Watch a video at the end of this blog from a prospective buyer who was out-bid for a Denver home. And vote in a poll on whether you could imagine getting in a bidding war for a home.
Kim Duty and her husband, Steve, three years ago moved to Denver from the Washington, D.C. area, arguably the hottest real estate market in the country. At first, they were in no hurry to buy. And as a vice president of communications for the National Multi Housing Council – a trade group that represents apartment owners, managers, developers lenders and service providers – she knows better than most people all of the arguments for renting instead of buying.
But she also knew where rents were going – up – and since they really like Denver and wanted to put down roots, they decided it was time to sign on the dotted line.
“Ironically, the first home we bid on, we lost in a bidding war,” Duty said, adding that is the type of thing one would expect in the market they moved from, not in Denver, where sales activity remains soft by historical standards.
Market-rate bidding battles
And they weren’t out-bid for a foreclosure or a short sale, in which the lender accepts less than the mortgage amount.
She and her husband lost to a cash buyer who agreed to pay $400,000 for a home on West Highland that had been listed at $399,000. Duty was willing to go above $400,00 but the listing broker, Thomas Meyer of Cherry Creek Properties, advised the seller to take the cash, even though Duty and her husband were planning to put down more than 20 percent. The seller had bought the home in 2009 for $360,000, according to public records.
Duty said she thinks part of the reason they were out-bid for the home on Raleigh Street, just south of the trendy West 32nd Avenue, is because it is such a walk-able neighborhood.
And she and her husband competed for the home with their eyes wide open, as they had thoroughly scoped out what was available in the urban areas that had restaurants and retailers that they could walk to from their front door. Lydia Lin, their broker, showed them 23 homes in one day, “a new record for her,” Duty said.
Market recovery sign?
“I think what happened on Raleigh Street is a good indicator that the market is starting to come back,” said Lin, owner and founder of One Realty,
Lin, and other brokers, said bidding wars are springing up in other neighborhoods, as well. “I’m seeing bidding wars in Highland, Hilltop, Lone Tree,” Lin said.
Although the overall Denver-area housing market is soft, Realtors are reporting a surprising number of bidding wars springing up. In the first four months of the year, 15,160 homes have been placed under contract in the Denver area, a 26.5 percent drop from the 20,627 through April of 2010. And the number of closings dropped 12.4 percent to 11,023 from 12,579, according to a Metrolist report released on Monday.
Multiple bids for the same property are so scattered at this point, that they might be better categorized as skirmishes rather than as all-out wars. But that they are occurring at all seems to defy all of the doom-and-gloom in the data and media.
Lin said this is the first time since founding One Realty in 2006 – the peak of the market – that she has experienced this phenomenon.
Time to get off the fence
Reasons for bidding wars include:
- Fears that mortgage rates, hovering near historic low, are sure to rise.
- Home prices remain affordable and many sellers are willing to deal, especially with competition from so many distressed properties.
- A feeling that the market is closer to the bottom of the cycle, and while homes may not be appreciating, they are not dropping in value either.
- The rental market is booming with no end in sight, making homeownership a better long-term bet.
While all of these are important ingredients fueling an increasing number of multiple offers, Lin said the recipe for a bidding war has another element. “I think part of it is that they want to get off the fence,” Lin said. “They are tired of being on the sidelines.”
Bids still lower than asking price
Deviree Vallejo, a broker with Kentwood City Properties, said she is starting to see bidding wars on market-value properties again, but often the bids are still coming below the asking price. Also, several prospective buyers have folded their cards, rather than raising the ante in what can be a high-stakes poker game. Vallejo said she has had several instances in which buyers walk away, rather than trying to out-bid somebody else.
“I suppose they think with so much inventory out there, they shouldn’t have to be in that situation,” Vallejo said.
Cash offers sidestep appraisals
Along with bidding wars, she is seeing more cash offers, which removes the worry of the home not appraising at the bid price. “As a listing broker, you always want to take the cash offer, even if it is lower, to avoid the absurd appraisal market of late,” she said.
Indeed, she recently received three offers for a home she was listing near Sloan’s Lake, and took the second highest officer.
“I think sellers are starting to realize that at the end of the day, it is about getting the deal closed, rather than always taking the highest offer,” Vallejo said.
Tom Cryer, a broker with the Kentwood Co., said he has seen bidding wars on properties up to $500,000.
Sign of a rising market
Competing bids historically have indicted a change in the market, he said. “In my experience, in almost every instance when a new price paradigm was reached, multiple offers occurred,” Cryer said. “I see this almost daily when working with both buyers and sellers.”
Lane Hornung, president, CEO and co-founder of 8z Real Estate and COhomefinder.com, said while he is seeing bidding wars “all across the Front Range,” it is too early to say they are a sign that the market has turned the corner.
“As far as saying thing about the overall market, it is too early to extrapolate,” Hornung said. “This is a market of fits and starts. And these multiple offers, these little cauldrons of activities, are the starts, but there are plenty of fits, too.”
Still, he said bidding wars are erupting not “just in marquee neighborhoods,” in Denver and in Boulder, but in areas that have surprised some prospective buyers.
Tale of two markets
“We really have a bifurcated inventory,” Hornung said. “We have this inventory out there that is over-priced and does not show well. It is incredibly stagnant. And we have these new listings that are flowing into the market and they are in great shape, any flaws have been corrected, and they are priced appropriately. Those are flying off the shelf.”
Sometimes that can cause sticker shock with buyers who thinks every home is a steal.
“Buyers come into this market and they’ve read all the reports in the newspaper about what a bad market this is,” Hornung said. “They offer “X” percent below the asking price, whether it is 10 percent or 20 percent or whatever. And if they are relocating from a bubble market like Phoenix, they’re offering 40 percent below, because that is what you do in those markets.”
But after being out-bid two or three times, they will:
- Offer more for the home they really want that meets their needs.
- Settle for a home in a geographic area where they face less competition.
- Take themselves out of the game and wait, hoping for prices to drop
Duty, for her part, took the first route.
She and her husband offered close to the asking price for a three-story townhome on Lowell Boulevard, two days after it hit the market. The home they are buying is an easy walk from the one they lost.
“I think they were surprised it sold so fast,” Duty said. “We jumped on it before we ended up in a bidding war with another couple.”
To see what other homes are for sale in the West Highland area, please visit this COhomefinder.com link.