It almost sounds like the name of a play: How to succeed in a low-inventory, high-demand home market which is very trying.
While it’s not the name of a Broadway show, the Front Range real estate market can lead to a lot of drama if you are in the search for a home in certain neighborhoods.
“This market has shifted more rapidly than anyone would have predicted,” said Lane Hornung, President, CEO and Co-founder of 8z Real Estate and COhomefinder.com.
With the year-over-year inventory of unsold homes down 42.5 percent and under contracts up almost 20 percent, bidding wars for homes are becoming increasingly common in along the Front Range.
“Whether it is sustainable is debatable,” Hornung said. “But certainly the reality is that in today’s market if you are trying to buy in the sub-$400,000 price range (sub-$600,000 in places like Boulder), there is a high likelihood you are going to run into multiple offers.”
The suddenly shifting market is the subject of this month’s question-and-answer session between Lane and John Rebchook, of InsideRealEstateNews.com
John: While the low inventory is welcome news for sellers, it is a real challenge for buyers. How does a buyer prepare for a shortage of homes and increased competitors?
Lane: First, if you are trying to buy in one of those markets where there is a shortage of homes and a lot of interest, you have to get rid of the mindset that it is still a buyer’s market. Just leave that at the door.
John: Can you elaborate on that a bit?
Lane: If you are in an area that is a seller’s market, you have to dispense with the notion that you are going to be able to buy a home for 85 or 90 percent of the list price. Ultimately, that mindset will hurt no one but you.
John: It’s a sea-change from not that long ago when a buyer could take their time and look at 30 or 40 homes and feel no sense of urgency, isn’t it?
Lane: It is a tough time to be a buyer. This is a market that has changed so quickly that it has even taken professionals by surprise. If we get some more supply, we could end up with a market a bit more in balance. But you have to be prepared with the realities of today’s market.
John: How fast does a serious buyer need to move on a home?
Lane: Very fast. You need to be prepared to come in quickly. In many cases that means the very same day. Realtors are watching the inventory to see what is new and when you get that phone call from your agent, you have got to be ready to act.
John: If you need to pull out your checkbook on the spot, it sounds like buyers needs to be prepared even before they walk into the home.
Lane: Absolutely. You need to be pre-qualified for a loan before you start looking. That means you must have provided a lender with your work history, pay stubs and other documentation that is required to get a loan.
John: Let’s say you offer the full asking price and that is not enough. How do you decide if you want to get in a bidding war?
Lane: It may not be a pure financial calculation. It depends on how badly you want the home. You obviously don’t want to over-pay and have your basis way too high. But for some people, if the house really meets their needs and their finances, for very rational reasons they could be willing to pay a little more.
John: Is there a danger of getting carried away and bidding too much?
Lane: Yes. Talk to your Realtor to find out what he or she thinks is the fair-market value. Part of the Realtor’s job is to be objective and keep you from being carried away by emotion.
John: Any favorite tip for a buyer in a bidding war?
Lane: I always liked to have a buyer write down two numbers. The first: What do you want to pay? The second is what you are willing to pay. It’s not that you can’t scratch the number out and replace it with a higher one, but it always seems to help to have the numbers on a piece of paper before you get into the frenzy of negotiating.
John: What if you find yourself on the losing end of a bidding war?
Lane: At the end of the day, there is always more than one house that will typically work for most buyers. For most buyers, there are many houses that will meet their needs. It might just be a matter of time. You might need to wait another three months before you find the right home.
John: It must be hard if you have lost out on multiple offers for homes.
Lane: It is very taxing on buyers. Some buyers have bid on five homes and have lost five times. That is very stressful. Some people might need to take a bit of a breather before wading back into the market.
John: Lane, while most the stress in today’s market is on the buyer’s side, can you touch briefly on what it means for a seller pricing her home today?
Lane: First, you can’t count on a bidding war. The Denver/Boulder market, for example, is not anywhere near the frenzied market in the San Francisco Bay area during the peak, when you knew your price was going to get bid up.nThat said, a good Realtor can help you price your home correctly.
John: What will the Realtor bring to the table?
Lane: A Realtor will be able to tell you if you have very much competition in your area. You want to price it for today’s market and maybe in some sizzling markets maybe even a little ahead of the market. If well over 50 percent of the homes in your area are under contract, you might want to price it a little more aggressively.
John: But even in today’s improving market, you don’t want to ask for a ridiculously high price do you?
Lane: There is still a real risk of over-pricing. If you over-price your home and it becomes a stale listing, you can miss your shot at the spotlight.
John: Thanks Lane.
A monthly conversation between Lane Hornung and John Rebchook is a feature of InsideRealEstateNews.com. Hornung is President, CEO and C0-founder of 8z Real Estate, a sponsor of InsideRealEstateNews.com. For more about Lane Hornung and 8z Real Estate, please visit this link.