Why Aren’t More Homes Going on the MLS Amid This Record Shortage of Listings?  

This January, only 3,237 non-builder homes were entered for sale on the Denver MLS within 25 miles of downtown Denver, the lowest number of new resale listings in that area for any January in at least 10 years. That’s a big drop from January of 2020 (pre-pandemic), which saw 4,171 new listings of non-builder homes for sale.

I find these statistics surprising, given what an ideal time it is to sell one’s home. We’ve had a seller’s market throughout the pandemic, but this month it became a sellers market on steroids, partly because of the Marshall Fire, which destroyed over 1,000 homes, putting even more pressure on the limited supply of homes for rent and for sale.

Of January’s 3,237 new listings, 2,611 went under contract before month’s end, and the median time on market before they went under contract was a mere 4 days. Only 214 (8.2%) of them were active more than a week before going under contract.

Of those listings which went under contract before the month’s end, 284 of them closed in January, 227 selling for more than the listing price, with the median listing selling for 5.2% over listing.  More than 1 in 9 sold for at least 15% over the listing price. Obviously, most of the homes that went under contract were the subject of bidding wars, and the thing to remember about a bidding war is that there are losers — many losers who are still in the market, possibly interested in your home. Except for the small number who get totally discouraged and quit looking, they are still on the lookout for a home to buy.

Any new listing, if priced appropriately, should sell quickly and, frankly, for more than it will appraise for — but appraising is not generally a problem because, as we all know, a home is worth what a willing buyer will pay. We’re not seeing problems with homes appraising, especially when the listing agent can show the appraiser multiple arm’s length offers for close to the same price.

Even so, it is common practice now for winning bidders to waive appraisal objection, meaning they agree to bring additional cash to the closing if their lender won’t lend them the contracted amount because of a low appraisal.

Buyers are incentivized to purchase now more than they were last year (or even last month), because it’s quite clear that mortgage interest rates, which have hovered around 3% for a year or longer, have started rising. By the end of 2022, we may see interest rates for mortgages in the 4% range. On a $500,000 loan, a 1% higher interest rate equates to an additional $417 per month on your mortgage payment. That’s a strong incentive to buy now.

With the ranks of buyers swelling because of these and other factors, why aren’t homeowners putting their homes on the market?

The number one reason I encounter is that would-be sellers dread being a buyer in this market. Being a buyer is very frustrating, and although sellers know they will be able to sell quickly, they worry about being able to buy a replacement home. They understandably don’t want to end up homeless.

This problem is mitigated when a seller can make an offer that is not contingent on the sale of their current home, something that might be more possible than you think.

For example, if you have a lot of equity in your current home — say, for example, you owe $50,000 on your existing home, but it’s worth $700,000 — you can probably get a credit union to give you a Home Equity Line of Credit (HELOC) for 80% of your equity minus what you owe. In the above example, that would be about $500,000. 

The nice thing about a HELOC vs. a regular mortgage is that you don’t pay any interest until you draw on that line of credit, such as at the closing on the home you’re buying. Then you put your current home on the market, sell it quickly, and pay off the HELOC at closing, having paid as little as one month’s interest on that $500,000 loan.

I like credit unions because they are non-profit member organizations, and the closing costs are typically less than with other lenders. If the line of credit is small enough — say, 50% of your equity — credit unions have been known to waive a full appraisal, saving you several hundred dollars.

If you have a lot of money tied up in stocks that you don’t want to sell, you can borrow against them, then pay off the borrowed amount when you sell your current home.

If you have a large balance in an IRA, you can withdraw money from it and not pay any penalty for early withdrawal if you re-deposit the withdrawn amount within 60 days, which is possible since you’ll be selling your current home within that time period.

Another highly effective approach is to sell your home requiring a 60-day closing and a 60-day free rent-back, which gives you 120 days after going under contract to find and close on a replacement home as a cash buyer (if you’ll be netting enough from the sale).  You could also make the penalty for overstaying the free rent-back period be a reasonable rental amount such as $100 to $150 per day.  The seller still has the ability to evict you but may be open to this arrangement as long as you’re making a good faith effort to buy and move.

Sometimes a would-be seller tells me that they don’t want to buy while prices are so high. I point out that if you are selling and buying in the same market, it doesn’t matter what prices are, because you benefit in the same way on the sale of your current home.  The same applies in a depressed market.  Don’t want to sell because you won’t get what you’d like for your current home? If you’re buying in the same market, you won’t pay as much for your replacement home.

My broker associates and I are happy to arrange an in-person or phone conversation with you about selling your current home and/or buying a replacement home. Our phone numbers are below.

Jim Smith, Broker/Owner, 303-525-1851

Broker Associates:

Jim Swanson, 303-929-2727

Chuck Brown, 303-885-7855

David Dlugasch, 303-908-4835

Ty Scrable, 720-281-6783

Anapaula Schock, 303-917-1749

What Are the Implications When a Buyer Waives Appraisal in a Bidding War?

Real_Estate_Today_bylineWhen a home is priced at or below its likely selling price based on recent sales of comparable homes, there’s a good chance in this seller’s market that multiple offers could bid it up, possibly above the value an appraiser might give it. So what happens then?

Fortunately, I can report that the homes I have sold above the value suggested by comparable sales have not, as a rule, had trouble appraising for the contract price. Showing the appraiser the multiple offers that were received can demonstrate real-world market value. Without seeing those competing offers, the appraiser might determine that the buyer paid more than they should have. The presence of multiple, nearly equal offers gives appraisers an important tool for justifying value in our rising market.

Whenever a purchase is financed by a lender, there will be an appraisal. Lenders require them to make sure they’re not lending based on an overstated valuation. That doesn’t mean that the buyer can’t waive appraisal objection and bring additional funds to cover the discrepancy between appraised value and contract price. The contract may or may not specify a limit to the size of discrepancy the buyer will cover. Regardless, it is important for the seller’s agent to ascertain that the buyer is able to bring that additional cash to the closing table.

If the buyer is borrowing 95% or more of the purchase price, one might ask whether bringing several thousand extra dollars to the closing table is possible. This is where it is advisable for the listing agent to interview the buyer’s lender — something we do regardless of the size of the down payment. Typically, a buyer who is putting down 20% or more of the purchase price is more likely to have available cash to cover an appraisal discrepancy.

With Golden Real Estate’s auction approach, which maximizes the purchase price for our sellers, it is not unusual for the final price to be well above what comparable sales might support.  And because one can never be certain that the appraiser will be impressed enough by the existence of those other competing offers to justify the contract price, it’s a good idea to ask that buyers cover some or all of any appraisal discrepancy and that they provide evidence of their ability to bring extra funds to closing for that purpose.

Few buyers start out offering to waive appraisal, but once the bidding enters a range that is considerably above an appraisal based solely on recent sales of comparable homes, the listing agent can and should encourage waiving of the appraisal objection by the highest bidders.

One should remember, however, that an offer to waive appraisal objection is not iron clad when a lender is involved, because the buyer can still terminate based on loan objection if the appraisal ordered by the lender comes in too low for the buyer’s comfort. I’ve witnessed the scenario where a buyer who has agreed to waive appraisal objection still threatens to terminate because of the low appraisal, at which point the seller offers to lower the price to keep the contract from falling (assuming he doesn’t have a backup contract).

This is not unlike when a buyer agrees to purchase a home “as is” and use the inspection deadline only to terminate, not to demand any repairs. That can be a hollow promise.  If, for example, the buyer decides to terminate because the furnace needs to be replaced, the seller is likely to say, “Wait! I’ll replace the furnace!” Why?  Because the seller now knows the furnace needs to be replaced and would have to disclose that fact to the next buyer. Indeed, when I’m representing a buyer in what appears to be a bidding war, I will suggest making our offer “as is” while advising the buyer that it doesn’t mean we can’t get serious items repaired. The only time this doesn’t work is when the seller has received a backup contract that’s more attractive than ours. I point out to my buyer that the seller might be happy to have him or her terminate so that back-up offer can become the primary contract.

These two areas — appraisal and inspection — require deft skill in order to navigate the negotiation process effectively — a good reason to employ an experienced listing agent like one of us at Golden Real Estate instead of trying the for-sale-by-owner (FSBO) approach. A good listing broker can definitely justify his or her commission both in getting a higher selling price and saving money through effective negotiation.