How To Navigate A Seller’s Market When Buying Real Estate In Denver
Property values go up and down based on countless factors. Factors such as nearby amenities, future construction, the neighborhood’s location, criminal activity, and more can all affect home prices. However, these factors are easy to trace and, in many cases, to predict. What can be a little more challenging to deal with when buying real estate in Denver is if you’re in a seller’s market. A seller’s market will cause home prices to go up, making it more difficult to not only find the ideal property priced within your budget but to have your bid accepted as well. Fortunately, there are ways to navigate a seller’s market in Denver, Colorado, successfully.
What Is A Seller’s Market?
There are two types of real estate markets — a seller’s market and a buyer’s market. When the housing market is a seller’s market, sellers have the upper hand over buyers. When it’s a buyer’s market, the buyer has the upper hand. As a homebuyer, navigating a seller’s market can be tricky since sellers have more options. In such a market, sellers often do not have to settle for anything lower than their asking price, and they have more leverage negotiating from the seller’s position. In a buyer’s market, the buyer has more negotiating power, making it easier to get an accepted offer below the asking price.
What Factors Contribute To A Seller’s Market?
Two main factors contribute to a seller’s market. The first is that there’s a limited housing supply within the area. The second is that more homebuyers are looking for real estate in that area than there are sellers. A seller’s market is established when the buyers outnumber the sellers. This greater demand for a smaller supply means that sellers will often have multiple bidders on their property, giving them their negotiating power.
Is It A Seller’s Market In Denver?
Despite the worldwide COVID-19 pandemic, Denver is actually in great shape as far as the real estate market goes. The median price of a single-family home was as high as $464,000 in August, which was an all-time high. On top of that, almost 6,000 homes were sold in August, the highest number of homes sold in August ever in the Denver area. These numbers speak to the high demand for Denver real estate. In addition to the significant number of buyers looking to purchase real estate in the Denver area, a limited supply of homes for sale is also contributing to a seller’s market. In that same month, there were only 5,496 active listings, which is 41.22 percent less than the number of listings that were active in August a year prior.
Many professionals believe that the pandemic could be the reason behind the seller’s market. There are fewer listings because homeowners aren’t looking to uproot their lives in the middle of the pandemic. They want to retain what little stability they currently have. On the other hand, there are more buyers because more people are ready to introduce more stability to their lives. Many Denver residents may have also transitioned to a work-from-home environment and need more space than their apartment affords them. Finally, the ability to work from home could attract more people to the Denver area — people living in more expensive cities before the pandemic, such as LA or New York.
9 Tips For Buying A Home In A Seller’s Market
Now that you have a better understanding of what a seller’s market is, be aware that buying real estate in Denver may not be the most straightforward goal in the current market. Here are nine tips that can help you successfully bid on your dream home in Denver:
1. Be Capable Of Compromising Your Needs
All homebuyers have a laundry list of features that they want their perfect home to have. Consider revisiting that list and separate everything into columns of “needs” and “wants.” Number them by priority as well. You will soon realize that finding real estate that meets every one of your wants and needs within your budget will be a real challenge (unless you have a significant budget to work with). You may need to be able to compromise. You may have to give up a few of your “wants” to ensure that you end up with a house that fulfills your most pressing “needs.”
2. Submit Your Bid Quickly
We understand that buying a house is an enormous investment. For many people, purchasing real estate is the biggest investment they will ever make. Take some time to decide whether a particular house is the right one for you. Unfortunately, time is not on your side when it’s a seller’s market. The longer you wait to make an offer, the greater the chance is that another buyer will come along and beat you to the punch. If you find a house you like, submit a bid as quickly as possible to avoid losing out to another bid or finding yourself in a bidding war with another buyer.
3. Don’t Lowball The Seller
Remember, you have very little negotiating power in a seller’s market. If a seller doesn’t like your bid, they know that they won’t have to wait very long for another buyer to come along. If you submit an offer that’s way below their asking price, they’ll reject it without giving it a thought. Not only could you lose out to another bid if you do this, but you could risk offending the seller. If you offend the seller and you end up in a bidding war with another buyer, the seller will be more willing to accept the other buyer’s bid even if your offer ends up being slightly better in the end. With that in mind, never lowball the seller in a seller’s market.
4. Submit Your Best Offer Upfront
Usually, you would make a slightly lower offer to give yourself some room to negotiate. However, in the time it takes the seller to consider the offer, reject it, and for you to make another offer, another buyer may have come along. And that’s if the seller doesn’t already have multiple offers on the table, in which case they will pick the best one, eliminating your chance to counter. For the best chances of having your offer accepted right away before another buyer makes a competing bid, submit your best offer upfront.
5. Prove That Your Finances Are In Order
When a seller receives multiple bids, they will often look at the strength of the offers, not only in terms of the numbers but also the likelihood that the buyer can pay the amount that they offered. If you can prove that you can pay the amount you’ve bid, you’ll have a leg up on any competing buyer who cannot prove that they’re financially capable of backing up their bid.
The last thing a seller wants to do is choose an offer that falls through at the end, at which point they’ve not only wasted a significant amount of time, but they’ve also lost the offer made by the other buyer, who will likely have moved. Use these tips to prove to a seller that your finances are in order and that you’re capable of paying for the amount you’ve bid:
Get Pre-Qualified For A Mortgage
One of the biggest nightmare scenarios for both buyers and sellers is if the buyer makes an offer and their loan request is rejected, causing the deal to fall apart. To prevent this from happening, get pre-qualified for a mortgage. With a mortgage pre-qualification in hand, you show the seller that you will qualify for a mortgage, eliminating any concerns of the deal not going through because the bidder could not secure a loan.
Pay In Cash
Cash is king. Paying entirely in cash is a significant advantage. It means that the seller can receive payment right away and won’t have to wait for loan approvals to come through or for money to be wired. Show them a bank statement, and they’ll know you’re good for it on the spot. In many cases, a seller will prefer a cash offer over a higher offer from someone who hasn’t been pre-approved or pre-qualified.
Make A Large Earnest Money Deposit
The earnest money deposit is the money you put down upfront for the cost of the house. It’s usually between one and three percent of the asking price. It shows the seller that you’re serious about the purchase. However, you can make a larger earnest money deposit to convince the seller further. It shows you have the financial capability to purchase the house. The bigger your earnest money deposit is, the less concerned they will be about the deal falling through at the end.
6. Add An Escalation Clause
An escalation clause can give you the chance to counter any competing offers right away. Essentially, it’s an offer that states your initial bid with the caveat that you’re willing to increase your offer should a competing bid come along that’s higher. You can name the increments you’re willing to increase by, as well as the maximum amount you’re ready to offer. Adding an escalation clause gives you a better chance of coming out on top against any competing buyers. However, not all sellers are willing to accept escalation clauses because they want to obtain the buyer’s best offer upfront.
7. Agree To Terms That Benefit The Seller
The best offer isn’t always the offer with the highest bid. A contract contains countless terms that both the buyer and seller must agree to, such as the move-in date. Some buyers may be looking to move in right away; however, if you know that the seller needs time to arrange their next living situation, you can offer a flexible move-in date. By agreeing to terms that are more beneficial to the seller, you may convince them to accept your bid, even if it’s slightly below the highest offer they’ve received.
8. Submit A Letter To The Seller
For the most part, sellers are looking at numbers and terms when looking over all of their offers. If they have multiple bids, choosing the best one is rarely that difficult; however, you can make it more difficult by sending them a personal letter. Tell the seller a little bit about yourself and why you want to buy the house. By doing this, you force them to consider the human element. When there’s an emotional connection with a bidder, it can strengthen their bid. For instance, if the seller compares two similar bids, they may choose the offer from the bidder they know something about — even if the offer is slightly lower.
9. Work With A Professional Real Estate Service
A professional real estate service’s experience and expertise cannot be underestimated, especially in a seller’s market. Local real estate agents have extensive networks that they can lean on to help you find fairly valued properties and meet your needs. You’ll waste less time looking at homes that don’t fit your needs, and you’ll be less likely to miss out on properties that do because other buyers got to them first.
A reputable real estate agent will also be able to identify properties that are about to be listed but haven’t been yet, thereby allowing you to get a foot in the door before everyone else. Agencies can do this because they have connections with other agents who are representing sellers across town. Finally, the right agency can provide you with guidance when submitting a strong initial bid.
Buying Real Estate In Denver’s Seller’s Market Can Be Challenging…
If you’re planning on buying a home in Denver, Colorado, successfully navigating the current seller’s market can be quite challenging. Competition for any given property in Denver is likely to be fierce, so you won’t have a lot of negotiating power; however, there are things that you can do to make your offer stand out from competing homebuyers. Use our tips for buying a home in a seller’s market to improve your chances of making a successful bid on your dream home.