What is the Hottest Price Range?

What is the Hottest Price Range?

The hottest price range in Denver is where the most sales are happening, where homes sell overnight and Sellers get multiple full-price offers. This is good information for both buyers and sellers: buyers need to know how competitive the market will be for them; and sellers can use this information to best position their home price for a quick sale.

Price Buckets

A price bucket is just a way to group products by price.  For example homes between $150-250,000 might be one bucket, $250-300,000 the next, etc.Denver MLS areas

You can make the buckets any increment you want, and it might be true that different areas have different hot buckets.  For example, in Denver, Metrolist divides Denver County into 5 geographic areas, and the surrounding counties are split up also.   Here are the geographic areas for Denver in MLS:

Notice there is a Northwest area (DNW), Northeast (DNE), etc. plus Downtown (DTD).  Although buyers and sellers often use zipcode searches (because some of the internet sites are set up that way), most brokers primarily use MLS Areas to begin a search, and it’s also the way historical data (number of sales, prices, time on market, etc.) is collated in MLS.

What I’m suggesting is that you might want to make a list of  “buckets” for the MLS area in which your home is located.  Why?  Because they’re going to be different for each area. Then when you list your $600,000 home in Northeast Denver, you won’t be as surprises to find it’s not getting the same activity as your neighbor who is priced at $350,000.

Denver Southeast (DSE)

Bucket_dse_2013Notice that the “hottest” price bucket in Southeast Denver is $250-350,000.  With about 450 sales so far this year, it’s 50% stronger than the next best bucket ($350-450k).

 Northeast Denver

Now let’s look north of Colfax Ave. and see that the hot price bucket is in a slightly different market segment.

Bucket_dne_2013In this area, the hot segment is $150-250,000.

Using Price Buckets in Home Pricing

Home Sellers might want to consider the distribution of sales when pricing or re-pricing their listing.  If you have a $675,000 home, for example, your odds of selling go way up if you move it into the next lower price bucket.

The owner of a $575,000 listing in Northeast Denver more than doubles their odds of selling by dropping the price under $550,000.

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How to find Buyers for your Home

How to find Buyers for your Home

Casting a Wide Net

While it’s true that “It only takes one . . . ” (a hopeful Seller’s motto, but let’s face it you can only sell to one buyer), you’re better off having broad appeal and broad exposure. 

Website providers and brokers may try to convince you that they have some unique “marketing magic”, but buyers really want complete and accurate information that they can quickly compare with all the other listings out there. Here’s where the action is:

sources of home buyers, Winston Downs homebuyers, sell Denver Home

Almost everybody is using the internet in one way or another.  Buyers browse the net before and during their relationship with a broker.  The majority of buyers 1) see the home on the internet, 2) call their broker, then 3) buy the house.

The next largest group sees the home first with their broker.  How did the broker find it?  Right, the internet (actually MLS, which is a databahase accessed by brokers via internet).

Takeaway:  make sure the home is easy to find on the web.  Have the right information available.

What do Buyers want to see on the Web?

Now that you know where the buyers and brokers are, it’s important to give them what they want.  Here is what Buyers value most on the web:

Denver homebuyers, Winston Downs buyers, Winston Downs brokerAs you can see, you need photos and detailed information (square footage, price, bedrooms, baths, taxes, HOA fees, descriptions, etc.)

Unless you want to “major in minors”, you don’t need a fancy video presentation, open house, magazine ad.  If you give buyers the basic information and plenty of pictures, they’ll drive by, call their broker, see the house and maybe buy it.

So what do you need a broker for?  Fair question.  If it’s that easy to get broad exposure (Zillow had 30 million visitors in May 2013), what DO you need the broker for?  Easy:  mitigation of risk.  Making a mistake (contract, inspection, appraisal, loan approval, closing) can get very expensive very fast.  But that’s a topic for another post.

 

 

 

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How to Make a “Rent Back” Work

How to Make a “Rent Back” Work

For sellers who need to sell first, the nagging question is: Where do I  move when this house sells?

There are many low-inventory markets  around the country. It’s usually easier to sell in a low-inventory market, but  it can be difficult finding a replacement home to buy. Finding an interim  rental is sometimes the only option. The advantage of renting temporarily while you look for a new home is  that you don’t need to feel rushed to buy a home that may not suit your needs.  Given the uncertainty in the market, you should buy only for the long run. It  could take time to find the right place.

A disadvantage of renting before buying is that you might have to pay to  store some of your furniture while you rent, and you’ll have to move twice.

HOUSE HUNTING TIP: Negotiating an option to rent back your current home  after closing may help you avoid a double move, or at least give you time to  find a suitable rental. Rentals are also scarce in some areas, so it may not be  easy to line up temporary quarters on short notice.

A rent-back agreement allows you to rent your home back from the buyers  for a certain period of time. Be aware that many lenders won’t allow the  sellers to rent back for more than 30 days after closing.

The cost of a rent-back varies. If there are buyers vying for your home,  you may be offered free rent for a period of time. However, typically, the  rent-back cost is equal to the buyers’ principal, interest, taxes and insurance  prorated on a per diem basis.

This may cost more or less than you currently pay to own your home. Keep  in mind that you do this for convenience, not because it’s the best deal on a  rental.

Sellers who think they might want to rent back after closing but don’t  have their next home lined up at the time they accept an offer should include a  clause in the contract that gives them the option to rent back for a certain  time.

 

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What’s the Best Month to Sell Your Home?

What’s the Best Month to Sell Your Home?

Every week at RE/MAX of Cherry Creek, we have sales meeting in which there is an open discussion of market conditions and trends.  It’s a great opportunity to find out what’s happening in different parts of the market, share leads, and solve common problems.

Yesterday there was quite a bit of discussion (and anxiety) about how dramatically the market had “slowed down” this summer. Seems to me this has been apparent for a couple of months already, but some brokers were just getting their heads around it and not liking it so much.

One of our most successful brokers was reassuring:  she said, “Don’t worry. July is traditionally slow, and things always pick back up in August.”
Really? I always thought 1) August was the slower summer month, and 2) Sep – Nov is the next best time of year.  So I decided to look at some recent data.

Two of the best years for number of sales and volume have been 2006 (before the crash) and 2012 (the recovery/mini-bubble). Instead of using Sold data, which represents closings that may have taken 30-60 days in escrow, I used “under contract” data. This is recorded immediately after the Seller and Buyer sign a contract and gives a good indication of actual sales pace and volume for a given period. So here is a monthly comparison between those two years:

Summer sales Denver

Denver sales (under contract) during summer months

So there is a very small uptick in August, but IMO nothing to write home about. If you look at the actual numbers for 2012 (the red line), the trend is generally down in August, with another uptick in Sept/Oct.

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Three Ways to Avoid Moving Twice

Three Ways to Avoid Moving Twice

In the Denver Market, it can be tricky making a move when you have a house to sell. Most sellers can’t afford to buy a new home first, move in and then sell the old house.

The idea of moving twice (move out of the old house, move into a rental, look for a new home and move again) sounds like a lot of work – and it is. Fortunately, using contingencies or a rent-back agreement, you can avoid the dreaded double-move. Here’s how:

Con·tin·gen·cy:

something that has to happen before something else can happen.

You already know about some contingencies, because they are “built in” to most real estate transactions:

  • The buyer has to get financing before they can buy the house
  • The house must pass inspection or the buyer doesn’t have to complete the purchase
  • The house has to appraise at the contract price. otherwise the lender won’t make the loan and the buyer doesn’t have to buy
  • The “title” to the home has to be insurable, or the buyer doesn’t have to buy

Those are all “contingencies”, and there are others, but you get the idea.  In the next couple of examples, you’ll use contingencies to juggle two closings and avoid moving twice. Remember, all these things are negotiable, and getting a seller to accept your contingency depends on a lot of things including market conditions, their willingness to accept more risk, time on market, etc.

Contingent on Closing the sale of your current home.

  • your house is already on the market
  • you have an accepted offer (it’s “under-contract”)
  • you’re just waiting for all the ‘contingencies’ to get resolved so the first sale can close (buyer gets their loan, inspection done, money disbursed at closing, etc.)
  • Odds of getting this accepted:  pretty good unless there are other competing offers without such a contingency.  Your chances also improve if you provide lots of information and assurances about your pending sale (lender pre-qual letter for your buyer, proof that the inspection has been resolved, copy of the contract, etc.).  Hopefully, it’s a solid transaction that’s just waiting for the closing and no surprises.

Contingent on the Sale of your current home.

  • your home is on the market, but not under-contract
  • must have an ending date for the contingency:  home to be sold and closed by a certain date.  Could also have a requirement that it be “under-contract” by a certain date.
  • First Right of Refusal.  Usually goes hand-in-hand with this contingency.  You allow the seller to continue to try and find a non-contingent buyer, and if they do, you get a day or two to remove the contingency and proceed with your purchase, or refuse to remove the contingency and let the seller go with the non-contingent buyer.
  • Odds of getting this accepted:  not so good, actually.  This one is hard to sell in a hot market – too many things could go wrong (you may not sell yours), the seller will lose some showings once their home goes “under-contract” with a contingency (even with the First Right of Refusal).

Rent-back Agreement

In this case, you sell first, stay in your old house after the closing (as a tenant) and look for a replacement property during the escrow period and rent-back period.

  • your home is on the market but you don’t have a buyer yet
  • once you find a buyer, try to negotiate a long escrow period (say a 60-day close).  Not always possible, but ideal.  You can see how all of this might depend on your buyer’s ability to have a place to stay while waiting for you to vacate.
  • rent-back clause allows you to remain in the house after closing for the rent-back period, usually 30 days.
    • the rental amount is usually equal to the buyer’s new house payment (including P&I, taxes, and insurance).  You’re paying for convenience now, not necessarily the market rental value.
    • you may not need to use the rent-back.  Let’s say you find a replacement home quickly (during that 60-day escrow period), and it’s vacant so you can move in right after closing the sale of your old home.  For this eventuality, maybe you have a deadline for electing to use the rent-back provision or not (e.g., written notice to your buyer before a certain date).

Rent-backs are useful, and in today’s market probably the easiest way to buy time to find a replacement.  You might still have to move twice, but the odds go way down.  Both parties share the risk in this situation, so it’s key to find a buyer who is willing and able to do it this way.

“Bridge” LoansBrooklyn Bridge

I guess this is really the fourth way, and it’s technically for sellers who CAN afford to buy first and sell later.  It’s a temporary loan, much like a Home Equity Loan, and designed to “bridge” the gap between selling and buying a replacement.   You’re borrowing enough to complete the purchase of your new home, and then paying it off when your old home sells and closes.  Here’s how it works:

  • The term of the bridge loan is 6 months or less depending upon how quickly you sell your current residence.
  • your current residence will need to be listed for sale prior to the loan closing
  • The amount of the bridge loan is calculated:  90% of the appraised value of home minus your current mortgage payoff amount = lendable equity (amount of bridge loan)
  • the bridge loan has a 1% origination and an interest rate that’s about 1% higher than the current 30-year fixed
  • At the time of the sale the proceeds from your current residence will pay off the principle and interest for your loan.

Bridge loans are not that common because not everyone can qualify for 2 payments.  Plus, they seem to make borrowers particularly nervous about getting over-extended.  That being said, it’s a powerful vehicle for eliminating the double-move, and it turns the would-be seller into virtually a cash buyer, allowing a lot more leverage on the buying end.  Bridge loan lenders appreciate the anxiety, and will typically be flexible about extending the terms is you need another month or so and are making a good faith effort to sell.

 

 

 

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How accurate is the Zillow “Zestimate”?

How accurate is the Zillow “Zestimate”?

Have you ever wondered how accurate the Zillow “Zestimate” really is? Many times when I’m working with buyers or sellers I find that they are using Zillow to compare the “Zestimate” with either my opinion of value or with the asking price of a particular home. Perfectly normal: most of my clients are smart people, and this information is free and easily available.

So, just how accurate is the Zillow “Zestimate” anyway? I actually just found out recently how you can determine the accuracy of Zillow in your area. Take a look at this video, prepared by an SRA Appraiser in Birmingham, AL, to learn how:

 

Zillow has gone back in time to compare their historic Zestimate with what the property actually sold for. They say that their “estimated market value” is not an appraisal, but in reality an estimate of market value is an appraisal, but it’s one that cannot be used by a bank —  and one that you may want to think twice about before using to determine a sales price for your home.

Zestimates provide a range in value which can vary widely. The information is based on public and user-submitted data, both of which can vary in accuracy. County records often do not reflect newly finished areas or additions where a building permit was not used. Zillow explains that the further apart the spread from high to low the less accurate their estimate is. Check out the range of accuracy for the Denver area below. Are you comfortable using data that’s only within 10% accuracy a little more than half the time?

Denver zestimate, Winston Downs zestimate

How Accurate is Your Zestimate?

So is it wrong to use Zillow?  No – just recognize Zillow for what it is and don’t expect much more. Without actually looking inside a property, and using research-based methods of adjusting for sales information, you are only going to attain a certain level of accuracy. Another thing is that computers do not recognize similar market areas or differences in location characteristics.  Examples of this include adjustments for schools, traffic, differences in subdivisions and even streets within sub-areas. The other obvious area where inaccuracies can occur is with property condition. Appraisers and brokers are trained to research this information so that adjustments can be made. If a comparable is in inferior (or superior) condition, an adjustment will be made to reflect this.

The bottom line is that an appraisal (or “Broker Price Opinion) made by a person is going to be much more accurate than the value estimate provided by Zillow or other similar website.

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