Record area home prices overstated, agents say.
Source: Rocky Mountain News by John Rebchook
The average and median prices of previously owned homes sold in the Denver area inched to record highs this month, but a number of agents increasingly believe the prices are inflated because of concessions being offered by sellers and demanded by buyers.
For example, if someone sells a house for $106,000 but gives the buyer $6,000 for the down payment, the sale in the MetroList records would be listed at the gross amount of $106,000, not the net amount of $100,000.
Among other records, the median, or middle price, of a home sold rose to $255,000 this month, eclipsing the $252,250 median price in July.
Independent broker Gary Bauer and Steve McGuire of RE/MAX Professionals, along with Coldwell Banker Colorado, released separate reports on Tuesday that track home sales. They adjust the data for the number of weeks in each month. Sales for the remaining days in August will become part of September’s reports, but data will be adjusted so each month is comparable.
Although there is no way of telling how much home prices are being inflated, Bauer said the concessions must be skewing the numbers to some degree.
Buyers are extremely picky and feel no urgency to purchase a home because of the huge supply of unsold houses on the market and still relatively low mortgage rates, Bauer said.
The MetroList data are overstating the overall sale prices by about 1 percent, McGuire estimated. He said only about 10 percent to 15 percent of the homes he sells use concessions, but he said he knows that percentage is much higher for other brokers.
Frank Hernandez of Metro Brokers-Harvest Realty in Thornton said 80 percent to 85 percent of the homes he sells are with incentives. Typically, the incentives amount to 3 percent of the sales price, he said.
Many brokers, lenders and economists say that 100 percent financed deals are causing the number of foreclosures to rise.
That creates a vicious cycle in which market-rate sellers must lower the price of their homes to compete with the foreclosed homes on the market, Hernandez said.
"I think the market is getting worse," said Brian Bartlett with RE/MAX Southeast. "You’ve got all of this goofy financing going on."
He said he recently sold a home in Green Valley Ranch and that 40 similar homes were competing with his seller. The seller paid the down payment and closing costs, and the buyer received $300 at the closing.
The MetroList sale prices must be inflated, said Larry McGee of the Berkshire Group, but he said he has no idea by how much.
"If you pick any number, you’re just shooting from the hip," he said.
Some Realtors aren’t even listing the concessions with MetroList, he said, which makes it even tougher to arrive at an accurate number.
"What MetroList is best for is establishing a trend line of which way the market is heading," rather than a precise accounting of individual housing prices, McGee said. "If you’re an individual seller, what do you care what the average or median price is doing marketwide? You care whether you sold your house for a profit."
Rising gasoline prices and interest rates also could hurt the housing market, said Rob Horton of Metro Brokers Absolute Realty Services. But neighborhoods close to where people work can benefit, Horton said, because more people are telling him they want shorter commutes because of rising gas prices.
Even a person at MetroList, a Realtor-owned group that releases home sales statistics on the last full week of each month, said the allegations may be worth investigating. The woman, who asked not to be identified, said Realtors are required to fill out a sales concession field when recording the sale in the MetroList computer database. But the concessions are not subtracted when calculating the overall sales price, she said.
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