Winning Strategies in a strong Seller’s market.

Winning strategies for my buyers!

When I am working with a buyer I in a competitive market, I start by sharing some of the strategies we can use to get our offer accepted.  These are strategies many buyers are using to win in competitive situations. With multiple offers being very common, there are several ways to stay competitive with other offers. Although all of strategies are frequently used in today’s market, be sure to keep in mind that some of these strategies are more risky than others. There are ways to keep some contingencies in place and modify others making the offer more attractive to the seller.

1. PRICE – Of course price is the most important factor. If the home is new to the market, I recommend presenting your highest and best offer ASAP.

2. APPRAISAL GAP – Because many buyers are bidding over the list price or are paying cash, some waive appraisal conditions. If the house does not appraise for the agreed purchase price, the buyer is agreeing to cover the difference at closing because a loan will only cover the appraised value. In an extremely competitive situation we will review comparable homes and I will suggest to you what I believe to be appropriate regarding appraisal.

Example:

List price $400K

Offer:  $425K with a $25K appraisal gap.

Appraised Value: $415K

If the appraisal comes back low (below offer value) and the home only appraises for $415K, that would mean you have to bring an additional $10K in cash to gap the difference between the offer and appraised value. You can either choose to bring an additional $10K in cash to closing, or you can also adjust your down payment with your lender to reflect the difference.

It is important to note that the lender will NOT lend on a value higher than the appraised value.

3. TIMELINE – Being cognizant of the seller’s ideal time line is highly important as we go into the offer process. Unoccupied homes typically want a quick close while occupied homes may need more time or even a rent back to find their replacement home. In today’s market, typically we do not charge the seller for a rent back – your first payment will be 30-60 days after closing so this is a good way to sweeten the deal if your move timeline is flexible. The max rent back allowed by lenders is 60 days after closing.  Depending on their situation, being able to offer them their ideal circumstances can work wonders to set your offer apart. I will secure these details for you with the listing agent before you make any decisions.

4. INSPECTION – You can offer a limited inspection – example limiting to only major items that cost over $1000 to repair. Some buyers are waiving the inspection objection and taking out the deadlines from the contract. You should always do an inspection no matter what. Limiting inspection or waiving inspection is an effective way to let the seller know you aren’t planning to submit a huge list of cosmetic repairs. Depending on the condition of the home I can make recommendations on how to proceed.

5. ESCALATION CLAUSE – In this case, you present your purchase price and then agree to escalate that price a few thousand above the highest offer (with proof that another higher offer exists). In multiple offer situations, unfortunately this can be a slightly ineffective strategy. Listing agents will typically receive multiple offers with escalation clauses which can make it difficult to know who to go with. Typically sellers go with the highest and best offer vs. putting a lot of weight into the escalation.

6. SIGNING BONUS – This is a newer strategy I have used. We write into our offer that if the seller accepts our offer by a certain time and signs, they will receive a signing bonus.

7. LOVE LETTER – Pull the seller’s heart strings by drafting a letter describing why you love their home. Compliment them on the aspects of the home that they improved.  Tell them who you are so they will identify with you personally, instead of regarding your offer as just a number. This is only effective if the owner is personally attached to the home, not for flips or investment properties. Some listing agents won’t allow “love letters” because it can create cases of discrimination. Your letter should NOT include any information regarding —race, color, religion, sex,  national origin, handicap and familial status to prevent discrimination based on the protected classes.

8. EARNEST MONEY – You can make some or part of your earnest money non refundable. The net result costs you nothing if you close because all earnest money is credited back to you at closing. When your offer is accepted, earnest money is required within about 48 hours, it is cashed upon receipt and held in a trust account. Making earnest money non refundable shows you are a serious buyer who plans to close, you actually have skin in the game. If you do not add this provision to the contract, your earnest money is refundable if you terminate for any reason within the contract.

9. FINANCING- To make your offer stand out, a solid pre-approval letter will be required along with proof of funds demonstrating you have the down payment in your bank account. Additionally, I will begin working closely with your lender so that he/she knows where we are in the process and is ready to make a personal phone call to the seller’s agent on your behalf. When listing agents review multiple offers, there is a hierarchy of financing options where cash is superior, followed by conventional loans with the highest down payment, FHA loans, VA loans, and then financing programs using down payment assistance programs.

I will also provide a strong cover letter to the listing agent explaining your offer and qualifications. Agents prefer to work with a buyers agent who presents his/herself professionally, is eager to work together as a team, and stays in communication throughout the process. In addition to a cover letter, I will be texting, emailing and calling as appropriate to provide you with accurate and timely information about your offer so you can make educated decisions.

The most exciting phone call I get to make is –   “You got the house!” 

Predictions for 2021

At the onset of 2020, there was no way to predict that Covid19 would make “stay home’ the theme of last year. One thing is for sure, homes are in more demand than ever in 2021

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The lowest inventory in history forces prices up and creates extremely competitive situations.

Denver has become accustomed to low inventory. Since 2012 we’ve been operating at about one month’s inventory vs the 6 months of inventory required to create a “balanced market”. Typically we get a spike in inventory in Spring but in 2020 due to Covid19 instead of seeing a spike, we actually saw inventory decrease. Supply has dropped to less than 0.5 months of inventory in January 2021. Yet demand is stronger than ever. In the resale market, almost every single-family home has multiple offers. In 2021 I’ve witnessed a new phenomenon – showings are completely booked through the weekend. With only one group allowed in the house every 15 minutes, popular homes book up quickly.  Terms escalate quickly in these competitive situations. It is now commonplace that buyers waive inspections, pay appraisal gaps, and use Accept. inc to make cash offers.

Get all the Denver Real Estate Market Data here.

Multiple offer situations and low-interest rates are pushing prices up.

With lower inventory, most listings are receiving multiple offers and going significantly over the asking price. This demand for homes in Denver is accelerating the increase in prices. Why is this? COVID?  Partially. With Covid, people’s needs changed. The need for more space, a home office, and a backyard/outdoor space is important. That paired with all-time low-interest rates.  With low-interest rates, buyers are not wavering at the prospect of higher purchase prices. With no end in sight, the buyer wants to jump on this opportunity because they know if they wait, prices will be more expensive next month and when interest rates could rise, their buying power/price goes down.

Current homeowners have a massive amount of untapped equity.

I disagree with a recent piece by the Denver Post that said, “distressed sales and foreclosures could rise significantly from low levels as forbearance plans granted by the CARES Act expire and borrowers look for an exit strategy.” I do not see this happening. In the Denver market, I believe foreclosure will continue to be almost nonexistent. Residential values have gone up close to 40% in the last two years in Denver. Even facing unemployment, an owner can sell their home for a profit. It’s statically likely to sell in one weekend, over the asking price. An educated homeowner would not go into foreclose when they can sell at a profit and keep their credit clean.

Moreover, everyone who owns a home in Denver is sitting on major equity. They can tap into this equity using a home equity line of credit or by selling their home. Either way, we have a huge group of current homeowners who are anxious to make the most of their home equity. Now is an exceptionally good time to sell. Sellers can use their home equity for a down payment or they can sell and get a 60-day rent back from the buyer so they can stay in their home while they make non-contingent offers on their replacement home. We are seeing many homeowners keep their current home as a rental that cash flows and use that additional income to subsidize their new home’s mortgage payment.

Rising taxes and interest rates could reign in appreciation in Denver in 2022.

NO ONE IS TALKING ABOUT THE MAJOR IMPACT THIS TAX CHANGE WILL HAVE ON THE REAL ESTATE MARKET. I was only able to find one article about it online, summarized below.

In November 2020, Colorado voters passed every statewide ballot measure that dealt with taxes despite being in the midst of a pandemic. Voters repealed the Gallagher amendment (which has actually caused taxes to decrease in previous years).  Without Gallagher tax bills will rise in lockstep with property appreciation from now to eternity. Taxes in Denver will increase by $2400/year minimum for the median home in 2022. Denver sales tax rates increased by .5% and the mill levy increase by 4 mills, so assuming the median home price of $606,000, the tax bill would increase by about $2400/year minimum, if Denver continues to appreciate, which it likely will that number will be closer to $3000/year into perpetuity.

2021 is a reassessment year but taxes are paid in arrears so the higher bills won’t appear until 2022. One of the largest drivers of appreciation in Colorado is the out of state buyers from higher-cost coastal areas like California or New York. They are leaving these areas due to large property and income tax bills. As Colorado continues its upward trajectory of taxation, it will soon join the coastal club of expensive cities and at some point, see more migration out than in as people move to the next up and coming city with lower taxes.

An extra $2400 per year in taxes, would be equivalent to interest rates going from 2.75% in 2021 to 6% in 2022. If property taxes go up as planned in 2023, that would be equivalent to a 9% interest rate. In addition to taxes starting to double every year, some people think interest rates might increase in the future. I’ll believe it when I see it!

If you are looking for an opportunity for a good deal, consider a city condo in 2021.

Downtown has become a ghost town without workers, sports events, and conferences. Many bars and restaurants have shut their doors and the homeless have set up camp. Young adults didn’t last long on college campuses and moved back in with their parents at much higher rates this year than last, with nearly 2 million 18 to 25 years old still living at home in August according to Zillow.com. Pre covid, commutes, and being in “walkable” neighborhoods were a primary focus. With the vaccine, downtown will enjoy a renaissance in 2022 as these younger buyers leave the nest and flock back to city centers. Until then, there are deals all over downtown in the condo market. Get one today below market value at low-interest rates and wait for the renaissance of Downtown to realize gains from your genius foresight.

How has COVID19 Affected the Denver Real Estate Market?

Nine months into the Covid-19 pandemic, we have collected some data and feel ready to talk about how this pandemic has impacted the Denver real estate market. Since staying home has become a new way of life, it is logical that the demand for housing has hit an all-time high.

Covid Deals

At the onset of the pandemic, there was a slight opportunity to find a good deal for three months. Those who were willing to purchase amid uncertainty were rewarded (see price decreases below in light blue April, May, and June).

On April 11th the Colorado Real Estate Division banned in-person home showings until May 1st. Offers were being made without seeing properties, inspectors went in and emailed reports and closing happened in parking lots.

Demand for Homes

Why would anyone buy under such conditions? Well, at this point everyone needed an extra 1000 sf. Not only were they working from home but they also had kids homeschooling, needed a place for their new Peloton bike, and no escape (aka vacation) insight. Only around 7% of U.S. employees regularly worked from home before the COVID-19. 62% of US employees are working from home now.

Remote Workers with Expendable Income

The demand for extra space has become a priority for many at the same time people actually experienced increased savings. In addition to receiving stimulus money, many saw their monthly bills decrease. Savings were achieved in many categories including commuting, travel, restaurant/bars, entertainment, fitness, personal services, etc. We actually saw personal saving rates increase in April 2020.

Boom in Refinancing

At the same time, most homeowners were able to refinance at a lower interest rate and decrease their monthly housing costs. With interest rates hovering at historic lows of around 3 percent for a 30-year fixed-rate loan, refinance mortgages originated in the second quarter of 2020 represented an estimated $513 billion in total dollar volume. That number was up 130 percent from a year ago, to the highest point in almost 17 years.

 

We expect total mortgage originations to reach $1.1 trillion in Q3 2020 and $3.6 trillion for the full year 2020. For Q3 2020, refinance originations to be $670 billion.

Lowest Interest Rates
in History

CPR says that 9 in 10 people in Colorado were employed in July 2020. Those people were working from home, had a boost in savings, and were looking to take advantage of low-interest rates. Lower interest rates counterbalance a higher list price and make their monthly payment manageable. I looked back at Mortgage Rates and home values from Zillow and did some quick monthly payment calculations assuming 20% down.

 

Oct 2016 / 3.42% / $377K = $1636/m

Oct 2017 / 3.85% / $409K = $1850/m

Oct 2018 / 4.9% / $446K = $2226/m

Oct 2019 / 3.65% / $449K = $1975/m

Oct 2020 / 2.88% / $469K = $1900/m

With the lower rates, home prices started to increase again in July. As prices started to soar buyers were unphased. The list price is irrelevant to buyers because they are focused on the cost of their monthly payment.

 

Competition Pushed
Up Prices

Demand has been strong and inventory has lagged behind. Active inventory between September 2019 to September 2020 is down 42.91% according to DMAR. The low inventory resulted in bidding wars. There aren’t widely available stats so we counted up the number of offers we received on each listing and the number of offers each buyer wrote to get their offer accepted based on Living Room’s transactions. As a whole, it took 2.5 offers per sale within our brokerage since Covid started. It was our experience that single-family homes were more competitive and required closer to 3.5 offers per sale while condo and townhomes were closer to 1.4 offers.

Double the Work

Naturally, it follows that real estate agents were busier than ever during Covid. We are writing 2.5 offers per client and that doesn’t take into effect the number of showings required. In addition, lenders were extremely busy with refinances in addition to new purchases. Lastly, the title companies doubled their workload – instead of one closing with the buyers and sellers, they had to do two separate closings – one for the buyers and one for the sellers. It was double the work all around and we did it in masks.

Low Inventory and
Off-Market Deals

In the graph below you can see the dotted blue line where we expected inventory to be this year before Covid changed the scenario. The solid blue shows our actual inventory. It is shocking to see more homes pending and closed than active inventory.

 

How is that possible? Answer – many homes sold without ever being listed on the market. The sales were recorded by brokers after the fact. Within our brokerage it happened – friends selling homes to friends, renters buying from their landlord, or buyers placing offers on off-market properties.

Prices Going Up

The high demand for homes in Denver and low inventory is pushing prices up. Since last year, prices in Denver are up 6.4% according to Zillow and predicted to keep going up. Costs are also increasing for building – lumber is a major factor but throughout the supply chain prices are increasing across the board.

People on the Move
During Covid

Covid created major change and the change resulted in many moves. According to the Postal Service’s Change of Address requests, over 15.9 million people have moved during the coronavirus. The national trend was a move from cities to the suburbs or smaller towns. Many Denver residents looking for more space left the city. At the same time, Denver has witnessed an influx of new residents from bigger cities. Working remotely has given people the ability to live anywhere and people want to live in Denver. Our city is more open than other cities and we’ve been lucky to not be the center of a major

 

It’s important to note that the net losses experienced by big cities eclipsed the net gains experienced by the smaller cities. Residents relocating from big cities spread out to smaller areas across the country. A Denver Post opinion piecesaid, “A new wave of urban migrants may be crashing into the suburban and rural West. You could even call them COVID migrants.” People living in Denver are moving to more affordable “Zoom towns” in rural areas. The rural real estate market nationwide has taken off much faster than in urban areas.

 

You can see in the graph above that Highlands Ranch, Broomfield, Thornton, Parker, and Evergreen are very in-demand areas while the city center is actually a buyer’s market. People need and want more space. Walkability and the length of commutes is less relevant.

What now?

Typically this time of year is when demand starts to decrease. However, the showings stats below demonstrate that showings have consistently increased month over month since the big dip in April 2020. Masks and other precautions are being taken, but buyers are on a mission to get into a home. The election and holiday will slow down buyers, but we expect a robust 2021.

Conclusion

It was hard to predict how the pandemic would affect the real estate market in Denver early on. Now that some time has passed, we see that stay-at-home orders, low-interest rates, and movement has created a huge boost in demand and therefore prices. Sellers are experiencing the tangible benefits of these price increases when they go to sell, while buyers are battling it out in multiple offer situations. Those lucky enough to win in a bidding war are saved by low-interest rates that make their monthly payment manageable. If Denver can weather the recession of the 2020 pandemic, I’m optimistic about the years to come.

Tips to find listings online

Looking for listings online? Every time a real estate agent adds a listing to the multiple listing service (MLS) it gets published to thousands of websites for consumers. The same information appears everywhere, it’s just a matter of choosing which app/website you prefer and pairing that technology with your favorite real estate agent to help you through the buying process. My philosophy is to work with each client on the platform they prefer most.

Every real estate website has the same basic listing information. They compete for users by trying to offer better features than other websites/apps. Almost all websites/apps are free to use for consumers. They typically make money when they connect you with an agent. Agents listed on Zillow are typically paying over $3000/m to be advertised in a zip code and connect with new buyers who request a showing through the service. Redfin also wants you to use their discount agents so they will give you a feature to schedule a showing with their agents. We believe hiring an agent should be based on their abilities and experience – not a random connection fueled by advertising dollars.

You should use the best agent and the best technology to find your next home. You can just as easily share the listing you like on Zillow with your preferred real estate agent and schedule a time with them to meet you at the property. They will be someone you trust and can help you beyond just showing a home to make sure you have an exceptional home buying experience.

There are thousands of real estate websites that advertise listings including www.LivingRoomDenver.com. However, because we are a small, locally owned company we have not been able to invest millions of dollars into our website to add features in the same way that Zillow.com has over the last 15 years. Below we’ve shared three of the most user-friendly websites/apps where consumers can find listings online.

Zillow 
Zillow holds the biggest market share of any real estate website capturing 29.2% of the market and also owns the second most visited website Trulia.com. They get approximately 59 million unique visitors per month! Zillow launched in 2006 was a game-changer for the industry. For the first time, consumers without an agent could sit at home and browse houses all around the city (and in other cities and states).

Pros:
1. Google maps/street view linked in the third and fourth images in the photo scroll. Street view can put you in front of a home in seconds to evaluate if you like the “feel” of an area.

2. See how many times the property has been viewed and how many people have saved it. This helps you evaluate the popularity of a listing.

3. Tag what they like about properties. For example “price” or “kitchen”. The app/website uses your votes to push you listings it thinks you will like based on past votes. It makes it simple to view list of homes you favorite during your search.
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4. Reviews – Zillow is a good place to check reviews about your agent. See my reviews here.

5. Zillow walkthrough + 3D tours for tours from your couch.

6. See listing history,

7. Easy to send links to your agent and friends.

8. Most extensive rental listings for privately held homes

Cons:
1. Open Houses not accurate
2. Slow to update new listings and under contract,
3. Agents advertising
4. Always double check your Zestimate with a professional real estate agent. Zillow does not have the ability to analyze the finish level of your interior which can account for major price adjustments.

Redfin


Unlike Zillow and Realtor.com, Redfin is an actual brokerage who pays its agents a base salary and makes money when users buy or sell homes with its real estate agents. They offer a 1% listing fee if you also buy a home with them. At Living Room Real Estate, our listing commission is always negotiable and if you are listing and also buying a house we can be very competitive with Redfin plus offer personalized service with a dedicated agent on your side.

Features about Redfin we like:
1. It updates the quickest from the MLS. Way faster than Zillow!

2. Shows the exact bathroom count. MLS shows 2 baths when there are actually only 1.5 which is a huge difference.

3. Shows properties that are getting more traffic as a “hot home” which helps me know that those listings will get multiple offers.

4. Has an icon on the first pic in the listing to let me know if there is a 3D walkthrough available.

5. Allows you to X out listings you don’t like.

6. Has a feed that shows me new listings and price changes since the last time I opened the app.

7. Really good open house functionality, not as relevant right now.

8. It has a great mortgage calculator and a commute calculator feature.

What I don’t like:
1. Once a listing is sold the photos go away.
2. Redfin agents are discount service providers who do higher volume. They may not give you the dedicated one on one attention that we provide to buyers through the home buying process.

 

Agent’s Choice – HomeSnap

HomeSnap is likely your agent’s favorite app because they offer rich features for your agent to do business. You might have a better experience sharing listing from HomeSnap with your agent because from their phone they can access extremely valuable information that one other app offers professionals.

Pros for Buyers:
1. Stand in front of any home and snap a photo. The app will recognize your location and give you all the information about the home available even if it is not for sale.
2. Communicate directly with your agent in this app. Make sure your notifications are on so you can see messages.

Pros for Agents:
1. Each listing has private information that is only shared with other real estate professionals that do not show up on Zillow for example. Your agent can see private remarks which typically have information about when offers are due and showing instructions.

2. An agent can quickly research the listing agent with easy access to their contact info, office info, past deals analysis. Your buyer’s agent can evaluate their level of experience of the listing agent which will help you in negations.

3. From their phone, agents can quickly create a comparative market analysis report for any home with a simple workflow and email it to you as PDF documents.

4. We can schedule a showing with the seller directly through this app – not an option on any other platform.

5. Agents can use Homesnap Pro is see important data about an entire neighborhood including Likelihood to List, Distressed, Ownership Type, Home Equity, and Loan Balance.

Cons

1. This app is built for agents and caters to their needs. It is not widely used by consumers and is not super user friendly.

 

 

Denver Real Estate Stats: What you should know!

Some information can be misleading. Take this post shared Thursday, June 4th by a very credible organization, the Denver Board of Real Estate Agents. They call this information the “June 2020 Market Overview” but it is important to understand that the data is based on homes closed in May 2020. You may or may not know that once you find a home you love and put in an offer, you are typically “under contract” on that property for at least 30 days giving you a due diligence period before you close. So the homes that closed in May 2020 were put under contract in April 2020. On March 23rd Coloradoan’s were ordered to “stay at home” and by April 8th, all in-person showings were shut down. Real Estate agents adopted virtual showing strategies, but showings did not resume until the beginning of May. So now you know that June 2020 stats should really be labeled April 2020 stats. Now that you understand that our stats are a lagging indicator, you can understand how the graphic actually shows what happened to the Denver real estate market during the “Stay at Home” order in Denver.

I have better sources for my data and I’m on the front lines and I can tell you our real estate market has come back really strong since “Stay at Home”. The graph below shows data from the beginning of the year. Covid19 really started to impact our market mid-March and the worst of it was mid-April. As you can see, by the first week in May we got back on track and closing just started bouncing back last week. That makes sense right? Homes close 30 days after the showing is completed and the contract is signed. Showings started at the beginning of May, so we would expect closing to follow 30 days later at the beginning of June. Understanding that our data is always lagging by 30 days will really help you navigate real estate stats or you are welcome to JUST ASK ME!

 

2018 Real Estate Market Update

In 2018 we saw the same pattern of the past with a very hot spring market that cooled down when inventory came on in June. September was an unusually slow month due to the midterm elections. The blue columns behind show the percentage of ask price. At the first circle where demand and supply are very tight, you can see that sellers were getting over their asking price. As inventory increased, many listings were going under asking in the Fall.

We definitely saw prices go up in the first half of the year as the Spring bidding wars escalated prices. The highest prices were in April, which would have been clients shopping for homes in March when you see the under contracts peak in the first graph. Although prices dropped after June, they didn’t dip under $415K where we started the year in 2018.

In 2018, listing went under contract faster than average in the beginning of the year, but at the end of 2018 homes actually stayed on the market longer than average between 2013-2017. You can see that in March, April, and May homes were only on the market for about five days. That means they get listed on Thursday, have an open house on Saturday, and are under contract by Monday. This is a very typical pattern for Denver during the Spring market.

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