(This is Part 3 of a four-part series. See Part 1, Part 2 and Part 4.)
How can you best cope with market shifts? Back to basics is the key to success.
Our last two articles looked at two strategies for surviving shifting markets, i.e. creating a three-level business plan and guerilla marketing. Today we look at how having a mastery of the fundamentals can help you to cope more effectively with market shifts.
Shifting Market Strategy No. 3: Back to Basics
In a number of areas along the East Coast, the market has been so hot that buyers routinely waive physical inspections and loan contingencies. In fact, there is a whole new generation of agents who have never experienced a so-called balanced market, much less a buyer’s market. In many places, properties sell as soon as they are listed, often with multiple offers and over asking price. Agents merely had to list the property and close the transaction. Buyers were so desperate that they would do almost anything the sellers wanted in order to close the transaction. While some areas are still in an up market, a large portion of the country is drifting into a more balanced market, or, in some cases, a declining market with too much inventory and too few buyers.
When hot markets slow down, mastery of the basics determines who will survive the downturn and who will leave the business. Hundreds of thousands of people have been attracted to the real estate business because they mistakenly believe that they can make big bucks by driving people around in their cars and showing them a few houses. Few realize the hard work required to have a successful career. Others have been drawn to invest in properties that “do not pencil,” i.e. that are unable to generate enough income to cover their costs. Instead, people are betting that the record rates of appreciation will continue. Others have over-extended themselves by purchasing properties with no money down and an interest-only or adjustable-rate mortgage. A market downturn with any type of decline in values will mean each of these groups will be in big trouble in the very near future. This trouble may translate into a glut of foreclosure properties that will ultimately drive down prices. It may also reduce the number of sales as buyers wait for the market to bottom.
Mastering real estate basics is critical to surviving any type of market shift. Below you will find a list of some common situations you will face in shifting market as well as some basic strategies to cope with the situation.
1. Houses take six to 12 months to sell
Maximum market exposure equals maximum price. Expose your listings on multiple Web sites (check out www.postlets.com), use multiple pictures and a virtual tour, and send brochures to the top buyers’ agents in your area. Offer an increased commission or a commission bonus to make sure that buyers’ agents show your listings first.
2. Sellers are unrealistic about their asking prices
Market statistics are your friend. If 17 percent of the listings sell each month, this means that there is six months of inventory. Explain to sellers that to sell in any given month, they must be the top 17 percent in value, both in terms of the price and condition. If not, they will continue to sit on the market, no matter how good the market is. Even in good markets, properties must be priced correctly in order to sell.
3. How should you shift your marketing to adjust to market shifts?
If you are in a market that is experiencing an increase in listings, the most important shift that you can make is to focus on generating more buyer leads. Listings are always critical in any market, but working with buyers in slowing markets will keep your income strong when your listing inventory is not selling. A great place to look for first-time buyers is to prospect rental properties. Most people want to own a home and if you can show them how to do it, you have an easy sale. In an up market, listing competition is fierce. The first one to reach the consumer is the one who generally obtains the listing. Use an 800 Call Capture system to gather more buyers and sellers as well as obtaining their actual phone numbers. Post your 800 number on all of your listings, on your Web site, and on all of your print advertising.
4. How do you protect buyers from up tricks in the interest rates?
A favorite lender trick when rates are increasing is to keep asking for additional loan documentation when they don’t want to fund the loan at a lower interest rate. When your “lock-in” period expires, they approve the loan, but at a higher rate or they approve the borrower for an adjustable-rate mortgage rather than for a fixed rate. If the rates increase over what is in the contract, the buyer can walk. To protect the seller, put a cap on the loan rate of at least 0.5 percent higher than the current rate. To protect the buyers, have them apply at least two different lenders. The lenders may not like it, but it protects all parties from gouging at the last minute.
Want more tips for surviving market shifts? If so, see next week’s article.
Bernice Ross, co-owner of Realestatecoach.com, has written a new book, “Waging War on Real Estate’s Discounters,” available online. She can be reached at bernice@realestatecoach.com.
