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Wednesday, July 2, 2014

Buyer’s Remorse Is Resulting in More Contract Terminations Than Usual

[Published July 3, 2014, in the Jeffco editions of the Denver Post's YourHub section. An abbreviated version also appeared in five Jefferson County weekly newspapers.]

Multiple offers are still very common because of the seller’s market we are in. The result was predictable.  Buyers find themselves frantic to submit the winning bid, only to realize a few days later that maybe they settled for a less-than-perfect home or paid more than they should for what they got.

Or perhaps a new listing came on the market that is more appealing, so the buyers use one of their many opportunities to terminate the contract so they can buy that better home.

As a broker, I have been on both sides of this dynamic.  Just last month I had a condo listing that went under contract for $10,000 above the listing price with four competing offers.  Naturally, my sellers accepted the highest offer, but the buyer terminated on the inspection deadline with an explanation that the condo was simply not big enough for their family.

Before accepting the next-best offer, I made a point of asking the buyer’s agent about his clients so I could assess their likelihood of going all the way to closing.  What do they do for a living? How big is their family? In short, is this 2-bedroom condo perfect for their situation? I shared their responses with my seller before they accepted their offer.

The lesson for me was that in future multiple offer situations, I will ask those questions of the first buyer, instead of the second.

As these charts indicate, we are still in an extreme sellers market, where there is only one month’s supply of active listings.  What that means is that the number of current active listings is equal to the number of listings which are selling in just one month. 

By contrast, many of the previous years were characterized by a buyer’s market. Until January 2013, the inventory was five months or more, reaching a peak of 19 months in January 2011. During 2013, the inventory declined gradually from 5 months in January to about 2 months in December, and you can see above how it dropped to just one month in the first half of this year.  I dare say that it can’t go much lower.

What will the second half of 2014 bring?  I don’t have a crystal ball, but I suspect that the number of new listings will continue to rise in coming months, but inventory will remain below two months.

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