Buyers' #1 Bugaboo?

Divining Buyer Psychology

What's keeping Buyers from buying?

I see three factors operating at the moment:

One. Can't qualify for a mortgage/bad credit.

If you don't have a job, or any money in the bank, you're not going to get a loan.

At least not one from a bank.

Sadly, a couple years of grinding recession has pushed more people into this category.

Two. Can't sell what they have.

You've got a job and some savings (Yeah!).

But you've also a got a house that you can't sell, or that may be underwater -- meaning you owe more than it's worth (Drat!).

Ultimately, to a Realtor, this is just another, less dire variation of Factor #1.

Three. Worried about home prices falling further.

I can't prove it, but I think this is the real bugaboo for Buyers at the moment.

Interest rates are in the basement, courtesy of the Fed; unemployment is apparently stabilizing (albeit at very high levels historically); and home prices have already taken a major whack almost everywhere -- meaning that payments for a decent home have seldom been this low.

Ever.

Lastly, signs of inflation -- historically a positive for hard assets like housing -- are becoming manifest in all manner of commodities and stocks lately.

Everywhere, apparently, except the housing market.

Deflationary Mindset?

Ironically, while inflation concerns appear to be dominant outside the housing market, inside it, there are signs that a deflationary mindset has taken hold.

Which means that many Buyers evince an attitude of, "my choices will be better and cheaper if I wait."

Unfortunately, there's only one, 100% guaranteed cure for that: a year or two of sustained gains in housing prices.

If enough people wait for that to happen . . . current Buying demand suffers, and lower prices become a self-fulfilling prophecy.

P.S.: If inflation expectations are on the rise, wouldn't interest rates be rising?

Normally, they would be -- and that would send a signal to the Fed to act.

Except in this case, it's actually Fed intervention that's suppressing interest rates.

Got that?

Always a smart idea to disable the brakes before you hit the gas . . .

Next: "Defensive Housing Plays"

Switching Phones vs. Switching Homes

A Case of, "If it 'Aint Broke? . . .""

Are would-be home Buyers sitting on their hands for the same reason I'm still using my (almost) three-year old Palm Treo?

Granted, I'm not the typical cell phone buyer.

As a Realtor, I want my cell phone to have an infrared sensor so it can double as a "Smart Key" (what Realtors use to get into houses), just like my current phone does.

It also needs to seamlessly "hot synch" with Outlook, so that I can keep track of my appointments and my existing, 1,500 contacts (give or take a couple hundred).

My wife also needs a phone, so suddenly I need to become an expert on all the major carriers' "family plans."

Finally, both my wife and I have corporate discounts through our respective companies.

So, every time I research a plan, the sales rep has to go through an online rigamarole to find out what the applicable discount is, what's covered ("activation charge"), what isn't (hardware), etc.

Phew!!

Paralysis

Having navigated all the foregoing, whenever I'm just on the verge of replacing my Treo -- which still works pretty well, by the way -- there always seems to be "something new," just around the corner: a more generous calling plan; another "latest and greatest" phone about to make its debut; some new "killer app" or software.

In the last month, that would be 'Droid," the would-be "Linux" of the cell phone world (an open, non-proprietary platform pushed by Google and others).

There are probably a couple other considerations as well . . . but you get the idea.

In fact, the software industry long ago discovered the paralysis-inducing effect of promised, new products, and coined the term "vaporware" to describe rumored, new products or upgrades whose sole purpose is to keep would-be competitors' customers on the sidelines.

Mastering Today's Housing Market

Substitute "tax and finance" for "technology," and how much different is all this really than the housing market confronting prospective Buyers today?

For at least two years now, buying a home involves explicitly weighing many (if not all) of the following variables:

--current tax incentives (federal, state, & local);
--possible future tax incentives (federal, state & local);
--risk of home prices falling further;
--risk of home prices increasing out of one's reach (a real consideration for entry-level Buyers);
--one's credit scores and eligibility for a mortgage;
--direction of interest rates;
--the risk that the home one selects won't appraise;
--economic outlook, and in particular, one's job security;
--direction of property taxes (and inheriting an inflated property tax bill for the first year or two).

One more time: phew!!

In my experience, most of my Buyer clients today are much less focused on making a killing than on avoiding getting killed.

If the housing industry really wants to attract more Buyers, reducing the number and complexity of the variables they need to consider would be a good start.

Every Seller's Worst Nightmare

"Left at the Altar"

It's every Seller's worst nightmare: you're hours away from getting the last set of signatures that will make it a "done deal," when the Buyer informs you that they're backing out.

Why? Because they found something that they like better.

Does it happen?

Sure, but much less often than you'd expect, for three reasons:

One. By the time Buyers have gotten deep into negotiation on a Purchase Agreement, it's likely that they're already emotionally "invested" in your home.

In fact, it's a pretty safe bet that they'll have already seen your home several times, memorized the listing information, and carefully researched the neighborhood, local schools, etc.

In the course of doing all those things, the prospective Buyer's attachment to the home usually intensifies. Just as it can be said that you "bid on something you want," it's also true that you "want what you bid on."

In fact, many times I have to caution Buyers I work with not to start "mentally redecorating" or otherwise psychologically move into a home that's for sale until they actually have a signed Purchase Agreement.

Second. Buyers today have already done their homework.

With the exception of foreclosure sales, it seems that the average Buyer today spends more time studying the market, learning prices, and touring homes than a few years ago.

If you know what's out there, and are clear about what you're looking for . . . you're more likely to make a deliberate (vs. impetuous) purchase decision -- and less likely to have second thoughts later.

Will more homes continue to come on the market? Of course.

However, if you've really done your homework, the odds of a new listing offering more house, for less money, are quite low. In the rare event that that happens, multiple offers invariably eliminate any discount.

Three. Once "seasoned" Buyers find something they like and commit to it . . it's natural to stop looking.

In that way, homes are a lot like relationships.

Once you find the home you really love . . . all the rest seem to fade into the woodwork.

Even if the relevant emotion is only "strong like" (vs. love), prospective Buyers will mentally begin the process of customizing and updating their prospective new home to their taste, solidifying their attachment. (see, Reason #1).

As I like to tell prospective Buyers, if you'll only settle for a home that's a "10," the odds are pretty steep. However, if you're willing to consider something that's a "7" or "8" that over time you can make a "10," suddenly, there are a lot more choices.

Now if only one's romantic partner was amenable to such retrofitting.

Motivated Buyers

Return of the Motivated . . . Buyer??

For as long as anyone can remember, all anyone's talked about in the housing market are motivated Sellers.

As in, desperate for a deal, because their house has sat on the market for eon's and they're running out of time to make a move. Or, if they don't sell, they'll lose the house to the bank (assuming, of course, they have any equity left in it -- or ever did).

Now, I'm starting to hear and see isolated instances of Buyers feeling pressure to buy (imagine that!).

It's certainly not the case in every Twin Cities neighborhood, or at every price point, but the number of motivated Buyers seems to be creeping up.

Here are a couple of the reasons:

--First-time Buyers want to close before the end of the year to take advantage of the $8,000 tax credit.

--Buyers know that, while there are a growing number of programs to assist eligible (mostly first-time or lower-income Buyers), many of the programs have limited funding that is quickly exhausted.

--Buyers who've been looking for bargain-basement foreclosures and have lost bidding wars (yes, they're popping up again) are nervous that the next wave of foreclosed homes won't be as attractive -- or attractively priced -- as the last wave. Or, there won't be another wave.

--Buyers looking for what everyone wants -- homes in a good location, that are nicely updated, have a sensible floor plan, etc. -- are disappointed by how limited their choices seem to be in certain, higher demand areas of the Twin Cities. Instead of waiting for an even better price, they're increasingly nervous that they're going to be outmaneuvered by another Buyer willing to pay close(er) to asking price.

What all of these situations have in common is the fear of loss.

When Buyer psychology tips from fear of buying too soon, to fear of missing out . . . the market's definitely firming up.

Closing Deals in a Soft Market: Understanding Buyer Psychology

What’s the difference between a good real estate agent and a great one? A good agent thinks that their job is to attract a well-qualified buyer willing to pay the seller’s asking price. A great agent thinks their job is to find . . . three or four of those buyers.

Especially in a buyer’s market like the current one, the difference is crucial, for four reasons.

One. Leverage. A seller negotiating with a solitary buyer doesn’t have any leverage: if the seller doesn’t like the buyer’s offer and can’t get them to raise it, their only other choice is to wait. In the meantime, the seller must pay the mortgage, property taxes, insurance, utilities, and maintenance. In a weakening market, waiting also means anticipating new listings that compete with their home, hoping interest rates don’t rise, etc.

Two. Motivation. Buyer’s markets are characterized not just by a scarcity of buyers relative to sellers, but by unmotivated, even spoiled buyers who lack any sense of urgency. The same sense of anticipation that grinds down sellers and fills them with angst has the opposite effect on buyers: their attitude is, "there will be even better choices tomorrow than today, at even lower prices, so why rush?"

Often, the only thing that can counter that psychology is the appearance of a second buyer interested in the same home. In fact, multiple offers in buyers’ markets (yes, they still happen) often start out with several buyers noncommittally circling a property. Then, once one "fence-sitter" jumps, they all do.

Why? Because suddenly the time horizon for buying a given home is no longer infinite, but very finite. And if someone else wants the home the buyer is interested in -- out of all the dozens that are available -- maybe there really is something unique and appealing about it, validating their own judgment.

Three. Follow-Through. Great agents know that there are many, many steps between a would-be buyer submitting an offer, and consummating a deal with that buyer at closing. Buyers who don’t hear footsteps drive hard bargains. They make low offers that they raise slowly, if at all; put down little earnest money; and ask for steep discounts for any issues identified during the inspection.

By contrast, buyers who know they have competition try not to rock the boat. They overlook inspection issues, and are careful not to do anything to drive the seller into the arms of another suitor.

Four. Deal Insurance. Great agents know that even solid-looking deals can derail. The parties may not be able to resolve a major inspection issue; or, the buyer’s financing may fall through. Even when a buyer receives a firm financing commitment, if they lose their job or suffer a financial setback, the lender may still back out.

That’s why great agents keep the pressure on, aggressively marketing a property until the buyer’s inspection contingency is removed. Identifying backup buyers in advance not only minimizes the fallout from a broken deal, it actually reduces the risk of that happening, by lessening the buyer’s willingness to test a deal to the breaking point.