Where did all the buyers go? Ask FICO!

A number of agents and I were discussing the fact that buyer activity (as measured by under contract activity) seemed to have gone on a hiatus recently. Several theories were discussed including the front loading of activity into the first trimester of the year due to the home buyer tax credit; the increase in number of multiple family households due to job losses in the current economy;even the flood of inventory thanks to short sales and foreclosures. My contribution to the mix was the article put forth by many news outlets a few weeks ago that highlighted the fact that over a quarter of all consumers now have credit scores below 600. That’s right, over 40 million consumers have a sub-600 credit score (as reported by FICO).

Now, combine that bit of information with the current minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program  (the down payment requirement increases to 10% for a FICO score of 579 or less) and the reduction of allowable seller concessions from 6% of the purchase price to 3% and you have a recipe for a reduction in buyer demand in the market. Now, tighter credit requirements are something we all knew was taking place in the market (didn’t have to be a rocket scientist to figure that one out). But, tighter credit processes combined with an increasing number of FICO score challenged consumers (with the ranks growing each day the recovery doesn’t take hold) means there are fewer and fewer buyers capable of buying in what is otherwise a wonderful buyer’s market here in Davis and Salt Lake Counties.

Now the good news for sellers (for the glass half full folks), buyers who are pre-approved (not just pre-qualified) and have their financing in place are like gold and should you get an offer from one, don’t let them get away!!! You have a shrinking pool of consumers capable of buying your home, best not let one who is capable walk. Be creative in your counter offers, be flexible in your showing schedule, keep your house in “show mode” as much as possible. Those buyers are out there and, as sellers, you want them to know you would really like them to take an interest in you (errr, your property).

Another buyer group sellers should be anxious to see in this type of environment is buyers with money to put down. Having a down payment opens a whole world of financing options and thus flexibility on the part of the buyer (not as much flexibility as 2-3 years ago, but a good amount relatively speaking).

Now for you buyers out there….take the hint. Get pre-approved, not just pre-qualified. Have your financing ready to go on short notice, flex your down payment muscles in any offer you present (perhaps as larger earnest money deposits) and get aggressive. Listing agents know your value so encourage them to promote you to their client with well structured, aggressive offers which highlight your strength: the ability to close quickly in a slow market.

I find many buyers downplaying their strength thinking there is some negotiating advantage to holding your “cards close to your chest.” Not today. With ever lengthening days on market, sellers will figuratively salivate if you come in showing your purchasing strength right at the beginning.

So, what on the surface appears to be negative news (OK, it ain’t great) doesn’t mean there isn’t a silver lining for both buyers and sellers in the details.