The Buyer Equation

Posted on November 29, 2012 by AAR

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Low Inventory + Competition from Cash Investors = Tough Times for Buyers

What happened to our inventory? That’s what real estate professionals in metro Phoenix wonder as they troll the MLS for listings to show their eager buyers.

Remember just a few months ago when we wooed those potential buyers with low prices, low interest rates and plentiful inventory? Now the inventory has dried up, cash investors are on the prowl, and the owner-occupant buyers who finally jumped off the fence are finding it challenging to get an offer accepted. “We went from kind of normal to crazy almost overnight,” reports Bob Hertzog, designated broker at Summit Home Consultants in Scottsdale.

Preparing Buyers for the New New Normal

Buyers often come to you with unrealistic expectations. They’ve been hearing the doom and gloom on the news for the last few years, and they’ve finally come to believe that NOW is the time to get the deal of a lifetime. When the reality of today’s market sinks in, they’re disappointed and looking for someone to blame. Who is that conveniently located person there in the driver seat? Yep, that would be you, dear buyer’s agent.

So what can you do to prepare your buyers for today’s market? Arizona REALTORS® share their tips.

  1. Show and tell. The key to retaining buyers in a challenging market is education. “The first time I meet a buyer, we don’t really get into finding the house,” says Cory Whyte with RE/MAX Infinity in Chandler. “We just talk about today’s market, where supply is currently.” By explaining the current market in detail, you can help them develop realistic expectations—and help them understand it’s the market, not you, when the going gets tough.Show charts and reports—solds with dwindling days on market, for example—so the buyers understand why you are telling them to be prepared to move quickly. Where possible, reference outside sources that reinforce your message. (See the sidebar “News Coverage to Share with Buyers.”)

    Just be careful, warns Eileen Schreiber, ABR with HomeSmart Fine Homes & Land, to avoid the hard sell. “A lot of people I work with I’ve never met before, they find me on the Internet,” she says. “My first meeting with them has to be low pressure or they’ll move on to someone else. My job is to stand out and be really low key—give them a ton of information and let them know that it’s their decision.”

  2. Address reservations up front. Do any of these situations sound familiar? While you’re talking your buyer through an offer, he says: “Let’s offer 10% less than what we think market value is. My cousin’s wife says that sellers are desperate and will take whatever they can get.” After four weekends in a row looking at homes and countless dollars spent on gas, your buyers say: “We’re going to wait this out and see what happens in a couple of months.” After the tenth offer gets rejected, your client comments: “It wasn’t meant to be. When it’s right, I’ll get it.”If you’re facing these conversations after you’ve invested significant time in these buyers, your initial education session may be incomplete. “I have 24 points I cover with new clients before I show the first home,” says Ric Felder with Realty USA Southwest in Scottsdale. “Here’s the technique: Make a list of every single objection or question you could possibly get from day one to actually writing an offer—anything the client could possibly come up with, every reasonable question or objection. Then before you get started, answer every one. You bring it up before they do. Once you get good at it, you’ll be amazed at how agreeable clients can be because you have professionally educated them and anticipated 95% of questions and objections you are going to get.”
  3. Let them experience it. Education only takes you so far. “I can read minds,” says Gerri Bara with West USA Realty in Mesa. “They think, ‘Yeah, yeah, she’s just telling us this stuff so she doesn’t have to a) work so hard, b) so she makes more money or c) both.’”Sometimes they just have to lose one or two to get the picture,” reports Wendy Cyr, ABR, CRS, GRI of Realty Executives in Scottsdale. All you can do is offer the benefit of your experience and then let them make their own choices. When the situation bears out your advice, it shows them that you are, in fact, telling it like it is.

    “There will always be clients who need proof of my expertise,” acknowledges Matthew Pellerin with Realty Executives in Phoenix. “I accepted this fact early in my career, and it has made dealing with the lack of trust much easier.”

  4. Stay in close contact. Several agents report getting calls from buyers frustrated with their current agent. After a quick review of the situation, it becomes clear that the buyers are really frustrated with the current market—but that feeling is exacerbated by a lack of communication. “Believe it or not, the number one complaint I get is, ‘I could not get my agent to return my phone calls,’” says Hertzog.So educate your buyers, address their concerns, hold their hands when offers fall through AND make sure you reply promptly to their calls, texts and emails throughout the search. Otherwise, when that buyer’s seventeenth offer is finally accepted, it may be under a different agent’s watch.
  5. Evaluate for the long haul. “If a buyer is sincere, I’ll work with them for a long time, no problem, and that time and patience is definitely paid back because they refer others to me,” reports Cynthia Leggitt with HomeSmart in Gilbert. “But if a buyer ‘willfully’ won’t understand and thinks s/he knows the market better than I do, I refer them out—always letting the other agent know exactly why I’m cutting them loose as a professional courtesy.”

Techniques for Gaining the Advantage for Your Buyers

Once you’ve gotten the buyers on board with today’s reality, it’s time to consider ways to help their offer get to the top of the pile. “My young family is so darn cute, hard working and eight months pregnant,” reports Judith Watson with Keller Williams Arizona Realty in Scottsdale. “We are previewing homes daily, and we are able to get into the game, but not win the coveted acceptance.” Here are items to consider:

  1. Include a letter about your clients with the offer. This is an old-school technique that can still yield good results. Some short sale sellers have strong ties to the neighbors and the neighborhood and hate to see their home become a rental. Woo them with a story about your buyers and how much they love this home. “We work the emotional side and make sure the seller knows we’re committed,” advises Whyte. “That’s where communication between the buyer agent and listing agent is important.”
  2. Submit a back-up offer. Buyer agents often pass up the opportunity to submit a back-up offer, but it might be just the ticket into a home in today’s market. “As a short sale listing agent, I can tell you that about 25% of buyers walk, and we have to find another,” reports Hertzog.“The only way to have a true back-up position is to have a fully executed/accepted contract with a contingency that the contract in first position must be cancelled in order for your contract to become first position,” warns Randy Hooker with Dreamcatcher Realty in Gilbert. If the seller won’t sign a back-up offer, stay in contact with the listing agent via email. “Agents will say, ‘Call me if anything happens,’” says Hertzog. “I don’t have time to do that when I have 25 listings. But a quick email plants a seed for a listing agent.”
  3. Look at new builds. “It takes a little longer to move in, but at least they have a home,” reports Anna Kruchten, CRB, CRS, GRI with the Phoenix Property Shoppe.
  4. If the buyer is FHA, consider Fannie, Freddie & HUD homes. The truth is, sellers are going to look at cash or conventional funding before FHA. “As a listing agent, I’m as guilty of that as anyone else,” reports Hertzog. “If I’m representing a client on a short sale and they get a cash offer, even 5% lower, I’ll advise them to take that cash offer anytime.”However, Fannie Mae and Freddie Mac homes are only available to owner-occupants for their first 15 days on the market, reports Matthew Coates with West USA Realty Revelation in Chandler. For HUD homes, it’s 30 days. “This is an effort to populate vacant neighborhoods with more homeowners and not renters, which helps property values,” he reports. Encourage your buyers to take advantage of these first-look policies.
  5. Consider an escalation addendum. “If a property comes on the market for $150,000 and we think the value is closer to $165,000, we’ll write an offer but put an addendum in that we’ll pay $1,000 over the highest offer up to, say, $167,000,” explains Whyte. “That’s another way we’ve been trying to get owner-occupants in.”
  6. Make your offer as attractive as possible. When you go through the education process with your buyers, talk to them about the ways they can make their offer more tempting. “I encourage them to put down as much as they can, perhaps increase the earnest money and offer as quick a close as possible,” says Sherie Broekema, ABR, CRS, GRI, SRES with Long Realty Company.

Embrace the Now

Tight inventory is likely to continue as long as prices stay low, according to Mike Orr, director of the Real Estate Center at ASU’s W.P. Carey School of Business. “Sellers are not likely to come off the fence and list their homes for sale until they feel they are getting a fair price for the home,” he reports. “Since it would take a substantial rise in prices to get back to the long term trend-line, I am not anticipating an increase in supply without a large increase in prices.”

“We are all faced with this discouraging market, but at the end of the day, we all need to sit back and look at where we were just six to twelve months ago, when we had very few buyers looking for homes,” says Hertzog. “I’ll tell you what I’ve learned through the years. It’s critical that agents use this time to grow their pipeline… When the market does shift back to a buyer’s market, those who have clients in their pipeline will reap the rewards.”

“It’s still a great time to be a buyer,” Whyte emphasizes. “Prices are low. Interest rates are low. The only thing buyers have to exercise more than they planned on is patience.”

Source: This article was inspired by and relied heavily on discussions in the Arizona Real Estate Agent Forum Facebook group started by Dane Briggs, ABR, GRI of Firebird Realty in Phoenix. If you’re looking for advice, for an outlet for your real estate frustrations or for a supportive group to cheer you on, you should definitely check it out.

OUTSIDE MARICOPA COUNTY

If you live outside metro Phoenix and haven’t encountered this phenomenon yet, get ready. It may be coming to a market near you.

In Tucson, Sherie Broekema, ABR, CRS, GRI, SRES with Long Realty Company, reports that “inventory is down 22% from a year ago, but we still have enough for a good selection right now.” If the oft-repeated adage that Tucson’s market follows Phoenix’s is true, that selection may soon be slimmer.

In Flagstaff, “inventory is very low right now,” reports Eileen Schreiber, ABR with HomeSmart Fine Homes & Land. “There are not as many bidding wars as in the Valley, but a really well-priced home is going to go quickly.”

What’s it like in your necks of the woods? Share in the comments box below.

 

NEWS COVERAGE TO SHARE WITH BUYERS

Valley Housing Market Attracts Home Investors
CBS 5 (March 2012)
“There’s a lot of activity in the market right now… Especially under $150,000, we notice that the properties are having multiple offers over asking price…”

Fewer Phoenix-Area Homes for Sale; Prices Up
Arizona Republic (March 27, 2012)
“Supply is tight, in a pretty extreme way, and it looks like it will stay that way for months,” said Mike Orr, director of the Center for Real Estate Theory and Practice at ASU.

Bidding Wars Erupt as U.S. Supply of Homes for Sale Falls
Bloomberg (March 27, 2012)
“Contributing to the higher prices and faster sales pace in Phoenix were high investor-buying activity, normal homebuyers attempting to enter the market, speedier short-sale processes and an improvement in shopper sentiment…”

‘Worst Is Over’ in Housing Crunch
Arizona Public Media – Arizona Week (March 16, 2012)
“‘Each week that goes by, we’re seeing less and less homes available, so anybody who’s in the market to buy is getting more frustrated and more desperate, and that tends to mean they’ll bid higher prices against their competition,’ [Orr] said.”

Phoenix-Area Hombuyers Squeezed Out by Investors
Arizona Republic (March 10, 2012)
“Traditional homebuyers, who typically make an offer contingent on other steps such as an appraisal and securing the loan, find they can’t compete with someone who is willing to pay up front the entire asking price or more.”

Phoenix Housing Market Showing More Improvements
Phoenix Business Journal (March 5, 2012)
“There is a severe lack of inventory for homes priced at $200,000 and below.”

Video: Real Estate Bidding Wars
Channel 12 (February 2012)
“Buyers will have to act quickly if they want a move-in ready house…”

Is Housing Glut Over? Experts Predict Housing Shortage by Spring
East Valley Tribune (January 2012)
“Real estate experts predict the Valley’s years-long housing glut is reaching its end and, as early as this spring, could stun home buyers by transforming into a shortage.”

And here’s one, not for your clients, but for you:

Top 10 Signs the Phoenix Real Estate Market Has Gone Bananas
Real Estate Tangent – Blog by Agent Elizabeth Newlin (March 7, 2012)

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