Buyers face burnout
The housing market is so hot, even bids 20% above asking price sometimes are not enough.
Mark Diaz and Cindy Clark placed bids on three homes this year and lost every time.
With each loss, the couple’s frustration at trying to navigate a housing market that no longer makes sense to them only deepens.
“It is a tough time to be doing this. There were times that Cindy and I thought, “Let’s just take a break and a step back. Let’s take a trip to Mexico instead or buy a truck,’” Diaz said of their hunt for a two-bedroom, twobathroom home with a nice kitchen.
The couple, who live with Clark’s mother, had zeroed in on a condo in Heather Ridge South that they viewed as underpriced at $364,000.
They bid $415,000, a hefty premium — and enough, they thought, to keep them ahead of the competition, Clark said. They still lost.
“We have always come in second or third,” Diaz said. “The market has gone crazy. People have been bidding 20% or 25% over the asking price.”
Van Lewis, a broker associate with RE/MAX Alliance in Aurora who is working with Diaz and Clark, said in his 45 years in the business he has never seen a housing market as manic as this year’s.
Managing the expectations, disappointments and morale of buyers in a market where the odds are hugely stacked against
them has become one of the toughest parts of his job. And unless agents get a buyer into a home, they don’t get paid, raising their frustration level as well.
“It’s nothing short of exhausting,” Lewis said. “Reality dictates going 15% or more (above list) for really good listings, but is the buyer qualified for that?”
Huge hurdles
Buyers face three huge hurdles in the current market, agents said. Although the housing market has been tight for several years in metro Denver, scarcity is at levels never seen before and pushing the median price of homes sold above 20% a year. That is making buyers even more anxious to get in before they get priced out.
Historically, the number of listings on the market at the end of any given month has averaged in the 14,000 to 15,000 range. This year the inventory of monthend listings is running closer to 2,000, according to the Denver Metro Association of Realtors.
For buyers with specific needs, finding something to even bid on can be a huge problem.
Loveland resident Keri Roark has been trying to help her dad, who is 75, and her mom, who is 66, land a place that can accommodate their needs — minimal outdoor maintenance and a ranch-style property without any stairs. Given low interest rates, Roark, who is in the title insurance industry, thought it would be a good time for them to buy their own place after the landlord asked them to leave so he could move in.
She knew the market was tight but didn’t realize how bad things And the experience was a completely new one for her parents, who have bought homes in the past, as well.
On the first home that Roark and her parents bid on, they found themselves one of 25 offers that the seller had to sort through.
“I have never seen a tight market like this where it is such a race to get a property,” Roark said. “We were in the top five, but the top five doesn’t get you the house.”
Another big hurdle is pandemic-related.
To avoid crowding, viewing a home typically requires signing up for specified slots of 30 minutes or in some cases only 15 minutes. But slots are limited, and appointment times can fill up within a few hours, if not faster. Those who fail to get an appointment don’t get to step into the ring.
That has frustrated firsttime buyer Regan Payne more than once. Payne, 27, and her sister, Madison, 24, are buying a home together, in part so they can afford a halfway decent property. They also are getting assistance with the downpayment from their parents.
That means juggling three schedules when it comes to securing a slot.
Payne said she has to check personal emails constantly at work, something she can’t always do, and missing an email by even a few hours has cost her opportunities. She also had had to break away from work for a showing. Her co-workers are understanding, but she finds herself at a competitive disadvantage from the get-go.
“I tell my first-time homebuyers that this is a second job,” said Andrew Abrams, chairman of the DMAR Market Trends Committee and a local Realtor.
Abrams said some listing agents are starting to loosen up a bit, allowing two sets of potential buyers into a home at one time. One group will tour upstairs while the other heads downstairs. But the days of open houses that are truly open still aren’t back yet.
The ability for a home shopper to take in a place, study the details and imagine themselves living there has been greatly diminished with limited appointments, he said.
“It is really hard to live in that moment and get a sense of whether it feels right or not. They might have only six more minutes before we have to move on,” Abrams said.
Bidding wars are the third and most difficult hurdle.
Listing agents try to price homes hitting the market as close as they can to the going rate. But because supply is so limited, potential buyers are bidding homes up 10%, 15% or even 20% above that price. On any given house, the buyer doesn’t know what kind of premium they will have to pay to win or if that will require more than the financial resources they have available.
Payne initially thought she could afford a $500,000 house, but she realized she needed to look at homes only in the $425,000 to $435,000 range, given the premiums above the asking price. When that wasn’t enough, she brought her newly employed sister in as a cobuyer. Likewise, Diaz and Clark have enough to purchase a property in the $425,000 range, but they are having to shop at listings in the mid-$300,000 range and below.
Right off the bat, buyers have a sense that they are getting much less value for the money, which is never satisfying. And the malaise only deepens if they find themselves competing with investors looking for rentals, developers who want a lot to scrape and deep-pocketed newcomers moving in from other states.
Many of those buyers are offering cash, leaving anyone who needs to clear an appraisal and take out a mortgage, especially low downpayment options such as CHFA and FHA, at a huge competitive disadvantage, agents said.
Learning from their earlier losses, the Payne sisters, who have never experienced a balanced market, got more aggressive. They found an 800-square-foot home they liked in the lower Highlands neighborhood that listed for $510,000. They bid $100,000 above that, waived any repair requests after inspection and offered nonrefundable earnest money. That meant if for any reason they had to back out, the seller got to keep the money.
It almost put them on top, until a developer who plans to scrape the property offered $105,000 above list.
“It has been discouraging, especially when you hear it is going to developers. This home could have been so well-loved,” she said. Instead, it went to a buyer who plans to show it the blade of a bulldozer.
Shifting strategies
The highly competitive market is forcing agents and buyers alike to get creative in their approach, which is introducing new strategies, said Kelly Moye, who leads The Kelly Moye Team at Compass Real Estate in Broomfield and is representing the Paynes.
For example, some buyers try to force their offers to the top of the stack by putting a time limit on them. If the deadline for all offers is midnight Sunday, they might write in a clause saying the offer expires at midnight Saturday. While that might appeal to a seller with a price in mind who doesn’t relish sorting through 20 offers and just wants to be done with it, it represents a gutsy play by a party with limited power.
More often than not, it could alienate the seller and backfire, Moye said. But there is another approach, more carrot than stick, that is gaining traction. Buyers are putting in a clause to sweeten their offer if the seller picks it, say adding $25,000 or some other amount.
And buyers are assuming more and more of the risks involved with a sale to a degree not seen before. If the appraisal falls short of the sales price, which is more common given how rapidly prices are rising, the buyer may offer to cover the gap. If the inspection brings up any significant repairs, the buyer will agree to cover those costs rather than pushing them onto the seller, which is what happens in more normal markets. And more buyers are providing sellers with nonrefundable earnest money should the deal fall apart for any reason.
“We are having to adapt and come up with new strategies almost weekly. Two weeks ago nobody was doing nonrefundable earnest money or a seller bonus,” Moye said. “Next week there will be another strategy.”