BACK ON MARKET

The two most common words in Denver real estate may be "Under Contract", but three new words are trending... "Back on Market."

In an emotional environment where multiple offers and bidding wars are the new norm, buyer’s remorse is a growing problem.  If you beat out seven other buyers, then are asked to double your earnest money and waive your appraisal clause, you might find yourself feeling a bit grumpy about the entire process before the ink on the contract is even dry.

Get to inspections, throw in an older furnace, a dishwasher that occasionally leaks and a window that refuses stay to open without aid of a broomstick, and you have the recipe for… back on market.

The number of homes going under contract only to re-appear back on the market a week later is definitely on the rise.  In fact, I have recently written several “backup offers” on homes already under contract because so many deals are falling apart during the contract period.

A few weeks ago, I had a Littleton client interested in a sub-$300k home which had multiple offers.  Despite writing a strong offer, waiving contingencies and even agreeing to take the home “as is”, we were beaten out by another buyer.  

The one caution flag on this home was a do-it-yourselfer's back deck directly off the kitchen which was not in the best of shape.  It was only about 18 inches off the ground, so we didn't feel it was a great safety hazard, but it was suffering from splintering wood, loose rails and uneven balusters.

It was something my client and I discussed when we wrote our offer, and I felt like it was the biggest obstacle a buyer would face with this home.  But what would the real cost be to tear it off and replace it?  Maybe $3,000?

In a market where prices in many areas of town are going up 1% a month, walking away over a $3,000 concern isn't automatically a wise move.

So we circled back and submitted a strong backup offer, basically mirroring our original offer but allowing $1,000 of earnest money to go “hard” and become non-refundable upon acceptance, should the first contract fall for any reason.  We also agreed to take the home "as is", keeping only our right to cancel if the inspection turned up more issues.  

And sure enough, when the first buyer started balking about it, I got a phone call. 

“Your buyer still interested?”, asked the seller’s agent.

“Of course,” I said.  "We've seen the deck and we're not afraid of it.  Let's get this done."

And sure enough, a day later buyer number one was out and we were in.

We did our inspection, and while the long-term prospects for the deck are questionable, the rest of the house checked out fine. 

My clients closed, moved in, and ended their long and winding journey through Denver's fiery-hot real estate market.    

I’m not saying that backup offers are the preferred method for navigating the market.  They are not.  Backup offers are a strategy, just like doubling earnest money, waiving appraisal contingencies, taking homes “as is” or staggering your earnest money release.

With 85% to 90% of the inventory under contract in most areas of town below $300,000, this is an exceedingly hard market for buyers to navigate.  This market calls for different approaches.  What may have worked in 2012 or 2013 is irrelevant in 2015.    

I talk to my sellers extensively about the growing "back on market" trend.  It's critical to treat everyone in a real estate transaction with respect, and to do what you can to keep some goodwill tucked away for the under contract period, because there are going to be bumps.

Inspections and appraisals are now huge issues.  In many transaction, fear and greed have supplanted logic and reason.  For sellers, finding a buyer isn't the challenge.  The challenge is finding the right buyer, with the right agent, working with the right lender.  It's securing an offer from someone who knows what's at stake, has the financial resources to compete, understands the market, and is committed to the deal.  

Staging is fun, photos are exciting, showings are great... but the real action now comes once a property is under contract.  

Buyers are feeling worked over and abused, and if you push too far, you may well find yourself in that uncomfortable and confusing space known as "back on market".