Sunday, March 15, 2015

MOTIVATED, WELL-QUALIFIED, HOPELESS BUYERS

It just happened again. 

I listed a home in Thornton a few days ago and over the first weekend on the market I had 41 showings and six offers.  Five of the six offers were more than $5,000 over list price.  Five the six offers had reputable, strong, high-producing agents. 

Three of the offers had compelling narratives about why each particular buyer wanted (or needed) to be in this neighborhood.  Agents took turns explaining how much their buyers loved the home, needed to buy, and wouldn’t fight on inspections. 

One agent volunteered to reduce her commission by $3,000 and let the sellers keep the money.

In the end, one buyer got the house.  Five buyers got nothing.

That’s how it is in Denver real estate these days.  In a market with 4,400 homes for sale (down from 18,000 four years ago and 31,000 in 2007), sellers hold all of the cards.

I listed a townhome in Lakewood in January that drew a dozen offers in three days.  All 12 were at or above list price.  Ten of the 12 were solid offers that could have worked in any other market.

In the end, one buyer got the house. Eleven buyers got nothing.

As I wrote about nearly two years ago, there is a hierarchy of buyers.  It starts with cash buyers, who don’t need appraisals, don’t have to go through underwriters and can close within a few days.  If a cash buyer writes a reasonable offer, he wins.

Next are the large down payment buyers, who have the resources to deal with an appraisal that comes in low and the financial IQ to realize that just getting a home under contract sooner rather than later is the smartest move they can make in this environment.

Then comes the mid-range down payment buyer who may be willing to waive contingencies… perhaps taking a home “as is”, waiving the appraisal contingency, or offering to pay for title insurance.

They comes the smaller down payment buyers, who may let some of their earnest money go hard early in the contract period (or even upon acceptance) to show how serious they are.

Then come the FHA/VA buyers, who often get frozen out simply because their financing is more dependent on the underwriter and the appraisal.

And at the bottom come grant-money buyers, down payment assistance buyers and those with no reserves at all beyond their minimum down payment.  Many of these buyers are simply roadkill on the superhighway that is the 2015 Denver housing market.

Agents, what do you do?  The sad reality is that most good listings are drawing several well-qualified offers from highly motivated buyers.  As I said, with my last two listings, 15 of 18 offers would have been fully acceptable on their own just two or three years ago.  But today, that offer that would have worked in 2011 or 2012 might be number eight or nine on the priority list in 2015.

Adapt or die.  Buyers, if you aren’t ready to fight, don’t get into the ring.  This is a nasty, competitive market and unless you are fully committed to competing, you might as well just sign another lease.

Remember that a normal market will have twice as much active inventory as homes under contract.  With 4,400 homes on the market today and 6,600 under contract, you could literally TRIPLE the number of homes on the market and you would still have a balanced, appreciating market. 

With that kind of inventory disparity, higher prices are a foregone conclusion yet again in 2015. 

You can choose to believe the numbers, or you can choose to believe your crazy uncle in Illinois or New Jersey or Florida or some other market with high unemployment, lots of distressed inventory and a broken economic system.  If Uncle Vinny tells you smart buyers never offer full price, or that threatening to walk away over a leaky faucet is a solid strategic move, hang up the phone.

Here in Denver, for the foreseeable future, prices are going up.  Period.

Each day you’re out of the market is costing you money.  The longer you wait, the higher those prices go. 

If, after educating yourself and considering the market, you think things will calm down in 18 – 24 months, then go ahead and have a seat.  You are definitely entitled to that opinion, and you could be right.  But if you’re thinking about buying in 2015, then this is a loser’s attitude.

Right now, successfully buyers are focused on one thing:  getting a house under contract. 

If you’re focus is on something else… getting a “deal”, lowballing the seller, fighting over appraisals, nickel and diming on inspections… please step aside. 

The serious buyers are coming through.