When the market begins an upturn, like it’s doing now in most places, it’s easy to think that the biggest challenges for buyers are soon to be a thing of the past. Loan guidelines are a bit looser, it’s less likely that a property will decline in value after closing, and rates are still quite low. But experienced agents know that in an ascending market, it can be tough to get appraisal comps to keep pace.
And in the same vein, it can be even more challenging to get buyers’ mindsets to keep up with the heat of the market.
It’s not at all bizarre for a buyer to have to lose one, two or ten properties while the market “educates” them that when supply and demand shift, the lowballs of yesteryear just won’t cut it. Fortunately, there are a few powerful talking points agents can use to help their buyer clients experience less trauma and lose fewer dream homes before they stop lowballing sellers and seriously get into the game.
1. “A great deal isn’t a great deal if you don’t get the house.”
Many of today’s home buyers are remnants from the recession: people who craved to get the great deals and low prices of the bottom of the market, but were afraid to buy until home prices stopped dropping. While they might have done a mindset reset to understand that home prices have stabilized, making it safe (in their opinion) to buy, many have not adjusted their understanding of the flip side of market dynamics. Today’s market realities of competing with other buyers and having to make an offer at or even over the asking price are simply hard for them to swallow.
When your buyer clients insist on making a lowball offer because they want to “get a great deal,” gently remind them that an offer price that seems like a great deal is just an illusion, even a delusion, if the offer doesn’t get accepted by the seller. This reminds them that home buying is not a one-sided endeavor – that the sellers must agree with a price before it becomes the price. It also forces them to face the very real possibility that a lowball offer will result in rejection and loss of the house, especially in a multiple offer situation. If they choose to go in low anyway, that’s obviously their call to make, but this reminder helps you avoid being at the end of the finger-pointing if they make a lowball despite your advice.
2. “If you offer X vs. Y, you’ll actually only be saving Z%.”
You deal in six or seven figure transactions on a daily basis, so it can be easy to forget that your clients do not. For most of them, this is one of only a handful of occasions in their lifetime where they will be involved in a deal of this size and impact. Combine the fear of making a mistake on their biggest transaction ever with the deep desire to get a great deal and to make a smart decision, then add in the fact that many Americans just aren’t that great with math and you’ll see why it’s easy for buyers to think their lowball offer would reflect a much better deal than it really would.
This is especially the case with buyers making a decision between two offer prices on a higher-priced home where there are multiple offers. On an $850,000 listing where you know there are at least one or two other offers, your buyer might be vacillating between offering $860,000 and $865,000. Obviously, the higher offer positions them the most competitively. So, do the math for them: let them know that the $5,000 difference is a difference of only .6% – in a world where buyers are used to retail discounts of 10, 20, even 30%, many will feel that a .6% discount is not worth losing a home over. Similarly, you might want to point out the actual mortgage payment difference between two offer prices being considered.
This empowers your buyer client to make a completely informed decision about whether the level of “discount” reflected in their offer price is significant enough to be worth the reduced chances of successfully securing the property. And they may decide that it is, but if they make that decision with this information, they will feel much more comfortable and less regretful about it, if they aren’t the successful buyer.
3. “Make your best offer on your first offer, as you can’t count on being given another opportunity to go higher.”
Scenario: there are fifteen confirmed offers coming in on an REO property. You give your first-time buyer client the comps, which suggest the home should sell at $30,000 more than the asking price/offer price – and your client can easily afford to offer the offer price + $30K. Your buyer insists on offering the asking price, and no more, because they want to conserve money to negotiate with the bank.
Here’s your talking point: “I urge you to make your best offer on your first offer. This is a bank-owned property, and the bank is unlikely to go back and forth with all fifteen buyers. As well, if the highest offer is a cash offer or is willing to forego an appraisal contingency, the bank might simply take it outright, with no counters to anyone. When there are this many offers, you simply cannot count on being given an opportunity to negotiate and offer more later.”
This point, and all of the others listed here, have a strong track record of success at actually getting buyers to rethink their offer price and strategy on that go-round. However, even if they don’t take your advice, and they go in low and lose the first home, the fact that you gave them the comps, gave them this advice and warned them what would happen if they went in low – then cheerfully wrote the lowball offer anyway – places you in a position to have stellar credibility on your offer recommendations on the next go-round.
4. “How would you feel if you heard that the winning offer was at $X?”
This is a reality check, another one that most useful where you believe or know there are multiple offers. And this one is particularly powerful because it helps buyers understand that the value of a home at any moment is based on what a qualified buyer is willing to pay for it – and that every home is not necessarily worth blowing the bank on. If a buyer is trying to decide between two price points, this can help them make a decision about which one to choose – “What if you hear that the winning buyer made the same offer as your high offer? Will you feel regret? Or will you feel fine with having taken that risk, given the way you feel about the property?”
I pose this question even in heated multiple offer situations where my client is offering what I feel is a competitive price for a listing – this prepares them for the reality that they might not be successful, and helps them stay as emotionally detached as possible and move on to other listings very quickly, when they are not successful.
5. “Let’s look at the list price: sale price ratio for: my last few sales/my last few buyer clients/the recent comps.”
American home buyers aren’t all great at math, but they are desperately interested in making smart decisions, and they are well aware that the data can help them do it. If you’re struggling to get your buyer client to understand that the market has shifted and they need to be more aggressive with their offer prices, shift from giving advice to offering evidence: show them the full comps data for any or all of the following, with a specific emphasis on the actual list price, the actual sale price and the list: sale price ratio:
the last few homes you sold
the last few buyers you represented
the comparable sales for the listing they want to make an offer on.
If the data reflects that homes are selling at, near or over asking, this can be very influential in helping a buyer wrap their head around the new state of the market. It can even be helpful to give them references to other buyers you’ve represented who struggled with this and had to lose several homes before they started taking your offer price advice.
Ultimately, what to offer is a decision for the buyer to make, in consultation with their head, their hearts, their bank account and their tax and financial advisors. Helping buyers have these a-ha! moments is not about trying to talk people up in price, indiscriminately, to get a higher commission, nor is it about trying to convince people to spend more than they can afford on a home. In fact, some of the conversation a smart agent might need to have with lowballing buyers is around house hunting at a lower price range so they can make more competitive offers without blowing their budget.
Helping buyers manage their own mindsets in this way is meant helping buyers who are house hunting in a price range they can afford stop sabotaging their own offers by making time-wasting offers that have no chance of success. It’s also about helping them minimize the regret and frustration that comes with losing home after home and helping them avoid being priced out of a certain neighborhood or size home by a rise in prices.
Most importantly, this is about doing what they come to us for: helping them successfully secure a home that meets their wants, needs and budgets.
Trulia’s In-House Demystifyer of All Things Real Estate