the title the seller can legally convey, along with the rights and interests of all other parties relating to the property.

• Steps To A DC Home Sale

• Buying DC Real Estate

• DC Real Estate Tools

Who Must Buy Title Insurance?

Lender Policy

If you’re financing a property, your lender will require lender’s title policy coverage.

Owner Policy

Owner’s title policy coverage is optional to the buyer.

Types Of Owner Policies

Standard Owner’s Policy

This policy protects your property rights and investment against pre-existing, hidden title defects (forged deeds, unknown liens, clerical errors, etc.) that occurred before the date the deed was recorded. Coverage lasts for as long as you or your heirs hold an interest in the property;

Enhanced Policy

As its name implies, this policy provides greater protection for all losses indicated in the standard policy and many additional risks, including forgeries perpetrated after the policy’s issuance, zoning violations and building permit violations. Coverage value is also typically increased automatically during the first few years.

Buyers should discuss these policies with the title company to decide which, if any, policy type they prefer.

Who Chooses The Title Company?

The Real Estate Settlement Procedures Act (RESPA) Section 9 Title Company Selection prohibits a seller from forcing a buyer to purchase title insurance from a particular title insurance company as a condition of sale under the specified conditions. The section states:

• (a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company;

• (b) Any seller who violates the provisions of subsection (a) shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.

• *See “Federally related mortgage loan”

• The seller may, in most situations, condition the sale of property on the use of a particular title insurance company if the seller purchases and pays for the entire cost of title insurance (owner’s and lender’s policies);

• Sellers are prohibited from “directly or indirectly” conditioning the sale on buyer’s purchase of title insurance from a specific company. “Directly or Indirectly” means transactions which result in the seller recovering the cost for the title insurance through some otherwise seemingly unrelated fee or charge;

• In order for Section 9 to apply, the use of a particular title insurance company must be a true condition of sale. There are various interpretations of this clause. Some legal experts support the interpretation hat the buyer can be rewarded by using seller’s preferred title company, or penalized for not using seller’s preferred title company (as is common in developer contracts for new construction).

• “Section 9 of RESPA prohibits a seller from requiring the use of a particular title insurance company when the buyer will pay for the title insurance. This prohibition applies to any seller, whether a private individual, a home builder, or a lender with REO properties. This prohibition also applies only when the buyer will pay for the cost of title insurance. If a seller were to pay the full cost of title insurance on the buyer’s behalf, the seller could require that the title insurance be issued by a particular company. Finally, this prohibition only applies to title insurance. It does not prohibit a seller, for instance, from requiring a buyer to pay for a particular third-party short sale negotiator, as long as that negotiator is not also the company issuing title insurance or the seller’s affiliate company. It also does not prohibit a seller from requiring a buyer to use a particular settlement or escrow company, as long as the settlement agent does not control the issuance of title insurance and is not the seller’s affiliate company.” ---NAR

Title-Related Research You Can Conduct Yourself

While it is no replacement for a professional title search and policy, there is some research you can perform yourself if you have particular questions.

Conduct Plat Map Research

Historic real estate atlases, or “plat” maps, show the footprints of each building extant in the city at the time the atlas was published. The Washingtoniana Map Collection includes atlases published by Hopkins (1877-1890s) and Baist (1903-67). Some early Baist atlases (1903-1919) have been digitized by the Library of Congress and are available online. Atlases are arranged by volume for different parts of the city. Plat maps convey basic information about a property such as lot dimensions, building dimensions and material. These maps also can help you note old lot numbers, old street names, and old subdivision names. Studying maps over time gives a sense of the gradual development of the neighborhood surrounding your home, and shows what existed before your home was built. You can also look for changes to the shape of the footprint to investigate alterations made to the home.

Find The Original Permit to Build

The Washingtoniana Collection (DC Public Library) has microfilm of building permits from the National Archives collection, all permits issued from 1877-1949. The most important permit to find is the “Permit to Build,” and the best way to find that permit is to search the Building Permits Database (now available online at HistoryQuest DC). The database includes most of the information from the original permit, including date of construction, architect, builder, owner, materials, dimensions, cost and use of the building. Permits issued after 1949 are available at the D.C. Archives. You may also choose to look at the permit as it was originally issued, by consulting the building permits on microfilm. The original permit may include additional information not found in the database, such as plat drawings or inspector reports. If the permit has the note “plans on file,” the plans for the property are available at National Archives in College Park

Find other Permits

There may be other permits associated with a property in addition to the Permit to Build, such as permits to renovate, to build an addition or a garage, to add additional stories or a new facade, etc. These permits can be accessed using the microfilm indexes: By Square Number 1877-1928 By Subdivision 1877-1908 (for property in Washington County — above Boundary St./Florida Ave. — east of Anacostia River; consult plat maps for subdivision names) By Street Address 1928-1958. For recent or current DCRA permit research, try DC SCOUT.

Research Ownership

The Recorder of Deeds has a database that traces transfers in ownership of a property from 1921 to the present. Other resources for researching ownership are the Washington Board of Realtors Transaction Fiche (1920s – 1980s) and the Assessment Directories (1886-present). All of the above are organized by square and lot.

Visit Other Local Institutions for Further Research

• D.C. Archives

• D.C. Historic Preservation Office

• D.C. Recorder of Deeds

• Historical Society of Washington

• Library of Congress

• National Archives

Updates And Other Links

Real Estate Settlement Procedures Act: Revised Comptroller’s Handbook Booklet and Rescissions

• The RESPA Act

• Code of Federal Regulations

*Additional updates may apply, buyers and sellers are encouraged to do their own due diligence.

Read More About Title Insurance

• CFPB on owners title insurance

• Bankrate on title insurance

• Nerdwallet on title insurance

New Home Sales Reps Won’t Tell You

DC new home sales and marketing firms may overpromise on settlement dates to promote sales, then underdeliver on timelines and more. Worse, they won’t disclose that you’re never going to settle until you’ve lost time, money and patience.

Promises, Promises

New home sales representatives may quote unrealistic projections for project completion and delivery to spur sales, leading to fallout when buyers are stretched to the limit with long-delayed closings.

Revised promises, claims of being ‘almost there!’ or ghosting you when you press for answers won’t help when your quoted delivery date comes and goes four or five times as rates rise, alternatives become more expensive, and your current living situation becomes untenable.

And what if the developer decides not to deliver at all? It happens, and buyers are not adequately compensated for their purchase investment.

Buyers assume risk in contracting to purchase pre-construction homes. Learn how to get informed, stay informed, and minimize loss.

Press For Facts, Reject Hyperbole.

It’s advantageous to have as much information as possible when you’re purchasing a pre-construction home in Washington DC, and to separate facts from sales speak.

New construction timelines are not unbreakable codes, universal mysteries or transcendental equations. Penciling costs and scheduling is part of the initial development process. Sophisticated software and services exist to handle it, and experienced developers already understand the process and potential pitfalls.

So when salespeople are vague, unknowledgeable, or spouting wishful thinking instead of verifiable intel, it’s necessary to take it upon yourself to flesh out details.

Important Factors

Settlement Dates

Sales & marketing companies review the goalposts when negotiating for the right to sell the project. They read in their senior sales staff, who make it their business to know what the delivery timeline looks like at various stages, if only because settlement is when they’re paid.

If the project is just beginning construction and is projected to take 8 months or longer to complete, there are many variables and outside influences that make delivery projection more difficult. If the developer’s financing or underwriting guidelines require sales milestones, it is more difficult still.

The sales team incurs some liability if they quote hard dates that end up being far off the mark, so representatives are coached to provide a general timeline, but caution that they can not guarantee it, or be more specific.

Accept the explanation, but try to obtain written agreement that you’ll be provided with informative email updates at key points during both the construction and sales processes that impact the delivery timeline. Define those points explicitly, along with the specific information required.

Begin your own due diligence. Start tracking your timeline with the ‘outside date’ (the contractual deadline by which the developer must complete and deliver or refund your deposit) as a guide. This should be outlined in your Public Offering Statement. Then, investigate these considerations:

Key Factors Likely To Impact Your Delivery Date

• Construction timeline

• Project Compliance FNMA

• Certificate Of Occupancy

• Pre-Sale Requirement

• Your location in the building

With this information, you can build your own estimated delivery timeline. Determining your location in the building is easy, it’s your floor level and unit number. Getting the rest of the information will not be easy. The word ‘transparency’ is not a favorite of developers and sales and marketing firms. The best time to push hard for this intel is during your 15 day right of rescission period.

General Timelines

Generally, the timeline for new condos development depends on the size, scope and property attributes of a project. From land purchase to design, zoning, ANC, HPRB and/or review board approvals if needed, permitting, environmental issue mitigation, razing, demolition and the actual constriction process including any design changes, variance needs and inspections. The construction timeline for a new condominium can take anywhere from eight months to five years or more. Some DC projects have stretched past a decade in the pre-construction phases.

Developers should know at sales release time if any of these factors are likely to cause delivery setbacks. You may not get a forthright answer, but it is worth asking the question:

“Are there any factors related to this project that might extend the timeline and delay delivery?”

The construction timeline for new condos can also be impacted by unforeseeable events such as the Covid pandemic in 2020-21 that slowed supply and construction for several years.

Potential Financing Considerations

FNMA Pre-Sale Requirements

Even if the condominium construction is completed and units are ready to deliver, the sales team and preferred lender may not be. In many cases, Fannie Mae sets pre-sale requirements the developer must meet before deliveries can commence.

For new or newly-converted condo projects, Fannie Mae guidelines require at least 50% of the total units (or the subject legal phase) must have been conveyed (sold) or be under a binding contract for sale to principal residence or second home purchasers before loan closings and settlements can begin.

There is no presale requirement for a 2-4 unit condominium.

FNMA Pre-Sale Link

Do all units count toward the 50% presale requirement?

• Doesn’t Count: Investor Units

• Does Count: IZ Units or ADUs

FNMA Waivers

Your developer and lender may be able to negotiate a waiver to allow 30% pre-sales instead of 50%. For project requirements to be eligible for a review waiver, see B4-2.1-02, Waiver of Project Review .

• Refer to the Eligibility Matrix for the maximum allowable CLTV and HCLTV ratios. (For example, a mortgage loan for a unit in a PERS-approved project can have a CLTV ratio up to 105% if it meets the Eligibility Matrix and Community Seconds requirements.)

• The CLTV and HCLTV ratios in this column align with the maximum CLTV and HCLTV ratios that are permitted for projects outside of Florida, as described in B4-2.2-01, Limited Review Process.

B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects. This section contains information on the Full Review of units in new and newly converted condo projects, including:

• Additional Requirements for Units in New and Newly Converted Condo Projects

• Condo Project Legal Document Review Requirements for Units in New or Newly Converted Projects

Individual units in new condo projects must be available for immediate occupancy at the time of loan closing. If the project is part of a larger development, and the unit owners are required to pay monthly assessments of more than $50 to a separate master association for that development, lenders must review the overall development plan for the master association to evaluate the acceptability of the project.

The overall development plan of the project must be reviewed and the following must be acceptable:

• consistency of future and existing improvements,

• time limitations for expansion, and

• reciprocal easements between legal phases.

For projects (or the subject legal phase) that are only substantially complete rather than 100% complete, lenders must determine that acceptable completion assurance arrangements that guarantee the future completion of all project facilities, common elements, and limited common elements have been provided. These assurance arrangements may include

• cash deposits,

• letters of credit,

• assignments of certificates of deposit, or

• assignments of other assets that can be easily converted to cash.

Similar arrangements must be provided to support assurances against construction and structural defects. The assurances must:

• protect each unit against defects that become apparent within one year from the date of its settlement, and

• cover all common facilities for one year from the date on which units that represent at least 60% of the votes in the HOA have been transferred.

The developer or sponsor should provide for and promote the unit owners’ early participation in the management of the project. The project must meet the condo project legal document requirements in the following section.

Certificate Of Occupancy (CofO)

For new buildings, there are three (3) CofO subsets:

• Conditional

• Completion of core and shell

• Establishment of a new occupancy

Freddie Mac

Freddie Mac also requires at least 50% of the total units in the project (or at least 50% of the sum of the subject legal phase and prior legal phases) to be conveyed or under contract to purchasers who will occupy the units as their Primary Residences or second homes.

Location

Developers generally deliver from the ground floor up. If you’re on the top floor of a new condo building, you may be at the back of the queue for walk-through dates and settlements unless the developer has decided to reverse the order. Other factors can change this; for instance, buyers who may be traveling internationally during the time they were to settle in order, or those with urgent need for another reason, may be moved ahead in the schedule.

Project Modification

On occasion, a developer may decide to change course and convert the project from a for-sale property to a for-lease property. Unfortunately, the developer is likely to keep this intention quiet as they complete the necessary regulatory steps. Even the sales and marketing firm may be kept in the dark.

In this event, the developer enacts the section of the contract commonly known as ‘Termination Option,’ notifies the sales and marketing team of the decision, requests that they cancel sales and withdraw active listings on the MLS. Buyers are compensated only as the contract section states, along with the release of their Earnest Money Deposit. This is a worst-case scenario for buyers, who may have been under contract for a year or more and find themselves in a completely different market when they are forced to start their home search anew, and at a loss for all mortgage and inspection-related fees.

So, if sales seem to be lagging, sales representatives are keeping mum, walk-throughs and inspections aren’t being scheduled, and the developer is not as communicative and/or productive as would be expected when a building nears completion, start asking questions and digging into SCOUT to view unusual activity such as additional zoning reviews, etc.

An example of this is the Tribeca Condominiums (dba prior to termination), which had just met pre-sale requirements in late 2021 but developers decided to convert the project to rental apartments. All buyers, who had been under contract for as long as 13 months, had contracts canceled. They saw mortgage interest rates rise four times during that period, home prices rose, and also they lost money on inspections and lender fees. Losses can be significant and developers do not compensate for them.

This can also happen in the reverse, when the developers of a for-lease project decide to convert it to condos, as occurred in 2003 at Gallery Place in downtown DC. The 192 unit complex was well into construction above the Metro station in Chinatown when developers decided to make the switch due to a weakening rental market and glut of new rental projects planned for the neighborhood.

Mixed projects with one association and significant retail space can also pose a warrantability problem.

Before You Sign

Arm yourself with information as early as possible in the pre-sale process. The sales team is never so motivated to provide answers as they are when they’re trying to get a contract signed. Key: Get responses in writing. Have your agent email a list to the sales team and ask that the developer reply in writing:

• Are the project units all market rate? If not, how many ADU/IZ units are there and how/when will they be sold? Will a different sales team be handling these sales? Will those sales count toward the developer’s financing requirements, if any?

• Do you cap investor purchases? If so, what’s the cap? How many investor units are sold todate?

• What percentage of sales, if any, must be achieved to deliver units? Did the developer request and receive an FNMA pre-sales requirement waiver? (*Confirm the developer’s response with the project’s preferred lender, also. You may get different replies!) Confirm the number of units already sold that qualify for the pre-sale requirement. Will the sales team provide written updates on this as requested?

• What is the target sales pace (number of units to be sold monthly/quarterly)?

• If it’s necessary to lower prices to spur sales pace, will existing contract sales prices be adjusted down commensurately, or other compensation be provided?

• Are there any environmental, supply chain, financing, approval or other issues now affecting materials delivery and/or construction? If so, will they alter the delivery timeline?

• How many projects does the developer currently have in development?

• When do you expect to have condo documents available to buyers?

• What is the term of your contractual right-of-rescission period?

• What is the contractual period the developer has to complete the project and to deliver units? Are those deadlines different from one another?

• What is the possibility that the developer will convert the project to for-lease if sales don’t go as projected?

• Will any of the project’s units be leased or retained by the developer?

• What is the compensation offered buyers if the developer doesn’t deliver? Is it negotiable?

With few exceptions, you should expect that the timeline for delivery of your new construction home will be longer (sometimes much longer) than projected by the sales team when you purchase.

This expectation will allow you to remain calm through the construction process and plan accordingly for rate locks, moving arrangements and rental extensions.

Disclaimer

We compile this information to make our buyers aware and to provide an easy review. If you have questions about FNMA rules & regs pertaining to new condo pre-sale requirements, please contact your lender. Also be aware that this information may be updated by FNMA at any time, and that there is no guarantee the latest version of requirements is displayed here.

DC Recordation Tax Reduction

The DC First Time Buyer Recordation Tax Reduction program lowers a huge line item on qualified DC home buyers’ settlement statements.

What Is Recordation Tax?

It’s a tax on the recording of all deeds to real estate in the District of Columbia. The tax basis is the value of consideration given for the property. Where there is no consideration or where the consideration is nominal, the tax is imposed on the basis of the fair market value of the property. Currently, recordation tax on a deed of trust is 1.45% of the loan amount.

How Much Is It?

• Transactions $399,999 and less: 1.1% of the purchase price

• Transactions $400,000 up: 1.45% of the purchase price

• First Time Homebuyer Program: Transactions $647,000 and less may qualify for reduced recordation tax of 0.725%

The DC First Time Homebuyer Recordation Tax Cut

The recordation tax rate for a “first-time District homebuyer” purchasing “eligible property” may be reduced.

• For houses and condominium units, the recordation tax rate is 0.725%;

• For transfers of economic interests in a housing cooperative unit (co-op), the recordation tax rate is reduced from 2.2% to 1.825% for units under $400,000, and from 2.9% to 2.175% for units $400,000 or greater.

Application for the reduced rate must be made at the time the deed is offered for recordation. The reduced rate cannot be applied for after the deed is recorded (retroactively).

Buyers should advise their real estate agent as to whether or not they qualify for the program when the contract is written so the appropriate selection on the Jurisdictional Addendum may be made

What Does The Seller Pay?

DC Sellers pay a Deed Transfer Tax. Each transfer of real property at the time the deed is submitted for recordation. The tax is based upon the consideration paid for the transfer. Where there is no consideration or where the amount is nominal, the basis of the transfer tax is the fair market value of the property conveyed.

Current Tax Rate:

1.1 % of consideration or fair market value for residential property transfers less than $400,000 and 1.45% of consideration or fair market value on the entire amount, if transfer is greater than $400,000.

For residential properties under $400,000, the rate is 1.1% of consideration or fair market value.

• DC Property Taxes

• Homestead Deduction

• Recordation & Transfer Tax

• Mortgage Interest Deduction

DC Streamlined 203k Mortgage Loans

Find a great house, but needs some work? A fast-tracked 203k mortgage loan can help you purchase the home you want and address needed repairs without loan restrictions that may nix the deal.

What Are 203k Rehabilitation Loans?

203k mortgage loans are FHA loans that combine the cost of the home purchase and allowable renovation costs. They’re beneficial to buyers who choose a property that requires rehabbing or updating.

There are two versions of the 203k loan; the standard program allows for repairs that include major structural changes and larger repairs or more extensive rehabbing:

• The Streamline 203k program is better for light remodeling or updates as minor as appliance replacement. The Streamline 203K is popular because it eliminates much of the burdensome paperwork associated with 203K loans, and it simplifies the process for borrowers;

• The standard (or “full”) 203k covers major renovations like structural work and can be used for projects with updates totaling more than $35,000. The 203k Streamline is for non-structural work with updates totaling no more than $35,000.

Streamline 203K loans are combined with the original loan balance, resulting in one adjustable or fixed rate loan.

FHA loan limits change according to updates from HUD and the location of your home. Check the latest limits to make sure the program will work for you, and reach out to an experienced lender to confirm guidelines and qualification criteria.

How Does It Work?

The Streamlined 203k process calls for an escrow account to be created to fund repairs. This account survives settlement of the mortgage loan, allowing the purchase of the property to complete prior to the start of construction.

A contractor is hired to make repairs specified prior to the closing of the loan. The bid can not be changed. The contractor receives a deposit, also agreed upoin in advance, and final payment when the work is complete.

For repairs above $15,000 in total, a 203k inspector makes sure the work is complete to FHA standards. If the total cost of your repairs is less than $15,000, you won’t need to have the completed work inspected, but it is advisable to have a general home inspection for your own peace of mind.

• DC Lending

• Why A Good Agent Matters

“While other ​agents said, “​T​his is what you need to do;” The Isaacs Team said, “​W​e can do this for you!” Our process was smooth and quick, and they designed a strategy and negotiated a sale well above our asking price; and a purchase price below asking – both in the same market.”

FHA Guidelines

FHA requirements apply to the 203k rehabilitation program. and an additional set of rules are applicable to the home improvement portion of the loan.

FHA loan requirements:

• Credit score: Mortgage lenders may accept borrowers with credit scores as low as 580. Some will approve lower scores case-by-case;

• Minimum down payment: 3.5% for borrowers with credit scores of 580 or higher; 10% min. down for scores below 580;

• Debt-to-income ratio: Up to 45%;

• Mortgage insurance premium: Upfront MIP payment of 1.75% (added to the loan), plus an annual rate of 0.55% (added to monthly payments);

• Property use: Primary residence. The home being purchased may not be a second home or investment property;

• FHA loan limits: Subject to FHA loan limits (adjusted annually and by location)

• 203k-specific loan requirements:

• Age: The dwelling must be at least 12 months old;

• Cap: Repairs are capped at $35,000. More expensive projects require a Full 203k loan program;

• Contractor Compliance: Contractors must be licensed in the District of Columbia. All repairs must comply with DC building codes, and permits must be pulled for work as required by the District. The contractor’s bid must follow FHA guidelines;

• Deadline For Completion: Construction must be completed within six months of the home purchase closing;

• Scope of repairs: Not all home repairs can be financed into a 203k loan

Are All Properties Eligible?

Not all, but the guidelines are fairly generous:

• The property must be a one- to four-family dwelling that has been completed for at least one year

• The number of units on the site must be acceptable according to the provisions of local zoning requirements

• All newly constructed units must be attached to the existing dwelling

• Cooperative units are not eligible

• Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling

• An existing multi-unit dwelling could be decreased to a one- to four-family unit. An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation

• A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

I can use it for a condo?

Yes, under these conditions:

• 203(k) mortgages can be used for individual units in condominium projects approved by FHA

• The 203(k) program was not intended to be a project mortgage insurance program, as large scale development has considerably more risk than individual single-family mortgage insurance

• Owner/occupant and qualified non-profit borrowers only; no investors

• Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit

• Only the lesser of five units per condominium association, or 25% of the total number of units, can be undergoing rehabilitation at any one time

• The maximum mortgage amount cannot exceed 100% of after-improved value

• After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units.

• By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).

• Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

Recent Changes To FHA 203k Loans

The Federal Housing Administration updated the 203(k) Rehabilitation Mortgage Insurance Program via Mortgagee Letter 2024-13 for case numbers assigned on or after November 4, 2024.

Key Program Updates:

• Higher Limited Loan Cap: Total financing allowed for renovation costs under the Limited (formerly Streamline) 203(k) program increased from $35,000 to $75,000.

• Extended Completion Deadlines: The maximum time limit to finish rehabilitation work was extended to 12 months for the Standard 203(k) and 9 months for the Limited 203(k) program.

• Financing Consultant Fees: Approved 203(k) Consultant fees are now permitted to be financed directly into Limited 203(k) loans (previously only allowed for Standard loans).

• Updated Fee Schedule: The FHA also revised the 203(k) Consultant fee schedule to account for higher maximum allowable amounts for work write-ups and architectural exhibits.

The Basics Of Streamlined 203k Mortgage Loans

• Mortgage balance can exceed the purchase price of the property

• Allows for simple repairs

• Borrowers’ home inspector or appraiser can create a list of recommended repairs and/or improvements

• Takes advantage of FHA’s 3.5% downpayment and 640+ credit score qualification

• Allows borrowing up to $35k for allowable work to the home

• Also allows borrowing to make mortgage payments for up to 6 months

• Adjustable rate and fixed-rate versions available

• Borrower must hire licensed general contractors & pros for work

• Investment properties ineligible, must be owner-occupied

• Requires FHA MIP

Special Conditions And Terms

• No minimum loan balance required

• Borrowers must occupy the property

• Property cannot be vacant for more than 30 days

• Work must be completed within six months

• Work must be professionally performed

• If job requires a permit, borrowers must get a permit and DCRA inspection when work is completed

• Work must commence within 30 days from closing

• Borrowers can select among licensed contractors

• The lender will review the contractor’s experience, background and referrals

• Provide lender with the contractor’s estimate and agreement(s) between the contractor and borrower

• Borrowers can arrange to do some or all of the work under a “self help” arrangement

• Do-it-yourself projects require providing the lender with documentation supporting the borrower’s knowledge, experience and ability to perform the necessary work.

Eligible Repairs For Streamlined 203k Rehabilitation Loans

•Roofs, gutters and downspouts

•HVAC systems (heating, venting and air conditioning)

•Plumbing and electrical

•Minor kitchen and bath remodels

•Flooring: carpet, tile, wood, etc.

•Interior and exterior painting

•New windows and doors

•Weather stripping & insulation

•Improvements for persons with disabilities

•Energy efficient improvements

•Stabilizing or removing lead-based paint

•Decks, patios, porches

•Basement completion and waterproofing

•Septic or well systems

•Purchase of new kitchen appliances or washer/dryer

Ineligible Repairs For Streamlined 203k Rehabilitation Loans

• Landscaping or yard work

• Major remodeling

• Moving a load-bearing wall

• Room additions or add-ons to the home

• Fixing structural damage

What Are The Alternatives To A Streamlined 203K?

Fannie Mae’s Homestyle Renovation Mortgage

It’s a type of renovation loan or rehab loan similar in manu respects to the FHA model. The HomeStyle loan allows home buyers to renovate an existing home and pay the renovation off monthly with the mortgage.

HomeStyle loan allowing home buyers to borrow up to 75% of the home’s after-repair value (ARV) for the renovation portion of the loan. The loan doesn’t have a maximum cap per se, but all Fannie Mae mortgage loans must be conforming loans, so effectively there is a cap. In high-income areas like Washington DC, the 2024 cap for conforming loans is $1,149,825.

HomeStyle loans are available for a wide variety of property types, including those the Streamlined 203k by FHA doesn’t allow, such as second homes and investment properties. HomeStyle can be used for:

• Single-family detached home

• Townhome

• Condo unit/co-op unit

• Duplex, triplex or quadplex

• One-unit second home

• One-unit investment home

• One-unit manufactured home

Down Payment Requirements

Typically similar to requirements for other Fannie Mae mortgages, with a minimum down payment of 5%, or 3% for those qualifying for the HomeReady program.

Down payment for multifamily property or some other property types can increase downpayment requirements:

• Second home: 10% (90% LTV)

• Investment property: 15% to purchase, 25% to refinance

• Duplex: 15% (or 85% LTV)

• Triplex/quadplex: 25% (or 75% LTV)

Down payments under 20% require private mortgage insurance (PMI) until 20% equity in the home is reached.

What’s Not Allowed

Fannie Mae HomeStyle renovation loans do not allow:

• Demolition of the home

• Structural changes exceeding 50% of a manufactured home

• COnstructing a second home on a new property

• Impermanent improvements like furniture, some types of landscaping, moveable storage sheds or outbuildings.

Borrowers can wrap the following costs into the loan:

• Closing costs

• Reserves (project contingency)

• Permits and license fees

• Rental costs during the renovation process

Remember: Costs are subject to conforming loan maximums and subject to PMI.

The Full 203K Rehabilitation Mortgage Loan

Another option is the FHA Standard 203k mortgage loan. This version allows a much greater level of renovation, including the rebuilding of a home retaining the existing foundation. There is no maximum cap on a Standard 203k.

Disclaimer

Information provided on this is intended as a helpful guide and posted for educational purposes only. It is not to be construed as mortgage lending, legal, tax or financial planning advice. We are real estate agents, not mortgage professionals. If you need help deciding on a mortgage product, please consult a qualified mortgage loan professional.

Debt To Income Ratio

Debt-to-income ratio (DTI) helps lenders determine buyers’ ability to make monthly mortgage payments.

Is DTI Important For My Home Purchase?

Debt-to-income ratio can affect your credit score and ability to secure a loan, or obtain the interest rate you desire. Lenders are concerned with the amount of debt borrowers can acquire before having financial difficulties.

What Is Debt To Income Ratio?

Debt-to-income ratio is the calculation that measures monthly debt payments against gross monthly income.

Lenders use DTI ratios to determine the likelihood of a borrower repaying their mortgage loan. A lower DTI ratio is generally better for getting approved for a mortgage.

How Is DTI Ratio Calculated?

(Total monthly debt) / (Gross monthly income) x 100 = DTI

Lenders use this simple equation to determine your DTI ratio. A lower DTI ratio means you’re less risky to lenders.

When calculating your debt-to-income ratio for a mortgage, include all of your monthly debt payments, including:

Mortgage: Your monthly mortgage payment, including principal, interest, taxes, and insurance (PITI)

• Consumer debt: Credit card balances, personal loans, and store credit accounts

• Auto loans: Monthly payments on new and used vehicles

• Student loans: Both private and federal student loans

• Other installment loans: Personal or installment loans for home improvements or debt consolidation

• Child support: If you have more than 10 monthly child support payments remaining

Follow these three steps to calculate your DTI ratio:

• Add up all your monthly debt payments

• Divide the total by your gross monthly income

• Multiply the result by 100 to express your DTI as a percentage

What’s not included:

• Expenses like groceries, utilities, gas, and your taxes

• Health insurance, auto insurance, cell phone, cable

• Non-recurring life expenses

The Difference Between Front and Back End DTI Ratios

The main difference between the two is what types of expenses are included.

Front-end DTI ratio:

• Is also known as the ‘housing ratio’ or ‘mortgage-to-income ratio’

• It calculates the percentage of a person’s income that goes toward housing expenses

• Includes mortgage payments, property taxes, homeowners insurance, and homeowners association fees

• Lenders typically prefer a front-end ratio of no more than 28%

Back-end DTI ratio:

• Calculates the percentage of a person’s income that goes toward all debt payments

• Includes housing expenses, credit card payments, auto loans, student loans, child support, and personal loans

• Back-end ratios are typically higher than front-end ratios because they include more debt obligations

Lenders often give the back-end ratio more weight than the front-end ratio. A favorable back-end DTI ratio would be 36% or lower.

What Is The Maximum DTI Allowed By Lenders?

Qualified Mortgages

A Qualified Mortgage has less risky features that lower risk for the lender. These include a maximum debt-to-income ratio (the percentage of your income that goes toward monthly debt payments). Most conventional loan underwriting conditions limit DTI to 45%, but some QM lenders will accept ratios up to 50% if the borrower has compensating factors, such as reserves allocated for housing expenses.

For manually underwritten loans, Fannie Mae’s standard maximum total DTI ratio is 36% of the borrower’s stable monthly income. The maximum can be exceeded up to 45% if the borrower meets the credit score and reserve requirements reflected in the Eligibility Matrix. For loan casefiles underwritten through Fannie Mae’s Desktop Underwriter®, the maximum allowable DTI ratio is 50%.

While the CFPB says the debt-to-income ratio cap is typically the highest ratio a borrower can have and still get a Qualified Mortgage, there are some exceptions:

• A small creditor still has to consider your ratio, but is allowed to offer a Qualified Mortgage with a ratio higher than the cap. In most cases, a lender is a ‘small creditor’ if it had under $2 billion in assets in the last year and generated no 500 mortgages or less during the previous year;

• Larger lenders may still make a mortgage loan if your debt to income ratio is above the cap, even if this prevents it from being a Qualified Mortgage. But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.

Non-Qualified Mortgage Loans

Some Non-Qualified Mortgage loans permit ratios over 50%, but may require higher down payment minimums of 10% to 20%.

Other options for higher DTI ratio borrowers include FHA mortgages, VA mortgages, CDFI Mortgages and Asset based Mortgages.

• Buying DC Real Estate

• DC Lending

• Adjustable Mortgages

• Assumable Mortgages

Lowering Your Debt-To-Income Ratio

If your DTI ratio is adversely affecting your credit scores and ability to obtain a mortgage loan, start by discussing the issue with your mortgage lender and financial advisor. It’s likely they’ll recommend some or all of these steps:

• Pay down credit cards

• Increase credit limits

• Reduce or eliminate smaller monthly debts

• Increase your down payment amount

• Increasing your income by disclosing non-traditional sources. Some lenders factor in sources of income such as alimony, military or work housing stipends and trust income.

• Take on no new debt while you pay off existing debt

Keeping your debt-to-income ratio low can help you qualify for a home loan and pave the way for other borrowing opportunities. It can also give you the peace of mind that comes from handling your finances responsibly.

More Information

From Fannie Mae

• DTI Ratios

• Maximum DTI Ratios

• Exceptions to the Maximum DTI Ratio

• Calculating Total Monthly Obligation

• DTI Ratio Tolerance and Re-Underwriting Criteria

• Applying the Re-underwriting Criteria

Other Sources

• DTI Ratio Increase

• FHA DTI Ratios

• FHA DTI Ratio Handbook

• Investopedia on DTI Ratios

Monitor your progress with a mortgage calculator.