What is a HOT Market?
A hot market is also called a seller’s market.
A market is HOT when homes sell quickly, multiple offers are common, and homes are selling for over asking price. It’s also called a seller’s market because sellers have the upper hand in negotiations.
Signs of a HOT market include:
- Multiple offers.
- Bidding wars.
- Homes selling for more than the asking price.
- Fewer homes listed for sale compared to historical averages.
- Less than six months of inventory of homes for sale.
- Active listing prices are higher than recent comparable sales – prices are increasing.
- There is a net migration of people moving into the area – increase in buyers.
- Low days on market – homes are selling quickly.
The metro Denver area is currently experiencing all of these signs of a HOT market.
There are currently around 3,500 active listings in metro Denver. Almost 2,300 homes closed in January 2015. Therefore we currently have 1.5 months of inventory (3,500 / 2,300).
This graph shows the number of homes for sale in metro Denver over the past five years. We have very few homes currently for sale compared to the past five years.
Homebuyer Tips for a HOT Market
If you are considering buying a home in our current HOT Denver real estate market, there are several things you can do to increase your chances of successfully buying a home:
Get Your Financing in Order – Unless you’re in the position to pay cash, you’ll need to get a mortgage in order to buy a home. Getting your financing in order is the most important step for you to complete. You should speak with a lender and get a
pre-approval letter. In our current market, a typical pre-qualification letter isn’t going to carry as much weight for the seller as a pre-approval letter. In order to obtain a
pre-approval letter, your lender will verify the information you provide and have your file reviewed by underwriting. This will go a long way in helping to get your offer accepted.
- Be among the first buyers to view new listings when they come on the market – Work with a REALTOR® who will take the time to really learn what you’re looking for in a home. Your REALTOR® should be searching for new listings that may work for you on a daily basis and alerting you to them as soon as possible. In this hot market, you need to go see these new listings the day they go on the market. If you wait even one day, they may already be under contract.
- Remain flexible – When shopping for a home you should create a must-have list and a nice-to-have list. You should try to find a home that meets most of your requirements. However, in this hot market, it is in your best interest to remain somewhat flexible even on your must-have items.
- Don’t give up – It’s typical in our current hot market for buyers to make several offers before one is accepted. Understand that this is normal and don’t get discouraged. The right home is out there for you and you will find it.
- Use a REALTOR® who closes lots of transactions – They have experience dealing with multiple-offer situations and negotiations that a REALTOR® who is part-time or doesn’t close very many transactions per year just doesn’t have. The average REALTOR® only closes between 6 and 8 transactions in a year.
Make your offer as strong as possible –
- Price – Make your offer for the highest price you are willing to pay within reason. You need to work with your REALTOR® to come up with a realistic price that will appraise. If you offer way over asking price and the seller accepts your offer, the deal may terminate later if the appraised value isn’t there.
- Contingencies – Price is very important to the seller but isn’t everything. You also want to limit contingencies as much as possible. For example, if your offer is contingent on you selling your current home first, it’s unlikely to be accepted in our current hot market.
- Terms – Have your REALTOR® call the listing agent and find out what is important to the seller before writing your offer. Does the seller want to stay in the home for a week after closing? Does the seller need to find a replacement home? Does the seller prefer to close in 30 days or 60 days? The answers to these questions can help you write an offer that will be more acceptable to the seller giving you an advantage.
- Consider writing an escalation clause into your offer – An escalation clause states that you will pay some amount over any competing offers up to a price. For example, a home is listed for $250,000. The seller has received multiple offers. You decide to make an offer with an escalation clause that says you will pay $1,000 over the highest competing offer up to $270,000. This can be a good strategy to help you be successful in getting your offer accepted. However, the risk is that you are showing the seller your hand in that you are telling the seller that you are willing to go up to $270,000. The seller has the right to counter your offer by saying they will not participate in the escalation clause and that the sales price will be $270,000. This can put you in the position of paying more than you might have to buy the home. If all of the competing offers were for a price under $260,000 and you had offered $260,000 without an escalation clause, you would have had your offer accepted at this lower price. You have to weigh the advantages and disadvantages before writing an escalation clause into your offer.
- Consider writing a “love letter” to the seller – When sellers receive multiple offers that are similar in price, contingencies and terms, they have a difficult decision to make. They want to choose the offer that is most likely to make it to the closing table. A letter that the buyer writes to the seller telling them how much they love the home can sometimes make a difference and get your offer accepted. I’ve even submitted a photo of my buyers in front of the home holding a sold sign with the offer.
Implementing all of these tips can help you get your offer accepted in our current HOT real estate market!