How To Buy A House In A Seller’s Market
In Denver, our real estate market is very favorable for sellers. With the population growth we’ve experienced in the last few years combined with strong job and wage growth and declining inventory, seller’s have the upper hand in the market. With so many buyers competing for so few houses, here's a few strategies that will give you an advantage over your competition.
More: Are We In A Bubble?
1. Shop Under Your Price Point
Most of the houses in our market are going for list price or over list price. Start shopping houses that are priced about $20,000 below your maximum loan amount. If you’ve been pre-approved for a loan up to $300,000, you need look at houses in the $270,000-$280,000 price range. More than likely, especially around the $300,000 price point, you will be up against other offers on that property. You need to be able to offer over list price to have a shot at getting your offer accepted. It’s not uncommon for a house to sell for $10,000-$20,000 over asking price. If you’re only making offers on houses that are at your maximum price point, you can’t offer over list price, and you’re unlikely to have your offer accepted in a multiple offer situation.
More: How Much Money Do I Need To Buy A House?
2. Look At Houses Now, Not Later
You’re not the only one that loves the beautiful 4 bedroom 3 bath ranch with the finished basement and huge backyard that just got listed. If you wait until Saturday to go see it, it might already be under contract. In a hyper competitive market like Denver’s, its better to go see houses within 24-48 hours of being listed. Call your realtor and swing by to check it out on your way home. If you like it, ask your realtor to write an offer that night. If you write a good offer, it will be hard for a seller to forgo instant gratification and not accept it before other offers come in.
3. Adjust Your Timing
To the degree that it’s possible, try to enter the market during seasonal lulls. Denver’s market is busy year round but there are still times when it’s less busy. The middle of the summer and around Christmas time tend to be much more favorable times for buyers. Many of the other potential home buyers are busy on vacation or spending time with family during these time and demand for homes slows down. Listings sit longer on the market and don’t receive as many showings or offers. Sellers are way more likely to accept an offer under asking price or compromise on other terms than any other time during the year.
4. Write Your Best Offer
Especially in a multiple offer situation, its important to write a very strong offer for the seller. If you come in trying to "see what you can get away with," your offer probably won’t even be considered. Escalation clauses, unnecessary contingencies, low ball offers, and seller concessions are not recommended. For ways to write a strong offer, see the link below.
More: 6 Ways To Get Your Offer Accepted
5. Be Prepared
Because homes in our market tend to move so quickly, it’s essential that you come in ready to go. You should have done your research and you should also have the time and commitment necessary to undertake the home buying process. Before looking at any homes seriously, you should have a pre-approval letter from a lender, know what neighborhoods or areas you want to live in, and know what the “must haves” are in your next home. Being prepared will allow you to make decisions more quickly and keep you in the game in our fast moving market.
More: Basics of Home Buying
If you're looking to buy this year, I'd love to help you become a home owner. Please feel free to reach out to me with any questions! Email Me
You've taken the plunge and decided to buy a house. But despite your best efforts, months later, you're still looking for a house. Who knew it cold be so hard to get an offer accepted? Take heart, you're not alone. Here in Denver, the spring frenzy has started early this year. Inventory is low and demand is sky high. Many houses that are priced well and are move in ready go under contract very quickly leaving behind a number of discouraged buyers who wrote great offers but still got beat out. What does it take to get an offer accepted in this market?
When a listing agent and seller review offers, they are looking for the offer that is most likely to close and provides the best price and terms. Here are 6 tips you can consider that could help get your next offer accepted.
Disclaimer: The following strategies have certain risks associated with them that would need to be evaluated on a case by case basis. Make sure to consult with your Realtor on what is best for you and your unique, individual situation.
1. Increase Your Earnest Money Deposit
Your offer has to stand out to have a chance. It has to offer something of value thats different than your competitor's offers or communicate strength in some way. Typically sellers ask for an earnest money deposit in the amount of 1-3% of list price. If you were to offer substantially more than that, say most or all of your down payment as earnest money, it communicates that you're serious about buying. How much money does it actually take to buy a house?
2. Offer A Shorter Closing Period
Closings normally take 30-45 days. During that time, there is opportunity for the buyer to change their mind for whatever reason and go elsewhere. If your lender is able to do a shorter closing, say 21 days, it will certainly appeal to the listing agent and the seller. A shorter closing communicates that the buyer doesn't need as much time to work through the contractual contingencies and is serious about buying.
3. Reduce Contingencies
If a buyer willingly reduces the number of ways they can get out of the purchase contract, it increases the likelihood that the transaction will close. For instance, In our seller's market, buyer's sometimes choose to waive their right to terminate due to inspection. This means buyers can't terminate due to any inspection related problems. Since inspection is by far the most buyer exercised contingency, sellers tend to be very attracted to offers that waive inspection. I personally do not recommend waiving inspection to my clients; its up you and your Realtor to decide if this is right for you.
Another common contingency is the conditional sale contingency. If you're planning on selling your current home and using the proceeds from that sale to buy a new home, the offer you submit would have a conditional sale contingency. Listing agents and sellers are wary of these offers because if anything were to happen with the sale of your current home that caused it not to close, say there is an unresolvable inspection issue, you could terminate your contract to buy and the seller would have to put their home back on the market.
So, if you have to write a conditional sale contingency into your offer, it's better that your house is under contract already versus sitting on the market or not even listed yet.
4. Include An Appraisal Condition
An offer that contains a clause stating the buyer is willing to cover the difference if the house does not appraise will be set you apart and be hard to pass up. In multiple offer scenarios, its not uncommon for a house to go under contract for over list price. If a property starts to receive offers for $10,000-$20,000 or more over list price, getting it appraised at that value becomes a concern. An appraiser's job is to determine the value of the home and lenders will not lend more than the appraised value. For example: if a home is listed at $340,000 and the seller accepts an offer for $360,000, and the appraiser values the home at $355,000, the buyer could elect to terminate under the appraisal contingency since the lender will only loan $355,000.
If this happens and the buyer does not terminate, the seller can lower the price (not likely in our market) or the buyer can bring more money to the table. In the this scenario the buyer would bring an extra $5,000 to be able to offer $360,000. To do this, you would need to have extra cash available not already tied up in your down payment.
5. Don't Ask For Seller Credit
If you're in a multiple offer scenario, it's better not to ask for seller credit. Just don't do it. Commonly, buyers might ask a seller to help pay for their closing costs or various other items. If you need help covering closing costs, ask your lender might be able to provide other options.
6. Meet The Seller's Needs
Do they know the garage door is broken and don't want to replace it? Great. Do they need to live in the home for a few weeks after it closes? No problem. Are they looking for your highest and best offer? Don't low ball them or come in looking to see what you can get away with. Find out what the seller needs and offer to accommodate them.
Questions? Feel free to leave a comment or send me an email:
Are We In Another Housing Bubble?
*I am indebted to Lonnie Glessner at Nova Home Loan for much of the data presented below.
As Denver’s home prices have continued to rise 10-12% each year since 2012, many buyers are wondering if we’re in a housing market bubble. Those who were burned by the crash in 2007-2008 are especially wary. The term ‘bubble’ is used thrown around a lot but what is a bubble? A bubble is an increase in the price of an asset that is not justified by the fundamental supply and demand factors for the asset.
Are our current home prices in Denver justified by supply and demand?
Lets start with demand. Denver’s population has grown dramatically in the last 5 years. In 2016, we added 90,000 new people. Our local economy has also grown. We have a well balanced economy anchored by various industries including IT services, renewable energy, aerospace and aviation, beverage production and a myriad of professional services. You’ve probably seen headlines in the local news about businesses that are moving to Denver.
On the other hand, our supply of houses, known as inventory, is very low. A balanced housing market has 6 months of inventory meaning without adding any new listings, it would take 6 months to sell all the listings on the market. Our inventory in metro Denver is 5 weeks.
To top it all off, for a variety of unresolvable reasons, home builders are unable to keep pace with demand. The story the data tells is that our robust housing market is soundly rooted in the basic principles of supply and demand.
“(Denver) is driven by solid underlying economic fundamentals like strong job and wage growth, true housing demand and limited supply and not rampant speculation..." -
Svenja Guddell, Chief Economist for Zillow
Could we have another housing market crash like the one in 2007-2008?
With our current market and economic conditions, it’s just not likely. It would take significant, rapid changes. Today's demand is driven by rising rents, population growth, and job growth. in 2008, artificial demand was created when 1) home builders over built and did not stop building when demand decreased and 2) anyone, regardless of credit or income, was able to obtain a loan. In 2008, many bought homes with a 580 FICO score and no money down. Buyers were given “stated income loans” from lenders and Nehemiah gifts from sellers. The buyers that are winning bidding wars today have credit over 800, are putting 20% or more down, and have low debt to income ratios.
Foreclosure sales have decreased in Colorado every year from 23,891 in 2010 to 4,209 through 2015. In the years leading up to 2008, foreclosures were trending up as were sub prime loans. Currently, Colorado has the nation’s lowest foreclosure rate at .5%. By comparison, in 2010, it was 2.7%.
If you’re worried about another crash, track the following:
1) Weeks of inventory (supply)
2) Population and job growth (demand)
3) Foreclosure rate
4) A rise in sub prime loans
One final though to consider: Real estate markets tend to be cyclical. Since 1970, the Denver real estate market has experienced two 16 year bull markets. From 1971 to 1987, home prices increased 320%. Then from 1990-2006, prices rose another 193%. Since 2011, home prices have increased 57%; we’re entering the sixth year of this current bull market. If history repeats itself, we could have another 10 years of rising home prices ahead. All indications are that 2017 will be another year of positive growth. Click here for Denver's 2017 Market Outlook.
Want more details? Keep reading:
Comments from the experts:
- “Don’t expect Denver home prices to go down. Everybody wants in. It isn’t a bubble and it will continue to be like this.” - Ralph DeFranco, Global Chief Economist for ArchMI
- “(Denver) is driven by solid underlying economic fundamentals like strong job and wage growth, true housing demand and limited supply and not rampant speculation..." -
Svenja Guddell, Chief Economist for Zillow
- “Low housing supply, an influx of population, and low unemployment rates continue to be common characteristics of the top forecast performing markets.” - Veros Real Estate Solutions (predicted Denver as the #1 market in the nation in 2017 with forecasted 10.8% appreciation)
- “...not worried at all about any kind of housing bubble. We have strong demand for houses from new residents moving to the area, from people moving from existing houses, and from Millennials forming additional households.” - Local Economist Patti Silverstein
Facts and Data:
Sources: Colorado Division of Local Government, Denver Metro Association of Realtors, U.S. Bureau of Labor Statistics, Development Research Partners, Lonnie Glessner Nova Home Loans.
1. How will a Trump presidency affect the housing market?
One question I’ve been getting a lot: “How will a Trump presidency affect the housing market?” For starters, one of Trump’s first actions in office was to suspend a .25% reduction in FHA mortgage premium rates. A reduction in premiums would have made getting a loan more affordable for some borrowers, but suspending the rate cut will likely have a relatively insignificant effect on the market as a whole.
Additionally, according to the National Association of Homebuilders, 30% of the labor force in the home building industry consists of immigrants. If the Trump Administration were to build a wall on our southern border, begin deporting illegal immigrants, or roll out more travel bans, homebuilders could be affected. A reduction in labor would mean less new homes on the market and fuel an already historically low inventory.
2. What will the market do in 2017?
Another question I’ve been asked: “What’s in store for 2017?” Well, no one has a crystal ball, but many experts are predicting another year of strong gains in home prices, but perhaps at a slightly more moderate pace: somewhere between 5-9%. As our local economy booms, the Denver Metro population is expected to increase by over 50,000 in 2017. Inventory will remain low (~6 weeks currently) and all indications are that interest rates will rise steadily through the year.
3. What does this mean for me as a buyer or seller?
What this does this mean for you? Well if you want to buy this year, try to buy when the demand decreases seasonally. During the spring frenzy, it’s not uncommon for a home to be on the market for just a few days and sell for $10,000 or more over asking price. Also, start doing your homework. Begin researching how much money you'll need to buy a house and the first steps of home buying.
If you want to sell, you could be in a great position to reap the rewards of a strong seller’s market. Just avoid over pricing your house and be willing to make the necessary updates your home would need to sell. After 4 years of rising home prices, many homeowners have seen the market value of their home grow substantially.
If you have questions about buying, or you're curious about your home’s value and you’d like a free evaluation, just let me know. I’d be happy to help!