How to Capitalize on Today's Market Conditions

Great Article by Bernice Ross

The question is how can you capitalize on today's market conditions to increase your income in 2008?

1. Target active market areas. Regardless of where you work, there are some locations and price ranges that are more active than others. Watch the sales board in your office as well as the MLS statistics. Focus your marketing efforts on those areas that have the most business. If you do face-to-face prospecting such as door knocking, calling on for-sale-by-owners, prospecting owners of expired listings, or holding open houses, make active areas your first priority.

If you normally work the $400,000+ area and the sales are currently active in the $250,000 to $300,000 price range, shift your efforts there. Also, be sure to carefully monitor activity each month. If you observe a shift, follow it.

2. Put pressure on buyers who are negotiating by doing a simultaneous price reduction. Whenever you issue a counteroffer with a lower price, ask the seller to reduce the list price. When the buyers realize that the seller is lowering the price, it places additional pressure on the buyers to take action.

3. The best buyer's market in 35 years: If you use print or Web marketing, use your marketing pieces to proclaim, "2008-the Best Year to Buy a Home in 35 Years!"

Here's how to back up this claim: In April of 1973, mortgage rates were about the same as they are today. Since that time, we have only had mortgage rates this low during 2001 and 2002, the height of the seller's markets where there was little inventory. In the last two major buyer's markets, one in the early 1980s and the other in the early 1990s, the rates were much higher. When I started in the business in 1978, interest rates were at 9.75 percent, en route to 18 to 21 percent in 1980. In the early 1990s, the rates were hovering in the 11 to 12 percent range. Thus, today's buyer's market, with exceptionally low mortgage rates plus a substantial supply of inventory, is the best time in decades to purchase.

4. Show first-time buyers the cost of waiting. There are several different ways that first time buyers lose money by waiting to purchase. The first is loss of tax deductions. In most cases, people who lack a mortgage pay more federal and state income taxes than those who qualify for a mortgage deduction. You can use a mortgage calculator to illustrate this point. For example, assume that a buyer is currently paying $1,500 per month on a rental. If the buyer purchases a $300,000 property with $30,000 down and a fixed-rate 30-year mortgage of $270,000 at 6.25 percent, the buyer actually nets $24,262 more, assuming that appreciation keeps pace with inflation, the buyer owns the property for eight years, and is in the 28 percent bracket.

Another way renters lose money is through wealth accumulation, generally in the form of creating equity by paying down the loan and through appreciation. According to the Federal Reserve, the average homeowner between 1995 and 2004 had a net worth of $184,400, of which approximately $60,000 was due to home ownership appreciation. To account for the difference of $60,000 of wealth accumulation, a $200,000 house would have to decline by 30 percent. Thus, each year a buyer waits to purchase a median-priced home, they lose $6,000 in potential wealth accumulation.

An additional way that renters lose money is through increased interest rates. For example, on a $200,000 mortgage, assume that interest rates increase from six to seven percent. By waiting, the buyer's payments increase by $1,578 each year causing a total loss (in payments and wealth accumulation) of $7,578. If interest rates increase from six to eight percent on that same loan, they will pay an extra $3,221 per year resulting in a total loss of $9,221.