As the real estate market begins to heat up in Denver, home buyers and sellers need to know what to expect in 2017. With the housing market inventory still at an all time low, and interest rates very attractive, there should be quite a bit of activity this year.

Larry Kendell, founder of The Group, a real estate brokerage in Fort Collins, describes the past real estate season as a “Track Meet Market.” He recently said that the market has evolved into a “Mosh Pit Market.”

In this post we’ll explore the current real estate market conditions in Denver, describe and explain the meaning of track meet and mosh pit markets, and what you can do to buy a home in this type of real estate atmosphere.

Denver Real Estate Market Data for April 2017

Looking at the current real estate market data for Denver in the month of April, we can see that home prices in the Denver Metro Area have increased over 10.5% since 2016. This shows that people want to move to Denver, and are excited to own a house and call the Rocky Mountain Front Range home. As you can see, while there has been an increase of inventory for sale, there is still a significant lack of homes for sale on the market. This has led to some very interesting challenges for home buyers when it comes to purchasing real estate.

Check out the full Real Estate Market Report for April 2017.

What is a Track Meet Market?

Over the past couple of years with the low interest rates and huge demand by people wanting to live in Denver, the real estate market has become challenging for home buyers. The low supply of housing inventory in most price ranges, mixed with the low interest rates, created the track meet market, causing a rush for home buyers to view the best properties as they were released on the market. Bidding wars and multiple offers started to become commonplace. Home sellers gained the most from this market although there were new challenges and barriers to closing that did not exist before.

Basically the “track meet” market consisted of a new property coming on the market and the first person to get to the home to see it would put in an offer. Speed, and availability of buyers and realtors, was paramount to success.

What is a Mosh Pit Market?

If you remember back in the 1980s and ’90s, there was a certain type of music genre that people would dance to by jumping into the middle of the dance floor and slam into each other. This was called a mosh pit. Mosh pits are indicative of chaotic environments where people are just throwing themselves at each other, hoping to achieve who knows what.

The current real estate market in Denver has been showing signs of mosh pit mentality during the home buying process. As soon as a home comes on the market that fits a buyer’s criteria, a real estate agent is instructed to get the deal, no matter what the cost. This has created a very difficult and frustrating environment, especially for first time home buyers. Sometimes, homebuyers are making offers on homes sight unseen. And often, the seller will insist that contingencies in the offer, which normally protect the homebuyer’s earnest money in case there is an issue with the property or if the loan outcomes are unfavorable, be removed which impact the bargaining power of the buyer.

Jenny Usaj, managing broker of Usaj Realty, recently had a scenario in which her buyer was one of 28 offers on a property in the popular Platt Park neighborhood in Denver. 28! Her client was very fond of this property and wanted it, no matter what. The offer was all cash, above the asking price, no contingencies and a favorable closing date for the seller. This type of offer is one of the strongest offers one can present to a seller. It basically says to the seller, if you accept this offer and we don’t close, you can keep our earnest money from day 1. In this case, the offer wasn’t accepted. There was another offer out of the 28 that was better. Same exact terms; all cash, no contingencies, favorable closing dates with only one difference, a higher offered price.

Most realtors that I’ve spoken to have never seen this kind of scenario in their careers. To have a property for sale that has not one, but two competing offers with no contractual “outs” for the buyers is unheard of. There is no question, Denver is in a mosh pit market environment.

What can I do to win?

As a home buyer in the Denver real estate market, you may be asking yourself, “What can I do to win this house?”

Here are some things you can work with your real estate agent to offer the seller in order to entice them to accept your offer:

Additional Provisions in the Real Estate Contract

• Offer to Cover the Appraisal Gap (this is the difference between your offer and the appraisal of the property). This is important when home buyers are financing the purchase of the home.
• Escalation Clause/ Offering the best possible price (this automatically increases your offer to a certain amount based upon other offers). If someone offers $5,000 more than you, your offer would escalate to that price as well.
• Post Occupancy/Rent Back Terms (in this market, homesellers are needing time to find a new place to live). By giving the seller 1-3 months to live in their home before having to move out can make the difference in accepting an offer.

Real Estate Deadlines

• Waive Inspection (this will remove your ability to object or exit the contract due to any inspection issues on the home)
• Waive Loan Objection (if you are very confidant in your lender, you can waive this deadline letting the home seller know you are a qualified buyer who is credit worthy)
• Waiving ILC (an improvement location report is usually required by the title company to determine the property boundaries and the location of improvements, easements and encroachments)
• Waive title insurance (title insurance is used to protect you against any lawsuits that would come against the house after you purchase it)

Extra things to Make the Seller Happy

• Offer to pay for moving
• Offering the sellers the ability to leave anything they don’t want
• Submitting a personal letter with your offer
• Having your lender call the listing agent
• Making sure your offer is not contingent upon the sale of another home
• Doubling your earnest money

Is it worth waiting this real estate market out?

I hear from homebuyers that they are concerned that the Denver real estate market is too hot right now and that maybe they should sit it out for the time being. This is a very valid concern. Nobody has a crystal ball to see how the market will fare over the next 5-10 years. What we do know is that interest rates are most likely the lowest we’ll see in our lifetime and they are set to rise this year. As interest rates begin to rise, a homebuyer who is financing their home will start to lose their purchasing power.

As interest rates rise, the value of the home you can afford to purchase decreases. Roughly, with every quarter of a percent interest rate increase, you are able to afford 2.5% less home. If today you are able to afford a $400,000 home at a 4% interest rate, when interest rates increase to 5% you’ll only to be able to afford a $360,000 house at your current income rate.

Check out these 5 trends that Fortune Magazine says will shape the housing market in 2017.

Whatever you decide to do, it is imperative that you have a professional on your side. This market is the equivalent of a South American canoe trip in a river infested with piranhas. If you don’t have a really good guide to prevent you from falling out, it could be trouble. Make sure to have your real estate agent explain everything about the market to help you navigate the waters.