How to buy a house in this market
What worked in yesteryear may not be so successful today. The advice of well meaning relatives back home could well be out of touch with the on the ground reality of our market. When it comes down to how to buy a house in this market, you need the best strategy and support of a knowledgeable real estate agent. You need to be completely prepared with your financing. And you need to understand the nuances of what is going on right now so you get your dream home.
Steps to Secure a Property in Today’s Housing Market
Find a great Realtor – (hey you made it this far, contact me/Bob Gordon to get started). Understand the current market conditions. Learn the lingo that goes along with a real estate deal. Comprehend that the Listing Price might simply be the starting price.
When you do successfully get under contract, don’t let a well meaning relative derail you during the inspection. Work hand in glove with your mortgage preapproval professional. Get to the closing table. Celebrate your successes. Beating out several other offers is a win. But it’s easy to second guess yourself in the same moment. A good Realtor can help you navigate this moment.
Housing Transaction Vocabulary
From property taxes and prepaids to home inspections and earnest money, real estate has it’s own lingo. Learning all this mumbo jumbo is going to occur during your transaction. And your team – the agent helping you buy or sell, the mortgage professional, your title company, all these folks are going to help you understand the entire process.
Or maybe you are mid-process and this is not the case. Then, you should consider finding the right team of experts to help you achieve your goals while also keeping you best informed.
Select a Local Real Estate Agent
The people out there helping you find and purchase your new home? They are real estate agents. Some are Realtors, belonging to a Board with additional educational requirements. Others are strictly a real estate agent.
Having someone working on your behalf just makes good sense. The seller is paying the commission. You benefit from good advice.
You’ll need a down payment when you buy. This can be a gift from a friend or family member. It could be down payer assistance. There are plenty of great programs in Colorado. From Chafa to Max One. Some of these programs don’t even require you to repay the funds.
Around Boulder Co its common to see twenty percent down payment plus closing costs. But you don’t need all that. With a down payment program you might only bring a thousand bucks to the table. FHA only requires three and half percent.
Common Boulder Real Estate Closing Costs
Title Insurance. This comes down to making certain there are no claims against the property that could impact your future ownership. Typically in Colorado the owner selects the title company and pays for the policy.
At the height of our crazy seller’s market, it wasn’t uncommon for a good real estate agent to have the buyer cover the selection and cost of the title policy. Why? This is a sneaky way to raise the seller’s net proceeds without impacting the home appraisal. So the Seller got what they wanted – more money. The buyer got what they wanted – fewer dollars needed to cover any appraisal gap. A win-win.
Boulder Home Mortgage Terms
Appraisal Fee. If you are using a mortgage contingency to finance your house, the lending institution most of the time will want to verify the price. Typically buyers pay for the appraisal. Sometimes, a lender will issue an Inspection Waiver which means no appraisal is necessary.
Loan Origination Fee. Buyers using a home loan pay this fee. It’s usually around one point. For example. Your dream home has a purchase price of $850,000. You are planning on putting twenty percent down. The down payment will be $170,000. The new loan amount is $680,000 and the origination fee, at 1% of the loan amount, will be $6,800. This fee is generally collected at the closing table.
During the course of your home purchase, you’ll probably become an expert on all these terms. I bet you become a pro on how to buy a house in this market. Part of my job as your agent is keep you informed from start to finish.
Home Mortgage and Interest Rates
Buyers utilizing a loan will discover a whole host of new terms. Interest rate refers to what percentage rate your loan is made on. During the height of the boom rates were tremendously low. While rates are a bit higher today, they are still historically low. But, your home interest rate can play a big role in what you can afford.
Locking refers to setting the rate. If you are watching the market, you may find yourself watching and listening to what the Federal Reserve says, because that government policy center can impact mortgages indirectly.
Having a letter from your lender showing your ability to buy is important. Preapproval shows sellers you get the deal done. So starting the loan process early is to your advantage.
Two One Buy Down
Occasionally you’ll want lower mortgage rates than what is actually available. In this case you can pay additional points to reduce the rate for a period of time. A Two-One Buy Down reduces the rate two percent the first year, one percent the second and then you have the regular rate thereafter. Even in our hot real estate market I’ve seen home buyers getting sellers to pay for a Buyer rate buy down.
Writing a Check With My Offer
An upfront expense when purchasing your home is the earnest money. Now, come closing time, these funds will be part of the down payment or closing costs. But, when you write the offer, the earnest monies are one of those other expenses that come along in real estate transactions.
During the very hot market a few years back some Boulder home buyers were making their earnest money nonrefundable in hopes of winning bidding wars. Sound extreme? I know a good number of options to make your offer more attractive without giving away your money!
Good news btw. Earnest money is generally collected after you go under contract these days. So you don’t really have to write a check. If you are wiring the funds, do be extremely cautious. Loan Fraud is prevalent in real estate these days.
Buyers Home Inspection
Home Inspection contingency. Look, one thing I tell all my clients: you almost always want an inspection objection. Especially on a resale transaction. Expect to pay fees for a general inspection as well as any specialized follow up visits (structural, radon testing, scoping the sewer pipe, etc.).
Recording Fees and Settlement Statements
Recording Fees. Hey, the city takes a cut, or the county. They get you when you buy and then over the lifetime of homeownership through property taxes. If there is a Home Owners Association, you’ll have dues, possible a special assessment.
Buyers Settlement Statement. Seventy two hours before you close, the lender discloses in writing all mortgage related closing costs. Your real estate agent pro will share a copy of your Buyer Settlement before your closing date. And the title agent will go over this and all your closing documents in person.
Boulder Housing Market Statistics
The local housing market – and this is true here as well as the greater Denver home market – remains a Seller’s market in mid 2023. With a caveat. During the recent winter months we definitely saw Seasonality come into play.
Seasonality is a change from the past few years. In 2020 for instance, there was no let up in the market regardless of the season. It was a frenzy all year long. Many buyers made better than full price offers, but lost out against multiple offers time and again. Understanding the market stats and how to win in a competitive market really came into play.
List to Sales Price Ratio
What do I mean by that? Well, for starters there were a few months where savvy buyers of single family homes were actually getting properties for 95% of the asking price. That was a dramatic swing from the Spring of 2022 when homes were selling for better than full price at 106% of list price.
On a million dollars sale, that’s a swing of one hundred and ten thousand dollars. That change happened over less than half a year.
By Springtime, this opportunity evaporated. The average is once more north of one hundred percent.
So for those patient, the winter months might allow for the best deals. But, those very same months are also when the fewest homes are listed for sale. So while you might get the best deal around the winter holidays there won’t be the most inventory to choose from.
How Many Active Boulder Listings Are There?
Another statistic that comes up is what’s happening with housing inventory. We are definitely seeing more overall homes on the market in Boulder County. Take Lafayette for example.
The number of existing homes for sale in Lafayette has tripled year over year. In a hot real estate market like ours, that is fundamentally good news for buyers. More homes = more opportunity.
But we are still at lower inventory levels – by quite a bit – from the last Buyer’s market. So take this news with a grain of salt. While there are more homes you are just as likely to be offering full asking price as not.
Speaking of Price, What’s Happening to Boulder Home Prices?
I posted a video update not too long ago looking at this very metric. What I saw is that prices were much higher for a few months in the Spring of 2022. That was the momentary anomaly. Driven by a combination of low interest rates and lingering covid-19 fears driving a need for plenty of space.
Then several metrics fell off. Price per square foot declined. The average home price home buyers were paying fell. Don’t believe for a moment this means the market is down. If you ignore, for the moment, that bump, you see that long term the market has steadily gained in value. Home prices are up versus two years ago.
The National association of realtors also posts some great stats. If you are interested in learning about demographic trends, the largest current source of first time buyers and other key takeaways, NAR publishes some great material.
Strategies for Successfully Purchasing a Home in the Local Market
Buying a home is very local. While houses across the nation all have bedrooms, baths, a yard, some sort of car storage, the truth is it is a very hyper local market. Even within Boulder. West of Broadway is more valuable and preferred. Backing to open space is a big deal. Having a mountain view is cherished.
It doesn’t matter so much if you are financing with conventional loans or cash. If you are competing for your dream home, knowing the market and having one of the best real estate agents representing you can make all the difference. I strive to achieve my clients goals while providing great communication and using my nearly 30 years experience to your benefit.
Boulder has been a consistently strong market since 1978. Playing into this, we have some one of a kind political policies. The Danish Plan created open space and limited building heights. In turn, this has made the community an oasis within an ever burgeoning Front Range population center.
Of course, a lot of people says, “I live in Boulder” but really they live in a nearby town or community. I mean, I’m a Boulder real estate agent, but I myself live in Lafayette. Here I can have a home backing to open space with great views and a huge lot for a fraction of the cost of being in Boulder. And it’s just fifteen minutes to my favorite hiking and dining spots or a night on Pearl Street Mall.
Waiting For Tomorrow Rarely Pays Off
One important factor to keep in mind. There is no guessing when our housing market will flip back to a Buyers Market. Over the course of my career, I’ve heard plenty of people tell me they are waiting for the market to change. Alas, waiting like that just prices you out of the market.
So we’ve discussed some stats. And terminology. What else should you know?
Myths About Homebuying Process in the Current Market Landscape
House hunting doesn’t have to take years. It’s a weird ironic thing. I frequently hear about someone moving to the area. I ask, “are you ready to buy?” Too often the response is, “we are going to rent for a year or two to get to know the area.”
This is the exact opposite of what relocating executives say and do.
I’ve assisted clients in recent years moving to Boulder for jobs at Google. Clients like this are selling back home, come to town for a week to look and put in an offer. These savvy buyers figure out how much house they can afford early on. That budget and their space requirements generally dictate where they can afford to look.
Other buyers rent first for a few years, all the while the market is going up and they get priced out just by waiting. For example Dylan and Rachel relocated from Minnesota. I helped them find a great home in the general area. And yet, within a year they realized they really wanted to be in the mountains.
No problem. We put their house on the market, multiple offers and a closing later, they were back out there looking for their new perfect home. And their available funds for the down payment had increased by holding a home instead of tossing away cash on rent.
While you might rent, you should know long time home owners who just moved to town continue to be owners, buying quickly. You can too. Don’t fall for the myth that you have to rent first.
Acquiring a House in the Present Real Estate Market Without a Realtor
I meet a good number of potential buyers who tell me, “we are not working with an agent.” Okay, interesting choice.
Trading Representation for a Discount
When you look at sellers, the vast majority of homes selling are listed. Sure there are few FSBO’s. I’ll touch on that later. But, seriously, just about every owner has a Seller’s agent. So, the owner has someone representing their best interests, putting their fiduciary goals first, pointing out any known issues. Why wouldn’t the home buyer want this same protection?
Sometimes I hear buyers are hoping to save on the commissions. They want to trade one percent of the cost back as closing costs. Okay, it can work. But the cost to the buyer is no guidance, no helpful negotiation.
Real estate contracts are complicated. You don’t want to learn on the fly so to speak. A good agent is going to be worthwhile. Besides, the seller is the one actually paying the co-op fee. There is no expense to having an agent.
Uncommitted Home Buyers
I also hear something like, “we want all the agents we meet competing for our business and helping us in our house hunt.” Sure, that sounds good. But in practice what I’ve found from an agent perspective is just the opposite. If I have a couple of prospects house hunting, I’m going to focus my limited time and energy on the ones telling me they want to to work together.
I’ve previewed homes, even during this insane seller’s market, for clients. Having a good Buyer’s Agent on your side can make the difference between getting your dream home and coming up short.
Open House Looky-Lou’s
We have an agent and are looking at open houses on our own. OMG. This one drives me nuts. By the time I have an open house on my new listings, I frequently have offers on the table. Waiting all week for an open house in this market can lead to a lot of heartache, discovering time and again the seller already has an offer accepted.
Similar to this one is the idea of waiting to see your favorite three homes all on the same day. In a strong seller’s market, this can be waiting too long. I’m frequently showing my best clients homes every day as new properties hit the market. Home shopping means being ready to drop everything and get out there and see the house the moment it comes on the market.
Don’t Wait To Get Pre Approved
And I can’t emphasize this enough. Have your mortgage preapproval letter ready to go. Worst case, the first few homes you see are not the right ones (but, please note: it is okay to buy the first home you see)! Don’t wait on getting the mortgage brokers all bank account and credit reports. Do that as quickly as possible.
Especially in a multiple offer scenario. If you are up against some competition, you want a strong lender letter that says you are good to go. A good mortgage broker and well presented offer can overcome even a cash offer.
Agents Have Fiduciary Responsibility
But without an agent representing you, all of this might not matter. You might be thinking the listing agent wants to earn more commissions, so of course your offer looks better. But the listing agent is putting the Seller’s best interests first and foremost. Not a buyer’s desire to save a few dollars.
So every other offer has an advocate and all the contracts were written by someone else. Leaving the listing agent to just get down to brass tacks and explain the pros and cons of each one to their client.
Your extra work for lower pay offer might not stand a chance. Something to think about when you want to successfully know how to buy a house in this market!
The Current Market Conditions
Ready to buy that one house? Knowing the market conditions is key. Before you get to that final walk through you want to understand, what is the hyper local market I’m looking at like. Is it a frenetic multiple offer nightmare? Are home inspections back? How much wiggle room do I have while still trying win the bidding war?
These conditions are going to change, depending upon the price point. And the locale. Sub $1 million dollars homes in Boulder are going to be a different beast than say ten million dollar estate type properties in town. Broomfield’s BVSD homes are going to trade at a different price point than similar houses not in Boulder Schools.
The best advice here is talk to a trusted real estate professional and get the best possible advice for your hyper local market for how to buy a house in this market!
Cracking the Code: Unconventional Ways to Secure Your Dream Home
You’ve tried and tired of everything. Here are a few less conventional ideas to win your next bidding war and get your home. I’m going to tell you, this stuff works. A poker buddy’s kids were missing out on one home after another. They implemented these strategies and succeeded on their very next home offer.
Request an Inspection Waiver From Your Home Mortgage Lender
This is not for the home inspection! This is getting the mortgage lender to eliminate the need for an appraisal. It makes your offer more competitive with an all-cash offer. In the Denver metro market it is very common to see lenders forego an appraisal when there is better than 20% down financing.
Add Appraisal Gap Coverage
The idea? You agree to cover the gap between the negotiated sales price and the appraised value. The extra funds are brought as cash to the closing table.
When it comes to how to compete with a cash offer. Or how to buy a house in this market and succeed against all cash, eliminating the appraisal or covering the gap really levels the playing field. If the home seller is going to net the same no matter what, suddenly the cash offer doesn’t look so special.
An Unorthodox Approach: Buyer Love Letters
A video from the buyer to the seller. It can work. Or a written letter. Again, it can work. I’ve had good success with each tactic. And it’s not the normal thing to do. But in this market, being a little different sometimes is what it takes to notch the win.
Knowing The Other Agent
There are literally thousands and thousands of real estate agents in the Boulder Denver markets. So this one doesn’t always work. But if I know the other agent on the other side of a deal? Sometimes that’s all the advantage I need.
Several years back, I had clients in a multiple offer scenario. I knew the listing agent, Claire. I took our offer over in person. With a physical earnest money check. I walked her through the highlights of our offer. She and I spoke regularly during the day as more offers came in. Then, quite suddenly, I couldn’t reach her. Something was up.
With that limited knowledge, my clients bumped up their offer. And our offer moved back into first place, ten and a half percent better than full price. Had I not known Claire, I don’t think my clients would have won the bargaining round on that dream home. Having that good working relationship made the difference. So did the escalation clause.
What in the World is an Escalation Clause?
This is a super sneaky way to make certain you win a bidding war. You can offer one price and have the contract state you’ll pay another rather than lose the bidding war on price. Just keep in mind, its common to see this type of clause result in a maximum price point for you.
About Local Realtor Pro Bob Gordon
I’ve been assisting family, friends and clients with home buying and selling needs since mid-1995. I’ve been blogging and recently started doing my own videos. I own investment property and understand the nuances of managing a rental. I’m here to help you achieve your home selling or buying goals. Give me a shout. Let’s get your home sold (or bought lol).