There's a new reality in the Denver real estate market,
and if you're looking to buy, you must come to terms with it.
Homes aren't selling for what they are worth. They are selling for what someone is willing
to pay.
I recently listed a home in Lafayette that my client
purchased as a short sale in 2012 for $196,000. Fast
forward 48 months, and my carefully crafted CMA came back with an adjusted approximate
market value of $322,150 - a 65% jump in value in four short years.
Knowing this crazy market, however, I knew that that number was likely only a starting point.
We could easily list it at $330,000... or even
$335,000... and we would probably generate multiple offers.
After weighing the pros and cons of a bidding war, my
clients decided their interests would best be served by inducing one. So we
listed it at $325,000.
The first offer showed up before showings even began -
$335k, cash, closing in 21 days. The
buyer gave us four hours to respond. I
advised my clients to pass.
It was our intention to be on the market four days,
reviewing offers on day five, and I didn't want to shortchange the process.
And sure enough, the offers came. Nine of them, in total.
Using (and promoting) the first $335,000 offer as a
benchmark, I soon had an offer at $339,000.
Shortly thereafter, $342,000. A
day later, $350,000.
At this point, the conversation shifted to the
appraisal. We knew it was highly
unlikely to appraise at these numbers, so the question became...what happens if
(when) it doesn't appraise? I picked up
the phone and began posing this question to agents.
Soon enough, the revised offers began showing up. $345,000, willing to pay $7k over appraised
value. $348,000, as-is, waiving the
appraisal clause entirely.
Then, $355,000...but not addressing the appraisal
clause. A cash offer at $358,000. Another offer at $350,000, as is. $347,000, willing to pay $10k over the
appraisal.
I could go on, but you get the picture. Ultimately, we ended up with a top offer of
$365,500 (not a misprint), waiving the appraisal clause, as-is, with a 60-day
rentback to my sellers.
I am not making this up.
Of course, the home ended up appraising short of the
mark, and the buyers were forced to significantly increase their down
payment. They grumbled. They didn't like it. But they also realized that with values in this neighborhood increasing by $100 or more per day, starting over wasn't automatically going to make their situation better.
Fast forward a few weeks, and another home in the same
subdivision with similar square footage was listed...at $379,900. They were piggybacking off of our
over-the-moon price, and they knew that several of the buyers who had swung and
missed at ours would likely show right back up for this one.
One of my clients asked me about this home and we viewed
it together. I told her the backstory
with my listing and what a CMA would reasonably support. The home was perfect for her and she wanted
to write on it.
A reasonable offer would have been the middle ground
between what ours appraised for what this one was listed at. But I know that “reasonable” doesn’t work in
this market, so we pushed the numbers up a bit higher.
She offered $368,000, agreeing to pay up to $7,000 over
appraised value if it failed to appraise.
We sent it to the seller’s agent, who promptly tossed it in
the recycle bin.
That home went under contract with multiple offers,
likely at or above list price. It has no
chance of appraising. Apparently the
buyers don’t care.
Now all of this happened in Boulder County. Boulder is nuts. Home prices have soared so far in the city of
Boulder that nearby suburbs like Longmont and Louisville and Lafayette are
literally on fire. Maybe these buyers are
smart, even paying unsupportable numbers.
Because a year from now, history may judge them wise.
But it's difficult to process all this. If
you're logic-based, your hard drive is about to crash. In the Denver metro market of 2016, two plus
two equals six. Or seven. In Lafayette, it might equal eight.
Will this change at some point? Of course.
It has to. The question is, do
things flatten out in four months, or in four years?
As I've written about before, the history of the Denver
market is like a staircase, not a rainbow.
By that I mean, if you go back 30 years, the history of our market is
price surges followed by pauses, not crashes.
Even the wipeout of 2007 - 2009 looks tame when you view it in the long
term.
One last piece of perspective before we hit the "post" button. If you're coming here from St.
Louis, this market looks terrifying. But
if you're coming here from California (as so many are), it still looks
cheap.
If you're from Denver, however, you're probably feeling a
mix of fear, confusion and maybe even sadness.
It's never looked like this before.
Many of the middle class neighborhoods you grew up with and spent time
in are no longer affordable. Moving up
is out of the question. Holding on is
the new moving up.
It's great to have equity, but mobility is nice too.
Large numbers of buyers from two, three and four years
ago could not afford the homes they are living in today. Which means they aren't going to be selling
any time soon. Which means inventory
stays low.
