How Contract Cancellation Impacts DC Home Sellers

Section: Seller Strategy
Author: Susan Isaacs, Washington DC Real Estate Strategist

DC home buyers may have the right to terminate a purchase under contractual contingency provisions. DC condominium buyers also have a separate statutory right of rescission. But Sellers have more limited contractual rights.

Cases For Seller Contract Termination

Under the Greater Capital Area Association of REALTORS® (GCAAR) Sales Contract commonly used in Washington, DC, a seller may have the right to void or terminate the contract in specifically defined circumstances, including certain buyer defaults. The parties can also mutually agree in writing to terminate the transaction.

What sellers generally do not have is a unilateral right to cancel a ratified contract simply because they changed their mind, decided not to move or received a better offer.

Sellers should understand both the contractual rights they retain after ratification and the potentially significant consequences of refusing to perform when the contract does not give them a right to exit.

When Can A DC Seller Withdraw From A Ratified Contract?

Always consult a skilled real estate attorney if considering this step.

In general, the GCAAR Sales Contract provides sellers with very specific remedies when a buyer fails to meet certain contractual obligations.

Earnest Money Deposit

One of the clearest examples involves the earnest money deposit. If the buyer fails to deliver the required deposit to the escrow agent by the contractual deadline, the buyer is considered to be in default. The contract gives the seller the option to deliver notice to the buyer declaring the contract void.

Be aware that the buyer can cure that default by delivering the deposit before the seller delivers the notice. Once the seller properly exercises the contractual right to void the agreement, the parties’ respective rights and obligations under the contract end.

Financing Contingency

Financing contingencies can also give sellers an important degree of control over a transaction that might otherwise remain uncertain.

Under the Regional Contract structure, an outstanding financing contingency does not necessarily disappear simply because its deadline has passed. The contract can provide a procedure through which the seller gives notice requiring the buyer to satisfy or remove the contingency and provide the required lender documentation or demonstrate sufficient funds to close.

GCAAR Regional Form #100 is a standard real estate form used to formally remove or satisfy a financing contingency in a sales contract.

If the agreed-upon financing deadline passes and the buyer has not submitted Form #100, the seller may issue a formal notice of intent to void the contract.

As described by Counselors Title, Form #100:

• Removes Financing Contingency: It notifies the seller that the buyer is dropping their financing protection, making the contract firmer.

• Provides Lender Proof: It can include a “Lender’s Letter” stating that the buyer’s loan application has underwriting approval.

• Shows Cash Alternative: It can alternatively provide proof of sufficient funds to buy the home without a loan.

• Meets Deadlines: Submitting it by the agreed financing deadline keeps the contract valid and moving forward.

If the buyer fails to comply with the contractual requirements following that notice, the contract can become void.

In this way, a financing contingency is not exclusively a buyer protection. Depending on its terms, it can eventually provide the seller with a mechanism for forcing a decision rather than leaving the property indefinitely tied up by an unresolved financing issue.

Failure To Complete Settlement

The contract also addresses a buyer’s failure to complete settlement for a reason other than seller default. The seller may elect to accept the deposit as liquidated damages, relieving the buyer from further liability to the seller. If the seller does not elect to accept the deposit as liquidated damages, the contract provides that the deposit may not be the limit of the buyer’s liability.

Mutual Agreement

Buyer and seller can agree in writing to terminate the transaction and release one another from further performance.

A Buyer Without a Financing Contingency Who Can’t Close May Be in Default

The situation is different when the buyer has agreed to purchase without a financing contingency. A buyer who undertakes an unconditional obligation to obtain the money necessary to settle generally cannot later rely on the failure to obtain financing as a contractual reason not to close. Failure to complete settlement because financing is unavailable can instead constitute buyer default.

A buyer default can trigger the seller’s contractual remedies.

A Low Appraisal Does Not Necessarily Give the Buyer an Exit

The same basic principle applies to appraisal protection. An appraisal contingency must be part of the parties’ agreement for the buyer to have the rights that the contingency provides. Without an applicable appraisal contingency, a low appraisal does not by itself necessarily relieve the buyer of the obligation to settle.

If the property appraises below the contract price and the buyer consequently cannot complete settlement without a contractual right permitting an exit, and the buyer and seller can not reach a negotiated agreement pertaining to the gap in value, the buyer may be in default.

The same basic principle applies to appraisal protection. An appraisal contingency must be part of the parties’ agreement for the buyer to have the rights that the contingency provides. Without an applicable appraisal contingency, a low appraisal does not by itself necessarily relieve the buyer of the obligation to settle.

If the property appraises below the contract price and the buyer consequently cannot complete settlement without a contractual right permitting an exit, and the buyer and seller cannot reach a negotiated agreement pertaining to the gap in value, the buyer may be in default.

Inspection Contingencies

Inspection contingencies can also result in a contract ending when buyer and seller cannot reach agreement.

The precise result depends upon the inspection contingency or addendum incorporated into the particular contract. A buyer may have the right to void the contract or negotiate for repairs or credits, while the seller has the right within a specified period of time to refuse, negotiate or accept the requested concessions.

If the parties reach an impasse, the contractual language and applicable deadlines determine whether the contract continues or ends.

“Kicker” Clauses

A seller can also negotiate an exit before the contract is ratified.

One example is a contract contingent upon the sale of the buyer’s existing property that includes a continued-marketing, “kicker” clause, or similar provision.

Such a provision may permit the seller to continue marketing the property and, after receiving another acceptable offer, give notice requiring the first buyer to remove the home-sale contingency within a specified period. If the buyer cannot or does not do so, the provision may give the seller the right to terminate the first contract and proceed with the other offer.

The exact procedure depends upon the language of the addendum.

This illustrates an important distinction: receiving a better offer does not itself give a seller the right to abandon a ratified contract. A provision negotiated into the original contract can create that right.

Title or Survey Issues

Title and survey provisions can create another seller exit. The Regional Contract has historically provided procedures addressing situations in which necessary title work or a survey cannot be obtained by the settlement date, including extensions and, under specified circumstances, a seller option to terminate.

Title defects are treated differently and may provide time for defects to be cured before other contractual rights arise.

Because these provisions and their deadlines can change as GCAAR revises its forms, the current contract should always be consulted before either party attempts to exercise a termination right.

Buyer Failure to Complete Settlement

More broadly, a buyer who fails to perform contractual obligations or fails to complete settlement without a contractual basis for doing so may be in default.

That does not mean every missed deadline or disagreement automatically terminates the contract. The particular provision involved matters, as do applicable notice requirements, cure rights and remedies.

Under the GCAAR contract’s Default provisions, a seller may elect to accept the buyer’s deposit as liquidated damages when the buyer fails to complete settlement for a reason other than seller default. If the seller does not elect to accept the deposit as liquidated damages, the contract provides that the deposit may not necessarily limit the buyer’s liability.

Default is therefore different from an express contractual right to declare a contract void. Sellers considering either should understand which provision applies before acting.

The Myth Of Missing Initials

Whether a seller can use a “technicality” like a missing initial or signature to void a DC real estate contract depends entirely on where the omission occurred and how the parties behaved after signing.

A seller generally can’t void an otherwise agreed-upon contract over a minor initialing error if a clear “meeting of the minds” and mutual intent to be bound can be proven. But, if the missing signature or initial is tied to a legally required disclosure or a material counter-offer, the contract may fail the standard for formal ratification.

D.C. courts and legal standards typically evaluate these technicalities according to:

• The conduct of the parties;

• Mutual assent.

If both parties signed the main signature blocks, but missed a random initial at the bottom of page 3, a seller will face an uphill battle trying to void the contract.

• Objective intent: D.C. courts also look at the objective intent of the parties. If the seller signed the contract, allowed the buyer to deposit earnest money into escrow, and permitted home inspectors or appraisers onto the property, their conduct demonstrates that they believed a binding agreement existed.

• Partial Omissions: Minor initialing errors (such as missing a visual acknowledgement on a standard, non-material GCAAR boilerplate page) are usually viewed as administrative oversights rather than a failure to ratify the deal.

When a Technicality Is Likely To Legally Void the Contract

Legal minds say there are specific scenarios where a missing signature or initial means a contract was never formally ratified and is therefore unenforceable:

• Unacknowledged Material Changes (Counter-Offers): If a buyer submits an offer, and the seller crosses out a price, writes in a new one, and signs it, that is a counter-offer. If the buyer never initials that specific price change, there is no “meeting of the minds.” The seller can legally walk away because the buyer never accepted the new terms;

• Missing Mandatory Legal Disclosures: In the District of Columbia, specific statutory property disclosures (such as the D.C. Seller’s Disclosure Statement, Lead-Paint Disclosures, or Underground Storage Tank notices) are legally required. If these are completely missing or entirely unexecuted, it can jeopardize the legal formation of the contract, giving a party grounds to argue the contract is invalid;

• Missing a Co-Owner’s Signature: If a property is owned jointly and only one owner signs the contract, the contract is generally not binding on the unsigned owner and cannot force the sale of the entire property.

A skilled real estate attorney can best advise sellers on the legalities of terminating a DC real estate contract.

Contract Cancellation Consequences

What happens if a seller simply refuses to close?

The situation changes substantially when none of those contractual rights applies.

If the contract doesn’t give the seller a right to void the agreement and the seller nevertheless refuses to perform, the seller may be held in breach.

The GCAAR Sales Contract provides that when a seller fails to perform or complete settlement for a reason other than buyer default, the buyer may pursue legal or equitable remedies, expressly including specific performance and/or damages.

Specific performance is an equitable remedy through which a buyer can ask a court to require the seller to complete the sale. It isn’t automatic; whether it is granted depends upon the circumstances, which a seller should first discuss with a real estate attorney.

DC courts have recognized specific performance as an available remedy in real estate transactions. In Tauber v. Quan, the DC Court of Appeals affirmed an order requiring sellers to convey an Adams Morgan property pursuant to their agreement.

Seller default can also result in monetary damages.

In Basiliko v. Pargo Corp., a foreclosure-sale case, the DC Court of Appeals reaffirmed what it described as the long-settled rule in the District: a seller who breaches an executory contract for the sale of real property may be liable for the difference between the contract price and the property’s fair market value at the time it should have been conveyed.

The buyer in Basiliko contracted to purchase the property for $28,000 and shortly thereafter entered into a bona fide resale contract for $35,100. The court held that the subsequent contract price could be considered evidence of fair market value in determining damages.

At today’s prices, the potential numbers are obviously much larger. If a seller contracts to sell a property for $800,000 but its provable fair market value at the relevant time is $840,000, that $40,000 difference could potentially become part of the damages resulting from the seller’s breach.

The GCAAR contract can impose additional costs on a party in default, including Broker Compensation and certain costs incurred for title examination, appraisal and survey.

The remedies and damages available in any particular case depend upon the contract and circumstances. But the underlying lesson is important: changing your mind and exercising a contractual right to terminate are not the same thing.

The cases and legal examples cited in this section are not to be construed as legal advice or interpretation of the law. Always consult a real estate attorney for those.

Buyers Have Different Rights to Exit a Contract

A buyer may be entitled to terminate the contract or withdraw under a contingency provision involving financing, appraisal, inspection or another negotiated condition.

DC condominium purchasers have something different: a statutory right of rescission. I cover condominium rescission periods in the post DC Real Estate Rescission Periods.

When a condominium buyer properly exercises the statutory right of rescission, the buyer is not in default. Likewise, when a buyer properly terminates or withdraws pursuant to a contractual contingency, the buyer is exercising a right contained in the agreement.

At first glance, that can make the contract appear considerably more flexible for buyers than sellers.

There’s some history behind that balance.

A Brief History of Buyer and Seller Balance in the GCAAR Contract

The Greater Capital Area Association of REALTORS® was created in 1998 through the combination of the Montgomery County Association of REALTORS® and the local services of the Washington, DC Association of REALTORS®.

GCAAR develops and maintains the standardized contracts, addenda and disclosures used by its members. They aren’t the work of a single author. The association’s Forms Committee reviews existing forms and recommends revisions, drawing on experienced real estate professionals and attorney affiliates. GCAAR’s Board of Directors approves forms for release, and outside counsel may also be consulted.

The forms aren’t static. GCAAR says they are regularly updated in response to legislative and regulatory requirements, industry best practices, member suggestions and GCAAR policy changes.

And that process has not consistently moved the contract in favor of either buyers or sellers.

A particularly striking example occurred with the Regional Sales Contract introduced for 2012. In a contemporaneous Washington Post analysis headlined “New sales contract forms shift balance away from buyers,” real estate attorney Harvey Jacobs described the revisions as making “sweeping changes” and tilting the playing field toward sellers.

Among the changes, the revised contract treated properties as being sold essentially “as-is” unless the buyer negotiated additional inspection protection. Financing and appraisal contingencies were also removed from the body of the sales contract and placed in separate addenda. Buyers who wanted those protections had to affirmatively include them in their offers and negotiate the terms.

That history is important because today’s apparent imbalance in termination rights shouldn’t simply be interpreted as GCAAR favoring buyers.

Many buyer termination rights arise because buyers face more conditional performance risk between ratification and settlement.

Financing must be obtained. The property may have to appraise at an acceptable value. Inspections may reveal previously unknown conditions. A buyer may have another property to sell. A condominium buyer also receives information about the condominium that may not have been available before the contract was signed.

Contingencies determine who assumes those unresolved risks and under what circumstances the buyer must proceed.

But the contractual balance does not necessarily reflect the economic consequences when a transaction fails.

What Does Contract Cancellation Cost Each Party?

A buyer who properly rescinds a condominium contract or terminates under a contractual contingency is typically entitled to the return of the earnest money deposit.

That doesn’t necessarily mean the buyer recovers everything spent on the transaction. They may already have paid for a home inspection, specialized inspections, appraisal or lender services, legal consultation or other due diligence. But these are generally identifiable, up-front transaction costs, and whether a particular expense is refundable depends upon the buyer’s agreement with that provider.

Sellers can also have substantial out-of-pocket costs when a contract fails, in addition to the less quantifiable loss of market opportunity.

One of the largest out-of-pocket costs in preparing a listing for sale is staging. Professional staging costs many thousands of dollars and is generally contracted for a limited time period. If the contract is extended, the cost is again due. Time spent under a contract that ultimately fails can therefore result in a tangible financial loss.

Alternatively, the seller can allow the staging to be removed, potentially putting the property back on the market, but showing far less favorably than it did during its original launch.

So unlike many of the buyer’s pre-settlement expenses, some seller costs can continue accumulating as a result of the contract failing.

The largest seller loss, however, is much harder to quantify: lost opportunity in the marketplace.

When a property first enters the market, it is exposed to the pool of buyers actively looking for homes fitting its location, price and characteristics at that particular moment. The “buzz” associated with a new listing often draws the best buyer candidates for its location, price point and attributes.

Once the seller accepts a contract and the listing moves from Active to Active Under Contract, it can remain available for showings and backup offers under Bright MLS rules, but in practical terms, many buyers will turn their attention to properties that are not already under contract. That constitutes a material loss for the seller, albeit unquantifiable.

Bright MLS pauses the Days on Market and Cumulative Days on Market clocks while a listing is Active Under Contract. But the market doesn’t pause with them.

Other buyers continue looking. They tour competing properties, write offers and enter contracts. Buyers who might have considered the seller’s property when it first became available may no longer be available themselves if that property subsequently returns to Active status.

In addition, the original listing date of the property is still viewable on MLS, as are the contract date and relisting date following a contract’s termination, potentially stigmatizing the property in buyers’ eyes.

A condominium buyer can exercise the statutory right of rescission without establishing that there is a defect in the unit or condominium. A buyer of another property type may have withdrawn for a reason entirely specific to that buyer and an applicable contractual contingency.

The next prospective buyer doesn’t necessarily know that. They see a property that was available, went under contract and was later rejected.

That interrupted marketing history can affect perception. It may reduce the sense of competition surrounding the property, make prospective buyers more cautious or weaken the seller’s negotiating position. All of that has a real cost to the seller.

Consider the Entire Offer Before You Commit

The best time for a seller to think about how difficult it may be to get out of a contract is before accepting the offer.

Price matters, but it is only one part of an offer. Sellers should also consider the buyer’s financial qualifications, financing structure, earnest money deposit, contingencies, contingency deadlines, settlement date and other terms that affect both the likelihood that the transaction will close and the seller’s options if it does not.

A higher-priced offer with a marginally qualified buyer, small earnest money deposit or extensive contingencies may carry substantially more risk than a somewhat lower offer from a stronger buyer with better financing and cleaner terms.

The terms also determine who controls important decisions between ratification and settlement. A financing contingency can protect the buyer while also potentially providing the seller with a mechanism to force a decision if the contingency remains outstanding. The earnest money deposit can become important if the buyer defaults. A properly structured home-sale contingency can preserve options for a seller that otherwise would not exist.

This is why sellers should evaluate an offer as a package of price, buyer strength, risk and contractual terms, rather than ranking competing offers by price alone.

Once an offer is accepted and the contract is ratified, a seller may have specific contractual ways to end the transaction if particular circumstances arise. But those rights are limited to what the contract, its addenda and applicable law actually provide.

Sources

• Greater Capital Area Association of REALTORS®, Sales Contract and applicable GCAAR addenda

• Greater Capital Area Association of REALTORS®, Forms Committee and Contract Forms resources

• Greater Capital Area Association of REALTORS®, GCAAR History

• Harvey S. Jacobs, New Sales Contract Forms Shift Balance Away From Buyers, The Washington Post, December 2011

• Tauber v. Quan, 938 A.2d 724 (D.C. 2007)

• Basiliko v. Pargo Corp., 532 A.2d 1346 (D.C. 1987)

• Bright MLS, Listing Status and Days on Market guidance

• DC Condominium Act, D.C. Code § 42-1904.11

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.

This article provides general information about DC real estate transactions and is not legal advice. Contractual rights and remedies depend upon the particular agreement, its addenda, the circumstances of the transaction and applicable law. Always consult an attorney.

Section: Seller Strategy

Author: Susan Isaacs, Washington DC Real Estate Strategist

Mortgage Recasting

What is mortgage recasting and why haven’t I heard of it?

A mortgage recast allows borrowers to adjusting the amortization of their loan in order to lower monthly payments. If a substantial principal reduction is made, or the borrower has a considerable amount of equity, the mortgage is recalculated based on reduced balance of the loan.

How does a mortgage recast work?

The borrow pays down a certain portion of the loan principal (as a minimum principal reduction payment of $5k-$10k or more, or a principal percentage reduction) to qualify for a recast. The amortization schedule is then recalculated.

The basics of the mortgage, such as the loan type, term, and interest rate, remain the same.

Recasting doesn’t apply to every loan. FHA, USDA and VA loans can’t usually be recast, for instance. Conventional, high-balance and jumbo mortgage loans can often be recast.

There can also be restrictions to recasting, such as set timeframes in the loan where the lender will allow calculation to create a new amortization schedule. There may also be requirements for equity and payment history.

How many times can a mortgage be recast?

The answer to that is usually ‘how many times can you qualify?’

Most mortgage lenders don’t limit recasting if you meet the qualifying criteria and make payments on time.

Take Note

• Recasts don’t lower interest rate

• Almost any mortgage can be refinanced

• Prioritize needs + wants before touring

When is a mortgage recast better than a refinance?

Let’s say you got an incredible 2.65% interest rate on your mortgage in January 2021. In 2024, you came into a sizable chunk of money and want to use it to lower your housing overhead without losing that great 2021 rate by refinancing.

Recasting lowers the monthly payments and saves on interest. Recasting also requires no credit check or appraisal.

Is a mortgage recast cheaper than a refinance?

Yes, lenders typically charge a servicing fee of between $250. and $500. for a mortgage recast, while refinancing involves closing costs.

What are the steps to a mortgage recast?

1. Contact your mortgage lender to determine recast availability, loan eligibility and qualifying criteria;

2. Put aside funds for a lump sum payment;

3. Make a formal, written (or electronic) request to recast your loan;

4. Gain written approval;

5. Pay the recasting fee and lump sum payment to the principal of your mortgage balance;

6. Continue with your normal payment schedule until the lender formally notifies you of your new payment.

Refinancing A Mortgage

What are the goals of refinancing a mortgage?

To pay off your existing mortgage and any other encumbrances and obtain a new one offering terms that better suit your current needs.

Refinancing a mortgage is the preferred method to reduce your mortgage interest rate, change the type of mortgage you have (conventional, jumbo, high balance, etc.), lengthen or shorten the term of your mortgage, to eliminate mortgage insurance, or to change from a fixed-rate to an adjustable, interest-only, or other loan product.

What are the types of mortgage refinances?

Standard

Conventional, FHA or VA. Maximum loan-to-value (LTV) is typically 80-97%, varying according to loan type, amount, and lender.

Cash-Out Refinance

A cash-out refinance is when the new mortgage is greater in value than what you owe on the old loan, allowing you to cash out the difference. A cash-out refi can be used for any purpose such as paying off debt, paying tuition fees, making home improvements, or putting money away for a rainy day.

No-Cost Refinance

As mentioned in the intro, refinancing involves 2-6% closing costs, just like a regular mortgage. However, there is the option of not paying closing costs through what’s known as a no-cost refinance. The way it works is that the lender agrees to waive upfront closing costs in return for your commitment to spread the costs over the life of the loan. This is a great way to obtain the benefits of a refinance without having to pay anything now.

Streamline Refinance

A streamline refinance refers to the refinance of an existing FHA streamline loan (a type of FHA mortgage loan requiring limited borrower credit documentation). A streamline refinance reduces the time and costs to get a refinance. To qualify, your original mortgage must have been an FHA loan, the mortgage must be current (not delinquent), and the refinance must result in a benefit to you (by law, the lender cannot put you in a worse position in regards to the interest rate).

What are the basic steps to refinancing a mortgage?

You’ll need to qualify for the new mortgage by meeting income, asset, credit and other criteria, just as you did when you applied for your existing mortgage. You will also need home equity to qualify for a refinance.

Clarify your goals for refinancing. Is your primary objective to lower monthly payments? Reduce the loan term (from 30 years to 25 or 15)? Eliminate MIP or PMI? Cash out home equity?

Match your needs to the loan type that best addresses them. A rate and term refinance can reduce the interest rate of your mortgage and/or lengthen or shorten its term. A rate conversion refinance :provides the option to change an adjustable-rate or interest-only mortgage to a fixed-rate product, or vice-versa. A cash-out refinance draws from your home’s equity so you can use funds as needed.

When you’ve decided on a program, research rates, fees, requirements, and the terms of the loan you’re applying for. Be sure to factor in maximum Loan To Value (LTV) ratio, Annual Percentage Rate (APR), and closing costs.

Next, search for a lender. Request a formal Loan Estimate from several mortgage lenders, including your current one, if you wish. Here’s a great guide to shopping for a lender and loan products.

Once you decide on your lender;

• Make a formal application. Submit documentation as required by the lender;

• Complete the home appraisal;

• Review the terms of your approval;

• Close the refinance. Your previous mortgage loan and any other encumbrances will be paid off and your new loan will take its place.

What are the costs of refinancing a mortgage?

On average, a refinance costs between 2-6% in closing costs. A higher credit score, excellent payment record, and other qualifying criteria such as debt-to-income ratio, improve rates lenders will offer and the chance of your loan being approved.

SOURCES

Forbes

Investopedia

Bankrate

NerdWallet

Section: Seller Strategy

Author: Susan Isaacs, Washington DC Real Estate Strategist

Is your DC bedroom legit? A den, basement bunkhouse, glorified closet… or totally illegal?

Code says; As “Any room or space used or intended to be used for sleeping purposes in either a dwelling or sleeping unit.” But there are specific code requirements, too.

Read Before Renting Or Rehabbing

Whether you’re planning to carve a bedroom out of an efficiency corner, convert your basement to a rental, or stretch the bounds of a den to qualify as a bedroom for resale, it’s important to start with a sold understanding of District of Columbia codes for legal bedrooms.

Consult with an architect, contractor and the Department of Buildings before undertaking renovations.

Components Of A Legal DC Bedroom

Basic Code Requirements For DC Bedrooms

Size

Single-occupancy bedrooms must be a minimum of 70 SF of floor space, and 7′ in one direction. For each additional person occupying the same room, add 50 additional SF to the floor space requirement. Ceilings must be a min. of 7′ in height, or in the case of sloped or drop-ceilings, a 50%-plus portion must be at least 7′

Access

Direct bedroom access must be available from a common space or hallway, not via another bedroom or bath

Floors

Floors shall be in good repair and maintained free from hazardous conditions.

Lighting And Ventilation

Every space intended for human occupancy must have natural light by means of exterior glazed openings in accordance with Section 1205.2 of the Building Code and artificial light may not be used to meet the lighting requirements for bedrooms, living rooms and/or sleeping units. Windows must have a total combined glass area of at least 8% of the floor area, and the combined opened window area should be at least 4%

402.1.1.1 Adjoining Spaces

For the purpose of natural lighting, any room is permitted to be considered as a portion of an adjoining room where one-half of the area of the common wall is open, unobstructed, and provides an opening of not less than 1/10th of the floor area of the interior room or 25 Sqft, whichever is greater. It is permissible for glazing to fill a portion or all of the required opening between adjoining spaces. It is permissible to install doors in openings between adjoining spaces. However, opaque portions of doors will not contribute to meeting the minimum opening requirement of not less than 1/10th of the floor area of the interior room or 25 square feet, whichever is greater. Exception: Openings required for natural light are permitted to open into a sunroom with thermal isolation or a patio cover where the common wall provides a glazed area of not less than 1/10th of the floor area of the interior room or 20 Sqft, whichever is greater.

Privacy

Bedrooms and bathrooms must have privacy, and be separate from adjoining spaces. Such rooms to be arranged so that occupants can access common space without going through another room.

Electrical Outlets

Every habitable space in a dwelling must contain at least two separate and remote-receptacle outlets. Every laundry area and bathroom must contain at least one ground-type receptacle or a receptacle with a ground-fault-circuit interrupter.

Heating

Heat: Heating equipment must maintain a minimum temperature of 68° F in all habitable rooms and bathrooms between October 1 and May 1. With a two-pipe system, or any other system reasonably requiring more than 15 days to transition from air-conditioning to heat, the heat must be supplied during a period starting no later than October 15 and ending no earlier than May 1.

Air Conditioning

AC system must be maintained during the period no later than May 15 and ending no earlier than September 15. The inside temperature in rooms that the system is intended to serve must equal the greater of 78° F or at least 15° F less than the outside temperature.

Fire Safety

Smoke detectors are required in every sleeping room, on every level, and in the vicinity of all sleeping rooms.

Carbon monoxide detectors are required in the vicinity of all sleeping rooms where there is a fuel-burning appliance or in a building that has an attached garage.

Take Note

• Check DC housing standards before making plans

• Measure floor area of sleeping spaces

• Make sure legal access is allowed for bedrooms and baths

• Measure windows for regulation szes and height

• Review requirements for light & ventilation

Additional Code Requirements

Paint

Peeling, chipping, flaking, or abraded paint must be repaired, removed, or covered on windows, window frames, doors, door-frame walls, and ceilings. Pre-1978 structures must be lead-free.

Interior Surfaces

All interior surfaces must be maintained in good, clean, dry, and sanitary conditions. Cracks, loose plaster, holes, decayed wood, water damage, and other defective surfaces are not allowed.

Plumbing

All plumbing fixtures must be properly installed and maintained, and free from obstruction and leaks.

Egress

Emergency exits include doors that lead outdoors, or at least one window min. 24″ in height by 20″ in width, with an opening of at least 5.7 SF. Installation must be higher than 44″ from floor, and no lower than 24″ to prevent child access.

Windows & Screens

Windows must have screens from March 15 to November 15. Every window and skylight must be kept in sound condition, in good repair, held in position by window hardware, easily openable, and weathertight.

Window Bars

Bars on windows in sleeping rooms shall be releasable or removable from the inside of the room without the use of a key, tool, or force greater than that which is required for normal operation of the window.

Additional: General Property Requirements

Bathrooms

A bathroom must be private and have natural or mechanical ventilation. It must have a bathtub or shower, water closet, lavatory with hot water with a minimum temperature of 110° F), and cold running water. It must also have a waterproof floor and wall base.

Insects

All rental dwellings must be free of insects.

Cleanliness

Dwellings shall be maintained in a clean and sanitary condition.

Doors

All doors’ hardware and operating systems shall be maintained in good condition. All doors accessing the dwelling shall be equipped with a deadbolt lock without the use of a key or special knowledge for use from inside of the dwelling.

No Utilities

It is a code violation for a dwelling lacking utilities (water, gas, and electricity) to be occupied.

Hot Water

Water-heating facilities shall be properly installed, maintained, and capable of providing an adequate amount of water to be drawn at every lavatory, sink, bathtub, shower, and laundry facility. The minimum temperature of the water shall be 110° F as measured inside of the resident’s unit.

Cooking Room

All facilities provided by the landlord for cooking, storage, or refrigeration of food must be maintained in a safe and good working condition. Any cooking-room sink must have cold water and hot water available at a minimum temperature of 110° F for running water.

Stairs

Stairs shall be in good repair and maintained free from hazardous conditions. Handrails and Guardrails: Interior flights of stairs having more than three risers shall have a handrail on one side of the stair and every open portion of the stair. Walking surfaces, more than 30 inches (762 mm) above the floor or grade below, shall have guards.

Rodents

All structures and exterior property must be kept free from rodent harborage and infestation.

Foundation Walls and Exterior Walls

Foundation walls and exterior walls must be maintained plumb and free from open cracks and breaks.

Structural Members

Structural members shall be maintained free from deterioration and be capable of supporting the imposed dead and live loads.

Sanitation

The exterior of any structure and the outside property must be maintained in a clean, safe, and sanitary condition.

Porches, Decks, Balconies, and Stairways

Porches, decks, balconies, and stairways must be maintained structurally sound, in good repair with proper anchorage, and capable of supporting imposed loads.

Handrail and guardrails

Exterior and interior flights of stairs having more than three risers need a handrail. Guardrails shall be installed on balconies, porches, decks, ramps, and other walking surfaces. Walking surfaces, more than 30 inches (762 mm) above the floor or grade below, shall have guards.

Weeds

Properties shall be maintained free of weeds or plants growing in excess of 8 inches.

Roofs

Roof drains, gutters and downspouts shall be maintained in good repair and free from obstructions. Roof water shall not be discharged in a manner that creates a public nuisance. The roof and flashing shall be sound and tight and shall not have any defects that admit rain.

Trash

All structures and exterior properties shall be free from the accumulation of rubbish or garbage.

Sidewalks and Driveways

All sidewalks, driveways, walkways, parking spaces, and similar areas are to be maintained, free from hazardous conditions, and kept in a proper state of repair.

Wood Surfaces

All exterior wood surfaces including doors, door frames, windows, windows frames, trim, and fences shall be protected by covering or treatment. Peeling, chipping, and flaking paint shall be repainted. Pre-1978 structures must be lead-free.

Grading and Drainage

All premises shall be graded so that all storm drainage flows freely from all parts of the premises into an inlet or place of disposal.

DOB HOUSING CODE STANDARDS

Read Matt Yglesias’ take on windowless bedrooms Slow Boring

Author: Susan Isaacs, Washington DC Real Estate Strategist

District of Columbia Capital Gains Tax

Capital gains and losses in the District of Columbia are treated basically the same as they are under federal law. All realized capital gains are taxed, a deduction for net capital losses is allowed, and taxpayers can carry over unused capital losses to subsequent years.

What is Capital Gains Tax?

A tax on profits earned from asset sales. This can include real estate, a business, stocks and/or many other types of investments.

Many homeowners are not required to pay capital gains taxes on the sale of their homes. The IRS excludes up to $250,000 (or $500,000 for married couples) of gain on a primary residence, which applies to a good number of U.S. homeowners. But in high-value, transient locations like Washington DC, where house hacking is also common, it’s possible to owe capital gains tax.

Take Note

• IRS rules for sales of a primary residence are simple

• Trickier rules for investment + house hack properties

• Always consult a tax pro

Capital Gains Basic Calculation

Here’s the basic calculation in 3 steps:

1. Review IRS Publication 523 ebooklet (be sure to check for current revisions);

2. Determine your gain or loss from the sale of your primary home by using IRS Form 1099-S. Place gross proceeds from the sale in Box 2, then subtract expenses related to the sale, such as agent commissions, staging, advertising, legal, etc. The adjusted total is your realized gains;

3. Now reduce the realized gains by your home’s tax basis on the date of the sale (this is simply the home’s value for tax purposes). To do this, begin with the original cost of the property, plus commission, settlement fees and closing costs, updates or other improvements as allowed. (Ref. IRS Publicatons 551, 530 and 527).

Now you have your net capital gain.

Internal Revenue Service (IRS) rules on taxing capital gains include:

• Length of time you’ve owned the asset (unrealized gains)

• Cost of ownership + fees

• Amount of realized gains

• Income tax bracket

• Marital status

The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000.

A capital gain rate of 15% applies if your taxable income is $80,000 or more but less than $441,450 for single; $496,600 for married filing jointly or qualifying widow(er); $469,050 for head of household, or $248,300 for married filing separately.

However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

Capital Gains & House Hacking, Rental Properties

IRS Section 121 exclusion allows homeowners to exclude $250,000 of capital gains when it has served as their primary residence for two or more of the previous five years, but house hackers should note that the exclusion applies soley to the owner-occupied portion of the property, so additional calculations must be made.

Rental properties have a specific set of rules outlined in IRS Publication 527. Factor in how long the property was used as a rental versus a primary residence, and/or the portion of the home used for primary vs income residence.

IRS now allows no exclusion for periods of nonqualified use. Filers may only claim the tax exclusion for periods of qualified use. What is qualified use vs. nonqualified use?Per IRS, it’s any period from January 1, 2009 when the property is not a primary residence.

For depreciation on a house hack or rental property, refer to IRS Form 4562

There’s also a tricky depreciation trap: Depreciation Recapture. Filers can’t exclude the portion of gain previously attributable to a depreciation deduction. This is known as depreciation recapture, which is specific to rental properties, and the amount previously taken as a depreciation deduction is taxed at a recapture rate of 25%.

There are numerous publications and articles on these topics. Here are just a few you may find useful:

1. IRS Rentals, Depreciation FAQ

2. IRS Publication 946 How To Depreciate Property

3. Rental Property and Capital Gains

4. Rental Property Sale FAQ

5. Kilpinger’s 2024 Capital Gains

6. IRS Real Estate Income & Deductions

Long Term Capital Gains Rates For 2026

There isn’t a separate, lower tax rate for long-term capital gains in the District. Instead, the city taxes all long-term and short-term capital gains as ordinary income using its progressive individual income tax brackets, ranging from 4.0% to 10.75%.

These progressive income tax rates are applied to capital gains without separate brackets for different filing statuses.

DC Tax Brackets for Capital Gains

• 4.00% on taxable income up to $10,000

• 6.00% on taxable income from $10,001 to $40,000

• 8.50% on taxable income from $40,001 to $60,000

• 9.25% on taxable income from $60,001 to $250,000

• 9.75% on taxable income from $250,001 to $500,000

• 10.50% on taxable income from $500,001 to $1,000,000

• 10.75% on taxable income over $1,000,000

While federal rules apply lower rates (0%, 15%, or 20%) to long-term gains, DC adds the gain directly to your ordinary income and taxes it at your marginal state rate.

Short Term Capital Gains 2026

Capital gains and losses are classified as long-term or short-term. In general:

• If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term.

• If you hold it one year or less, your capital gain or loss is short-term.

For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; for commodity futures, see Publication 550, Investment Income and Expenses; or for applicable partnership interests, see Publication 541, Partnerships.

To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset.

The term “net short-term capital loss” means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.

The District doesn’t offer a lower tax rate for short-term capital gains (assets held for one year or less). They’re taxed as ordinary income using DC’s progressive income tax brackets, with rates ranging from 4.0% to 10.75%. DC uses the same tax bracket schedule for all individual filers regardless of filing status.

DC Income and Short-Term Capital Gains Tax Brackets

• 4.0%: On taxable income up to $10,000

• 6.0%: On taxable income from $10,001 to $40,000

• 6.5%: On taxable income from $40,001 to $60,000

• 8.5%: On taxable income from $60,001 to $350,000

• 9.25%: On taxable income from $350,001 to $1,000,000

• 9.75%: On taxable income from $1,000,001 to $1,000,000+

• 10.75%: On taxable income over $1,000,000

Unlike federal or states’ practices, The District of Columbia applies a single progressive bracket threshold structure to all filers instead of doubling brackets for married couples filing jointly

*Provided as General Information. For specific short-term capital gains tax rates, please check the latest IRS publications or consult with a tax professional.

From The IRS

Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, sales and other dispositions of capital assets, then summarize capital gains and deductible capital losses on Form 1040 Schedule D, Capital Gains and Losses.

If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income.

The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year.

The term “net long-term capital gain” means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years.

The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you’re in the 10% or 15% ordinary income tax brackets. However, a 20% tax rate on net capital gain applies to the extent that a taxpayer’s taxable income exceeds the thresholds set for the 39.6% ordinary tax rate ($415,050 for single; $466,950 for married filing jointly or qualifying widow(er); $441,000 for head of household, and $233,475 for married filing separately).

If you have a taxable capital gain, you may be required to make estimated tax payments.

For additional information, refer to Publication 505, Tax Withholding and Estimated Tax, Estimated Taxes, and Do You Have to Pay Estimated Tax?

If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if married filing separately) or your total net loss shown on line 16 of the Form 1040, Schedule D (PDF).

If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550, Investment Income and Expenses, or in the Form 1040, Schedule D Instructions, to figure the amount you can carry forward.

Taxpayers with significant investment income may be subject to the Net Investment Income Tax (NIIT), imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

For information on Survivors, Executors, and Administrators, see Topic 559.

Additional information on capital gains and losses is available in Publication 550 and Publication 544, Sales and Other Dispositions of Assets.

If you sell your primary residence, refer to Topics 701 and 703, and [the afore-referenced] Publication 523, Selling Your Home.

From A District of Columbia CPA

Because capital gain taxes can involve complex calculations and knowledge of the rules of law pertaining to real estate taxation, seek advice from a tax professional expert in real estate taxation. This webpage by Kronzek, Fisher & Lopez, PLLC is a helpful resource for preliminary questions and planning. It lays out many of the scenarios common to the sale of real estate:

KF&L PLLC

Capital Gains Calculator

SMARTASSET

Section: Seller Strategy
Author: Susan Isaacs, Washington DC Real Estate Strategist

Steps To Take Before Listing Your Home

Unsure of the steps to take, and in which order? To avoid unnecessary spending and effort, follow our guide.

Where To Start?

Your first impulse might be to dive into your long-ignored ‘to do’ list before contacting a real estate agent. That would be a mistake 99% of the time. Why? Because you may max out your budget on work that:

• Won’t provide the highest return on investment

• Forego addressing issues that would make your home more valuable

• Make choices that appeal to you, but may not strike the right note with potential buyers.

Preparing a home for sale is literally the process of packaging a personal living space into a marketable product. A real estate professional should advise you.

What Can You Do Now?

Most homes will need at least some of these steps, many will require all of them.

Organization, Decluttering And Cleaning

Organize your garage, storage spaces, attic and other areas of the home where sorting and decluttering will take place.

• Declutter the entire home

• Clean the house from top to bottom. Floors, doors, trim, closets, baseboards, ceilings, light fixtures, hardware–all of it.

Assess Condition

A key factor in your home’s market value is condition, and the perception of condition. These are two different things:

1. The condition of a home includes its overall physical state, structural integrity and operation of its core mechanical systems. Home buyers are concerned with the soundness of the home’s foundation and roof, HVAC systems, windows, fireplaces and chimneys, and safety systems, as well as its ‘wear and tear’, and level of maintenance. Cosmetic flaws also factor into condition;

2. The perception of condition is essentially how it presents visually. Your home may be in reasonably good condition, but the front entry may be in disrepair. That sends a negative signal to buyers even before they’ve seen the inside of the home. If obvious issues aren’t addressed or simple maintenance has been deferred, they’ll wonder how larger issues have been handled. Is the home clean? Well organized and free of clutter? Are the windows washed? Drywall blemishes repaired? HVAC filter changed? Bathroom tile grout clean and unstained? Are all light bulbs working? Are outdoor spaces in good shape? These things give buyers the impression that the home has been well cared for and maintained.

Even if you’re selling ‘as is’ and the price has been adjusted for condition, you’ll want to address the perception of its condition.

Repairs

Get estimates for repairs in order to factor the cost into your listing price, but don’t commit to a vendor or schedule any work yet. Because these expenditures will affect your listing price and net, you and your agent should make these decisions together.

You may want to address big-ticket items which are worn, dated or non-functional (carpeting or hardwood flooring, HVAC units, roofing, windows, major appliances) prior to listing depending on your budget and listing strategy.

Assemble Paperwork

Compile a folder of receipts, warranties and documentation for title insurance, significant past repairs or additions, warranties, monthly and annual maintenance contracts, etc.

If your home was purchased within the past ten years, your buyer may qualify for a reissue rate on title insurance. Your title policy will be required to facilitate this discount, and you can expect the buyer to include this request as a term of the purchase contract.

• Do you have a home warranty that is transferrable? If so, make that information easily accessible to the buyer when they go under contract.

• Are any of the home’s major components still under warranty? HVAC, roof, plumbing, major repairs—all receipts and warranties will help.

• Have you retained receipts from contractors or other service providers? Include those, along with user manuals for appliances and electronics that will stay with the home should also be included.

• Floor plans, blueprints and other architectural or historic designation documents are a boon to buyers and should be made available.

Make sure you create an electronic copy of key items such as floor plans for your real estate agent. You’ll be asked for them at several points during the transaction and need some in order to complete your DC seller property disclosure when listing.

Other items to assemble are keys, codes, door/gate openers and fobs. Your agent will need two sets of keys for your listing; one for the lockbox and an emergency set for the agent. Other access devices and codes should be provided to your agent as needed, and ready to transfer to the buyer at closing.

Condos, Co-Ops and Townhomes

If you’re selling a condo, townhouse or co-op, some steps differ slightly from those recommended for single family homes.

Even though you’re not permitted to make changes to the exterior of the premises, there are things you can do inside and to personal outdoor space to help your home sell quickly and at a good price.

• Submit a request 30-90 days in advance of listing to your association or management company to have scuffed hallways touched up, hallway & entrance flooring cleaned, common area wall nicks and scrapes repaired, dim or expired light bulbs replaced, ask to have your front door painted/repaired/replaced if it is peeling, chipped or warped and make sure locks work smoothly

• Create an inviting space on your patio or balcony if you have one, by decluttering, cleaning stains and algae, light fixtures and rails

• Townhome owners can correct or replace warped or weather-damaged deck boards, repair fences and gates if HOA documents list these as owner maintained.

Condo and townhome owners should request the following information from the association:

• Copy of rules and regulations

• Advice on whether or not ‘for sale’ signs are allowed on the grounds (if so, where)

• Ask for the current investor ratio, FHA and VA status, rental rules and restriction details, pet restrictions and smoking restrictions.

Will I recoup my Expenses On Resale?

It’s a valid concern. The potential costs of updating a DC home are often higher than anticipated, but returns on the right investments can pleasantly surprise you.

Know what the ROI is before undertaking any work beyond decluttering and cleaning.

Compare the estimated cost of repairs and updates to projected return on investment (ROI). You’ll typically net a good deal more for an updated home than one that buyers perceive as dated and worn. Buyers often guesstimate costs far in excess of actual costs, but sellers rarely hear that conversation. Instead, buyers move on to a turnkey property, leaving sellers to wonder why their interest waned.

Preparing your property for sale is an essential step, but it can seem overwhelming. There are services that can help. Reach out to your agent for a list.

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.

There’s a mistake I see DC sellers make over and over… and it’s not what you’d think:

It’s not pricing too low
It’s not neglecting repairs and improvements
Or skimping on presentation

It’s this:

Believing that your home will sell the way you want it to—because you want it to.

Emotional Pricing = Strategic Blind Spot

Here’s how it shows up:

• “We updated the _____ ourselves in 2019. It doesn’t need any work.”

• “There’s nothing like our house on the market right now.”

• “We’ll start high. We can always drop the price later.”

All of those may feel true.
But none of them guarantee results in this market.

Especially in Washington DC, where:

• Buyer expectations are high

• Turnkey properties sell first

• Presentation is paramount to generating offers

• Inventory has spiked and competition is fierce

The Real Risk of Emotional Pricing

• You miss your momentum window.
  The first 3–7 days on market are golden. Overprice, and the market moves on without you.

• Every day on market lowers price in buyers’ minds

• You invite lowball offers.
  Buyers assume overpriced homes are stale, stubborn, or flawed—and they price accordingly.

• You lose the buyer who would have paid full price—if it had felt fair.

What Strategic Pricing Actually Looks Like

• We price based on buyer psychology, not just square footage

• We analyze competition, not just comps

• We present your home the way your target buyer dreamed it

• We review the value of your upgrades from the buyer’s POV—not the appraiser’s

Sometimes we list at or slightly above market.
Sometimes we list just under—to create controlled urgency.
Sometimes we stay off the market entirely and sell quietly.

But we always lead with data and informed choices, not baseless emotion.

Zuzu’s Truth:

The price you hope for isn’t the one that sells your home.
The price that moves buyers to act—that’s the one that wins.

Want a custom pricing review before you list?
Reach out!