Just How Baffling is this Market, Really?

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Real Estate

By Renee Cohen

June 16, 2021


We’ve all heard about how crazy the market has been. The multiple-offers so far over asking price, rent-free rent backs to the seller, non-refundable earnest money (sometimes from the start), among the other bells and whistles thrown in to entice sellers – none of this is new or surprising. What is surprising is just how baffling some of these situations really are. I’ll share one case in point to illustrate.


I was recently with clients in Cherry Hills Village. The home in question was priced at $2.375M. It went on the market on a Tuesday with showings scheduled to begin that Friday. I had a few questions for the listing agent so I reached out and learned that the sellers had already received a very strong offer, but were holding that offer because they had over 50 showings scheduled between Friday and Sunday, and they wanted potential buyers to have the chance to see the property.


My clients and I toured the home on Friday and determined they were interested in submitting an offer. We spent a little time discussing offer strategy and how far over the asking price they may need to go to win in the multiple-offer situation. On the way back to my office, less than 15 minutes after leaving the property showing, I received an email notification that the home was now pending.  Keep in mind this was Friday, and not Sunday as the seller originally intended. I relayed the information to my clients who were disappointed about having lost the chance to submit their offer, and we hypothesized about what the price and terms of the winning offer might be.


Fast-forward one week later when that home’s status changed from pending to closed, and the closed price was $3.5M. The difference between the asking price and the closed price was $1.125M, meaning this home sold for 147% of their asking price. It’s not unusual to see homes sell for 10%, 15%, or even 20-25% over the asking price in this market, but this is the highest list-to-sale price ratio I’ve seen to date.


More than an almost-unbelievably shocking anecdote about the market, this sale – as well as all the other homes with high list-to-sale price ratios – has pricing implications for our market. There has been talk about whether we’re in a bubble and when this bubble may burst. In fact, it was recently the #1 Google search in regards to real estate queries.  Simply put, this is not a bubble; in order for a real estate bubble to exist, there has to be inventory, and there is no inventory. This housing market is truly a function of supply and demand. 

 


As buyers become increasingly frustrated and exhausted from competing so fiercely and unsuccessfully, many may put their searches on hold which will help ease the inventory demand. At the same time, current homeowners may test their luck by listing their homes for sale, hoping to command the astronomical sale prices their neighbors achieved, which will in turn help ease the pressures on our inventory supply. 


These new-to-the-market sellers may ultimately be too late for the obscenely high list-to-sale price ratios evidenced in our current market climate. While you should not expect prices to return to their pre-COVID-market prices, as Colorado real estate list-to-sale ratios begin to trend downward, it hopefully signifies the start of supply and demand leveling out.