When Christopher Simmons began shopping for a home in Denver six months ago, he had no idea the risk and the frustration it would take to get one. The 27-year-old had good credit and cash to put down, but that was not enough in this red-hot market.
"One of the hardest parts is that I travel for work often and am typically out of town on the weekends, and houses are being listed Thursday afternoon, offers due by Sunday afternoon and responses back on Monday," said Simmons.
He lost eight houses he liked, simply because he was out of town. He lost two others in bidding wars, one of which had 18 bidders. Finally, Simmons went under contract on a small home in a transitional neighborhood, but only after beating out five other bidders. He wrote a letter to the owners, describing how he had grown up in the neighborhood, and then he added a risky tactic.
"I waived the inspection and the appraisal contingencies on all of the offers I made and on this one as well," said Simmons.
The supply of homes for sale in Denver is down 15 percent from a year ago, the number of days on the market for homes has fallen 31 percent and the median home price is up 11 percent, according to the real estate company Live Urban Real Estate. Homes are flying off the shelves, and bidding wars are the new normal.
"Prices are going crazy. Multiple offers, love letters, videos, all kinds of things to appeal to a seller in order to make yours stand above all the others," said Denver real estate agent Jill Schafer.
Supply here is low for a number of reasons. Employment is growing at more than 4 percent versus a year ago, home builders really didn't ramp up production after the recession and land prices in the Denver area are at an all-time high, according to John Burns Real Estate Consulting. Most of the available land is out by the airport, where sales are not particularly strong.
Another issue plaguing the market is a lack of condominiums. Demand for condos was weak after the housing crash and foreclosure crisis, and then a Colorado law passed in 2010 making it easier for homeowners' associations (HOAs) to file class-action lawsuits against developers for even the smallest construction defects.
"If you can't put a project-specific insurance policy in place to protect yourself against inevitable lawsuits, you won't build condos," said Christopher Waggett, CEO of D4 Urban, a Denver real estate developer, who has been fighting to have the law changed.
Standing in front of a huge construction site of rental apartments, Waggett said there is a multifamily construction boom in Denver, but just 2 percent of it is condos, and those are only on the very high end. That's because in order to afford the insurance policies against litigation, developers would need to build million-dollar units.
"We've had a situation in Denver for the last five years, where vacancy rates on multifamily have stayed below 5 percent and rental growth has been above 7 percent. That is not a normal market," said Waggett.
"I don't think incomes have been rising at that pace, and I think we all know what happened in 2008-09 where we got an imbalance between incomes and value of property, in this case rent. There is a serious issue," added Waggett.
Over in the tony Cherry Creek neighborhood of Denver, a condo building is going up, and it is more than 80 percent sold, even though it doesn't open until August.
"If we were 50 percent sold, we'd be just outrageously happy, but at 80-85 percent where we are right now, this market is so incredibly tight for all real estate including condos. It's just been amazing," said Roy Kline, managing director of Western Development Group.
Most of the condos at Kline's 250 Columbine list at more than a million dollars, with the penthouse going for $5 million. That, he said, is what it takes to insure his company against litigation, and to test the project vigilantly for any potential defects..
"We have peer reviews, have people looking over each other's shoulder continuously to make sure everything gets done right," said Kline, who described going over the top by beefing up the building for sound attenuation and water resistance.
Kline, however, expects there still may be lawsuits, even though not one owner has moved in a suitcase. Lawyers, he says, target new condos, hoping to find anything wrong.
"The HOA will be approached by a litigation firm, and they'll ask them, maybe we can help you if you have some issues with your building, and they'll go in and literally end up taking a unit apart and looking for all the little defects in it," said Kline.
Some say the lack of condos is less about the law and more about lack of demand, but that argument is losing steam, as home prices soar amid stiff competition.
With rents continuing to rise, it is already cheaper to buy in this market than to rent, according to Schafer, and that will only put more pressure on single-family home builders and condo developers to ramp up production. Until then, buyers will continue to bid.