Working with First-Time Buyers

Ask What Keeps Them Up at Night, Then Help Them Face Their Fears

AZR December 2009

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2003 - 2010

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With the extension of the first-time homebuyer tax credit (see related article), you can expect to drive around more nervous novice buyers looking for their first home. Help make the process easier by talking with them early on about the fears they’re bringing to the transaction. Addressing these worries now can help forestall problems later in the process.

Assess Readiness. In a Century 21 survey of potential homebuyers this year, 78% say that now is a good time to buy. Prices are affordable, interest rates are low and the tax credit is tempting. Still, that doesn’t mean your buyer is personally ready to buy. “Every time I think about buying a house, I look at the costs associated with the purchase—property taxes, HOA fees, appliances, general repairs, home insurance,” says Dustin Moore, a web developer renting in central Phoenix. “When you start adding all that in, it becomes overwhelming.” Be sure your buyer understands the full costs of home ownership and is in a financial position to move ahead.

Talk Taxes. Viewing the lump-sum annual property tax on a home can be daunting to the first-time buyer. Discuss the tax benefits of home buying—deductions for property taxes and mortgage interest, plus the fact that gains on the home can be tax free if they occupy it for two years out of five. As always, counsel that your buyers consult a tax professional to assess their own particular situation.

Take the Sting Out of Repairs. When a buyer is used to calling the landlord when something breaks, the idea of being financially responsible for a property is a little scary. “If my water heater goes out, I call someone,” explains Moore. “It’s a hassle for a few days, but I don’t have to worry about the pocketbook at all.” Consider easing your buyer’s worry by offering a home warranty as your closing gift.

Address Job Market Concerns. “It may be a good time to buy a home, but it’s not a good time if you lose your job,” says Moore. In today’s market, it’s important to talk with your buyer about job security. If workplace layoffs seem likely, it’s probably best to hold off on buying a home. If the buyer’s job is stable but the unemployment numbers give him the willies anyway, discuss mortgage insurance, which can cover mortgage costs for several months if the homeowner becomes unemployed.

Understand Credit Scores. In a 2008 Coldwell Banker survey, brokers reported that 14% of homebuyers are concerned about their credit scores, as opposed to 4% in 1998. Familiarize yourself with the ins and outs of credit scores so that you can help your buyers understand what their credit score affects and steps they can take to improve their scores over time.

Explore Down Payment Options. 46% of potential first-time homebuyers in the Century 21 survey describe themselves as “very worried” about having enough money for a down payment. Down payment assistance programs are available not only to low-income but also moderate-income first-time buyers. Check the HUD website for programs statewide or in your metro area. NAR offers a free webinar on this topic. And you can learn about using the tax credit for down payments in this article from REALTOR® Magazine.

Cut Commute Times. According to the Coldwell Banker survey, 41% of first-time homebuyers consider the home’s proximity to their workplace as the most important factor when looking for a home. When you know where your buyer works, you can investigate neighborhoods in the area that your buyer may have overlooked or consider freeway access that might cut commute times from more affordable areas.

Set Realistic Expectations. Novice buyers rely on your experience to help them navigate the process. According to the Century 21 survey, 59% of potential buyers describe their understanding of the home buying process as “fair” or “poor.” Don’t be afraid to tell your buyers about the potential hang-ups involved in buying a home. If they know what can happen, they won’t be spooked if the transaction hits a snag. “REALTORS® are the experts in the industry, and I am not,” says Moore. “I expect that they’ll help me avoid common pitfalls that a first-time homebuyer would make.”

Selling to First-Time Buyers

Here are a few things to keep in mind when listing a home to attract first-time buyer interest.

Expect Them to Look Online. 94% of buyers aged 25 to 44 years used the Internet to search for homes, according to the NAR 2008 Profile of Home Buyers and Sellers. Be sure that your listings shine online.

Be Move-In Ready. In the Coldwell Banker survey, only 7% said that first-time homebuyers were looking for a home they could buy at a low price and fix up. 81% said move-in conditions were very important to first-time homebuyers. With today’s higher down payments, buyers are less likely to have money to invest in repairs.

Help Them Close. Talk with your seller about what they may be willing to contribute towards the buyer’s closing costs. It may work in your favor to offer that help up front, rather than waiting to be asked. The buyer can also consider paying mortgage points to reduce the buyer’s monthly payment, especially helpful if the buyer is planning to stay in the home for awhile.

Counter. Don’t take a low-ball offer personally. Instead of simply dismissing it, make a counter offer. Remember that you are dealing with an inexperienced buyer. If you can establish a dialogue, the buyer may be receptive to learning more about your view of the transaction.

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