Metro Denver’s inventory levels have hit record lows and are expected to remain low into 2013. The number of active single family home listings (Jan 1, 2012 – Oct 31, 2012 compared to the same period for 2011) decreased 29.5% to 8,108. Where as the number of active condo/town home listings decreased 39.3% to 1,611. Furthermore, the ABSORPTION RATE for single family homes is at 2.6 months and the rate for condo/town homes is at 2.1 months. Rising prices, historic low inventory levels and historic low interest rates are causing buyers to encounter multiple offer situations and bidding wars for homes. Here are 10 ways for buyers to prepare for offering on a home in a seller’s market:
- Be Prepared to Compete Even Before You Start Your Search. This will reduce the shock of having to jump through additional hoops to obtain a home.
- Work with a Reputable REALTOR®. The reputation of your agent and their company can help increase your chances of your offer getting accepted over another buyer’s offer (How to Choose a REALTOR®). Make sure they have enough experience to advise you through the process of dealing with multiple offers and bidding wars. If you are a first-time home buyer work with an agent that will educate you through the process. This should ease your fears as you make important decisions throughout the process. See Buyer Questions to Ask your REALTOR®
- Have Your Earnest Money Ready to Go. If your earnest money is coming from stocks or less liquid accounts, it’s best to have the money in (1) account so that (1) check can be written when the time comes to put an offer on a home.
- Work with a Reputable Local Lender. An offer accompanied with a strong pre-approval lender letter, not a pre-qualification letter (what’s the difference?) from a reputable lender will strengthen your position and give confidence to the seller that you and your lender can complete the transaction. I always recommend speaking with a lender before you start searching. This will help guide your search with respect to your budget. Be sure to clear up any issues with credit, job history, down payment sources, etc. before you start searching. Most REALTORS® have a list of lenders that they work with on a regular basis and have already pre-screened them to ensure they will provide the best service possible. My list of lenders that I recommend know how I advise clients and are very cognizant to ensure dates and deadlines are met and clients are served to my expectations.
- Do your Preliminary Research Before Starting Your Search. This will eliminate wasting time in your home search and once you find a home you like it will be easier for you to make a decision to move forward. It will also help you understand home values and expectations of what types of homes are available in your price range.
- Once you Find “The One”, Move Quickly. In a fast paced market, waiting to put an offer on a home could decrease your chances of the even having the opportunity to submit an offer before another buyer does. Take heed, if you are having second thoughts about a home and don’t feel 100% committed to it, listen to your gut. It might not be the best home for you.
- Submit an Offer that Aligns with the Home’s Current Market Value. Low ball offers in a competitive market will most likely be rejected and most sellers won’t even counter you back. If you want the home submit an offer with respect to your agent’s advice that offers the best chance of the seller accepting or at the least countering you back. Don’t play games on the price and consider what your offer will net the seller. Ask yourself these questions when determining your offer price: “If I lose this house at this price, how will I feel? If I win the house at my maximum offer price, how will I feel?” Set a top price you will pay for a home, based on the market value and your budget and DON’T BUDGE!
- Strengthen your Offer. Consider ways to strengthen your offer if you feel strongly about the home. These could include: paying cash for the property, eliminating appraisal contingencies for cash offers (especially if you are confident of the market value), increase your earnest money amount (the standard in Denver is 1%-3% of the purchase price), consider a closing date that is favorable to the seller, be prepared to pay your own closing costs, work with the seller to find terms that are satisfactory to both parties, don’t ask for a sale contingency unless your home is currently on the market and you are willing to allow the seller to continue to actively market the home to seek other offers.
- Consider an Escalation Clause. This clause allows the purchase price to increase by set increments up to a certain amount (only use in multiple offer situations).
- Provide a Letter to the Seller. This letter may include a bio of you and/or your family and the reasons you feel in love with their home.
If you would like to discuss strategies to succeed in the Denver Real Estate Market, please contact me for a complimentary 1-hour buyer consultation!
Inspired by The Washington Times article “Strategies shift as buyers again face competition” and “5 tips for making an offer on a home during a competitive market” by CJ Brasiel.