In today's wild market, there are plenty of bad ideas on both sides of the buyer/seller equation. Here's how to correct those misconceptions so that everyone can get what they want.
The current market has buyers and sellers on pause. Interest rates have certainly put a damper on many would-be buyers and sellers’ plans. Depending on their budget, where they want to go or what kind of property they are looking for, inventory may be a concern, as well as insurance.
Everyone seems to be in a state of flux. Many would-be buyers who are renting are continuing to do so, even though the landlord raised their rent, and while not ideal, they don’t know what else to do.
Sellers, despite being able to cash out and make some good equity, cannot make the economics of a move work. They are unable to stash the profit into savings because they likely will still need a substantial chunk to go towards buying another property along with moving expenses.
So, everyone continues to make statements starting with “if only, should have, could have, would have, I’m going to continue to wait, etc.” We are the market of perpetual hold.
As a result, the current real estate market continues to be challenging with a different set of dynamics than a year or so ago. What are the top myths sellers and buyers believe and how can you bring them back to reality?
Seller myth No. 1: No seller preparation is needed.
I am still shocked at how many sellers don’t think they need to do any preparation before putting their home on the market. Beyond easy things like decluttering, painting, cleaning, freshening up landscaping, etc., sellers need to do a serious maintenance check on their home before putting it on the market.
If the home is older or a seller really doesn’t have a grasp on the property’s condition, they need to consider getting a prelisting inspection. Given today’s interest rates, buyers are stretching just to buy the home, let alone take on costly repairs and replacements.
Speaking of replacements, should any major component or system be nearing the end of its life, sellers need to plan on replacement before coming on the market (ideally) or before closing.
Buyers aren’t keen on buying a home with a roof nearing the end of its life, an older water heater, heating/air conditioning system, older piping, or wiring. And guess what? Insurance companies aren’t either.
Reducing the price or offering closing cost concessions to compensate for these things isn’t enough in today’s market. Buyers need to buy with confidence and since they are paying several hundred dollars or thousands more per month vs. a year ago, this matters now more than ever.
Failure to adequately prepare the property means there is a high risk of the sale falling through which costs everyone precious time and money and, ultimately, may result in the seller having to lower their price even more. We are not in a market of forgiveness and glossing over issues because the next home is going to sell for $100,000 more.
Seller myth No. 2: I can name my number, no matter what it is
Along with not having to properly prepare their home for sale, sellers in many markets still want to ask an overly ambitious asking price. Even though their property is likely worth substantially more vs. three years ago, prices have peaked in many cases, and some sellers are underpricing their homes — which immediately diverts attention from overpriced product — and leads to multiple offers.
The seller’s home continues to sit as more competitive properties that are either in better condition or priced more aggressively outsell the one that is priced too high.
Overpriced sellers are disconnected from the realities of today’s mortgage payments plus additional work needed to bring the property up to today’s buyer’s expectations.
As the market has shifted, pricing high might stick and other times it might not. It really depends on the property, where it is and what it has. Is there much competition or is it a rare find? We will know very quickly, based on the kind of activity we are seeing (or not).
Price adjustments are happening in the current market and overpriced properties relative to their condition are sitting. Conversely, well-priced properties that are turnkey are selling quickly and still receiving multiple offers.
Seller myth No. 3: I don’t have to negotiate.
There are some sellers, despite market conditions, who simply aren’t willing to negotiate, if much at all. They may feel that because they have had to either price their home lower or reduce their price by a substantial amount already, they aren’t willing to do much more.
This results in a push and pull between the buyer and seller and many homes sitting on the market today, waiting for that fantasy buyer to pay their price. I am sorry to say that the buyer who will overpay for a home in a high interest rate climate is practically nonexistent.
Unless the property is a rare find, sellers need to be willing to negotiate and be willing to listen to what the market thinks about their home. Waiting to get a certain price will likely result in the seller taking much less after significant time has passed, coupled with the additional carrying costs that will likely exceed any price reduction.
Seller myth No. 4: Insurance isn’t a problem.
Most sellers have no idea of the scrutiny their property will be subject to when the buyer investigates getting insurance. Most sellers are totally unaware of insurance issues unless they have been dropped by their insurance company or their premium has substantially increased, causing them to shop around.
Sellers shrug off insurance concerns as something premature and think the rate they are paying is what the new buyer will be paying. Wrong! Depending on where the property is located, buyers are struggling with expensive insurance quotes and an insurance agent requires a deep dive into every aspect of the property before they will provide evidence of insurance.
The seller seems oblivious and says they haven’t had any problems and they’ve had the same carrier since the beginning of time. Well today, not so much. When the buyer goes to get insurance, how that goes can potentially blow up the deal.
Prior insurance claims may be found on the seller’s home that may have to be investigated and the insurance company is not able to offer the buyer coverage as they are no longer offering insurance in the state where the property is located, etc. Conversely, the buyer may have a claims history and they could be considered a risk as well.
Reality check! Sellers need to be educated on Property Insurance 101 today and all that is involved so they understand what may be required on their end, whether it is replacement of old systems, having thorough documentation pertaining to prior insurance claims, understanding the current requirements, or determining whether the property is in a zone requiring flood insurance today. Never mind that they weren’t considered in a flood zone last year; this year, it may be a different story.
They also need to understand that there are only so many carriers that are offering insurance and the quotes the buyer receives may affect their debt-to-income ratios and the kind of loan they were trying to get.
Seller myth No. 5: Low inventory means no competition.
Sellers barely had any competition over the last few years other than themselves. Now, depending on where their home is located, they could be competing with a ton of resales and new construction. Sellers need to understand the competition and how best to position their property, so it doesn’t lag on the market or get lost in the sea of listings.
New construction can be extremely difficult to compete with today between builders offering generous incentives that can be used off the price, towards options and upgrades, buying the interest rate down or closing costs. Sellers need to be educated as to what they will be up against and how to plan accordingly.
Buyer myth No. 6: I’ll wait until interest rates come down.
It’s been a long wait for many buyers. They sat on the sidelines when rates were low and bidding wars were high. Then, they figured prices would come down. They really didn’t. As rates began to increase, would-be buyers dug their heels in saying “forget it” to even thinking about being able to buy.
The climate became even more difficult as a result of low inventory with fewer people electing to move. Rates continued to rise as well as rents. Many potential buyers are now in real estate purgatory. They are complaining about what they are paying in rent, yet interest rates have made what they originally wanted unaffordable. So, they continue to wait, and wait and wait.
Renters continue to pay someone else rent and make their landlord rich. It has only gotten more expensive with time, not less and there is no end in sight as to when rates will decrease and to what percentage.
The only way to break the perpetual cycle of inertia is to take a deep dive with a trusted lender into understanding alternative ways to make a payment affordable and the kind of property and price range that will make that possible. There are financing tools that exist from 1 percent down loans, interest rate buydown concessions, 40-year interest-only mortgages, renovation loans, low downpayment loans, and the list goes on.
With some creativity and number crunching, there are ways to make a purchase possible.
Buyer myth No. 7: Given the market, I will only consider off-market properties.
In other words, buyers are saying they have seen everything on the MLS and are looking for the “deal impossible” when it comes to real estate. Newsflash! It doesn’t exist. Many buyers think there is some underground listing platform where there are just tons of properties that aren’t publicly advertised for sale at bargain prices. If it sounds too good to be true, it usually is.
The idea of off-market properties is more idyllic than reality. And guess what, you aren’t the only buyer thinking this way. While agents may know of an off-market property here or there, they are typically at a “make me move” price and terms. Can any property be for sale? Sure, in theory, if the price is right, the seller may just be motivated enough to sell it, but that is typically on their time and their terms.
Sellers are very savvy and well aware of what the properties around them are going for. They aren’t going to leave money on the table because they don’t necessarily want to be listed.
Off-market properties can also be ripe for more things to go sideways. The seller may not play by the same rules as if they were listed and might drag their feet through the transaction and perhaps threaten to change their mind.
If a seller has signed a contract to sell their home to someone else, specific performance clauses still apply, but the time, expense and hassle of trying to fight that vs. trying to find another home to buy might not be worth pursuing for a buyer.
Buyer myth No. 8: Multiple offers aren’t really a thing anymore.
Multiple offers in 2023 with 7 percent interest rates? There’s no way that can be happening. Well, think again.
Depending on the market and price range, don’t be surprised if there are 10 other buyers who also like a well-priced home in a desirable area and want to put in an offer. Sorry buyer, you aren’t that special.
Multiple offers are particularly the case on lower priced homes available in the marketplace where inventory is still scarce, and the buyers are many. So, buyers need to be prepared with a fully underwritten approval letter from a lender, have proof of funds at the ready, and all their ducks in a row in order to put their best foot forward with a strong offer.
Buyer myth No. 9: I can make lowball offers given the current market.
While the optics of the current market may seem ripe for making low offers, this strategy can and is backfiring in many circumstances. Buyers forget that we are still dealing with low inventory in many price points and multiple offers. This is not the time to throw lowball offers “because” interest rates and prices are higher. Doing so will only slow down or stall the negotiation process and potentially lead to other offers coming in.
Buyers have a hard time learning that if they make a reasonable offer, they are much more likely to have a productive and faster negotiation that can lead to a successful outcome. Sometimes it takes a buyer to lose out on several offers doing it their way until they decide to come around and follow their agent’s advice.
And when they do, they aren’t overpaying, but getting smart about what they need to do to buy a house. Throwing dart after dart can be exhausting and counterproductive. When you find the right property, isn’t it better to work towards making an offer that will actually get accepted?
Buyer myth No. 10: I’ll worry about insurance at the last minute.
Heads up, buyers, you have to worry about getting property insurance, just like sellers need to be concerned that their property is insurable. This is not something you can put off until right before closing. You need to work on insurance quotes immediately upon going under contract. This means immediately, not whenever after a few days or weeks go by from the date of contract acceptance.
Buyers need to understand that they need to use their due diligence period to secure insurance. Why? Because this is your contingency period to investigate any and all things pertaining to the property. If you find you are having trouble obtaining insurance or the cost is more than you can comfortably afford, you will need this contingency period to be able to get out of the deal.
Depending on the kind of property that you are buying, it may be more challenging and costly to obtain insurance. As a result, you could find yourself in a financially strained position. Working with a savvy real estate and insurance agent, you need to be aware of the potential red flags with the property you are buying that could make getting insurance difficult.
Furthermore, it’s time for a reality check on your insurability as a buyer. Huh? If you have a history of claims you’ve filed on properties you’ve owned or rented or even with respect to an automobile, this could affect your ability to get insurance as well. Think risk-based pricing.
Bottom line, don’t make your lender go through hoops and circles to hound you about this, because if you can’t get insurance and need a mortgage, well, the loan and purchase will not go through.
Bonus myth: Agents don’t really do much to sell a home.
This one applies to both buyers and sellers. Many consumers still think that agents don’t really do much to sell a house. They still make too much money for what they do. The consumer feels they are the one with all the expenses between closing costs and everything involved with buying and selling between inspections, repairs, prep for sale, etc.
While the last three years may have seemed like a real estate agent made “easy money” from a consumer’s perspective, let’s not forget all that goes into the process from the initial contact with a prospective buyer or seller to ultimately going to closing. During the pandemic real estate boom, the market was extremely compressed, expectations were high, and the pressure was on.
Sellers expected to set a record and beat the last selling price in the neighborhood. Could their home sell within a few hours vs. a day or two like the neighbors did? Sellers liked to compare how many offers they received with each other and how much over asking price they got.
Agents working with buyers wrote numerous offers at sky-high prices, hoping one would stick. After multiple failures, buyers grew weary, decided to sit on the sidelines and “wait things out” and in some cases told their agent, “Thank you for all of your hard work, but they have decided to go in a different direction.” What a nice way of saying “You’re fired because you couldn’t get an offer accepted for us.”
Well, depending on the skill and finesse of the agent that could be true, but in many cases chalk it up to a buyer with the winning bid having more financial bandwidth and ability to take bigger risks such as waiving inspection, finance, and appraisal contingencies whereas many buyers could not. Because the buyer couldn’t compete with the realities of their market, they wanted to find someone to blame.
Flash forward to 2023, and the cream of agents who excel at what they do will rise to the top. They know how to succeed despite any market and the more difficult the market is, the more they thrive. Buyers and sellers need to stop believing that their agent doesn’t do much to sell a home, especially in the current market climate that we are in.
If you think it’s easy selling a resale against 200-plus competing homes between new construction and resales in each price range, think again. If you think your agent serving as a default property manager on your vacant home that you’ve already moved out of is a no-brainer, think again.
Multiple trips to a house to clean up dead bugs, ensure the landscaper is doing their job, deploy a cleaner to keep things looking freshened up from time to time, all lights are off, doors are locked, systems are working as they should, etc. is not a five-minute thing.
Agents deploy repair people when needed, as things can go wrong when a home is not being lived in. Oh, and check that the front door key still works from the lockbox; keys can get bent, locks can swell from the heat, get jammed and everything else.
Lastly, trying to find a buyer for a home with 7 percent interest rates or vice versa in today’s market is anything but easy. There is a tremendous amount of psychology involved and understanding the financing complexities to help find ways to make their mortgage payment more affordable.
When an agent engages with a potential buyer or seller, they never know the scope, length and amount of work that will be required with that client. The seller consumer, without regard for any of the above, wants to immediately reduce the agent’s compensation without any regard for all that is going to go into the process.
Buyers may expect the agent to drop everything to show a property that isn’t even remotely a match for what they are looking for. Nothing in real estate is ever as straightforward or simple as it seems. It is never about just one property or simply opening a door. Each person and their expectations are different, and the agent may be spending a tremendous amount of time educating, overcoming and running interference with a lot of objections and misperceptions about the market and what they need to do to achieve a successful purchase or sale of their property.
Serving the client takes a tremendous amount of time and we are not “on the clock” like other professions. There is no call back on Monday between the hours of 9 a.m. and 5 p.m., and when the buyer or seller needs an answer, they need an answer. Not to mention, the agent has to rope other people in their sphere into situations at the 11th hour, whether it’s a contractor, appraiser or lender, title or escrow agent to answer a question or provide guidance. There may be umpteen trips to a listing for various things besides showings and, given today’s climate, it may take numerous showings to get to “sold.”
Real estate markets wax and wane, and with each shift comes a whole host of myths and misperceptions by both buyers and sellers of how things will be or what to expect. In many ways, myths are a blessing to the agent who knows how to act as an advisor and trusted confidant to duly guide the buyer and seller through turbulent waters to achieve their goals on the other side.
Posted by Cary W Porter