Metro Denver’s housing market has run hot for nearly a decade now, so nobody would blame it for taking a breather, especially a year into a pandemic. Instead, the frenzied pace has only sped up, shattering all kinds of records, including how much buyers are willing to pay above a seller’s asking price.
Gina Roth, an agent with the New Era Group at Your Castle Real Estate in Denver, experienced just how heated things are getting earlier this month on a listing for a Lakewood home. The property generated 74 showings in under four days and snagged 15 serious offers from buyers, all above the list price of $590,000.
How desperate were buyers? The winning bid came in at $687,000, a premium of $97,000 or 16% above a carefully considered offering price.
“$30,000 over the list price used to be fantastic,” Roth said. “Now it won’t get it done.”
Normally, it is not a given that sellers will even get the asking price. A more typical pattern is that sellers do the best they can to get the initial price right and then come down a bit in price to close a deal, said Steve Danyliw, a member of the Denver Metro Association of Realtors Market Trends Committee and local real estate agent.
“If the market is on the uptick, we can see that number in the 98% and 99% range. If things are going good, we will see 100% or just above it,” he said.
But in March, sellers in metro Denver received, on average, 104.1% of the list price, a new record.
And unlike 2017, during another heated period of activity, it isn’t just homes in the lower price ranges that are getting bid up. Now it is the entire spectrum, including $1 million-plus properties, where sellers hold the upper hand.
“This is as insane a market as we have ever had,” said Lon Welsh, founder of Your Castle Real Estate in Denver. To help agents understand what is going on, his firm compiled a heat map of metro Denver showing what share of sales in the first quarter went for above the asking price.
Of the 13,807 sales in the first quarter examined, 56% sold for above the list price and another 18% at list price. Of the 935 neighborhoods tracked, 158 or 17% had every listing go for above the asking price. Another 150 had between 75% to 99% of homes sell above the initial price.
Granted, many of those areas only had a listing or two come onto the market. But in the Seven Hills neighborhood in Aurora, all 17 listings went for above the list price, selling for an average of $401,000. And in Lakewood’s Friendly Hills West neighborhood, all 13 listings that closed went for above the initial asking price. The average closing price there was $475,000.
In Thornton’s Northhaven neighborhood, which had 53 sales in the first quarter, nearly nine out of 10 sales closed above the list price. Other locations with active sales and the highest share of homes going above the asking price were Founders Village and The Meadows in Castle Rock, Green Valley Ranch in Denver, Southcreek in Englewood and Reunion in Commerce City.
Many first-time buyers struggle to scrape together enough for the downpayment on a house, so a market where bidding wars are heated works against them, making it much tougher for them to land property.
“We are creating a set of haves and have nots,” said Ali Wolf, chief economist with Zonda during a housing market update Wednesday. “People who already own homes are in an OK place. If you are trying to break into the market, it becomes so much harder.”
Roth said many of the buyers she works with are existing homeowners who can roll equity from their current homes into new properties. Even so, she advises them to hold on for at least three to five years, and much longer if they can.
“They know they are overpaying and that it stinks,” she said. “But the hope is the market is going to keep rising and that they can hold onto the property for a while.”
So if buyers are so desperate, why don’t sellers just list for 4% or 5% above what comparable sales in the area would say is justified?
One danger of getting too far ahead of the market is that appraisers won’t support the price, which could cause a lender to reject a loan request, killing off a deal and wasting a seller’s time.
But there’s an answer to that too. Realizing a seller might question and reject an over-the-top bid, more buyers are offering to cover the gap between the offer price and what a mortgage lender thinks a home is worth.
Also, some psychology is at work in not overpricing. In an undersupplied market, pricing something correctly gives it a better chance of generating interest and triggering a bidding war. If more buyers show up, the greater the odds that one will pay above the appraisal price if that is required.
“By pricing accurately, we let the market do its craziness,” Roth said of her Lakewood listing. “We were able to get a buyer willing to do the full appraisal waiver.”
For buyers who can’t swallow the idea of paying above list price, one strategy is to pursue listings that have been priced too high and are lingering. In a market where the average single-family home lists for only two weeks, and where many homes sell over a weekend, sitting out there for a month or more can feel like a rebuke.
“You hear about these houses that get 100 showings, 24 offers and $100,000 above the asking price, but that is the exception to the rule,” Welsh said. “The typical transaction will get three of four offers and sells for 1% to 2% above the list price.”
And there are still areas where homes are going largely for below the asking price — a downtown condo, anyone?
In the area around Union Station, 47 of the listings in the first quarter sold below the list price, 25 at list price and two above list price or 3% of the total. As a general rule, condos are less favored than single-family homes, and expensive urban locations less likely to experience bidding wars than more affordable suburban ones.
Other measures of heat
The share of homes selling above list price is just one way to measure activity in the market. Every quarter, Danyliw compiles a spreadsheet measuring median annual price gains in homes sold, the change in sales volume and changes in the average days a listing spends on the market by ZIP code.
While second-quarter comparisons are going to be difficult because of the stay-at-home orders last year, the real estate market was still largely intact through mid-March of last year, Danyliw said.
The five hottest ZIPs in terms of price appreciation in the first quarter were Lowry’s 80230, up 79%; 80128, covering Meadowbrook Heights, Stony Creek and Columbine Hills, up 41.4%; 80210, which covers parts of the Platt Park, University Park and Wellshire, up 31.9%; 80433, covering Conifer, up 27.1%; and 80138, covering East Parker, Ponderosa East, and Canterberry, up 25.9%.
The mix of homes sold in a given period will influence the median price and really big gains or drops often represent special situations, Danyliw said. That applies to Lowry’s 80230, where new sales from more affordable projects dominated in recent years. With those wrapping up, the higher-end properties purchased in prior years are now dominating again, explaining the big jump in price, which was accompanied by an unusual increase in days on market.
At the other extreme, a tenth of metro Denver ZIPs experienced price declines. Lakewood has some hot neighborhoods, but the 80215 ZIP code was the coldest in terms of median sales prices, which fell 8.3%. That area includes the Applewood, Cedar Crest and Heverly Heights neighborhoods.
Other ZIPs losing 5% more of the median sales price in an otherwise way-up year include 80403, which covers Tablerock, Mesa Meadows and Coal Creek Canyon; 80465 covering Morrison, Homestead, and Willowbrook; 80223, which covers Valverde, Baker, Overland & Athmar Park neighborhoods, and 80237, which includes the Hampden South and the north DTC area.
There were five ZIPs where the number of sales increased by 50% or more in the first quarter compared to the first quarter of 2020, usually a sign that more new homes and condos are hitting the market. They include 80216, which includes Globeville and Swansea; 80218, which includes Alamo Placita, Cheesman Park, and City Park West; 80233, which covers the Valverde, Baker, Overland & Athmar Park neighborhoods; Park Hill’s 80207, and Lowry’s 80230.
One of the most startling statistics is how quickly home sales have accelerated in some areas. Listings spent an average of 25 days on the market in the first quarter of 2020 in the East Highland Ranch neighborhood, 80130, but averaged only four days this year.
They went from 34 days to six days in the Central Highlands Ranch and Backcountry neighborhoods, 80126, and from 55 days to 15 days in 80007, which includes West Woods, Leyden and Candelas.
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“Insane” housing market: More metro Denver buyers willing to pay whatever it takes to get a contract - The Denver Post
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