Avoid Buyer Remorse
When a buyer is choosing their next property, they are often overly enthusiastic. As their agent, it is your job to ensure they don’t rush into a decision and end up with buyer’s remorse.
During the past week, I’ve reached out to some of my past students to get a sense of what is happening in the real estate market in different states and provinces. What you hear in the news is often very high level, so I like to get a sense of the market at a grass-roots level from the people who are living it every day.
What did I discover this week? Most agents have indicated that the market has slowed down slightly and there are fewer bidding wars. I want to reinforce that this isn’t a market shift. It is a typical occurrence in the summer months. We are heading into the last week of August and most agents are taking a break, but be aware that come September, buyers will be back out in full force and you’ll see the market pick up again.
Having said that, I want to give you eight tips to discuss with prospective buyers to ensure they are in the right frame of mind while house hunting.
TIP #1: DON’T SETTLE
Patience is a virtue that is difficult to manage when buyers have FOMO (fear of missing out). As their agent, it is imperative that you demonstrate grace under fire, so that your clients make the right decisions. Before you write an offer, review your buyers’ wants and needs list with them to ensure the properly meets MOST of their requirements.
TIP #2: DON’T GET CAUGHT UP IN THE FRENZY
Sometimes you can win the bid at the auction and be disappointed with the outcome. Your buyer doesn’t win by paying more than anyone else. In an auction-type environment buyers often end up overpaying because they get caught up in the frenzy and lose sight of the end game. In a past life, I used to go to a lot of antique auctions. I quickly learned that once the price exceeded what I was willing to pay (my concept of market value) I needed to walk away. As their agent, you need to intimately know market values. In many cases you will be required to do your own CMA on the property your buyers want to purchase to make sure they are paying a fair price. Which brings me to my next tip…
TIP #3: DON’T OVERPAY
Once you’ve established fair market value, the question you need to ask your buyers is “How much would you pay for this house and still be happy?” There are times when your buyer is willing to overpay for a property. Simply put, they want this property at any cost. If your buyer adopts this position, it is imperative that you let them know they are reaching beyond market value, but if they still want it, you can make that happen.
TIP #4: SEARCH WITHIN THEIR MEANS
As a real estate professional, you should be aware of how much homes are typically selling for ABOVE asking price. For example, if the list-to-sell ratio for most similar properties in your market is 110% that means they are selling for 10% over asking. Knowing this, your buyer should adjust their search to fit within their budget. If their budget is $400,000 and most similar properties listed for $400,000 are selling for $440,000, you are better off searching for homes listed for $350,000-$375,000. Keep in mind, this is a rule of thumb and there are always outliers.
TIP #5: THINK HARD BEFORE WAIVING CONDITIONS
Generally, in a multiple offer situation, some buyers will elect to waive conditions and home inspections. In my opinion, this is asking for trouble. You need to talk to your buyers about considering all potential ramifications of waiving contingencies up front. Don’t let your buyers get too focused on winning the bidding war at all costs. Contingencies exist for their protection (and yours), so everyone can feel good about the decision to buy. Please remember to think long and hard before surrendering their rights too soon.
TIP #6: CONSIDER CLIMATE RAMIFICATIONS
With forest fires, droughts, rising sea levels, tornadoes, and hurricanes, it is more important than ever to be aware of the potential damage a natural disaster could have on the property. This must be considered from a personal safety point of view, as well as increased costs for insurance and repairs, and the resale value of the property. If you live in an area that historically has climate challenges, it is important to have some statistics on the frequency and extent of these occurrences. For example, we recently had a tornado touch down 5 miles from my house. The last time we had a tornado here was 35 years ago. If it came up in conversation with buyers, I would be able to alleviate any of their concerns knowing this is an infrequent occurrence. The takeaway is to know the risks in your trading area and have stats to back up your conversations.
TIP #7: CONSIDER CARRYING COSTS
When you are working with buyers, it is important to ensure they don’t just think about the purchase price, but they also consider ongoing carrying costs. Buyers often have remorse, even if they love the house, if they end up house poor and it affects their lifestyle. When preparing your buyers (especially first-time buyers), it is important to estimate the ongoing carrying costs of the property to ensure they are comfortable with those payments. Help your buyers prepare a budget of ongoing costs to ensure it comfortably fits within their income-to-debt ratio.
TIP #8: BUY AND HOLD
Caution your buyers that they may hear from friends and family that they overpaid for the house. No one wants to hear that. It causes a tremendous amount of anxiety and double guessing their decisions. What you need to say to your buyers is “If you think real estate is expensive today, wait to see what you will pay for the same house in 10 years.” Many of you are selling average, everyday houses for north of a million dollars. If I told you five years ago that people would be paying that much for an average house, you’d say I was crazy. So, let me ask you this… what do you think that house will be worth in 5 years or 10 years? Keep in mind, rates are low, making the monthly carrying costs more affordable. Even if we see a temporary dip in the market, it will only be temporary. Everyone needs a place to live and real estate is always a sound investment and a strong hedge against inflation.
Managing your buyers’ expectations in this market is extremely important to ensure they don’t overpay and end up with buyer’s remorse. Review the tips I’ve given you today and be prepared to discuss them with every buyer.
If you want to learn more about how to manage client expectations, check out https://leadersedgetraining.com/virtual-training.
Chris Leader
President
Leader’s Edge Training