If you’ve been paying attention to homes for sale in the Colorado Springs area, you know that that we have very low inventory,homes are moving quickly, and prices are increasing. We wanted to dive a little deeper this month and go beyond the numbers. This post will give you a behind the scenes look at what our team and clients are experiencing in this challenging market and what it could mean in the future.
It has become standard practice for listing agents (the agents representing sellers) to bring homes on the market on Thursdays. Showings are available through Sunday, and then the sellers choose an offer on Monday. This practice is causing a weekly pattern of market activity: a flurry of new listings on Thursday and then they are usually are under contract by Tuesday morning. This works fabulously for sellers, but buyers are committed to one offer for the entire weekend. Unlike other states, buyers in Colorado can only make one offer at a time. To make matters more stressful for buyers, there are many listing agents in Colorado Springs who are not reaching out to let folks know when their offer isn’t selected. Instead, buyers and their agents often find out their offer wasn’t accepted when the listing is suddenly switched to under contract or pending.
Sellers should consider listing on Monday or Tuesday. This is when all of the buyers who didn’t get under contract over the previous weekend are starting up their search again. We can put together a optimized marketing plan for you to sell your home for the most amount of money with minimal stress. Call 719-219-9739 to get started.
MAKING AN OFFER
- Highest and Best
In the current Colorado Springs market, there is typically not an opportunity for second chances when buyers make an offer on a home they want. During the Great Recession, buyers would start out by under offering and then the listing agent would make a request for “highest and best” offers. This hasn’t happened in a long time. Buyers should submit their highest and best terms with their initial offer.
- Escalation Clauses
We are seeing a new trend in our market with escalation clauses. An escalation clause is where a buyer submits an offer with instructions to automatically increase their offer up to a certain amount if another buyer outbids them. Many listing agents are not allowing escalation offers right now. There could be 10-20 offers on certain homes and escalation clauses can make selection more difficult and complicated in these circumstances. Unfortunately, this strategy takes away a vital tactic and important information from the buyer. Even if buyers are unsuccessful, escalation clauses at least give them real time information about the offers they are competing with. They can learn from that and use it for their next offer. Without these clauses, buyers are completely in the dark. This trend reiterates the importance of buyers submitting their best offers right away.
Read more about optimizing your offer to appeal to sellers this post: Home Buying 101: Making an Offer.
- Appraisers: Appraisers have the grueling task to value a home for the lender (not for the buyer). This value is used by the bank to determine how much they are going to loan to the buyer. Appraisers will review comparable sales as far back as 180 days and within 1 mile to determine a value.
Example: You are under contract for a home at $200,000 with a VA loan and want to finance 100% of the home’s value. If the appraiser values the home at $190,000, the bank will only lend you $190,000 to purchase the home. This leaves you with a $10,000 difference to bring to closing in cash.
- Shift of Responsibility: In a typical real estate market, it is the listing agent’s responsibility to defend a list price to the appraiser. This means the agent will provide evidence on how the list price was calculated to ensure the appraiser sees the same value. But most offers in the current market include an appraisal gap where the buyers commit to make up any difference between appraisal and contracted price. This has caused buyers agents to be much more involved in assisting the appraiser in their evaluation.
Related Reading: Steps to Buy a Home
Home builders have their own struggles. How can they keep up with the labor and material costs that are increasing nearly every week? The answer is streamlining construction, limiting design choices, and to price and (contract) the new homes as late as possible in the building process.
New construction timelines are also be pushed out. It depends on the builder, but it’s realistic to expect a 12 month building timeline for a dirt start new construction home.
It’s not uncommon for extended family members to provide assistance for home buyers. We are seeing family members give money to home buyers to help with appraisal gaps. It’s becoming more common for families pool their resources and to move in together. A multigenerational trend has been emerging over the past few years as family members started caring for each other, and the pandemic seems to have expedited this trend.
Another popular strategy includes parents or grandparents using cash to purchase a home for their adult kids just to get in. Then the kids will refinance at a future time.
Many times, buyers do not have any contingencies in their contracts. This means they will still have an inspection and complete their due diligence, but they will not request any repairs or corrections from the sellers. In this case, it is particularly important to be diligent about the few deadlines we see in the contract to allow buyers to terminate the contract if they feel it is necessary.
Earnest money deposits are drastically increasing, sometimes even up to the full amount. You read that correctly: earnest money in the amount of the purchase price.
BUYER EXHAUSTION AND STRESS
Buyers are understandably experiencing a tremendous amount of stress in this challenging market. They are frustrated and can have a difficult time trusting that these are actually the current market conditions. We get it. We work in this business and these conditions are hard for us to believe, too. Buyers are anxious that the seller will abuse their leverage, and emotions can be so high that even agents will lash out at each other. As one client stated: “It’s a real dogfight out there.” It is difficult to remain calm if there seems to be such inequity.
Our best advice: find an outstanding agent, accept your real estate agent as part of YOUR team, and work together to achieve your dream of home ownership. True professionals will remain faithful to you even at your 8th, 9th, and 10th offer, if necessary. It is absolutely vital to create this team relationship. We encourage you to consider if purchasing a home right now is the best thing for you by realistically evaluating all factors of home buying process in the current Colorado Springs market.
Related Reading: Choosing an Agent
IT MIGHT FEEL LIKE YOU’RE OVERPAYING, BUT…
If you are able to see the “good bones” of a house and overlook the outdated paint, go for it and make your best offer. The majority of buyers are searching for a home that they can just move into. Your offer might not get accepted, but we are starting to notice that sellers are really pushing their list prices so high that it can create an opportunity for the buyer. If a house has been sitting on the market for more than a week, there is opportunity for buyers. You will probably feel like you are overpaying for a home in most cases in Colorado Springs in April 2021. The good news is that prices are expected to continue rising and your home value will probably increase as early as this summer.