May 29th, 2013 8:50 AM by Eileen Denhard
There are some basic statistics that we all know buyers want (and/or need) to know, in every market climate. The average number of days a home stays on the market (DOM), average list price-to-sale price ratio: these and other stats are part of every good agent’s tutorial for understanding the market and making offers.
But today’s market – hot and heating, in most areas – presents some unique challenges to buyers. In turn, those challenges (e.g., multiple offers, super short DOM, way over-asking sales prices) give rise to buyers’ craving for a unique set of “statistics.” These data points have the power to manage buyer expectations and help them quickly get up to speed on today’s market realities to ramp up to be successful more.
This knowledge will translate into fewer unsuccessful offers, fewer discouraged buyers who fall out of the process entirely, a higher close rate, and less of a time drain for you.
Here are some of the insider stats that house hunters desperately desire or need, in today’s market:
Have you ever taken up running? If you just go out there cold, you might stop as soon as you feel the heart-pounding, chest cramping distress of the first minute or two on the track or trail. But if you do the research first or talk to other runners, you’ll find out that everyone experiences those awful sensations and – more importantly – that they go away once you get through the first few moments of a run.
I call this “normalizing” the distresses and discomforts that so often derail people and frustrate them into giving up on an important life initiative. If you let buyers know that it’s normal for even smart, strategic, aggressive buyers to lose out on a few homes before they are the prevailing bidder in your market, it takes a little bit of the sting out of it. And that keeps them moving forward more quickly to make the next offer. It also scores you some credibility points for being the expert about what’s “normal” in your local market.
Buyers keep hearing that this is a multiple offer market. But what that truly looks like and means for any given buyer in any given market varies dramatically. If most buyers are bidding against 1 or 2 other offers, that’s one thing. If it’s common to have one or two dozen offers in contention for every home, though, that’s an entirely different scenario.
Talk with your buyers as early as possibly in the buying process about what is normal in the way of competition levels in the various neighborhoods, price ranges and property types in which they’ll be hunting. That will avoid the sometimes paralyzing fears and feeling of futility that come up when they hear about multiple offers and click their mindsets into reality mode sooner, rather than later.
You calculate a run rate by projecting mathematically how the current rate of rise in home prices in an area would look like if it continued for the whole year. For example, if homes have risen 7.5% this quarter, a run rate for the year would look like 30%.
It’s true that home price increases are seasonal, and that spring and summer home price increases will likely outpace the increases the same market will see in the fall and winter – especially in cold weather markets. So, a run rate is not at all a highly precise way of predicting the market’s performance – but it still has utility (see below). That said, in many markets, there’s still a long way to go for the market to recover. As a result, the pace of appreciation might actually continue to increase over a one-year horizon, as the market simply continues to make it’s comeback and buyer demand continues to outweigh seller supply. So, a run rate is not a terrible tool to use, right this moment, either.
Buyers may logically understand that they need to be aggressive in multiple offer markets or face the prospect of being priced out. But talking through the run rate for their target neighborhood can help them understand precisely what that could look like. Instead of just saying “you’ll end up priced out,” in the abstract, a run rate allows you to get much more vivid. “If homes continue to increase in value at the rate they did this quarter, X home that you lost, which sold at $200,000 will actually go for $260,000 this time next year.”
Breaking the numbers down this way creates the reality check some buyers need to make their real best offers in heated, ascending market climates like today’s. Use your best judgment, though, before having this conversation with buyers. Make sure that they know the reality that appreciation could slow after the summer, or not. Also take an approach that creates a reality check vs. using unfounded fear tactics: no buyer should feel scared into buying prematurely or overextending himself or herself financially.
If you work in an as-is market with older homes or where many of the homes have decks, woodwork or other items that commonly need repair, buyers may balk at the concept of taking a home as-is and still paying top dollar – despite the fact that the pest inspector is calling for $10,000, $20,000 or even $30,000 of repairs. But that is the reality of what it takes to be successful on many markets. The thing is, buyers have no way to know this is normal.
Giving them hard data to show the average pest report bill in your neighborhood or town – even if you just compile it from your last 10 transactions or jointly with other agents in your office – can help buyers know what is a standard practice in your area, and make it easier for them to wrap their heads around it. It also empowers them to make an offer that is competitive not just on price, but on terms.
The inquiring minds of buyers with demanding or hard-to-find home feature requirements want to know: what are their chances of finding a home that fits the bill. As they make offers, it’s critical to brief them on how those chances are trending, numerically speaking.
Making your buyer aware that they fall on the picky end of the spectrum, that very few homes on the market will work for them, and that the trend in inventory in their target areas is flat or barely budging, this can change the way they approach offer-making. It may motivate them to loosen the purse strings when they do make an offer on a home that checks all the boxes on their wants and needs list. It can also help them be more willing to deprioritize some ‘needs’ to non-essential ‘wants,’ when a house comes up that could work for them.
These five powerful stats can help your buyer clients make both well-informed and -timed decisions. What other stats and tactics are you guys using to help your buyer “see the light” in today’s market?