We’ve all heard some crazy examples of bidding wars in which homes have sold for way over their listing prices, so I took a snapshot of just one day’s closings, limited to a 15-mile radius of downtown Denver. That takes in an area from Broomfield to Highlands Ranch and from Golden to Aurora. It does not include the City of Boulder.
The day I chose was last Friday. The source was REcolorado.com.
I limited my search to homes, condos and townhouses that were on the MLS at least one day and no more than 6 days before going under contract. Those are the listings that experienced bidding wars. I divided the results into homes which sold up to $500,000 and those that sold for more than that.
On April 16th there were 48 closings up to $500,000. The median home sold for 4.7% over its asking price. It was a tri-level home in Aurora listed at $420,000 which sold in 3 days for $440,000. Only 3 homes sold for the listing price and 2 sold for less. The highest ratio was 25.8% for a home in Aurora that sold in 1 day.
There were 68 homes that closed on April 16th for more than $500,000. The median home in that group sold for 8.3% over its listing price. It was a 1950 ranch in Denver’s North Hilltop neighborhood listed for $600,000 that sold in 3 days for $650,000. The highest overbid in this group was 18.8% for a 2-story home in Westminster listed for $425,000 that sold in 5 days for $505,000. Only 5 sold for the listing price and 4 sold for less.
To get a statistically meaningful number of closings over $1 million, I looked at 68 such closings from April 1-16. The median ratio was 4.3% over listing price. The highest was for a 1954 bungalow in Denver which was listed at $965,000 and sold for $1,205,000, 24.9% over listing.
Note: These statistics reflect the bidding wars that were taking place during late March, when most of these listings went under contract. Today’s bidding wars appear to be even more intense. Stay tuned!
I have written before that 4 days on the MLS is the right amount of time to get the highest price for your home. That was based on an analysis I did several years ago, so it’s time to do a new analysis.
Looking at the 4,015 most recent sales in Jefferson County, here’s what I discovered.
Roughly 5% of those sales showed zero days on the MLS, meaning that they weren’t even exposed to agents or the public until they were under contract. The median ratio of sold price to listing price for them was 100%. Some sold for over the listing price and some for less, but the median was the listing price.
Meanwhile, 200 homes went under contract after being on the MLS only 1 day. The median home for this group sold for 3.03% over its listing price.
There were 379 homes that were active on the MLS for 2 days before going under contract. The median home in that group sold for 3.08% overits listing price.
502 homes went under contract after 3 days on the MLS. The median home in that group sold for 3.3% overits listing price.
The highest number of homes, 608, were active on the MLS for 4 days before going under contract. The median home in that group sold for 3.6% over its listing price.
As in my prior analysis, being on the MLS for 4 days netted the highest price for the seller.
413 homes went under contract after 5 days on the MLS. The median home is that group sold for 3.3% overits listing price.
Another 206 homes went under contract after 6 days on the MLS, but the median home in that group sold for just 1.6% overlisting price.
Skipping ahead to the homes that were on the MLS for 10 days before going under contract, the median home in that group sold for 0.4% belowthe listing price.
Those statistics are displayed graphically on the chart above. Not shown in that chart is how low the ratio of sold price to listing price went for homes that languished on the market, usually because they were overpriced at the beginning. Here’s that other data:
223 homes were active on the MLS for 30 to 45 days before going under contract, and the median home in that group sold for 3.8% below the listing price. Looking at the 106 homes that were active on the MLS for 46 to 60 days, the median home in that group sold for 4.3% below listing price.
Lastly, 285 homes were active on the MLS for over two months. The median home in that group sold for 5.7% below the listing price.
The lesson for sellers is that you need to price your home to attract multiple offers and not accept the first (or second) good offer that you receive. Four days is the right amount of time, with proper marketing, for all potential buyers to learn about your home and enter the competition for it.
Selling it without making it active on the MLS at all, as too many sellers are currently doing, may be convenient, but it likely leaves money on the table.
There’s another way that sellers leave money on the table, and that is to hire a listing agent who uses the “highest and best” approach to handling multiple offers. It is the most common method used, but the agents of Golden Real Estate use a better approach — being open and transparent, handling bids auction-style.
The auction style of handling multiple offers is simple, but it does require more work by the agent and more patience on the part of the seller. Buyers and their agents appreciate this approach — and sellers are likely to net more money.
I have a good example from last week. I listed a home for $595,000 and got it under contract for $725,000, and I did it with only four bidders. If I had asked for “highest and best,” I would have had many more offers, and maybe the highest and best would have been $625,000 or maybe $650,000. But because I let every agent know the details of every offer I received, I received fewer offers, and those I did receive knew when their offer was exceeded by another offer. At that point they could either resubmit or drop out.
This process truly resembles a public auction, in which everyone knows where they stand and can choose to raise their bid or drop out. No one is blindsided. The worst thing for a buyer is to discover later that if they had only offered a little more money they could have purchased the home they wanted.
It’s hard for me to understand why listing agents won’t reveal their highest offer to other agents. There is no rule against it, but some agents seem to think there is. Some agents claim that their seller doesn’t want them to reveal details of the offers in hand, but I don’t believe that. And if it’s true, then the seller wasn’t told about the advantages of the auction style of managing offers.
If you want to get the most money for your home, use an agent like those of us at Golden Real Estate who are willing to do the extra work of handling multiple offers auction-style.
Sellers love bidding wars. Buyers not so much. If you’re a buyer and want to avoid a bidding war, simply ask one of our agents (below) to set up an MLS alert including this criterion: Days in MLS >9. As I write this, there are 1,021 listings that have been active on REcolorado 1 to 9 days on MLS, but 4,044 that have been active over 9 days. A listing that has been on the MLS 10 days or longer is far less likely to have multiple offers (unless it just posted a big price drop).
When homes sell this easily (if priced right), you might think you don’t need to use a listing agent, but think again.
Take this example. I listed a home last week for what it was worth based on comparable sales, but it attracted 50 showings and 11 offers and I played the offers against each other to get $30,500 over the listing price, waiving appraisal.
If the owner had tried to sell it herself, fewer buyers would know about the home because it wouldn’t be on the MLS and countless other websites. And how could she have handled those 50 showings without our showing service, which is only available to licensed agents? And what about handling those 11 offers which come in using a software package used by virtually all agents, not available to sellers? It would be rather awkward, don’t you think, to conduct the bidding war and end up with as good a result?
Much to the consternation of observers, the real estate market in metro Denver was hotter this August than it was in any previous August, according to the Market Trends Committee of the Denver Metro Association of Realtors (DMAR). At this rate, 2020’s statistics at year end will likely exceed 2019’s statistics.
The report covers an expanded metro area, including 11 counties instead of the 7 urban and suburban counties that you and I think of as “metro Denver.” The non-urban counties included in the report are Clear Creek, Gilpin, Elbert and Park.
Detachedsingle-family homes sold like crazy in August—up over 6% from August 2019, despite 50% fewer active listings at month’s end. The average sold price was up 13.8% from last year, and average days on market was down 23%.
Attachedhomes sold on a par with last year, although their inventory was also down — 19% fewer listings at month’s end. They did sell quicker, though, with days on market down by over 27%.
Unlike DMAR, I like to define the metro Denver market as within a 25-mile radius of the state capitol, as shown here, instead of by county. Using that method, the number of detached homes sold this August was up 13.7% from August 2019, and the sold price per finished square foot (my preferred metric) was up 7.0%. Average days on market dropped by 31%, but median days on market plunged 57% from 14 days in August 2019 to 6 days this year.
Even more interesting to me is that median days on market was in double digits until March 2020 — the first month of Covid-19 lockdown — when it dropped by 40% to 6 days, and remained in the 5- to 7-day range through August. It could be said that “Stay at Home” and “Safer at Home” really meant “Buy a Home” in the real estate business!
Average sold price within that 25-mile radius rose by 13.4% to $597,290, while median sold price rose by 11.6% to $505,000. The gap between average and median is attributable to a large number of million and multi-million dollar closings. I wish others would stop focusing on average stats for that reason.
The number of active listings (what we call “inventory”) plummeted from 6,483 in August 2019 to 3,444 in August 2020, a 47% decline.
Another measure of market strength is how many listings expire without selling. That number was 777 in August 2019, but it fell by 37% to 493 this year.
The average ratio of sold price to listing price was 100% both last August and this August — suggesting that roughly half the listings sold above full price. With half the homes selling in 6 days or less, it’s to be expected that there were multiple offers and possibly a bidding war on many listings.
This week my downtown Golden fixer-upper closed at $665,000, which was $40,000 over listing price. My Lakewood listing from last week is already under contract at $55,000 over full price. Clearly, the seller’s market is still hot despite the pandemic.
If you have considered selling your home, there couldn’t be a better time than now to put your home on the market. And you couldn’t do better than call one of us listed below to talk about it. Your home would, of course, be featured in my weekly Denver Post column and on this blog.
If you let us represent you in the purchase of your replacement home, the listing commission could be as low as 3.6% and qualify you for totally free moving!
In today’s seller’s market, it is common for a new listing to attract multiple offers. There are three ways for a listing agent to deal with competing offers. Above all, it is important that the method chosen is in the seller’s interest, since that’s the listing agent’s legal obligation.
The first approach, of course, is to do nothing — not advise buyers that you have multiple offers and simply accept the best one. This approach, however, assures that the seller won’t get the most money he or she could get for their home.
The more common approach is to inform buyer agents that there are multiple offers and instruct them to submit their “highest and best” offer by a particular deadline. Sometimes the listing agent will add that the seller “reserves the right to sell the home prior to that deadline.”
When I’m functioning as the buyer’s agent, I dislike that approach. Why? Because it could inspire my client, shooting in the dark, to offer more than he needs to in order to win the bidding war, but, worse, we could learn later that my buyer could have won the bidding war if he or she had only offered a little bit more.
HighGate Investment Properties
The third approach is our approach at Golden Real Estate — to function like an auctioneer. If you’ve been to an auction, you know how it works. Everyone knows what the highest bid is, and no one is blindsided. As I explain to buyers and agents, “The only way you will lose out is if you drop out.” They universally appreciate this approach.
Using this approach, I got my 6th Avenue West listing featured in last week’s column under contract for $41,000 over the listing price. It’s unlikely that asking for “highest and best” would have produced an offer for that amount. The winning bidder’s agent had submitted a full-price offer initially, but, being updated on competing offers, she won the bidding war with her third submission. The other agents had the opportunity to win the bidding war, but they chose when to drop out. The result was that the winner was happy, the seller was very happy, and no one was angry or blindsided in the process. Disappointed, yet, but not angry.
In a bidding war on my other new listing, the price was bid up by about $16,000. In that case, the seller chose not to take the highest bidder (but not by much) because that buyer was an investor, and she preferred an owner occupant. That reflects an important point when handling multiple offers: The seller is always in charge.
You’ve got maybe 5 seconds to read the small print…
Nothing has surprised us real estate professionals quite as much as how hot the market has been during the Covid-19 pandemic. Redfin, the brokerage with what I consider misleading TV ads, did an analysis of offers written by their own agents on MLS listings and found that over half of those offers faced competing offers from other agents.
Nationwide, the percentage of Redfin offers facing competition was 53.7% in June, up from 51.8% in May and 44% in April. Boston led the pack with 72.4% of offers facing competition during June, up from 67.2% in May.
The Denver market came in 12th nationally in terms of bidding wars, with 53% of offers facing competition, down from 55.6% in May. Of the top 12 metro areas, only Denver and Portland had lower percentages in June than in May.
For some reason I’ve never understood, most listing agents believe that they should not be open and transparent with buyers’ agents regarding the disclosure of offers in hand when there’s a bidding war for their listing.
At Golden Real Estate, we believe in being open and transparent. Here’s what that looks like.
Rule number one is to always tell the truth. We never mislead a colleague about offers in hand. If we don’t have competing offers, we’ll never represent that we do. This is a matter of ethics. The Realtor Code of Ethics, to which every Realtor swears allegiance, requires no misrepresentation about anything, whether it’s how successful we are or whether we have competing offers.
Agents from other brokerages, however, typically won’t disclose the price or nature of the offers they have for their listings. At Golden Real Estate, we not only disclose the price and terms of offers received, but we will let each agent know if their offer is surpassed by a better offer. We don’t want any buyer or their agent to have the experience of being blindsided.
This is good for both buyer and seller, and buyers’ agents invariably thank me when I explain this policy. After all, how would you as a buyer like to learn later that if you had only offered $2,000 more (which you were willing to do), you would have won that bidding war?
Similarly, how would you as a seller, like to learn that you could have gotten $2,000 more for your house?
Although this process essentially operates like an auction, where everyone in the room knows what they’re bidding against and chooses on their own when to drop out of the bidding, it doesn’t mean that we let the bidding go on forever.
After the buyers have raised their bids twice, it’s time to ask for a final bid, without offering to return if it’s not the winning bid. While this is our policy, the seller, of course, is the final authority on how long to continue the back and forth. By that time, however, they tend to be quite happy with the highest bid and agree to cut it off. To do otherwise risks antagonizing the buyers and their agents.
It’s important to us as professionals that we leave each party in a bidding war happy that we were transparent enough that they felt they had a fair chance to win a coveted listing.
This approach takes more work on our part than doing what other agents typically do when multiple offer situations arise, which is to inform agents that they have multiple offers and ask buyers’ agents to submit their “highest and best.” Then the seller accepts the best offer and other buyers are upset and angry that they weren’t allowed to raise their offer.
We feel, however, that our approach is not only fairer to buyers’ agents but also produces the best price for our sellers. We wish that other listing agents would adopt this practice.
Transparency, however, does not extend to disclosing the price at which a home is under contract prior to closing. The reason for that is that if the contract falls, we don’t want the next buyer to know what the seller was willing to accept. That’s because we have an ethical and legal obligation to work in our seller’s best interest.
The only time I would disclose the price at which one of my listings is under contract is when an appraiser needing comps calls me. If we are cleared to close — past inspection, appraisal and other contingencies — I’m willing to help that appraiser know the price so he can do his or her job in appraising a comparable listing for a different seller.
Thanks to this practice, Golden Real Estate has a better-than-average track record when it comes to closing price vs. listing price. In some cases this has resulted in our sellers netting their full listing price even after subtracting commissions and the other costs of selling.
Call me or one of our broker associates at 303-302-3636 if you like how we operate and would like a no-obligation market analysis of your home.
When 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.
When 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?
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