 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:
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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: Population Growth:
Job Growth:
Rising Rents:
Supply:
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!  So you’ve decided you want to buy a house. That’s great! Now what? Figuring out next steps can be confusing. One of the first things buyers ask me is, “when should I start looking at houses?” The answer depends on your particular situation but in general, at least 2-3 months before you want to be in your new home. Starting the process as early as you can is advisable. Looking for a new house can be like having another job. It can be very time consuming and there’s a large amount of information you’ll have to learn so the more time you have the better. A Timeline For Buying: Market Education – 90 days or more out One of the first things you should do is start familiarizing yourself with the market before you start looking at houses. A Realtor can create a custom housing search specifically for you. Once daily, you’ll receive an automated email from the MLS that will display all the houses that match your search criteria. Reviewing these daily emails will educate you on what is available and for what price. This will also help you figure out what you’re looking for; you’ll be able to spot properties that are attractive to you more quickly. In a strong seller’s market like Denver, decisiveness when looking at homes is important. Getting Pre-Approved – 60 days out Before you go see homes in person, you need to get pre-approved by a lender. Pre-approval involves the lender will looking at your credit and financial information and making a determination regarding how much money you can qualify to borrow. This will tell you what your maximum purchase price is. If you can’t qualify for a loan, this process will reveal that; at least then you won’t waste time looking at houses you couldn’t have bought anyway. Pre-approval letters are generally good for 60-90 days. Showings With A Realtor – 45-60 days out The process of seeing properties with your agent and submitting an offer could take a few days or many months. It depends on what you’re looking for, your price point, how available you are to see houses, and market conditions. There’s also a possibility that it could take some time for your offer to get accepted. If you submit an offer on a property and get beat out by another offer, you’ll have start over and look for another property. Go Under Contract – 30-45 days out Once your offer is accepted, the clock starts. At that point you have a closing date set; it’s usually about 30 days out. What’s going on during that time? You as the buyer will be reviewing various disclosures and reports from the seller, inspector and appraiser on the home. The lender works to get the loan through underwriting, and the title company works on transferring the title from the seller to the buyer. The buyer’s and seller’s agents negotiate on behalf of their clients, coordinate all the moving pieces and work to keep the transaction together and moving forward while resolving any problems along the way. Closing – 0 days out Once you close and take possession of your new property, you’re done and you can begin moving in. Ideally you’d have a few days between closing and whenever you would have to be out of your former home to allow some buffer for packing and moving. Some buyers choose to move and close in the same day and it can be done. If the seller wants to live in the property after closing temporarily, your whole timeline could get longer by up to 60 days. Questions? Let me know; I'd be happy to help! Real Estate Outlook For 2017
In 2017, the housing market is expected to see gains in home prices though likely at a more moderate pace than previous years. In 2016, fueled by low inventory, low interest rates, and high demand, median home prices in the Denver metro area increased 11%. This year, many industry experts expect appreciation between 5-9%. This would certainly be more sustainable long term and healthier overall than double-digit gains. But don’t rule double-digit gains out completely; low inventory paired with high demand, healthy job growth, and low unemployment as well as a variety of factors will decide what kind of year 2017 shapes up to be. Factors To Watch In 2017: 1. Millennials: According to the Colorado Division of Local Government, millennials now account for 25% of Denver’s population making them the largest demographic in the Denver area. Millennials will account for a large percentage of first time home buyers who will make the transition from renting to owning. As millennials get older and their incomes grow, especially in the 28-31 age group, the amount of buyers entering the market will increase adding to an already high demand. 2. Job Growth: Denver added nearly 51,000 new jobs each year from 2014-2016 in a wide variety of industries including aviation, IT services, beverage production, renewable energy, and aerospace. Through the third quarter in 2016, Colorado was the 9th fastest state for job growth in 2016 (2.8%) while jobs in metro Denver grew 3.1% with Ft. Collins leading out at 3.5%. 3. Interest Rates: Currently, rates for a 30 year FRM are approaching 4.3%; almost a point from 3.4% rates that were available just four months ago. Economists expect the Fed to hike rates 2-3 times in 2017 with the first rate hike coming most likely in March or April. Rising rates will gradually price some buyers out of an already hot market. If rates reach 5%, it could begin to slow demand somewhat and home prices could soften. 4. Inventory: Inventory is still very low at 7 weeks, and although building permits are up 16% in the first part of the year, new builds have been unable to keep pace with demand. Denver remains a destination city and net migration projections indicate we will likely add another 50,000 people in 2017. If you have any questions about the market or about buying or selling a home, feel free to email me at willdavis@equity-usa.com. Sources: Colorado Division of Local Government, Denver Metro Association of Realtors, U.S. Bureau of Labor Statistics, Development Research Partners. There are three basic categories of costs that will occur throughout the escrow process:
1. Down Payment 2. Earnest Money 3. Closing Costs Earnest Money Earnest money is money you submit to the title company for the seller within 1-2 days of going under contract. It’s shows that you’re serious about buying the house. The idea is if you default and terminate the purchase contact outside of one of the allowable provisions, the seller can keep your earnest money. Earnest money is usually 1-3% of the purchase price. Down Payment A down payment is money you pay to the seller upon closing that immediately goes towards your purchase. If you buy a $300,000 house and you are paying 3% down, you would pay the seller $9,000 and your lender would pay the seller the remaining $291,000 on your behalf. It seems most potential home buyers worry most about the down payment. The widespread belief that you must have 20% of the purchase price (*for an owner occupied primary residence) is not true. Many first time home buyers put just 3% down. The FHA and Conventional Loan programs only require 3.5% and 3% down respectively while the VA Loan requires 0% down. Closing Costs Closing costs are roughly 2-4% of purchase price and include two major categories of expenses: 1. One Time Costs & Fees 2. Escrow & Prepaid Expenses - One Time Costs & Fees: One Time Costs and Fees include a myriad of items such as loan origination charges, the lender’s title insurance, an appraisal, a credit reporting fee, a closing fee, and a survey. All of these are transaction costs that allow you to purchase a home. - Escrow & Prepaid Expenses: Escrow & Prepaid Expenses include: prepaid home owner’s insurance, prepaid interest on the loan, mortgage insurance charges, escrowed property taxes, and an owner’s title insurance policy. These are charges that are paid at closing in advance for services, or money your lender holds to pay off anything that could cause a lien on your new home (property taxes, utility bills, etc.) The idea is if the lender has payment for those services ahead of time, the lender can pay them; from the lender’s perspective, this makes it less likely a lien will be placed on your home in the first few months after closing which could threaten the loan. Inspections & Moving Costs: Home inspections generally run $300-$600 and are generally paid at the time of inspection, not at closing. Don’t forget about moving costs. Whether you’re renting a moving truck and doing it all yourself or paying a moving company, you’ll need some cash for moving costs as well. |
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