Fun with Foreclosures

Everybody wants to buy a foreclosure. After all, a foreclosure is such a great deal. You can get a house for pennies on the dollar, right?

Well, maybe not quite.

Foreclosure properties in the Metro Denver area tend to sell for 5% to 10% less than their non-foreclosed neighbors. That's still a pretty good deal. (10% of a $200,000 property is $20,000 -- not exactly chump change!) But it's not the half price bargain that some people have come to expect.

And it comes at a price. The hassle factor on a foreclosure is HUGE.

I have a buyer under contract with a foreclosure. It's scheduled to close in two days. And the obstacles just keep coming. The loan officer and I are batting them out of the park one by one. But our swinging arms are getting tired.

Because of the foreclosure mess, lenders are making themselves look better by "cracking down" on foreclosure loans. And, like most "cracking down" programs, I don't really see any changes that are particularly useful or effective. They're just making a lot more busy work for the rest of the world.

Case in point -- three days before closing, the loan underwriter decides that an extremely minor issue found in the inspection simply HAS to be repaired before the loan will be funded. Of course, we argue that we can't make repairs to the property, what with the fact that the buyer doesn't own it yet and all. It's all worked out now, since we convinced the underwriter that it would be okay to escrow the money at closing to pay the electrician to make the minor repair.


The good news is that foreclosures in Colorado are discounted less -- in other words, sell for more -- than foreclosures in other markets. Why is this good news, you ask? Simple. The reason lenders don't discount their foreclosed properties as much here is because they believe this market is poised for a rebound, so they're not as desperate to unload them as they would be in, say, Alabama, where foreclosures are generally priced around 40% under market value.

Four Multiple Bids and Counting

Okay, so now I'm up to four multiple bid situations in two weeks. Still don't know whether my buyer got the property.

I was contemplating this situation, and have concluded that it indicates that buyers are indeed out there. They've just been waiting for prices to adjust -- which in some segments they have. Two of my multiple bids have been foreclosures. Another was home on a large lot in a popular "scraping" neighborhood. And the fourth was a family home in an established, suburban neighborhood.

At any rate, it strikes me as a good indication of the direction of our market!

Dealing with Multiple Bid Situations

I've been involved in three multiple bid situations in the past week and a half. Three.

A multiple bid situation is where more than one buyer is competing to purchase a property. It used to happen a lot back in the "hot" market of the 1990's, where multiple offers would frequently come in immediately after a home was listed.

And in this "slow" market, I've had it happen three times in the past week and a half. Twice I was representing the seller, and once the buyer.

Things aren't as slow as you may have been led to believe.

In two of those cases, the final contract price wound up being higher than the original asking price. In fact, in this most recent case, my buyer offered $6000 over asking (on a property priced just over 200K), and still lost out to another buyer who apparently went even higher.

So I thought it might be fun to look at how these situations come about, and what factors to consider when in the midst of one.

More often than not, multiple offer scenarios happen in the first day or two a property is one the market. This was the case in two out of the three I was involved in. (The other had been on the market for several months when two offers suddenly came in on the same day.)

The first thing that usually happens is that the listing agent contacts both buyers' agents, notifies them that they are in a multiple bid situations, and invites them to submit their "highest and best" offers within a defined time period. (Usually no more than 24 hours, sometimes a lot less.) The sellers then review all of those "highest and best" offers. Usually they accept one and reject the other(s). Sometimes, if neither offer is high enough, they will counter one (with a "binding counter") or more (with "non-binding counters.").

This can be really tricky for the buyers involved.

For the buyer who really wants the property, it's a bit of a guessing game to try to figure out how much the other buyer or buyers want the property. That's especially tough because these buyers are completely anonymous. One buyer generally knows absolutely nothing about the others. What was there original offer? How much will they offer now? WIll they go over asking price? How far?

Sometimes (but not often) a buyer won't even bother raising the original offer. That happens when a) the buyer was only throwing the offer out to see how low the sellers would go, and has no intention of paying full market value, or b) the buyer really wants the house, but is foolish and/or stubborn.

When I'm representing buyers in that situation, here's the advice I give to them. First of all, this is most likely your one chance. I can't believe how many times I've seen this when representing a seller in a multiple bid. A buyer's agent submits, as the buyers' "highest and best", a relatively low offer. When they learn they lost to the other party, they say "Oh, we would have gone higher" or "we would have dropped the request to pay closing costs." Then they always say "We were expecting to get a counter."

Highest and best means highest and best. Odds are good there isn't going to be an opportunity to counter.

I always encourage buyers to stop looking at the asking price of the house and start to look at the value. If neighborhood comps show that the property is priced low, then a buyer can easily pay over asking price and still be getting a very good deal. And, in a multiple bid situation that happens when a property is first placed on the market, that is frequently the case.

The question comes down to how badly the buyers want the house, and if the numbers back them up. Obviously, if a property were overpriced and they were bidding over asking for purely emotional reasons or just to "win", I'd be questioning their motivation. (But if it were overpriced there probably wouldn't be multiple offers on the same day.) But if it's the right home for them, it just appeared on the market, and it's priced right, I usually encourage them to bid over asking price. I've just been in this situation many times, and the final price is literally ALWAYS over asking. How much over asking they should offer depends on 1) how far below market the property is priced, 2) how high they could go and still be getting a good "deal", 3) how high their budget will allow them to go, and 4) how badly they want the house and how likely it is that they'll find another one they like as much.

Another trick with multiple bids -- the terms of the offer start to matter more. If two bids wind up offering the same price, the other factors start to come into play. How much money is each putting down? (More down payment means more financially stable, less likely to flake out before closing.) How soon is each one willing to close? Is either asking for the seller to pay closing costs. I'm a firm believer that buyers in a multiple bid situation should never ask for the seller to pay closing costs? Sellers don't like that -- at least my sellers never have. Even if the net price winds up being the same (ie buyer asking for closing costs is offering the same amount as an increase in purchase price), sellers will most likely choose the buyer who isn't asking for closing costs. One, the purchase price is higher to incorporate the closing costs, therefore the property has to appraise for the higher amount. Two, not being able or willing to pay one's own closing costs makes a buyer look less financially stable. Three, every seller I've ever worked with just plain resents it.

When deciding how much to bid in a multiple offer situation, I always ask buyers this: "Which regret would you rather live with -- not living in this particular house because you bid a few thousand dollars too low, or living in it and wondering if you could have bought it for a few thousand dollars less?"

There is no right or wrong answer. But it sure helps clarify a buyer's thinking.

The Art of Negotiation: More is Not Always Better

Part of being a good realtor is to negotiate well on behalf of clients. That, after all, is supposed to be the reason we exist as a profession -- to look out for what is best for those clients when they're buying or selling real estate.

But being a good negotiator is more than just the ability to be cagey or slick. It's about understanding human nature and knowing what kind of behavior or "tactics" are appropriate in a given situation.

Case in point. Sellers get an offer on their house. The offer is significantly under market value, no doubt because the buyers have watched too much television news, and are convinced that all sellers are desperate and that they can swoop in and pick up real estate at bargain basement prices. The agent's cover letter lists a couple of minor issues -- like the color of the bedrooms and the "need" to replace a small area of perfectly good but not perfectly new carpet -- as the reason for the low offer.

Sellers are annoyed, and have no interest in selling at the offered price. They're preparing to counter at a reasonable price, and gritting their teeth because they suspect that even if they do reach a mutually acceptable price, these won't be easy people to work with.

And then, lo and behold, another offer comes in. So it's a multiple bid situation. (Yes, it still happens in this market -- more often than you might think.) Throughout the negotiations, agent #1 and her buyers are clearly "playing the angles" -- refusing to commit to or sign written counters, keeping their offers verbal, trying to stay as low as possible until the last possible moment and then suddenly bumping up. Meanwhile, agent and buyer #2 are cooperative and pleasant. Buyers don't hide the fact that they're in love with the home. They sign and return counters immediately. They work in good faith within the framework sellers have set up.

In the end, both prospective buyers have come up to a price very close to asking -- about 75% higher than #1's original offer. #1's final offer winds up being slightly higher (after literally bumping it up $6000 in 5 minutes after realizing they were falling out of the running).

And yet the sellers choose #2. Why? Because a real estate transaction is about more than raw numbers. Determining a mutually agreeable price is just the first in a long series of negotiations culminating in the close of the sale. There's inspection, negotation on what repairs will be done and when, and the host of unanticipated issues that can arise during the contract period. Even if buyers and sellers never meet, they're working together. They know when the other party is being difficult, and it affects everybody involved in the transaction. I've seen it happen over and over again. When you get one party, be it buyer, seller or agent, who is overly defensive and paranoid, the stress level goes up all around. Everybody becomes defensive, and subsequent negotiations are drawn out and difficult. When everyone is cooperative and looking to be fair and reasonable, the entire contract period can actually be a pleasant experience.

The sellers in this case are good people who want to be fair and want to do the right thing. And they want to work with somebody they trust to be on the same page.

None of this is to say that there's anything wrong with seller's working to get the best price they can for their home, or with a buyer trying to get the best deal possible. That's what we do for our clients. But are better and worse ways to go about doing that. In an impersonal corporate situation, or in a case where one party has proven untrustworthy, perhaps cagey game-playing is the way to go. But when families are buying and selling their homes, it's not the time to play slippery ace negotiator.

It can backfire. Badly.

We Make Ugly Deals

You've probably seen the "We Buy Ugly Houses" billboards around Denver. They're done by a company called Home Vestors, which buys houses for below market rates, for cash, with quick closing times. It's a set-up that appeals to people who are so desperate to get out of a house quickly that they're willing to take less than what they could get if they took the time to list and sell the house on the open market. I've never had any contact with Home Vestors, so to the best of my knowledge they're perfectly honest and do a good job at what they do -- which is buying houses for a lot less than their owners could otherwise have sold them for.

I HAVE, however, had some experience with at least one independent businessperson (NOT affiliated with Home Vestors) working on the same basic business model. And I didn't find him to be quite so honest.

A woman called me because this "nice man" had, for the past three years, been coming to her home offering to buy it. Over time "offering" had become "pressuring." She was feeling like it was time to sell, and was thinking of taking him up on his offer because it would involve a lot less hassle than going through the whole listing process. It would have been VERY easy, what with him showing up at the house regularly with pen in hand, insisting that she sign. I asked her to show me the contract.

Holy cow! I don't know where to being with all of the subtle ways he was ripping her off. We can start with the price, which was WAY below what I knew the property was worth. Then there was the non-existent earnest money. And the clause where he had the right to immediately begin repairs to the house -- and she would be contractually obligated to pay him two dollars for every dollar he spent. And the other clause where if she changed her mind, he would sue her and she would have to pay for all of his attorney's costs.

It went on and on like that, but you get the idea.

I told her to run and run fast.

She asked me to list the property for her. I did -- at $70,000 more than he was offering her. And it went under contract in a single day.

That's a whole lot more money in her pocket for really a lot LESS hassle than she would have gone through continuing to deal with him.

The moral of the story? Beware of deals that look too good to be true. And never, ever sign anything real estate related without at least having it reviewed by an attorney or a real estate professional who has your best interest at heart.

Open House Aren't What They Used to Be

So Realtor magazine is confirming today what I already knew -- open houses are not particularly helpful in selling a house.

In today's Daily News, they're reporting that while 80% of home buyers use the internet to search for homes, only 42% even visited a single open house in the past year. They didn't give the percentage of those buyers who wound up buying the open house they visited, but I suspect that number is very, very small.

When I was going through the various and sundry training sessions I received in the course of becoming a realtor, one thing became very clear to me. Realtors don't hold open houses to sell the houses they're holding open. They do open houses to get exposure to buyers to whom they can represent to buy other houses. It's a way of recruiting buyer clients. And, secondarily, as a way to show your sellers how very, very hard you're working to sell their house.

Still, once I got my license, I held a few open houses. I'd bring chocolate chip cookie dough, so that the smell of freshly baked cookied would make the house smell welcoming and home-y. Then I'd sit there. A few neighbors and looky-loos would trickle through. I'd eat all of those d**ed cookies myself (sometimes before they were even baked) and leave with a tummy ache.

As a rule, I don't do open houses any more. I have several reasons for that. One, they're notoriously ineffective at doing what they're supposed to do -- selling the house that's being held open. In the age of the internet, serious buyers don't spend their spare time driving around looking at open houses. They spend their spare time on the internet, where they can look at hundreds of houses in the time it takes to walk through one open house, all without using any gas or fending off an ambitious realtor trying to recruit them.

Second, they're relatively dangerous. To me, there's something very creepy about posting a sign that says "Mary Beth is sitting in this house alone. Please come in." More than a few realtors are assaulted and even murdered every year, and most of the time, it happens at an open house. Most realtors who do open houses have several stories about suspicious visitors, even threats and near-misses from known felons. Any why not? How many other situations are there where a woman posts a public notice that she's going to be alone somewhere? All kinds of personal safety devices are marketed to realtors in the name of keeping us safe at open houses. We can carry mace, alarms -- even firearms. I might take the risk and even "pack heat" if I thought it might result in the sale of a property for my clients. But the risk-benefit ratio just doesn't add up.

Third, I have other ways of finding buyer clients for myself. I build my business by referral, not by recrutiting strangers at open houses.

Fourth, I don't have to do "busy work" to convince my seller clients that I'm doing everything I can to sell their homes. They already know it. The staging, the pre-inspection, the mailings -- and most of us, the presence and prominence their listings receive on the internet, where the real buyers lurk, tell them everything they need to know about my commitment to selling their homes.

There are, of course, a very few exceptions. If a property is located in a particularly "hot" area with a lot of foot traffic, I'll try an open house. Most of the time I won't hold it myself, but rather give the opportunity to a new realtor who is using open houses to build business. Occasionally I've done them myself. And even in those situations, I find myself mostly sitting alone and eating a lot of cookie dough.

Open houses aren't what they used to be.

Forbes lists Denver in Ten Best Cities to Buy a Home

They say all real estate is local. And it's really true.

Forbes magazine recently did an analysis of estimated 2008 housing inventory, sales rates and turnovers to determine where there is most likely to be an increase in sales in the near future.

Guess what city came in at #5?

The article, called Best Places for Real Estate Deals, said that a pure "buyer's market" is one where there are far more sellers than buyers. That creates a drop in demand, which leads to a drop in prices. Or, in Denver's case, a stall. The article shows Denver's price growth since 2006 at exactly 0.0%. But if that market is expected to drop further, buying may not be a good idea.

So Forbes set out, using sales and inventory models from, to determine which markets are expected to experience upswings that will make buying today worthwhile.

About Denver, they said While other markets have experienced meltdowns, Denver has been quietly correcting its inventory glut, which at the beginning of the year was one of the worst in the country. Though prices aren't expected to rebound quickly, if Denver sellers continue to unload their properties at discounted rates, it could be a strong year for buyers, with less risk than the past two years.

So don't believe the gloom and doom you read in the local papers. Now may be a very good time to buy!

MB's Client Appreciation Picnic was a smash success!!

On Sunday, September 16, I held my first annual Client Appreciation Picnic and Softball Tournament at Writer's Vista Park in Centennial. It was so much fun!! The weather was great, except for about ten minutes of driving rain which God apparently put there to remind us all of the importance of a good roof. (The Park Shelter Designers of the City of Littleton apparently need such a reminder, because the shelter they designed was virtually useless for protection from even the mildest of elements.)

The softball game was a nail biter. I -- who had not swung a bat since 5th grade -- actually made a run. Although it only happened because the pitcher took pity on me and didn't throw me out at first base, which he easily could and should have done. In the end, I believe buyers defeated sellers, although nobody is sure of the exact score.

The food, catered by Lou Ann Bauer, was wonderful. My homemade sangria was a hit. And we held an award ceremony for the most important guests -- the wonderful men and women I call my clients and my friends, the people who have made this work so rewarding and so much fun for me.

So check out the pictures and come join us next year!

Just because a house has been on the market for a while . . .

. . . don't assume it'll still be around tomorrow. Or even later today.

Last week, I was sitting at a seller's table signing an offer when another agent literally showed up at the door with a buyer ready to make an offer.

Background: I received an offer for one of my listings that had been on the market for several months. It was a good offer. I went over to present the contract to the sellers. We were sitting at the dining room table, pens in hand, preparing to sign it when the phone rang. Another agent was sitting outside the house with her clients and they wanted to see the house. I walked outside and told the agent that they were welcome to look at the house, but we were literally in the midst of signing another offer.

The wife thumped her husband on the head as if to remind him that he could've had a V-8, and said "See, I told you we should have come back sooner!" They had apparently seen the house the previous week and had been planning to make an offer ever since. We took our unsigned contract over to Starbucks and waited while they took another look at the house.

Three hours later we had an offer in our hands from Buyer #2. Still, sellers chose to go with Buyer #1. If Buyer #2 had submitted that offer a couple of days earlier, the seller probably would have accepted it and they'd be on their way to home ownership.

The market may be slow, but it's probably not as slow as you think it is. Don't take anything for granted!

Sellers who use a realtor make more money

Before I was a Realtor, I was a "realtor-wannabe." I was always the one volunteering to help friends (and sometimes total strangers) look for a new home. When somebody new moved into town, I was the "chamber of commerce" -- giving them tours, showing them neighborhoods, talking through their housing options. I loved doing that, and it's one of the reasons I hung up my "amateur" standing and became a professional Realtor.

But one time I took it too far. I tried to sell my own home as a "for sale by owner" (FSBO). "Why not?" I thought. "It's a hot market, I don't need help finding a buyer. And I could put all of that extra money in my pocket."

Famous last words.

It WAS a hot market, so it only took a couple of open houses and I had a buyer. Buyer didn't have an agent either. It was just the two of us -- the blind leading the blind. One of us (I don't remember which) found a contract template at an office supply store, we wrote it up, and we were good to go.

Or so we thought.

I got a call from the title company a few weeks later. Any conversation that starts "Gee, I'm glad I'm not you," can't possibly end well.

The house hadn't appraised for the agreed-upon sales price. The buyer was freaking out. I had no idea whether or not I had to let her out of the deal, or if I could force her to buy it anyway. I didn't think my templated contract had given her an "out" for appraisal. I called an attorney, who told me I didn't have a leg to stand on. She walked -- no, ran -- and I called a Realtor.

Looking back on that episode from the perspective of all of the real estate training I've had since, I see that the transaction would have been doomed 19 different ways even if the property had appraised. She wasn't planning on an inspection. I had never had it inspected, so I had no idea what lurked behind the walls. I had no familiarity with the various disclosures required by state law.

It was a lawsuit waiting to happen.

Believe me when I say that I understand the temptation to try to save that 3.2% of the purchase price. It's a lot of money to any homeowner -- it was a lot of money to me then, and it's still a lot of money to me now.

But what I've learned is that the math isn't so straightforward in a home sale. At the end of the day, someone who sells by owner probably doesn't wind up with an extra 3.2% in their pocket. In fact, the best statistics I've seen show that it's the sellers who use an agent who wind up pocketing more money -- a lot more money. According to National Association of Realtors' Profile of Home Buyers and Sellers for 2006, FSBO homes sold for an average of 36% less than homes sold with a real estate agent. That's thirty six percent. Not three point six percent. Thirty six. Over one third.

It makes sense to me. Realtors know how to prepare a home for sale. They know how to market it. They know how to position it to maximize the sales price (without, mind you, pricing it so high that it won't appraise and the buyer runs off like a scared bunny.) And, most important, they know the ins and outs of the sometimes very complex laws and paperwork and disclosures, so that a post-closing lawsuit doesn't sap whatever profit may have come from the sale.

Another factor: when buyers see a FSBO, they immediately start doing math in their heads. "Let's see, if they're not paying an agent, then I'm knocking 3.2% off my offer price." And if they're not coming in with a buyer's agent, you can bet that another 2.8% is going to come off the offer as well.

I can't guarantee that any one home is going to sell for 36% more with an agent than it would as a FSBO. But I'm pretty danged sure that the difference is going to be enough to make it well worth your while to hire a real estate professional.

Beware of brokers bearing bucks

A while back, a real estate agent's flyer showed up in my mailbox. In it, Mr. Agent announced that he would pay $300 to anyone who referred a client to him.

Three hundred bucks. That's a lot of money -- enough to make anybody want to start combing through their mental Rolodex to find this guy a prospect or two. It's a pretty good deal for Mr. Agent, too. After all, $300 really isn't a lot of money to get him a client and a closed transaction he wouldn't have had otherwise.

So why wouldn't every real estate agent offer a deal like that?

Simple. Because it's illegal.

And it's not just a "little bit" illegal, or illegal only here and there. It's prohibited by federal law. The Real Estate Settlement and Procedures Act (RESPA) governs all real estate transactions that involve a goverment entity (like FHA loans) or a financial institution that is regulated or insured by the federal government (like every bank and mortgage provider). So RESPA applies to every transaction involving a loan, unless the funds are coming from underneath Uncle Barney's mattress.

12 USC Section 2607 (a) says, "No person shall give and no person shall receive any fee … [pursuant to a referral agreement]." The paragraph goes on to exempt referrals between two people who are both licensed to sell real estate. But referral fees between agents and nonlicensed people are not exempted. Both broker and recipient would be guilty of a violation. And what a violation it is -- punishable by fines up to $10,000 and a maximum of one year in prison!

Suddenly that three hundred bucks isn't looking so good, is it?

What baffles me is how any competent real estate agent could not know that. In our world, RESPA looms large over everything. It regulates what gifts we can receive and from whom we can receive them. It regulates what fees we can pay and to whom we can pay them. We're constantly being reminded of the long arm of RESPA and the penalties of running afoul of the regulations. If an agent doesn't know about RESPA policies, it makes me wonder what else he doesn't know.

Even if this practice wasn't illegal, I'd have a problem with it. After all, if you asked a friend for a referral to a good realtor, what criterion would you want them to use? Would you prefer "I know and trust this person" or "I know nothing about this guy, but I get three hundred bucks if I can get you to use him." I want people to refer me because they know I'm good at what I do and that I'll take good care of their friends, not because I've paid them off.

At any rate, beware of brokers bearing bucks!!

What exactly is happening to the mortgage industry?

You've probably been reading the headlines about tumult in the mortgage industry. Nothing truly bad has happened to me (or to any of my clients), but we have had one close call. A lot of mortgage lenders are closing their doors, which gets kind of scary when you've got listings under contract and getting ready to close.

It's not as bad as the newspapers would have you believe. But it is an unpleasant situation.

I'd love to explain to you exactly what's going on, but to be perfectly frank, it's kind of hard to understand exactly how it all works, much less explain it. Fortunately, the Certified Mortgage Professionals Institute did a really good job in this article, The Saga of the U.S. Mortgage Industry.

Check it out!

Are housing prices going to drop?

Everybody asks me. "Should I sell this year or next?" "Should I wait to buy until prices drop?" "ARE prices going to drop?"

I always tell them I don't have a crystal ball. And I don't. And neither do the people at PMI Mortgage Corp. But apparently they have much more sophisticated market forecasting tools than I do. And they have released a report detailing the likelihood of declining home prices in the 50 major U.S. markets.

It's not such good news if you live in Florida or California. But it's really not bad if you live here in Denver.

The report was based on the percent likelihood that a specific market will see declining home prices. The average likelihood across the U.S. was 34.6%. The "top" markets (and by "top" I mean "most likely to head towards the bottom" were Riverside/San Bernardino California (65.2% likelihood), Phoenix (64.6% likelihood), Las Vegas (61.4% likelihood) and West Palm Beach/Boca Raton (60.7% likelihood).

Where did Denver fall in the list? 38th out of 50, with a 15.6% likelihood of declining prices.

Real estate is local. So many people read books about falling real estate values, and they're convinced that the real estate "market" is going to fall like the stock market falls. And it just doesn't work that way. Real estate is not one "market." It's a collection of smaller markets, each of which rises and falls based on local factors. Sure, there are national trends -- recession, inflation, interest rates -- that can affect a local market. But those factors are mitigated by what's going on in that area. After all, people have to live somewhere, regardless of how the economy is doing.

So why are some areas poised to take a dive while others are relatively stable. One of the main factors is a recent history of rapidly appreciating prices. Real estate values as a whole tend to increase over time. But what goes up too fast is bound to come down. When home prices rise much faster than wages, affordability declines. The people who live there can no longer afford to buy there. And so demand dries up and prices drop. In Phoenix, housing prices have climbed steeply for the past few years. One agent there says that, two years ago, homes were appreciating at a rate of 54% annually. Last January, there were about 3500 homes listed for sale on the MLS. Now there are about 54,000.

Why has Denver been spared? Our growth the past few years has been slow and steady. Yes, we had a pretty big run on prices back in the '90's. But it was never anywhere near 54% annually. Our prices leveled off around 2001, and we experienced what experts call a "soft landing." No big price drops. We just stopped growing at 10% - 20% per year and dropped down to 2% - 5%.

I've always believed that Colorado's desirability as a place to live factors into the equation as well. Even when prices climb, people are willing to try harder to find a way to stay, because it's a danged nice place to live!

How did the Denver market do in 2006?

Well, it all depends on which index you're looking at . . .

The statistic used most often to gauge the market is "average home price." According to that index, home prices in Denver rose 2% -- from $305,000 to $313,000. That increase, however, was not spread equally across all neighborhoods. There were high increases in neighborhoods like University Park (26%) and Cherry Creek (23%), while other neighborhoods took a dive. (Swansea down 17%, Barnum West down 13%, Clayton down 12%).

The problem with calculating average home price is that the figure can be skewed if bigger or more inherently "expensive" homes are sold in one year that another. That fact might be skewing some of these higher-appreciating neighborhoods, because they're the areas where smaller houses, inexpensive homes are being scraped and replaced by larger, "take up every inch of the lot", pricier homes. It's not that the same house has actually appreciated 26%, it's the there are now larger homes being sold that command a higher price and are skewing the average up. (Which makes me feel a lot better. I sold a condo in Cherry Creek two years ago, and I'd have a pretty hard time believing it could have appreciated 23% since then!)

And, on the low end, you have the issue of foreclosures. In Swansea, 81% of the homes sold were foreclosures. In University Park, only 5% were. Foreclosures generally sell for less than similar homes being sold by their owner occupants. Unfortunately, those foreclosures DO drive down the prices in their respective neighborhoods.

The index I prefer to use comes from the Office of Federal Housing Enterprise Oversight. They use federally held or insured mortgages (Fannie Mae and Freddie Mac) to track repeat sales of the same properties. That way they are actually gauging the appreciation of individual properties, instead of just tracking averages for an area. The disadvantage to OFHEO's numbers is that they only track single family homes, and only those financed by conventional loans (loan amounts of $417,000 or less, last I checked). But still, I think it's a more accurate number.

According to OFHEO, the Denver market appreciated 1.09% from 1st quarter 2006 to 1st quarter 2007. They don't break numbers out by neighborhood, so I can't get more specific than that. They do say that the Denver metro area is 221st out of 285 markets tracked. The better news is that over the past five years, we've appreciated 14.78%.

Looking wider, housing prices in Colorado as a whole appreciated 3.30%, which makes us 38th out of 50 states (51 if you count the District of Columbia, which they do.) Over the past five years, Colorado has appreciated 21.15%.

So, any way you look at it, the market has been basically flat for the past year. Some neighborhoods are doing better than others, but all in all we're flat.

The best news is that my anecdotal reports about an energized market this spring seem to be confirmed by the facts. Average sales price in Denver as of mid-April was $330,000, which is a big jump over the $313,000 on December 31st. Again, big houses selling while smaller houses languish could skew the numbers somewhat, but I'm not going to argue too much with good news!

First offer, best offer

I have a buyer who went under contract tonight.

Six months ago, he made an offer on the same property. It had just gone on the market, and he offered $10,000 under their asking price, in cash. In negotiations, he came up to $5000 under asking price. They said "no" because they wanted their full asking price.

Now, six months later it was still on the market, so we came back to them with our original offer, 10K under asking, take it or leave it. No negotiating. And they took it.

In other words, they could've sold it to us for $5000 more six months ago, and saved themselves six months worth of holding costs. (The property has been vacant this whole time.)

There's a saying in real estate "First offer, best offer." It doesn't mean that you have to roll over and take the first offer that comes along, no matter how low or ridiculous. It DOES mean that it's a good idea to take your first offer very, very seriously, because it does tend to represent the best opportunity to sell the property. These sellers were lucky -- we came back and repeated their first offer six months later. I've seen far too many people (not my clients, fortunately) turn down their first offers cold, make no effort to negotiate and/or show no willingness to come off their full asking price. Then, six months or a year later, they wind up selling for a lot less than their initial offer.

A lot of times, if a lowball offer comes in, sellers are offended. "Insult my house, insult me." That's usually not the case. People are reading that it's a "buyer's market", so they're coming in expecting unrealistic deals. I've seen more than one such lowball turn into a closed transaction, at a much higher price than the initial offer.

Take your first offer seriously.