6 Reason Why Buyers Aren't Biting and How Sellers Can Change That

6 Reasons Why Buyers Aren't Biting and How Sellers Can Change That

Interest rates are at historic lows: less than 4.5% on a 30-year-fixed and and below 4% on 15-year fixed rate loans. And prices are low, too - at or near bottom in most of the country.  Together, these items mean that affordability is near an all-time high.

It's like a massive, pre-holiday sale on real estate!
6 Reasons why buyers aren't biting and how sellers can change that

Nevertheless, home sales are only "gradually" creeping up, according to the most recent data published by the  National Association of Realtors.  And sellers are clearly still feeling price pressures; on Trulia's September price reduction report, an all-time high 27% of American homes listed for sale had had their price cut at least one time!

So, what's stopping buyers from running out to grab up all these affordable homes at affordable rates?  And what cansavvy sellers (and listing agents!) do to offset these obstacles?

6 Reasons Buyers Aren't Buying and How Sellers Can Change That!

1.  (Perceived) difficulties in qualifying for a mortgage.  Mortgage guidelines have tightened up significantly over the last few years, now requiring good (but not perfect) credit, documented income, a proven stable job history and cash for down payment and closing costs.  Some buyers find it difficult to scrape the down payment money up; others find that they can qualify, but not for a large enough mortgage to buy any home worth owning (banks have tightened up debt-to-income ratios, too). Many would-be buyers don't even consider themselves serious prospects, disqualifying themselves in their own heads because they heard somewhere that a 20 percent down payment is necessary - in actuality, many buyers can qualify for a 3.5 percent down, FHA loan.  Between actual difficulties qualifying and perceived difficulties that don't actually exist, lots of buyers are not biting because of loan "issues."
6 Reasons why buyers aren't biting and how sellers can change that
Seller Solution: 
Ask your agent to have a mortgage broker colleague prepare flyers reflecting various loan options, to give open house attendees a reality check about what it would actually take - including down payment, closing costs and monthly payment - to buy your home. Also, consider offering closing cost credits or being willing to chip in for lender-required repairs to empower buyers who are struggling with mortgage qualifying to close the deal.

2.  Fear of buying a foreclosure. The ongoing robo-signing/foreclosure fraud scandal and the resulting foreclosure freeze is beginning to play a role. If you haven't heard, two of America's largest mortgage servicers have frozen foreclosures and resales of foreclosed homes in 23 states, and Bank of America, the largest lender in the land, has frozen them in all 50 states, all because sweeping fraud and improprieties have been revealed in the way the banks are processing foreclosure documentation.

More and more, buyers are fearful that if they buy a foreclosed home, that sale could be reversed down the road if it comes out that the banks wrongfully foreclosed on the former owner. And that could be stopping buyers from, well, buying foreclosed homes.


6 Reasons why buyers aren't biting and how sellers can change that
Seller Solution: If your home is not a short sale, all of your home's marketing materials should be trumpeting this fact - especially if most of your home's competition (e.g., similar homes in the area and in the same price range) are bank-owned homes and short sales.  Seeing 'Not an REO/Not a Short Sale' on a listing or flyer is quite magnetic to buyers right now.

3.  Waiting for the shadow inventory to come out. The phrase 'shadow inventory' refers to the homes that have been (or will soon be) foreclosed on by the banks, which are not yet on the market; some estimate this inventory to be as high as 7 million homes! Many buyers who are actively house hunting -- and who are disappointed with the homes that are available -- are fearful of pulling the trigger because they believe the banks are going to start releasing their 'shadow inventory' soon, and that those homes will be better than what's out there on the market right now.

Seller Solution: 
Work with your agent to strategically stage your home and even do basic, inexpensive repairs, to make it stand out against the competition as a desirable property.  Also, ensure that your pricing is in line - or even slightly below - similar homes on the market right now, to ensure that your home seems like a very strong value for the price.
6 Reasons why buyers aren't biting and how sellers can change that
4.  Waiting for the bottom. Given the trajectory of home prices over the past couple of years, there's a large contingent of buyers who are afraid that after they buy, home price will continue to fall and they will lose their hard-earned investment in the home. These are folks who are still waiting for the bottom (although by some accounts, including that of the Case-Shiller Price Index, the bottom is here or has already passed, in many cities).

Human nature is always to wait too long for the bottom, miss it, and then end up wishing we had bought sooner. The behavioral economics theory of myopic loss aversion explains this phenomenon as being due to the fact that the pain of losing money generates a greater psychological fear and avoidance than the prospect of gaining the same amount of money. Buyers can set themselves up to gain over time, even if they lose equity in the very near term, by making smart decisions about the home they buy and how much they pay for it, and planning to stay in their home for a longer term than previous generations of buyers did.
6 Reasons why buyers aren't biting and how sellers can change that
Seller Solution: 
This is a difficult one to counter, because it's really more about the would-be buyer's interpretation of the market than about their reaction to your home.  If you live in a market that has had recent increases in home values, include that data in your marketing - make sure buyers are aware that they may already have missed the very bottom, and create a sense of urgency to buy your home before prices go up even more.

5.  Unemployment/underemployment. Take California, for instance. The national unemployment rate is 9.6%; California's is a whopping 12.8%. But right around the same number of Californians are underemployed, meaning they work part-time, but want full-time work. That's right, a quarter of Californians are unemployed or underemployed, and -- right again! - none of those people are buying homes. On top of that, many people who do have jobs lack job security, the confidence of believing they'll be able to keep their jobs in the future. Interest rates could be zero, and people will not buy homes as long as they have no jobs or job security.


6 Reasons why buyers aren't biting and how sellers can change that
Seller Solution:  If there are major employers in town that are within an easy commute of your home, both you and your agent should consider marketing it directly to employees there.  Share your home's listing with Facebook friends who work there or even send an email out to your own contacts, if you work there yourself!  Major companies' Human Resources Departments might help you get the word out to their employees - especially if you offer some incentive to an employee who buys your home, like a year's worth of subway passes.  If you have universities nearby, there are likely online bulletin boards that offer housing options directly to relocating professors and employees.

6.  Need to keep options open.
Because home values are so volatile, currently, there's no guarantee that you can resell today's new home tomorrow without taking a loss. If we've learned anything from this crisis, we all know that it just doesn't pencil, financially, to buy a home on today's market unless you plan to own the home for at least 7 years (give or take a year or so, depending on how your market has fared in the housing recession).

Many Americans don't want to be tied to one location, given the changes in the job market, because they simply don't want to be stuck in one place, geographically speaking. They want to be free to meet someone via online dating and move if the match sticks. They want the freedom to move across the country or even to the next city or state for a job, if that's the direction their career takes them. The more mobile the person, the less likely they are to buy a home.

Seller Solution: Price your home well - if it's been lagging on the market, make sure you get aggressive and cut the price below a common buyer search cut-off price point (see this post for more details: Sellers: 5 Signs It's Time to Cut the List Price of Your Home).   Even buyers who are seriously in the market, get nervous about buying a home when it seems a bit overpriced, because they fear the price will drop some more in the coming months and years, extending the period of time before they can sell it at a break even or (hope beyond hope) a profit!  Don't let overpricing cause you to lose buyers who otherwise would have bitten the bullet, pulled the trigger and hopped off the fence in order to buy your home.6 Reasons why buyers aren't biting and how sellers can change that

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Ambassador
4,308,314
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Rick, great post - and I liked the 'solutions' section of each concern from buyers. At times, pricing solves many problems.....

Oct 04, 2011 04:22 PM #1
Rainmaker
546,302
Paul Dougherty Associate Real Estate Broker
Coach Realtors - Huntington, NY
Trusted, Tested & True. Our Results are Better!

Great post. I appreciate the time it took putting this together. I like to read solutions and objection handling posts.

Oct 04, 2011 04:22 PM #2
Rainmaker
1,007,818
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Rick, you present some excellent ideas.  In addition, I might add that the seller should absolutely consider, instead of making any price adjustments, they should consider paying some, or all of the buyer's closing costs.  That turns a buyer who is wishing they could buy, into a buyer who is ALBE to buy.

Oct 04, 2011 04:27 PM #3
Rainer
63,317
Karen Seeman
Exit on the Hudson Realty - Tenafly, NJ
CDPE, (201) 247-0556, bergencountyhomes4sale.c

Wow, of course you're right Rick!  These are great ways to help sellers get the SOLD sign on their homes.  In the real estate biz, it is price, condition, location.  Shine your home up to make it look as pretty as a picture and watch how the buyers are wowed. 

Unless the buyer enjoys rehabbing properties and has the funds from a 203k loan, very few buyers want to have someone else's headaches.

THANKS For giving sellers great food for thought! 

You are helping your entire community with this sage advice.

Oct 04, 2011 04:28 PM #4
Rainer
124,411
Melissa Ostrom & Melville Capps Newton MA - The Mel and Mel Team
(617) 388-3151 | Century 21 Commonwealth - Newton, MA

Rick, well thought out and useful article about buyers. It has been reported that "robo signing" has been done for over a decade. This may affect title to properties that were bought even before the bubble burst. It seems that the entire concept of home ownership as the American Dream is being underminded. Suggested.


Melville Capps

Oct 04, 2011 04:30 PM #5
Rainer
483,224
Chandler Real Estate Liz Harris, MBA
Liz Harris Realty - Chandler, AZ
#ChandlerRealEstateAgent

It would be wonderful if we all knew when the bottom was before we got to it!

Oct 04, 2011 04:42 PM #6
Rainer
107,987
Ted J. Macy
Top Agents Atlanta Metro - Milton, GA

Rick, Great post, I really liked the Seller suggestions. We could all use those with sellers.

Wonder how much longer before the mortgage companies are nationalized legally?

Oct 04, 2011 04:51 PM #7
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Rainer
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Rick Payne "As Seen on HGTV House Hunters "

Real Estate Consultant at Keller Williams Realty
CALL 678-427-5512 or EMAIL repayne7@bellsouth.net NOW!!
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