With sellers once again in the driver’s seat due to historically low inventory and continued high demand, our team at Corken + Company found this road map to be helpful for would-be buyers in search of their perfect home in Denver’s real estate market.
Prepare to Pay Over Asking
The Mile High City housing market ended 2021 with record-low inventory and record-breaking appreciation. This combined to make bidding wars the new normal for homebuyers. Not much is expected to change in 2022. Last year’s close-price-to-list-price ratio averaged 104 percent for single-family homes and 105 percent for multifamily units. This means you’re most likely going to pay more than a house is listed for.
With all that said, there may be some good news for buyers. Experts predict that Denver’s real estate market will hit an “affordability plateau,” at some point. This phenomenon occurs when a market is flush with high-priced homes and has so few buyers that properties sit on the market longer. This prompts sellers to lower the prices until offers begin rolling in.
Sort Your Finances and Find a Lender
According to Lorie Jackson, a senior loan officer at Denver’s Fairway Independent Mortgage Corporation, the biggest mistake a homebuyer can make is looking through for-sale listings before speaking with a mortgage lender. Why set yourself up for heartache? Instead, let a professional ease you into a smooth(er) approval process.
If: You’re a first-time homebuyer. Then: Go over your financials with a lender before the date you hope to close on a home. That way, you’ll have ample time to fix any errors with your credit score.
If: You’re preapproved for a loan. Then: You’ll know exactly how much you can borrow, which makes everything that much clearer. An official preapproval letter also signals your seriousness to sellers.
If: Your credit score is in the mid-600s or lower. Then: Try to pay down some debt. Your credit utilization ratio measures how much credit you’re using compared to your credit limit. This is a key component banks use to determine your loan amount.
Budget for Interest Rates to Go Up This Year
In December 2021, Federal Reserve Chairman Jerome Powell announced the central bank was looking to raise interest rates several times throughout 2022. Bret Weinstein, founder and CEO of BSW Real Estate, says:
“If you’re looking to buy, you’re in a better position now rather than later in the year, when prices will probably be higher and interest rates will likely be higher. Focus on what you can afford monthly, because that’s what you’re going to live with for the next 30 years.”
$798,417
This was the average home sale price in Denver this past March, a nearly 20 percent increase from March 2021; in 2010, the average home price was $261,897
Determine What You Can Live Without
Available and affordable are two rarities in this market, which means you’re most likely going to have to compromise on your list of must-haves. “Ultimately, buyers may have to give up some of the things on their wish list in order to get a house,” says Steve Thayer of the Thayer Group, which is part of Keller Williams, in Castle Rock. “But one of the things we tell them is we will not allow them to settle.”
Figuring out what not settling looks like is the challenging part. “A house may not have everything—and most houses don’t,” says Beth Armijo of Armijo Design Group, who assures her clients that what’s most important is buying a home with “good bones” or on a lot where expansion is possible. As your home appreciates, you can refinance or take out a home equity loan or line of credit for renovations or additions down the road. So even if you might not buy your dream house, you can build it—one renovation at a time.
Beware the Risks of Waiving Contingencies
Contracts are meant to protect buyers—and sellers—but in today’s market, where bidding wars are common and homes go under contract in a matter of days (if not hours), buyers are waiving their rights to not lose houses to less-fussy buyers. We took a look at three common contingencies and the relative risks of foregoing them.
Financing contingencies protect buyers in case they run into unforeseen issues with securing their financing. If you waive this contingency, you’ll lose your earnest money, usually one to three percent of the sale price, if things go awry during underwriting.
Home inspection contingencies give buyers time to have the home inspected professionally. Waiving this contingency means you pass on identifying unforeseen electrical, plumbing, or structural issues—big-ticket items a seller would typically have to remediate before the purchase in a less competitive housing market.
Appraisal contingencies keep buyers from having to pay for a home that is priced well above its value. Some buyers in today’s market are specifying a certain gap they will pay between appraisal and price. This is often as much as $100,000.
Find more tips for navigating Denver’s real estate market at: 5280.com
