Understanding Economic Issues to Eliminate Fear:
Do we have alternatives to promote sales?
Is our response to news of an economic crisis rational or irrational? There are so many terrific bargains out there so why aren't consumers buying homes or anything for that matter? I know, you know, we all know that clinging to our money is perpetuating our financial crisis but we are not spending money. I am not talking about wasteful spending. We are holding on to every dollar that we have. All of us have heard that we need a good retail season to help our economy. We know that houses in our market are bargains compared to 5 years ago when buyers often offered more than the sales price in order to out bid other buyers making offers for the same house. Were those buyers who paid more than the asking price "smart buyers?" What is happening?
This week, I attended a wonderful seminar. The economic strategist, Tuck Reed, for Sun Trust Corporation, a major bank and mortgage company talked about "Loss Theory." I took economics a long time ago so I had not heard about "Loss Theory." According to the strategist who put everything in simple terms, Daniel Kahneman won the Nobel Prize in Economics in 2002 for advancing this theory which says that if I find a $100 bill on the street, I will be happy. But if I lose a $100 bill, I will be totally devastated. In other words, losses affect us more. We allow negatives to outweigh greater positives if they are losses.
After doing a little more research for posting on my blog, I learned that in Prospect Theory, loss aversion refers to the tendency for people to strongly prefer avoiding losses than acquiring gains. Some studies suggest that losses are emotionally twice as powerful as gains. The real estate application for this scenario is, "Consumers don't seem to mind paying thousands of dollars more than the asking price for a house; however, if their house loses any value, the situation is a crisis."
Can we convince our sellers that they need to take a rational look at savings when they purchase a new home instead of dwelling on the loss when they sell? Until learning about Loss Theory, I could not understand why sellers weren't happy to sell their homes for a little less money when they were buying a more expensive home that was also declining in value. The bottom line for a seller buying a more expensive home in the post 2005 market is that the buyers can buy more for less money. When I did the math, sellers who bought more expensive home were far better off. Let's see if my home is worth $200,000 and depreciating at 5% but I am buying a new home at $300,000 which has depreciated at the same rate, the savings are favorable...especially in a market like our market in the New River Valley of Virginia which has been healthy. In Blacksburg, VA, the foreclosures for most of the year were in single digits. Most of our home owners have equity in their homes and fixed rate mortgages. A major mortgage broker in our area told me that when he did a 13 year survey of his loans, sub prime loans made up less than 1% of his portfolio. Homeowners in Blacksburg, Christiansburg, Radford, Giles County and Pulaski County have nothing in common with the highly leveraged homeowners in speculative markets that were at the root of the housing crunch but they now share the same fears thanks in part to our national media.
I hate to blame to media again but aren't they chiefly responsible for broadcasting fear which has paralyzed our country. Not only are our clients waiting but our agents are hesitating too. On more than one occasion recently, I have heard agents hesitant about marketing for 2009. Evaluating spending to insure that we achieve maximum results for our money spent is crucial; however, many agents are tightening their budgets as an excuse for not marketing. We all know that when agents say that they have no marketing plans, it translates to even less business which leads to a downward business cycle for all of us.
We need to remove barriers instead of setting up barricades. The speaker that I talked about said that there are $100 bills lying on the ground but no one is picking them up. Good buys are everywhere in our market. We have better inventory, superb and plentiful mortgages at an unheard of 4.75% interest rate and MOTIVATED SELLERS.
How can we utilize our relationships to market our listings in expensive ways that have big impact? Remember that according to NAR statistics, real estate agents are still responsible for 34% of the sales that lead buyers to a property that they didn't know about (From NAR 2007 Profile of Home Buyers and Sellers as part of the Prudential Homeselling Proposal) as opposed to the 1% statistic for sales attributed to Home Magazines. Good marketing isn't always expensive. In 2009, we need to build stronger relationships to better market our properties.
Understanding what has happened and developing a strategy to avoid the same traps while pointing out the positives in our market is crucial. Fear tends to cripple its victims with inaction; hence, the phrase "frozen with fear." In order to focus on promoting our product, I am proposing a local networking session each month open to all area Realtors®. Let's call it "30 Minute Networking for Home Sales in the New River Valley."
We all know that a dialogue about our clients housing needs and new listings that may be coming on the market stimulates sales. Let's expand our networking sessions to all agents in our New River Valley MLS. The rules for the meeting should be simple:
- Everyone is invited! We need to knock down walls of communication blocking networking among firms. Our goals are to sell real estate. No recruiting at the meetings.
- Buyers' Agents will talk first about their clients' wish lists. Agents with a listing or potential listing will respond to the Buyer's Agents request; then, Listing Agents will take the floor.
- Attendees must speak in positive terms during the networking session. "Naysayers" should stay home. Also, this meeting is a fast track networking session so no personal anecdotes.
- The meeting will be concluded in an hour or less. All speakers should prepare in advance by bringing information such as handouts about listings, or prospects needs. We need to stay on point and move forward.
We will host the first meeting at our Blacksburg office at 318 North Main Street. We have plenty of parking in our parking lot behind our building. If you are ready to take action, please RSVP in advance by noon on January 5th to enable me to advise you about assigned parking for the meeting. Let's schedule the 1st meeting for Thursday, January 7th, 2009 at 10 am which will end no later than 11 am. A good turnout means that we will have a monthly networking vehicle to help agents working with buyers and sellers that is free and positive. If you have a positive idea to reduce agent costs, please share them.
Up until this fall, agents throughout the New River Valley enjoyed a good real estate market that thrived amid news of other declining markets. This year, we have still experienced multiple offers on some properties. As the managing broker of Prudential Radford & Associates, Realtors, I have lately watched our market slow down as a result of consumer fear. It is time to focus on promoting our business by overcoming fear in the market place.