Posted by Damon L. Chavez on Monday, May 9th, 2016 at 9:45am.
May 5, 2016 / Denver Post - Real Estate, by Aldo Svaldi
Seller demands and buyer desperation lead to unusual increase in failed contracts, reports the Denver Metro Association of Realtors
Home buyers and sellers took off their gloves and went at it in April, with an unusually large share of contracts — as many as 23 percent — falling through, according to a report Thursday from the Denver Metro Association of Realtors.
"It is unbelievably brutal out there. Tempers are flaring. A lot of buyers are giving up and renting," said Richard Kelley, who oversees 117 brokers as owner and president of Metro Brokers DTC.
Metro Denver had 6,387 new listings come on the market, up 11.3 percent from March, and 5,153 homes go under contract, a 9.2 percent increase from the prior month, according to the DMAR report.
There were 4,312 homes sold in April, which is up 1.1 percent from March but down 9.5 percent from April 2015.
On the surface, the report for April shows a strong and healthy resale market.
Underneath, agents report rising frustration and tension as demand continues to far outstrip supply, particularly for properties priced less than $400,000.
The share of listings returning to the market because the winning offer fell through is double the usual rate, and that signals a resale market turning nastier for sellers and buyers alike, said DMAR market trends committee chairman Anthony Rael, who is a metro Denver real estate agent.
"You have this pushback on both sides," Rael said. "Sometimes, people hunker down and put their feet in concrete."
Buyers, once more willing to accept whatever sellers ask, are getting frustrated with requests to waive inspections or appraisal contingencies, long considered standard protections.
On the other side, sellers are irritated by the growing number of buyers who make high offers to lock in a property then back out.
Appraisals, used to determine how much a bank will lend against a house, remain a sticking point, the report notes. Some buyers have become so desperate after repeated losses they bid way above list price.
When they win, some find they got carried away and don't have the money needed to cover the gap. As a result, more sellers are requesting proof of funds for buyers going above the list price.
Losing multiple bids is wearing on buyers and their agents, who are writing contract after contract with no payoff, Kelley said. And multiple offers are burying some sellers — one entry-level home in Park Hill reportedly received 104 offers recently.
Given the rising failure rate, sellers and their agents are anxious to avoid picking a buyer who will leave them in the lurch.
Count John Forrest among the frustrated buyers. The writer-consultant and his wife decided at the start of the year to trade their Boulder condo for a larger property in the metro area.
They were looking in the $300,000 range, where the inventory of available homes is super-tight and properties move fast.
Seven times they made an offer and lost out, once in a field of 25 competing offers and another time in a group of 14. Battle-hardened, they finally managed to win on a home they had lost out on initially but was relisted.
But an inspection showed it was beetle-infested, so they dropped out. They were able to beat the competition a second time on another home by bidding over the list price.
"The appraisal came far below what we needed it to be," Forrest said. "We essentially had to back out of that one."
Forrest and his wife got so fed up with metro Denver's housing market that they started looking in the Pacific Northwest, only to find the situation up there wasn't any better.
"There is a sense that the market just isn't right, and something is waiting to adjust," he said. "We will cool our heels."
Rael urged both sides on real estate transactions to be more civil and flexible. A seller who's happy with the initial listing price should avoid squeezing buyers for every penny — especially when the appraisal can't support the offer.
Cash buyers who helped fuel the frenzy over the past two years aren't as prevalent, but they still pose stiff competition for people trying to pay with a mortgage.
Likewise, buyers should avoid getting caught up in the heat of the moment and making offers they can't follow through on when bidding on homes they don't really want.
Given how many deals are falling through, Rael advised runner-ups to go ahead and submit backup offers, which now stand a better chance of being accepted than in the past.
Home price increases slowed a little in April, but remained in double-digit territory year-over-year.
The median price of a single-family home sold in April was $385,000, up 2.37 percent from March and 10 percent from April 2015.
The median price of a condo sold was $240,000, up 2.13 percent from March and 17.1 percent from a year earlier.
Listings of all types are spending an average of 31 days on the market versus 39 days in March and 29 days in April 2015.
There were 5,221 homes and condos available for sale at the end of April, a 16.5 percent increase from March and 3.9 percent more than last year. That surge is typical this time of year, and the inventory of homes available for sale remains at a third of historical levels.