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Buyer's Don't Buy in a Buyer's Market

By Herb Hamilton

Real Estate Agent with RE/MAX Preferred Inc. Realtors

June 29, 2007 03:56 AM

Yesterday while showing one of my Listings_For_Sale_in_Portland_Or the Buyer asked me " Do you think the Seller would be willing to take less "? Now I have answered this question thousands of times over the last 19+ years that I have been in business usually with a simple answer like" I don't make decisions for my Seller's ".

However because of the tone in the Buyer's voice, a tone that gave me the impression that he deserved the reduction in price I asked " What causes you to ask that "? His straight up answer was " Because it's a Buyer's Market ". What an interesting statement to make. In Portland Oregon over the last year we have had an 11% increase in the market which is down slightly from the 14% of the previous 2 years. Certainly though it would be hard to categorize that as a Buyer's Market.

It was a pleasant showing but the question started me to thinking about the differences in a Buyer's Market and a Seller's Market. I had already touched on this subject early yesterday before the showing on my Portland_Flips_Business_Blog .

So what are the elements? Well certainly over the last several years as the market has continued to expand, one would have to conclude that was a Seller's Market. Prices were constantly going up, speculation was often the name of the game and Seller's were reaping relatively quick rewards for their properties.

So then to be a Buyer's Market the opposite must be true? One of falling sales prices, rising inventories and strong competition to make your property the most attractive with little or no profits at all for the Seller's perhaps even selling at a loss.

In this type of market you would conclude that Buyer's following sound business principles of Buy Low and Sell High would then be in a Feeding Frenzy. Especially in areas that have been notoriously expensive to purchase. While interest rates are relatively low and prices are down you would think that all of the people who had hoped to purchase and were unable to during the Seller's Market would be all over this Buyer's Market. The pent up demand for those who have wanted to buy and had been priced out certainly would propel the amount of sales in a Buyer's Market well past any number done in a Seller's Market.

That however is not the case. In fact it has not been the case at all in the last 19 years that I have watched as markets went through there normal cycles of highs and lows.The reality is that Buyer's tend to make more purchase's in a Seller's Market often times competing for the same homes while driving up the prices even further.

So what about this Buyer's Market then? Well if Buyer's don't or won't take advantage of the conditions then by it's own default there can be no Buyer's Market.

Do you Agree or Disagree?

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Rob Robinson- Lehigh Valley PA

Bertrum Settlements (Title & Abstract) - Allentown, PA

Why don't people pay the asking price if they TRULY like the house and believe its VALUE is appropriate?

People don't seem to say, hey it's the house I WANT, I can AFFORD it and it's PRICED correctly.

To save $2-5 k???? versus not getting the home a person REALLY wants? I'll never understand the human species. Then they are amazed that someone bid higher.

Jun 29, 2007 04:03 AM

Judy Cicalese

William Raveis Real Estate - New Canaan, CT

Market Knowledge-Social Media Savvy 203-638-7812

Herb - I like your response. We get this question so often. I'm curious how others reply to that question. I'm sure there will be some good ones

Jun 29, 2007 04:03 AM

John Hurlbut

Keller Williams - Puyallup - Puyallup, WA

The definition put out by the National Association of Realtors uses the amount of inventory on the market as a guideline. 6 months inventory is the tipping point. If there is less than six months worth of inventory, it is a seller's market. More than 6 months, it's a buyer's market. AT six months it's a "neutral" market. Here in Western Washington, we have between 4.5 - 7 months inventory depending on the area.

However, that being said, I just got a price reduction from one of my sellers even though all signs pointed to them being priced correctly (even under average) and only 4.7 months of inventory in their area (According to TrendGraphix). They just were not getting showings, so we dropped the price another $5,000.

I guess my point is that the state of the market is very subjective and can change from neighborhood to neighborhood even. Just know your market stats and use that to show the buyer that maybe all that media hype just isn't as true as he had thought it was.

Jun 29, 2007 04:19 AM

Herb Hamilton

RE/MAX Preferred Inc. Realtors - Portland, OR

Real Estate Broker ,CDPE, Downtown Portland

Rob: In my market area for my listings I am used to gettin vry close to full price and often times greater than full price. A truly smart Buyer understands that the difference in full price and a little less is just peanuts when it comes to the monthly payment.

Judy : Human nature is funny. When I first started selling real estate in 1988 I learned objecion handling skills from the master Mike Ferry.

John : Thanks for the read and your great comment. I normaly counter the Buyer's ojection to price by following up with a Market analysis. Because the numbers are taked from the MLS and are what I used to comp the house for the listing, I get very few complaints.

Certainly it is up to the individual to interpret those results , but the numbers are there.

Jun 29, 2007 06:07 AM

Thesa Chambers

West + Main - Bend, OR

Principal Broker - Licensed in Oregon

Herb as I have been pulling stats here I am seeing a few areas that are truly a buyers market - but others are on the neutral side.... there are some stats for Sunriver that show a 97% sales price to list price and a fairly low days on market for a resort area where the buyers tend to be there on the weekends and the homes they want to see and buy are occupied... yet other areas are seeing as low as 90% with almost a year on the market.... so our market is improving at least in areas

Jun 29, 2007 06:11 PM

Anonymous

Sarah Eubanks, Loan Consultant Hill Valley Financial Services

I enjoyed John's thoughts on "media hype". As a mortgage professional, I often hear that it is the fault of people like me. First of all, I have never sold a bad loan in my life. Secondly, I believe that the media is scaring people fairly well. Apparently, they do not seem to realize that the economy needs home sales and refinances. Also, they claim interest rates are so high, but they are not! If you have perfect credit, you can still obtain exceptional interest rates ~ in the lower 6-6.5%. And by good, I do not mean 720. I just did one today for a family who had one below 700 at that rate. Pricing your home aggressively is smart when you want to sell. People just need to remember not to sell out! Oregon, keep buying and selling! Good luck in your endeavor!

Jun 29, 2007 07:13 PM

Herb Hamilton

RE/MAX Preferred Inc. Realtors - Portland, OR

Real Estate Broker ,CDPE, Downtown Portland

Thesa : Thanks for the read, glad to hear about the improved market conditions.

Sarah : Good Thoughts thanks for sharing.

Jun 30, 2007 01:39 AM

Chris Tesch

RE/MAX Bryan-College Station - College Station, TX

College Station, Texas Real Estate

In our market paying full asking price is almost unheard of. We don't go down much, but average between list price and purchase price is 97%.

When asked if my sellers will take less I typically just say that I would be happy to prepare an offer and we can see. Again, not up to me!!!

Jun 30, 2007 01:56 AM

Andrew Lietzow

IaREIA | Iowa Landlord Association - Des Moines, IA

MBA-Exec Dir Iowa Real Estate Investors Association -

Herb - good post! Yes, keeping track of the statistics is really the only way to know whether it's a Seller's or Buyer's Market. We do have a lot more inventory on the market in Metro Des Moines, and the months inventory is a key statistic, as is the mean and median sale price.

I maintain this data for my "listing prospecting farm" area and it's been very helpful in helping to price listings. Many Realtors appear to not enjoy the numbers, and that's understandable -- most are in the business because they love working with people, not numbers. I, however, am an amiable analytical so I don't have a lot of trouble helping either a Seller or a Buyer establish the correct market price range.

I say range because only in a tract development can you really zero in on price. After 15 years, the variability of pricing increases even in these cookie-cutter developments. It almost magical to see what 15 years of landscaping enhancements can do for a street. Thank God for trees and shrubs.

Anyhow, yes, pricing is a major component of the value of a home. However, enjoyment value from winning the bid on that home you love goes a long way, as well. We truly are at historic lows on interest rates, so Real Estate remains a good value. If we get above 10%, however, all bets are off.

Incidentally, we're really only in either phase #2 of a Seller's Market, or early Phase #1 of a Buyer's Market. The feeding frenzy for buying doesn't start until we hit bottom -- usually after months outstanding inventory has been dramatically reduced. Unfortunately, there are still way too many new homes on the market and until that inventory drops dramatically, we're a long way from bottom.

Jun 30, 2007 11:44 PM

Herb Hamilton

RE/MAX Preferred Inc. Realtors - Portland, OR

Real Estate Broker ,CDPE, Downtown Portland

Chris : Thanks for the read and your comment.

Andrew : Great comments. Your analysis of your own neighborhood should be able to give new agents an insight to doing business if they choose to work a geographic farm area. In the areas that I work in Portland Oregon the majority of the homes were built around the turn of the century ( 1898 - 1930 ) so I completely understand the rang concept. To further complicate my area we have many homes that have been remodeled and many more that have been totally rehabbed.

One of the biggest feeding frenzy of buyers that I was involved with was in 1988 when interest rates went over 11% and buyer's were affraid they might go back to 14-18 % range of the Carter years.

Your view of our Buyer's market in phases is accurate. At bottom though if the pendulum does not swing and create an overwhelming response of new buyer's then we would be hard pressed to call it a buyers market.

Jul 01, 2007 04:42 AM

Andrew Lietzow

IaREIA | Iowa Landlord Association - Des Moines, IA

MBA-Exec Dir Iowa Real Estate Investors Association -

Herb - Interesting how you remember the 14-18% interest rates of the Carter years but I remember when the brakes were put on the economy during the Reagan years and we had double digit interest rates coupled with deflation here in Iowa. Even people a lot smarter than I lost their shirt.

The soft equity that I had built up during 1978-1980 quickly disappeared during 1981-1983. I had purchased many single family rentals, only to see them all go back to the bank when the unemployment rate went sky high. I couldn't get them rented and I couldn't get them sold! Starting about 1983, that's when I learned what the term "deed in lieu of foreclosure" meant.

Prior to the Reagan years, I'd had an "A" Credit rating and could get a note for the downpayment on a house at the drop of a hat -- a call to the bank, my signature on a note and I had my downpayment money. Subsequently, we had a prolonged period of a buyer's market and didn't fully recover until about 1992.

Unfortunately, I have not even thought about buying more investment real estate until just recently. Probably not smart, but I was gun shy. Those two IRS audits didn't help either.

So, some want to blame Reagan and some want to blame Carter. All I know is that if you buy too quickly, no matter what type of a market it is, you can get in over your head and 10's of 000's in equity can be wiped out quickly. Today I preach being fiscally conservative. Nothing down? Not on your life (unless it still cash flows and is in a good location)! See Two Rivers REIA.org, which is a REIA group that I founded and promote here in Central Iowa. I'm now an advocate for "slow and steady wins the race".

And, I'm not real fond of a Federal Administration that spends money like a drunken sailor but doesn't keep the coffers full with adequate revenue -- our national debt is unbelievable and this will come back to haunt us.

Jul 01, 2007 06:04 AM

David Slavin

Keller Williams Premier - Katy, TX

CDPE, ABR, SRES Keller Williams Premier

Nice job on the post! When I'm asked the same question I'll tell them that the seller never tells me what they are will to accept so the best bet would be to submit a fair offer and let's see what happens. This works well for the serious buyers and scares off the tire kickers. Everyone wants a deal but if they put their money where their mouth is then we can try to make it work for all parties, buyers market or sellers market.

David N. Slavin, ABR www.SellMyHouseDave.com

Jul 01, 2007 08:06 AM

Herb Hamilton

RE/MAX Preferred Inc. Realtors - Portland, OR

Real Estate Broker ,CDPE, Downtown Portland

Andrew : Something to do with the economy and unemployment. The Reagan years were kind to Portlanders for the most part.

David : In Oregon the offer sheet is often called an Earnest Money Agreement. Sometimes if I know that the Buyer is just sitting on the fence of offering full price but can not resist asking about a lower price I may ask them How much less earnest would they like to be.

Jul 01, 2007 11:17 AM

Andrew Lietzow

IaREIA | Iowa Landlord Association - Des Moines, IA

MBA-Exec Dir Iowa Real Estate Investors Association -

David Slavin - I like that approach ... "The seller never tells me what they might actually be willing to accept so the best bet would be to submit a fair offer and let's see what happens". I need to memorize that.

Herb - I think that sinusoidal wave thing (for the real estate cycle) can be a little choppy at times but the pattern does tend to remain the same -- Phase #1 of Sellers climb to the asymptote, then it begins a decline in Phase #2 of the Seller's market, to be followed by Phase #1 of a Buyer's market. When the market bottoms, we'll see Phase #2 of a Buyer's market. I don't understand why this would be phase #1 of a Seller's market. But these are all just ways of trying to graphically understand the cycle.

Trying to time a buy, however, for when the market is at the exact bottom can be problematic. Better to rely on someone like you that knows what's going on, no matter what the phase! Experience matters!

Jul 01, 2007 11:52 AM