May 8th, 2014 12:26 PM by Eileen Denhard
“Oh, how I wish. . .” started no wise real estate decision ever. There’s a reason they call it real estate, folks. That’s because we’re dealing with the most tangible type of property around— land— and the buildings that, formally speaking, represent improvements to that land.
For agents, we realize that real estate is serious business, because—well—it is our business. But for some buyers, purchasing a home can still feel abstract and conceptual. As a result, there are some buyers who attempt to apply fantasy-realm wishes to real life, real land situations. This mindset is never a setup for success. But when the market is hot and you have a goal or a timeline, engaging in wishful thinking is not just foolhardy— it can be downright costly.
This hot selling season is still predicted to be tight when it comes to inventory. That means that buyers need to bring their ‘A ‘game and keep their head on straight if they’re going to snag their dream home. As an agent, it’s your job to help buyers get back to reality. Here are three common, costly buyer mistakes that often arise when the market is hot, offers are plentiful and prices are rising—and what you can do to help out your clients.
It’s a tale as old as time: A buyer has seen two-dozen houses and put in a dozen offers. No dice. As agents, we know the problem. The home that the buyer wants—a move-in ready three bedroom in safe neighborhood, good school district, a close commute to work—exists. But that home doesn’t exist in the most covetable neighborhood in town at the price point the buyer can afford. The truth is, the buyer simply wants a home that they cannot afford.
As agents, this can be one of the most frustrating situations. You did your job—you found your client a home that’s as close to perfect as it can get, but the buyer can’t realize it because it sits just a mile outside of their “ideal” neighborhood.
And as much as you try to convince the buyer of that, they harp on the fact that they wish they could just pick the home up and drop it in their dream neighborhood.
Here’s the truth: The buyer’s expectations aren’t based in the reality that the hot market dictates. It’s time to get real with your buyers and it’s in your best interest to give it to your clients straight—tactfully of course! When a buyer has been outbid a double-digit number of times, something about their approach is not working.
Show them list price and sale price data on the recently sold-homes in their desired neighborhood. Do mini case studies of their past failed offers and set up a bit of time to walk through them one by one. It’s not just that there were multiple offers, it’s that the buyer’s offer wasn’t up to snuff.
It’s time to work through a priorities list with your clients. They either need to downgrade their specs in terms of properties they seek—looking for something smaller or in less-pristine condition—or they need to shift their location criteria.
Part of the reason that wishing a home is in another neighborhood is dangerous is that the white-hot markets in many towns are hyper-localized in the Most Desirable Neighborhood in Town. That’s where the competition among buyers and bidding wars are the most intense. If buyers are not prepared to house hunt for homes quite a bit lower than their top dollar to set themselves up for success, or if there simply are no homes in that neighborhood listed below their top dollar, they might need to face the reality check that they simply can’t afford to buy there now.
Remind your buyers to stop wishing the home they can afford were in a different neighborhood, because if it were, chances are good they wouldn’t be able to afford it, either! Gently tell them that they’ll be able to level-up your neighborhoods as time goes on and they buy their next home. After all, inflexibility can paralyze a house hunt so long that prices all over town rise even more.
There’s a fine line between wishing something were true and denying the reality of what actually is true. For some buyers, facing reality, even when it’s painful, allows them to make an action plan for getting the best possible results with the resources they do have —or a plan for getting more resources.
Ultimately, only a buyer can decide how much they can offer on a home. Agents can advise and provide data to help frame the decision, but the client is the be-all, end-all.
But buyers who opt to make a lowball or at-asking offer in situations where they are virtually guaranteed to run into high levels of competition are setting themselves up for failure. And when buyers fail, they also add to the demotivating, depressing, discouraging momentum in times when they get overbid despite giving it their legitimate best efforts. That frustration often leads to analysis and calling a house hunting time-out. And that, in turn, often leads to buying at a time when prices are even higher, and getting ultimately even less home for their money.
As an agent, it’s important to depend on the data in these situations. Poor decisions by buyers most often result thanks to a lack of education about the situation. Exercise patience. When a buyer continually self-sabotages a deal by going against your initial advice, it can be tempting to just stop making an effort. Fight past that feeling. Remember: Most buyers aren’t purposefully making deal-killing offer. A little education about the market—complete with charts and visual aids, can help get the buyer off the train to Never Neverland.
Here’s the deal: when prices were flat or falling, buyers were (understandably) stressed at the prospect of buying a depreciating asset. Now that they’re ascending, it’s not at all uncommon to hear buyers bemoan that, too. But the moment escrow closes, the fact that prices are rising, and fast, will shift in your buyer’s mind’s eye from curse to blessing. Remind them of that.
Rising prices and a recovering market might be what emboldened your clients to buy to buy, empowered them to sell a formerly underwater home, and certainly have been inextricably intertwined with the increase in jobs. If prices weren’t rising, many of these other things might not be materializing, either, and that wouldn’t be so great.
Wishing prices weren’t going up so fast contributes to a costly denial that prices aren’t really what they are. This can cause buyers to make lowball offers and waste their precious time on homes they can’t compete for within in their budget range, all while their smart targets are appreciating rapidly—and that’s how people get priced out of the market, right under their noses.
Don’t let your buyer’s dreams fall prey to this costly wish-based pitfall. Keep buyers in the know on how prices are trending throughout their house hunt, and encourage them to use that knowledge to power their decision-making about what price range to house hunt in and what price to offer for target properties.
Trulia-May 5, 2014