We’re facing a perfect storm in real estate.
While demand is on the rise, inventory certainly isn't. According to the National Association of REALTORS, the housing inventory dropped 3.2 percent in October 2017. That's 10.4 percent below the number of homes available for sale the year prior. During this time, homes stayed on the market an average of 34 days, seven fewer days than in 2016. And of these homes, 47 percent were on the market less than a month.
So what gives? How can real estate agents ride out the storm while still delivering value for their clients?
Connecting the Dots
A number of factors are at play here. For one thing, as Baby Boomers move into retirement, they're planting their roots. In fact, 72 percent of homeowners over the age of 55 say their existing homes fit their current needs, and 85 percent say they don’t plan on selling their homes in the next year. That works out to roughly 33 million properties off the market.
Landlords are compounding the problem. During the Great Recession, they bought foreclosed homes to then rent out, and now, those investments are paying off. As of 2017, 36 percent of households were renters, up from 31 percent in just over a decade. And with rental prices on the rise, why sell a property with such a high revenue potential?
Then, there are new builds — or lack thereof. With the cost of land and land development, builders can’t afford to build at an entry-level price point. And they don’t need to. As of July 2017, the median sale price of new homes was nearly $314,000. But the average price of a home for a first-time buyer, which is the demographic driving the housing demand, comes in at $182,500.
Furthermore, depending on the neighborhood or community, local zoning and land-use regulations can limit the number of homes built on vacant land. They may also set minimums for square footage. When combined, both factors not only limit housing supply, but also increase the average price of a home.
On top of all that, local governments often view new developments as an opportunity to get someone else to pay for the city’s infrastructure. The sale of vacant lots includes an impact fee, used to fund new schools or remodel existing ones to accommodate the children in these new developments. However, the impact fee is usually passed onto the buyer in a higher price for the new home.
Steering Clients Through the Storm
All that's to say, the market is tight and costly, and it's not likely to change anytime soon. That means it’s up to agents to help homebuyers — particularly those new to the market — navigate the intricacies of purchasing a home. The following tips are a good place to start:
1. Get to know all available assistance programs.
Agents should have some understanding of the down payment assistance programs available to homebuyers at the state and local level, as well as through nonprofits and even lenders. Some assistance programs focus on rejuvenating neighborhoods; others are geared toward certain demographics (e.g., low-to-moderate income, seniors, or military veterans). At Windermere Group One, we offer classes to first-time homebuyers who want to take advantage of down payment assistance. When they know their options, they often become more comfortable jumping into the market.
2. Keep up with the prices in desired neighborhoods.
Knowing the most recent sales in the area can help you structure a more attractive offer. It’s also wise to acquaint yourself with the "escalation clause," which works as an addendum stipulating that the homebuyer is willing to increase the offer to a certain price if the seller receives a higher offer. Sometimes, it can mean the difference between getting the home and losing out.
3. Spend more time with homebuyers.
By going slow at the beginning, explaining the market, and setting reasonable expectations, homebuyers will be able to respond faster when they find the home they want. In other words, get to know your clients so you can be of better service.
4. Explain reasonable concessions for the market.
In a seller's market, homebuyers need to understand that an inspection may serve as no more than a to-do list, rather than a process to uncover potential concessions as part of the transaction. If the market is hot, the seller is less likely to fix items on an inspector's report. This isn’t to say you should suggest waiving the inspection; you always want to prevent clients from buying the wrong home.
5. Reiterate that you're in no hurry.
Clients should feel like you’re in it for the long haul. With the current seller's market, buyers have to make quick decisions on whether to buy a given home — without experiencing buyer's remorse. A good agent will remind homebuyers that they'll find the right home on their time. If you reassure people that you’re not trying to push or manipulate them into a purchase, it’ll eventually lead to more closed sales and happier clients.
Real estate agents are invaluable to the homebuying process — as long as they’re of real service. If you keep abreast of local happenings, get to know the people you’re working with, and set expectations from the beginning, the housing shortage becomes just a bump in the road, not some insurmountable obstacle.
Jeff Thompson is managing partner at Windermere Group One. WGO is a member of Windermere Real Estate, a real estate network comprised of 300 offices and more than 6,000 agents throughout the western United States. Jeff is truly passionate about helping build companies by building their people. He leverages his 25-plus years of experience in real estate to coach other managers and brokers. Jeff credits much of his success to hard work and a willingness to partner with good people.