Toppling of the pops: novices drop out as scrape-off market cools.

• Author: Lewis, David
• Position: Market overview

Last in, first out.

LIFO is an accounting term, and it also explains the way it works in Denver's Darwinian scrape-off and pop-top markets as the action cools and the weak are pushed aside.

Hard facts are hard to come by, but anecdotal evidence suggests that in 2007 Denver's scrape-off market has made up its own mind about a few things. A lot less bubbly these days, residential real estate has slowed enough to flush out some weaker custom builders and brokers, while leaving too much inventory in the pipeline.

Jitters over the larger real estate mess-sub-prime lending scandals, record defaults, failing lenders--also have cast a chill over the market for custom residences in some of the city's older central neighborhoods.

The central city's custom home market "was really doing well, but it has definitely slowed down," says Mike Baker, owner and managing broker of Centennial-based HotSpot Real Estate Inc.

Baker points to a couple of "absolutely gorgeous homes" he represents in Bonnie Brae for sale in the upper six-figure range. In the good old days, such properties would have sold before completion; today, one of the homes has been built and sitting on the market for six months. "Too long," bemoans Baker.

But, hey, this is a buyer's market, and there are still buyers for the right home in the right location, location, location.

"There are still people with money that can buy, and although the jumbo (mortgage) product has gone up a little bit, this is one of the sectors that hasn't really been that affected by it," says Courtney Nelson, broker associate with Keller Williams Executive.

Then there's that location thing. Nelson represents homes in the Cherry Creek, Country Club, Polo Club and Washington Park neighborhoods. "These areas are doing very well," she says.

Nelson just offered a Cherry Creek scrape for $1.6 million and sold it for $1.5 million in 29 days, so "I am a little biased," she cheerfully admits.

However, "The areas are doing well, but there is just a lot of inventory that are new custom or scrapes or renovated at that price point right now, and they're not moving as quickly as builders would like," Nelson says. "The smaller builders are falling out."

Just four years ago, the scrape-off concept hit the market, and developers enjoyed pent-up demand, says Chris Mygatt, president of Coldwell Banker Colorado. The builders were able to earn an above-average return on their investment.

"A lot of homeowners weren't as savvy as they are now on the core lot values," he says. "So (builders) were able to come in the market, do these things in areas like Hilltop, Wash Park, to some degree Congress Park, certainly Belcaro and now most obviously, that whole Cory-Merrill area."

People who did not have the expertise or resources jumped into the business anyway.

"What we're seeing in the last 12 months is a combination of excessive product in some geographic marketplaces, but most significantly, what we're seeing is an inferior product being built that would have sold two years ago," he says.

"But because the good builders are still building the good stuff and doing a better job every day, the marginal ones and the marginal product that really should not be on the marketplace--that is, not priced right for the niche they're going after--are going away. The marketplace otherwise wouldn't have plenty of inventory."

Builders in central Denver neighborhoods are not abandoning their projects and heading for the hills (yet), Mygatt and others report. But some are finding stronger builders to sell to, and bailing out of the business.

So to some small degree, the...