This year’s market is not the same as it was last year at this time. Here in the San Francisco Bay Area, a region renowned for extreme inventory shortages, short days on the market, multiple offers and contracts way over asking price, everything has suddenly changed.
Everything, that is, except seller expectations.
How do you manage clients when the market suddenly develops into something they had not anticipated? Here are our top 10 recommendations for managing seller expectations when the market enters a correction.
1. Memorize the market
When a market turns, everything changes in a moment. Those who benefit from the shift respond immediately, while those who are adversely affected by the transition take much longer to deal with the new reality.
When a seller’s market begins to slow, buyers immediately hesitate, pull back and, if writing an offer, do so under list price — often substantially so.
Even though our market slowed back in May, most potential sellers still believe it is a hot market and anticipate offer deadlines, multiple offers, limited days on the market and offers way above asking. Our job is to help them understand that, at least for now, this is no longer the case.
The moment we sensed the market was turning, we sent out extensive communiques to our existing sellers. We have also tweaked our listing presentation to encompass the new reality.
2. Understand the motivation
Seller motivation is primary. If their need to sell is genuine, they will typically be willing to do whatever is necessary to sell. If they are not highly motivated, however, and insist on “testing the market” or “doing a trial run,” thank them for the opportunity, and then refer them to your competitor across town. Once the listing expires, circle back around.
3. Know the numbers
When the market is hot, it’s not uncommon for agents to lose track of key market metrics because they do not seem necessary. Once the market turns, however, data is critical.
Average days on the market, sold price, price-per-square-foot, percentage of current active properties with recent price reductions — these statistics are vital in helping sellers understand the current market and effectively position their home to sell.
While the numbers are all available on the local multiple listing service (MLS), I also recommend using an additional service such as Clarus MarketMetrics to help track market trends. The charts and graphs help sellers see the current market metrics at a glance.
4. Prepare properly
Generally speaking, the current generation of buyers have never learned the skills required to improve a property, which is why they prefer move-in ready homes. After spending hours watching home improvement programs, they have refined their tastes and will migrate toward homes that meet their ideals, including beautiful kitchens with solid surface counters, upgraded bathrooms, upscale flooring and so on.
In an increasing market, sellers prep their properties to get the maximum price possible. In a downward market, prep is also important: sellers must understand that the better prepared homes are the ones that sell while the rest remain active.
5. Nail the pricing
Of the three p’s, this is the most important. Sellers must learn that in a declining market, buyers are looking for the best value they can find, which means the best prepared property at the lowest possible price.
Wisdom states, “price ahead of the market” — if a market has turned downward, educate your sellers to price their listings below the last sales.
A common tactic in our area has been for agents to list homes at artificially low prices because they assumed the hot market would provide multiple offers driving the numbers significantly above their fake asking prices. When the market shifts, however, those tactics no longer work: sellers may be confronted with a single offer substantially below what they anticipated.
In the book Shift, co-author and co-founder of Keller Williams Gary Keller dedicates a section to effective pricing strategies. It is a must-read for those who want to learn how to coach sellers on effective pricing.
6. Promote the home
The old school three p’s — “Plant a sign, post on the MLS and pray” — employed by some agents in hot markets, will not work when things cool off. The adage, “You have a minute to sell your home,” beginning the moment a prospective buyer pulls up in front of a property, is no longer true.
That minute has become 10 seconds or less and happens on a buyer’s mobile device nowhere near the listing. If buyers do not like what they see, no amount of open house signs will get them into your listing — they will swipe left and move on.
Help your sellers understand where today’s buyers are looking (mobile devices) and what is required to effectively connect with them. Explain that effective promotion includes anything that will keep prospective buyers engaged with the listing on their phone.
Thoughtful preparation, beautiful staging, professional pictures, drone footage, virtual reality (VR), 3D tours and video will separate your seller’s home from the rest of the pack. Clarify that you will be factoring in targeted ads on Facebook, Instagram and Twitter, following up with email campaigns and doing everything else possible to cover all the promotional bases.
7. Respond to the leads quickly
All the advertising in the world will be completely ineffective if you do not answer your phone and respond to email or internet inquiries. You have less than 30 seconds to convert a lead. If the market is full of inventory and a prospective buyer cannot access you and the home they are interested in immediately, they will move on, and the opportunity is lost.
Make sure you have response systems in place to capture leads, and let your sellers know that their property must be available for showing when a prospective buyer wants to come through.
To further enhance the process, our team provides a comprehensive disclosure and report package upfront, and then asks that any buyer’s agent with an interested client download the package from our disclosure system.
This provides us with a real-time follow up system — we know who downloaded the package and when they did so, enabling us to quickly respond to the inquiry.
8. Know your options
Those of us who’ve been in this industry long enough remember the incentives sellers tried last time the market was down, including throwing in cars, trips to Hawaii and other perks designed to get their homes sold.
Although I’m not recommending extreme measures, it is time to dust off some practices we haven’t seen for almost a decade, including credits toward closing costs, bonuses to buyer agents, interest rate buy-downs, termite report clearances and the like.
9. Master the scripts
Top-producing agents take time to polish their skills so they can effectively compete in any market. In a downturn, skills become more critical than ever. I advocate coaching, training and scripts practice to ensure you are at the top of your game.
You can only communicate what you know. For those agents who have been in the market seven years or less, it’s time to learn some new skills.
10. Take listings you can sell
When the market heads downward, you only want to take listings you can sell. Having a huge number of listings that are not selling is not a badge of your success as an agent — it is an indicator of your willingness to waste huge amounts of time and money for yourself and your clients.
As a businessman, I not only know the market numbers, I know mine. To compete effectively in our market, we have a significant advertising budget for each listing. When the market starts drifting downward, many sellers previously sitting on the fence decide it is now time to sell, increasing listing opportunities.
The problem is that unrealistic sellers will insist on improbable listing prices. If you sign a listing at an unreasonable price, you will pour money into marketing a product that may look wonderful but will not sell. After a few months with no results, they will fire you or cancel the listing and the money you’ve paid for marketing will go down the drain.
In a declining market, effective cash flow management is crucial for determining whether you stay in business over the long haul. While some agents may take overpriced listings to attract potential buyers, we’ve discovered that buyers in our market are educated enough to realize when listings are overpriced and consequently will not show up.
There is opportunity in every type of market, and it begins with effectively managing your clients. Those who master the fundamentals will be the ones who succeed when the market turns, while the remainder flounder around hopelessly wondering what just happened.
Carl Medford is the CEO of The Medford Team.