I worked two open houses today, a gloomy, rainy Sunday, to support two Realtors who refer customers to me for mortgage financing. To call the day “gloomy” is probably too kind a description considering how many rainy, gray, miserable (and yes, SNOWY!) Sundays we’ve seen so far this year. Here’s the surprising thing about Rainy Sundays: Buyers are coming out looking at homes.
There is a pent up demand for homes. You can see the proof not only in the surprising turnout for open houses in bad weather (I did one open house last December on the Sunday after a 14″ snowfall and with temperatures in the teens with our best turnout of four open houses), but also in the preparedness on the part of the Buyers: many Buyers have taken the important first step in buying a home and got themselves Prequalified for mortgage financing. Both these factors clearly demonstrate that there are many serious Buyers, and a substantive demand for homes.
I think the problem in the housing market can be found in what I think Buyers really want. They want a home they feel they can afford. It’s not enough they are qualified for a mortgage loan for X amount of dollars: they want to pay a monthly mortgage payment they are comfortable making, and that might be for a lot less than the bank says they are qualified for. Economic uncertainty has driven a painful lesson home. Don’t spend more than you can afford, and don’t overextend yourself. And take very good care that you don’t over pay for a house. If there is anything today’s Buyers have taken away from the Boom and Bust of real estate in the past ten years it is this: don’t get in over your head and don’t over pay.
The Buyers I meet—at open houses and in my seminars and prequalification meetings—want homes at lower prices. This is “What Buyers Want.” They want lower prices for homes. Sellers aren’t willing to give it to them. Realtors aren’t willing to undertake the hard work of making this market work the way it’s supposed to.
The reality of this marketplace is that too many home Sellers haven’t “hit the wall” yet. They are not willing to lower their prices to a level where it meets the demand of “What Buyers Want.” This is classic economics 101; supply and demand. There is plenty of supply, not enough demand. In the economics model for supply and demand, that should drive prices down to a level where there is economic equilibrium. But that’s not happening in our housing market; prices remain beyond the “comfort zone” of most Buyers. Sellers just won’t tip themselves over the edge and bring their prices down to where they can find supply/demand equilibrium with the pent up demand from Buyers. And the Buyers won’t jump in and pay the prices Sellers want, no matter those Buyers are Super-Serious about owning a home.
You can point to all kinds of factors for this lack of equilibrium:
- A glut of foreclosed homes and short sales on the market presenting enticing alternatives to Buyers (until they get a good look at the condition of the house or the time it takes to wait for a short sale approval)
- Sellers unable to find the new housing situation they are comfortable with (many Sellers are Buyers too!)
- Occasional yet infrequent “good news” from Realtors indicating prices are going up (they’re not)
- Media “experts” predicting the exact date when the market will hit bottom and that it will go back up (thus creating a false optimism on the part of Sellers: sound familiar?)
Forget all those factors because they are not improtant to you if you are either a Buyer or a Realtor trying to make it happen NOW. If you are one of those “pent up demand” Buyers ready to pounce on the right house at the right price, what do you care about the reasons why Sellers haven’t lowered their prices? If you are a Realtor trying to eke out a living on commissions earned from real estate sales, those multiple factors aren’t putting bread on your table or paying your bills. You both need to find the right deal at the right price NOW.
I propose this to Buyers: the right house at the right price DOES indeed exist today. You can find it out there in the marketplace by undertaking two simple yet effective home-shopping techniques. I have personally used these techniques to buy my first home and I have witnessed these techniques work for my clients (even in the BOOM market!).
- Shop A LOT. Going out for two hours on a Sunday visiting three open houses or going out once every three weeks with your Realtor does not constitute shopping a lot. When I shopped for my first home in a similar market to this over 18 years ago, I looked at homes constantly. Thursday evenings, Saturday and Sunday afternoons, Wednesday afternoons and evenings. In the end I got exactly what I wanted, a great house at a great price.
- Make offers. Lots of offers. Shopping frequently isn’t enough; you have to make offers. If a Seller accepts your offer you are NOT locked in to the deal. That doesn’t happen until after your home inspection and after you sign the contract of sale with your attorney. No, making offers helps you find that right house at the right price. If the house “list” price is considerably higher than what you are willing to pay, what do you have to lose by making an offer based on your comfort level? The worst that can happen is the Seller says, “No.” Focus on what you, the Buyer, wants, not on what the Seller wants. You may find the ONE Seller who says, “Yes.” Next thing you know, you’re buying a home at a price you feel comfortable with.
That first house of mine is a prime example of the effectiveness of this method. I had shopped aggressively in one town on Long Island; that’s where I wanted to live. I had worked with 2 Realtors, but I found a “FSBO” or For Sale By Owner home one Sunday afternoon. I offered $190,000 within fifteen minutes of looking at the house. The asking price was $268,000. I was NOT making a “lowball” offer. I was serious, I wasn’t fooling around and just tossing my fishing line in the water without any bait. I had already negotiated on the house right next door a few weeks before and I knew what the final price on that house was. That house was a far better house. For “bait” I made my offer with the assurance I was preapproved for the mortgage (I worked for the bank). Sound familiar?
The Seller laughed and politely declined my offer. I shook his hand and left the house. Six weeks later I raised my offer to $210,000 and he dropped his price to meet my offer. In the intervening weeks I had constantly called and worked my negotiations with the Seller (there was no Realtor involved).
That’s how a Buyer can get what a Buyer wants.
Shop a lot and make a lot of offers.
Shopping frequently gets you out in front of more Sellers.
Seeing lots of houses lets you make lots of offers.
Making lots of offers leads you to a Seller willing to meet your offer.
It’s not complicated, just requires honesty and hard work.
For Realtors wondering how to increase their sales in this “uncertain” market where supply/demand equilibrium remains evasive, you have an even easier job than the Buyers. All you need to do is be more honest and direct with your Buyers AND especially your Sellers. Realtors need to have the fortitude to be incredibly honest with themselves and Sellers and work really, really hard at SELLING. We all know the Realtor’s job is to get the highest price for the Seller. Okay, we get it: that’s your job. But that method doesn’t work in this market. You can sit around thirty seven open houses waiting for that to happen. Instead you’ll have to use your best tools as a Realtor to SELL a deal to the Seller from the Buyer who is telling you loudly and clearly “What Buyers Want.”
Realtors! There are deals to be made and commissions to be earned. Instead of sitting around waiting for this price equilibrium that is a long time coming, you can make deals NOW.
Imagine you sell shoes in a shoe store. Fifteen people walk in on Saturday afternoon and you insist on trying to sell them one of the three pairs of handmade $400 Italian leather shoes instead of what they want: a pair of $100 comfortable dress shoes. You won’t make many sales unless you give the Buyers what they want. And they’re not asking you to lower the price on the Italian shoes; they want you to sell them the shoes they want at the price they are willing to pay.
Guess what? Those deals exist with houses, too. For every over-priced listing in your given marketplace there are three other houses with Sellers willing to listen to a Buyer’s lower-priced offer (and accept it!). These are Sellers just like that homeowner whose house I bought 18 years ago. He had been disappointed several times with Buyers backing out of the deal (for price only: the house was MINT, so it wasn’t the home inspection that killed the previous deals). He and his wife were desperate to retire, get out of New York and head south. His wife had bad arthritis and couldn’t bear another New York winter. I came along and forced that market equilibrium with that Seller.
How many Realtors do I hear complaining about Sellers not accepting “good” offers? Too many. How many Realtors tell me stories of “the one that got away” when a Buyer made an offer that’s 5% off asking price and the Seller dithers and delays. The Seller thinks a better price exists. By the time the Seller listens to the Realtor’s encouragement to accept the offer, the Buyer has moved on.
Likewise with Realtor complaints about Buyers. The predominant complaint is about the Buyer who “wants to steal” the house by offering a price far below asking.
“Too many Buyers are making ‘lowball’ offers,” the Realtors say. This thinking is flawed, too. Those Buyers are simply telling you, the Realtor, what they really want. Realtors should not only present those “low” offers, they should embrace the deal.
If you have a Buyer making an offer and telling you “what they want” and you have an asking price far above that offer, you need to work that deal and find a way to get the Buyer and Seller to agree on price. This means your Seller is going to have to come down A LOT. But the Buyer will probably have to come up a bit, too. Making this deal requires persistence, good sales techniques, patience and honesty. Don’t just shrug your shoulders when the initial offer is “too low.” THAT IS AN OFFER TO BUY! You should jump in feet first and work your behind off to make that sale happen. You may feel like you’re ruffling some feathers along the way (folks don’t always want to be told the truth!), but if you persist, your chances of making a sale are better than if you simply accept that the Seller will never accept such a low offer.
There’s no market equilibrium unless Buyers and Realtors FORCE it.
Buyers are clearly expressing “What Buyers Want.” Realtors and Sellers need to take heed.
