There are still no homes for sale in Denver.
The Denver Metro Association of Realtors reports that February closed out with just 3,963 active listings – a 6% decrease over January and 3% lower than a year ago.
This means either a) sellers are waiting until the traditional Spring selling season so they can get even more for their homes, or b) people are scared to sell because that means most will have to turn around and be a buyer in this market.
Also because Denver is just an amazing place to live for families and young singles alike, with booming jobs and growing economy and more people are coming rather then leaving.
What This Means for Buyers
Low inventory and massive demand means there are typically 5-10 (I’ve seen condos with 13 & 20 offers last week) offers for any given property you’re thinking about writing an offer on.
Naturally, this pushes prices to an (temporary, until more inventory comes) artificially high territory. The new norm this year (and to be fair, it’s been this way for the past 2 years) is for buyers to start their thinking with 5-20k over list price when considering offers.
This doesn’t mean these houses, condos and townhomes are actually selling for these prices. This is where the mighty appraisal comes into play.
From the realtors and lenders I speak with, and from the deals I’m involved in, I’m seeing more properties appraise for a lower value than what was originally offered.
Don’t you always pay the appraised value?
In most cities and markets, yes.
Not in Denver.
Covering the Appraisal Gap
Since offer prices are getting higher and higher, sellers are now having to not only think about price, but which offers have assurances that buyers will pay the price they originally offered (which gets riskier the higher prices get), or cover $XX over the appraised value.
For example, say a home is listed for $300k and you offer $325k. The selling realtor believes the home will only appraise for $310k.
Suddenly your offer for $325k isn’t as appealing as an offer of, say $315, that also offers to pay $2000 over the appraised value if it comes in lower than $315.
The caveat: That difference has to be covered with cash since your loan is based on the appraised value. You cannot finance this. Please check with your lender before considering offers like this!
Save, Save, Save
This means buyers with the flexibility to make these types of offers will have an advantage. So save more! Sock away that cash so when the time comes to eek out those other offers, you’ll be in a position to be competitive!
Not only are buyers covering over appraised value, they are also waiving the inspection contingency, which I’ll talk about next week.