Unfortunately, some of these buyers are receiving advice from friends and family that is preventing them from scoring a home.
In order for buyers to effectively compete in the current market maelstrom, I believe they need to be encouraged to forget eight critical things.
1. Forget non-professional advice
I’m flabbergasted by the number of buyers I’ve met who try to outguess their agent based on advice from friends, family members or work colleagues. While these individuals may have purchased a property in recent history, a single purchase does not an expert make.
Unlike normal homebuyers, seasoned real estate agents buy and sell homes every day. Since real estate is a commission-based business, agents don’t make a dime unless they figure out how to compete in their current market.
Consequently, most are highly motivated to get it right.
My recommendation? Tell your buyers to put their cousin’s advice on the shelf and listen to you — a real estate agent who not only understands the current market, but has an impressive sales record.
2. Forget list price
I frequently encounter buyers who are concerned about paying too much over list price. They say things like, “We won’t pay more than 10 percent over asking.”
What is list price anyway?
Honestly … I think it’s a pretty subjective and meaningless number.
There are many ways to set the price of a home: some agents price low in hopes of receiving many offers, while others set the price high at the seller’s request. Many agents set a price that reflects actual market value, and some agents — ones who don’t understand the current market or specific neighborhood — set a price that’s totally off-base.
List price doesn’t matter. The only price that matters is the one you think your buyers needs to pay to get into the home they want.
3. Forget the comps
In a normal market, a carefully crafted CMA is critical for determining what your buyers should offer for any given property. In a volatile market, however, it’s not so much an indicator of what to pay as it is a look in the rear view mirror to see where sales have been.
You can’t drive your car by only looking in the rear view mirror, can you? No — you need to be facing forward in order to see what’s coming.
Advise buyers to look at comps that way; the last few comparable sales prices don’t matter as much as the price they’ll need to pay to get the home they currently want.
4. Forget what you believe the house is worth
Think you know what the house is worth? It’s irrelevant.
At the end of the day, a house is worth what someone is willing to pay for it. Therefore, the only number that matters is the price another motivated buyer is offering.
Seems insane, right? Unfortunately, your buyers will have to accept it or stop their search. That’s tough talk, but it’s real.
I’ve encountered many buyers who wouldn’t take the plunge because they didn’t believe the house was worth it. News flash: if someone else out there is willing to cough up the dough, it’s worth it.
If buyers really want the home, they need to figure out the other buyer’s price and beat it. If they miss or flinch, the next one will be higher. This will happen until the market turns, and no one knows when that will be.
In the meantime, prices keep going up and every completed sale sets a higher bar for the neighborhood.
5. Forget the appraiser
Many properties are selling far above previous sales, making appraisals difficult.
Determined buyers are removing appraisal contingencies and finding ways to fund the shortfall if it appraises low.
Don’t have the ability to come up with extra cash? Your buyers may need to get creative (we purchased our first home with a “gift” from the First Bank of Mom and Pops). They may also be able to reduce the amount of principal they are putting down and go with a higher loan.
The difference in available cash may offset a lower appraisal price. Since a high percentage of sellers in our area anticipate receiving offers with the appraisal contingency removed, buyers are either finding ways to offset low appraisals or getting out of the market altogether.
6. Forget searching at your maximum price
If your buyers really want to land a home, they need to be looking at properties priced 10% to 15% under their limit so they have some room to maneuver.
If your buyers are pre-approved for $500,000, they should not be looking at homes priced any higher than $450,000. Even then, multiple offers could easily push the price over their limit if the home is particularly desirable.
7. Forget searching for your dream home
This is perhaps the hardest of all.
Prospective buyers often spend hours building lists of items they want and things they won’t accept. Couple that with the fact that many new buyers are far less acquainted with a hammer and other tools than previous generations, and you end up with very picky buyers.
My recommendation? Tell them to toss the list.
Homes can be improved over time. Buyers can hire help to do things they cannot do on their own. Finding a house is difficult as it is, and expecting to find one that meets all their criteria will make the process even more difficult.
Some buyers stare back at me with blank looks that infer there refusal to accept this advice. While looking at a property, one person said, “This is not as nice as our current rental.”
“True.” I responded. “But your rental belongs to someone else. This could be yours. In reality, you may need to move down before you can afford to move back up.”
8. Forget giving up
It’s frustrating, agonizing and totally scary, but the buyers who get into homes are the ones who don’t give up.
It’s hard to keep going when disappointment, frustration and anger set in. It’s no mystery why so many buyers give up on the process and abandon their search.
The good news is that if you advise your buyers to forget these eight things, remain persistent and adapt to meet current demands, you’ll eventually get them into a home of their own.