Mark McClung

How to win in Denver’s home bidding war

I’ve been saying it since the first week of January… “It’s like someone flipped a switch and turbo charged this market!” If you aren’t on the hunt for a new home, let me be the first to tell you it’s a crazy, crazy, crazy market with the sellers in complete control. I took a quick peek at the multiple listing service statistics today, and here’s what I found:

There’s nothing to buy.

In Denver County as of February 11th, 2021, there are 895 active listings for sale and 1,831 listings that are pending (under contract). In January, there were 889 property sales. That leaves us with one month of available inventory, one month! I’m concerned for February’s stats after seeing that massive pending number. For buyers looking for properties under $1 million, it’s a very frustrating time. There isn’t much to look at. 895 homes is 0.003% of the 338,341 total homes in Denver, per the US Census as of July 1, 2019.

The competition is stiff.

Buyers are showing their resolve to succeed in this market. I was recently involved in two separate negotiations that came in over list price; one ended up $50k over list price, the other $130k. Each negotiation had over 15 offers, and not one was at or under list price. In fact, January’s single-family close-to-list price ratio was 101.3%, so my experiences were not the exception, but the rule these days. While the reality of the market may seem disheartening, let’s take a turn and break down how you can succeed in it.

Competing requires strategy.

I’ve seen some very aggressive offers in the last 30 days. Below are some of the popular tools used to get your offer accepted, though it’s by no means a comprehensive list.

  • An aggressive initial offer.
  • An escalation clause.
  • Purchasing the home “as is” and limiting inspection asks to a low dollar amount ($1-5k).
  • Appraisal protection (gap) clauses that waive the buyer’s right to object if the appraisal doesn’t come in at the above list contract price.
  • Buyer paying seller’s closing costs.
  • Higher earnest money deposits with a portion of or all of it non-refundable.
  • Shorter close periods (2-3 weeks for financed purchases).
  • Free seller lease backs after closing to allow the seller to find a replacement home (good luck).
Buyers need a Plan B.

If you find yourself on the losing end of things, don’t give up! Backup offers are becoming competitive — I just experienced my first multiple offer backup negotiation (no joke). It used to be a slam dunk to get a backup offer accepted after the home is pending, but not anymore! Have your backup prepared and submitted as soon as you receive the bad news. Being quick to the punch when everyone else is sulking could make the difference.

Backup contracts are free insurance policies that don’t prevent you from submitting other offers on new homes that you find. In the event that the primary contract terminates (which they do), you automatically become the first contract with zero negotiations. If you find another home you like while you’re in the backup position (and can get it under contract), a simple email terminates the backup contract, and voila! The best part? No earnest money is required for backup contracts!

It’s easy to get discouraged in this market, and I understand the urge to just take the “blue pill” and sign a lease to ease the endless anxiety and disappointment. But I would encourage you to take the “red pill” and work the plan that you and your real estate broker created. The end result will be worth it. Stay the course!

The emotional roller coaster of home buying in Denver

Along with every other real estate professional in Denver, for years we’ve been saying, “it’s a seller’s market,” “homes are going quickly,” so on and so on. But what does that really mean for a buyer? How do you navigate the current market, let alone the roller coaster of emotions throughout the buying process? Let’s walk through it.

Setting Expectations

It’s important to understand the current market you’re about to throw yourself into. You’ve probably heard home buying stories from co-workers, family, or friends advising on how difficult it is to purchase a home these days. While there’s certainly truth to their experiences, there also tends to be exaggeration (we all want to tell a good story, right?). The best place to start for an unbiased opinion of the market is with statistics. It may not be one of the most exciting parts of buying a home, but it’s one of the most important. It will help you understand the reality of what’s happening in the market, and more importantly, what’s driving it. You don’t need to spend hours doing research, you just need the 30,000 foot view so that you can begin to formulate accurate expectations for your upcoming journey. Luckily, we’ve made that easy for you. Skip the endless Google searches and read our 2020 real estate recap. Before you know it, you’ll be up to speed with the current market. It will be painless, I promise!

Game Planning

It’s important to have an organized plan before you start your search (yes, even your online search). Once you’ve educated yourself on the market, the next step is to make a game plan. Start putting together your advisory team, which consists of a knowledgeable real estate broker and lending partner. These professionals will help to facilitate your planning in each of their prospective areas. A few things to consider while planning:

  • Budget
  • Time frame for purchasing
  • When to start the search
  • Type of financing that is best for you
  • Down payment source and amount
  • Type of home (condo, townhome, single family, etc.)
  • Neighborhood
  • Neighborhood statistics (zoom in from the 30,000 foot view!)

This list is just a starting point. Everyone’s planning will look somewhat different based on their home buying goals. The great thing about hiring a team? You don’t need to reinvent the wheel. They’ll coach you through the process to make sure you’re making the best possible decision for you and your family.

Home Touring

This is the fun part. Once your plan is complete, it’s time to work your plan. In our current market, time is of the essence for touring homes. Traditional pre-pandemic home touring consisted of clustering several homes and viewing them back-to-back in a short time period. Usually, there are other overlapping groups touring the same home you’re looking at. Today, overlapping showings are a no-no, and bookings to view hot listings in desirable neighborhoods fill up fast. It can occasionally take one or two days for a tour slot to become available (picture anxious buyers hitting refresh over and over again). The moral of the story: When a home catches your eye, schedule a tour with your broker. Whether that’s in-person, via FaceTime, a recorded video, or on Zoom, it doesn’t matter. Just get your eyeballs on it so you have the opportunity to compete.

Submitting an Offer (or two, or three)

Now the planning pays off (hopefully). With Denver’s low inventory, you’ll likely be in competition with other buyers for a home. Emotions get high, and anxiety can creep in. Don’t worry. This is normal. The greatest advice I can give you is to trust your broker regarding the value of the home you’re interested in and listen to their negotiating strategy. Remember that they’re on your team, and together, you’ve already outlined the desired outcome in your planning session. I like to call the plan a “guard rail.” It’s outlined before all the craziness begins, and it’s there to keep a buyer from making an emotionally-based, often poor decision. Don’t let the plan fly out the window when things get stressful!

We are in a deep seller’s market, consisting of multiple offers. There can only be one winner per home, and while hopefully that winner is you, be mentally be prepared to walk away when things go awry. Stick to your plan. Listen to your broker’s advice on a recommended maximum price for the homes you are offering on, and you’ll be fine. Your solace in losing will be knowing that someone else overpaid!

In conclusion…

Buying a home can be an emotional roller coaster.The process is filled with hope, anxiety, stress, disappointment, frustration, and eventually joy. To help manage these emotions, set expectations, plan properly, and seek counsel from your real estate broker. These guard rails should soften the blows. Remember that your broker has their head in the game every day, and their years of knowledge can be trusted. Their council, along with your perseverance, will get those keys into your hands in no time.

2020 Denver Real Estate Market Recap

What a year — and that’s just in reference to the Denver real estate market!

Imagine you were flying at 45,000 feet, staring down at a hurricane, with its eye directly over downtown Denver and winds stretching across the Front Range. I know this sounds like a strange analogy for real estate (especially since we don’t have hurricanes in Denver), but bear with me since I majored in aeronautical science and minored in meteorology (think, former professional pilot and weather nerd, turned real estate pro). Back to the hurricane… the wind represents the fast-paced, single-family home market where homes have been selling in days (sometimes hours), prices are skyrocketing, and buyers are frustrated. Then, look over to downtown Denver — where the condo market isn’t fast and furious. Just like the eye of a hurricane, it’s relatively calm and clear. Those who’ve been following the condo market in downtown Denver can understand — it’s been very slow and experienced a price correction in the pandemic.

Alright, enough analogies. On to the stats!

Days on the Market

We started 202o off strong, in the 40-45 average days on market (DOM) range. Then, well… you know. After the pandemic started gaining momentum, inventory started to shrink and buyers that were committed to buying saw it through. The buying frenzy that followed pushed the average DOM down to the mid-twenties for the remainder of the summer, and into the fall.

Inventory

The initial decline of inventory that started in January leveled off, then inventory began to jump in mid-late March when the stay-at-home orders hit.

In fact, it peaked all the way up to 3 months, a level we haven’t really seen since 2013! What was interesting to watch (statistically) in the midst of the media’s doom and gloom, was what happened as-stay-at home orders began to ease. As soon as Governor Polis deemed the real estate transaction an essential service, inventory began to plummet, eventually dipping lower than one by year-end. Yes, less than one month of inventory!

(more…)

Denver buyer demand sets records

I guess November didn’t get the memo, because buyer demand is supposed to slow down! In Denver last month, there were 1,417 closed transactions recorded. To give a little context, the 10-year average for November is 914 closed transactions — buyer demand is up 55%! Couple that with active listings being down 19% from November 2019 and we have a whopping 1.1 months of inventory. Folks that are touring homes and getting their offers trumped know what we’re talking about. Being a buyer in Denver (with the exception of the downtown condo market) is tough, really tough. With low inventory, high buyer demand, and all-time low interest rates, buyers have to bring their A game!

Want more detailed information about the market in your neighborhood? Please reach out!

Afraid of being homeless after you list your home?

As we all know, for the last five years, Denver has been deep into a seller’s market in the single family home category. The problem isn’t selling the home, it’s finding a replacement if you plan on staying in Denver. The Contract to Buy and Sell doesn’t have any built-in contingencies for sellers to back out of the sale, unless your real estate broker has negotiated them into your contract. In fact, the buyers are in complete control most of the way to the closing table.

There are several strategies your broker can contractually negotiate on your behalf to reduce the stress of being homeless after the sale. Every situation is unique, so make sure you communicate your concerns, expectations, and the best-case scenario for your move to your broker prior to listing your home.

Price is only one piece of the puzzle.

Bidding wars end all the time with offers that are not the highest price submitted. The key to coming out on top is asking the right questions to find out what in the transaction is most important to the seller. Working with buyers who also understand this concept is key, as they typically ask questions and shape their offer accordingly.

Contractually, what does this mean?

Here are a few techniques to increase the success of a smooth transition into your new home:

  • Seller Replacement Contingency – Written correctly, this allows the seller to terminate the contract within a certain period of time prior to the negotiated date, if they are unable to find an acceptable replacement home. Be prepared to reimburse the buyer any hard costs incurred during this period (think home inspection, appraisal, etc.).
  • Post Closing Occupancy Agreement – This is a fancy term for a seller rent back (sometimes free) from the buyers after closing. You can usually ask for up to a 60-day rent back (sometimes more) after closing to allow more time to purchase your replacement property.
  • Buying first, selling second – Sounds easy, right? Well, the tough part is getting a seller to accept your contingent offer to buy their home before you sell yours. The “secret sauce” here is to have everything ready to go on your current home, so the only thing left to do is hit the “active” button on the MLS. Being transparent with the listing broker and implementing some of the strategies mentioned above (i.e. asking the right questions) also helps to get your new home under contract.
  • Bridge Loans – This is a great strategy if you have sufficient equity in your home and you’re okay increasing the cost of your replacement home financing. This allows you to submit non-contingent offers on your replacement home before you sell your current home. There’s also a scenario where you can use this as a contingency and still pull off selling your home and buying your replacement on the same day!

 

While this list isn’t meant to be all-inclusive, it is meant to show you that there are ways to accomplish selling and buying in a super-competitive Denver market. The key to success is partnering with a seasoned real estate professional who can advise you of your best options.

Denver housing market is building on previous highs

There are no signs that the Denver real estate market is cooling. In fact, it’s picking up momentum as we head into the slower months of the year. Sales volume is up, inventory is down, and the result is a 21% increase in the median sales price from October 2019 and a 5.6% increase from September. The biggest news to talk about is the 11.8% increase in median sale price for attached single family properties. In fact, it set a new attached record at $436,000, and it’s only the second time the attached MSP has been above the $400k threshold.  It seems that buyer confidence is reducing the gap between attached and detached homes.

Want more detailed information about the market in your neighborhood? Please reach out!

Downtown Denver real estate market offers opportunity

Overall, Denver is setting home sales records for soaring median sales prices, low inventory, and the number of homes sold. Tell that to someone who’s trying to sell a condo downtown†, and you’ll probably be met with a puzzled look! Since COVID-19 swept the headlines, living downtown has become less popular. The psyche of buyers looking to call downtown home have changed, and the statistics are backing that up. The downtown real estate market comprises a small percent of Denver’s overall monthly activity, so it’s getting buried by all of the records the rest of the city is experiencing. Here are a few stats we pulled from the downtown condo/loft market for September:

  • Median sale price is down 14.2% to $485,000, from $565,000 in September 2019.
  • The number of sales for September is down 60% from September 2019.
  • There was 4.3 months of inventory, up 21% from September 2019.

Just like the stock market, our housing market has sectors that are down while the overall market remains strong. Can someone say opportunity? Market reports are great, but keep in mind: they are broad in scope and usually give you the 30,000 foot view. The statistics that really matter are the ones for the neighborhood you’re looking to call home!

Want more detailed information about the market in your neighborhood? Please reach out!

† In this article, Downtown Denver includes the neighborhoods of Union Station (LoDo) and Central Business District. 

Summer is winding down, but the Denver real estate market is staying strong

Summer is winding down, but the Denver housing market appears to be continuing its momentum right into fall. Interest rates have inched even lower, tempting buyers who have been on the fence about buying during a pandemic. We’ve had the best August in the last ten years for the number of homes sold at 1,507 (the average number of homes sold in August since 2011 is 1,240). With tight inventory and a new all-time low interest rate, expect to see prices continue to rise along the Front Range for the foreseeable future.

Want more detailed information about the market in your neighborhood? Please reach out!

This market is hot, hot, hot!

If you were living under a rock and the first thing you read was July’s real estate statistics, you never would have guessed we are five months into a pandemic. The median sales price for a single family home continues to push higher. Buyer demand continues to remain strong, pushing down inventory and average days on market.

The buyer rush that occurred after stay-at-home orders were lifted is starting to hit the sold statistics. The number of homes sold has increased over 18% from last year and is nearly double the amount since before the pandemic hit! Add low interest rates to the equation, and you have a recipe for a seriously hot market taking us into the colder months.

Want more detailed information about the market in your neighborhood? Please reach out!

Denver 2020: What to expect from the market

Source: Kelcey McClung of 5280

Coming off, yet another, bidding war this past week (oh, Hilltop), the numbers don’t lie! Inventory remains low, demand has picked up over the winter due to low interest rates, and prices keep inching higher. If you’re looking to purchase a new home in 2020, we recommend doing it in the first quarter. The summer is shaping up to be another brutal one for buyers!

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