This April, one of Inman’s most popular recurring theme months returns: Back to Basics. All month, real estate professionals from across the country share what’s working for them, how they’ve evolved their systems and tools, and where they’re investing personally and professionally to drive growth in 2022. It’s always smart to go Back to Basics with Inman.
The current market has sellers thinking they’ve won the lottery, cashing out on their time and their terms. However, they are in a quandary about where to go.
On the other hand, buyers are feeling defeated many times over before they start. Some have put in so many offers they have grown weary and started to sit on the sidelines or put their search on pause waiting for things to soften, whenever that might be.
The current market is extremely challenging in different ways for both buyers and sellers. What are the top myths sellers and buyers believe and how can you bring them back to reality?
Seller myth no. 1: No seller preparation is needed.
Today’s seller thinks they don’t have to bother doing much to get their house ready for sale. They think it should sell in a matter of hours or after two days of back-to-back open houses. Why bother because they don’t have much competition at all?
Wrong! Buyers still need to see a clean and well-presented home that helps to inspire confidence that they aren’t buying a money pit. Unless the property is being marketed as a “teardown” or total fixer-upper, a home that appears dirty, messy and not well maintained may cost a seller money in terms of fewer offers and less aggressive ones at that.
A home may lag on the market vs. being a hot commodity that everyone wants the first day it hits. In the current climate, a property that sits on the market for more than a few days may create the perception that something is seriously wrong with it.
Additionally, a home that is just thrown on the market may have to substantially renegotiate with the buyer after going under contract because the same issues are likely to come up with the next buyer.
Seller myth no. 2: There’s no such thing as a crazy asking price.
Along with not having to properly prepare their home for sale, sellers are all about defying the odds and wanting to set an overly ambitious asking price. Never mind that they want $50,000 more than the neighbor’s home that came on the market two weeks ago that was much nicer and highly upgraded.
In a market like this, sometimes it might stick and other times it might not. Given the fast pace of how properties are selling, we will know very quickly how the buyer audience will respond with a lot of showing traffic and multiple offers or not.
Although we are typically seeing very few price reductions, there are a handful of listings that are lagging on the market as a result of being overpriced and having to make price reductions. Making a price reduction in a market like this also raises eyebrows with buyers and may send the signal that you are more negotiable as a result.
Seller myth no. 3: Post-closing occupancy is free and guaranteed.
As a seller, you have likely been able to negotiate with a buyer to stay in your home past closing on your time and terms. Some sellers expect to be able to stay at little to no cost to them.
Well, it might not be that simple. With interest rates on the rise, buyers are having to pay substantially more for the same loan amount they were looking at one or two months ago.
Additionally, there are complications with a buyer allowing a seller to stay in possession past closing if they are getting a mortgage. Lenders will typically allow a seller to stay in a home up to 60 days past the closing date. Anything beyond that could trigger the property to be considered investment property and the buyer could be charged a higher interest rate.
As a result, more complications can ensue with regards to obtaining homeowners insurance for the buyer and the potential risks involved by a seller occupant as far as damage, wear and tear, and repairs.
Buyers have already taken some huge risks with buying a property as far as their offer price and other terms, but agreeing to allow a seller to stay in their former home for several months on end at little to no cost to them can be a harder sell as the market starts to change.
Seller myth no. 4: Selling as-is is easy-peasy.
Given the current climate, sellers think they should be able to sell their home “as-is” without making any repairs. Sometimes that is easier said than done. The words “as-is” can often scare a potential buyer into thinking there is something major wrong, even if there isn’t.
Sellers need to understand that structural issues and older systems like electrical, plumbing, heating and cooling systems nearing the end of their life, older roofs, termite damage, evidence of past moisture leaks can all be deal killers for buyers. A seller would be wise to address any known major issues prior to coming on the market.
Seller myth no. 5: Buyers must waive contingencies.
Many sellers have grown accustomed to buyers waiving their contingencies in this market. Different buyers have different risk tolerances for this.
The single largest transaction someone makes in their lifetime can cause a ton of anxiety already, let alone risking waiving contingencies like the inspection, appraisal and financing with it. Having this attitude may scare off and eliminate solid buyers from consideration.
Sellers need to be cognizant of the fact that buyers at the very least will not want to waive an inspection contingency. They may offer to limit the timeframe for inspections and other contingencies, but having the expectation they must waive all of them is not normal and buyers may not be as apt to do so as prices continue to climb along with interest rates.
When it comes to buying a home in this market, the experience can be quite frustrating, and buyers often feel like the process is an impossible mountain to climb. It can be easy to fuel misperceptions with every home that comes on the market and talk yourself out of even trying.
Buyer myth no. 6: I’ll wait until prices come down.
Many buyers decided even as far back as a year ago that they would sit out the pandemic real estate boom because prices were getting too high, were unattainable, and they believed that prices would come down. Those same buyers are paying significantly more for the same properties than they would have a year ago, not to mention interest rates being one to one and a half percent higher.
What buyers don’t understand is it’s not just about high prices, but rather about low to no inventory which has been continuing well into 2022. In some cases, inventory levels are worse than before.
The low inventory climate is not likely to change anytime soon. New construction supply continues to be constrained and prices have risen significantly, often pricing buyers out of certain price ranges. Continuing to take a “wait and see” attitude will likely further the gap between affordability relative to actual options that they want.
In the meantime, rents are at an all-time high causing many would-be buyers to be trapped between owning and renting which are both getting equally expensive. There is also a tight supply of properties available for rent as more long-time owners are opting to sell and take advantage of market conditions.
Buyer myth no. 7: The real estate market is going to crash.
Given the rapid increase in prices, many buyers think the market will be primed to take a huge dive. Some of these buyers weren’t adults during the great real estate crash of 2008.
It is important to educate buyers as to how and why that happened and what led to such a dramatic downturn. Loose lending guidelines, first and second mortgages, armchair investors who attracted people with little financial stability to roll the dice on everything from new construction to condo conversions among many other factors created the perfect storm.
The difference now is there is a significant amount of wealth circulating in the real estate market and there is purchasing power like never before. As a result of the pandemic, people have decided to relocate on their time and terms vs. being dictated by a particular life or job event.
The run-up on real estate inventory over the last two years caused inventory to be gobbled up at a record pace that under normal circumstances, would not have happened. Jobs are plentiful and employers are not resisting the great relocation, but rather finding ways to work with it to retain and attract top talent.
Buyers waiting for the market to crash may be like waiting for the train that never comes. In the meantime, prices continue to rise as do interest rates and many have been completely priced out of what they wanted to buy a year or so ago.
Buyer myth no. 8: It’s important for me to waive all contingencies.
Many buyers think they have to waive all contingencies in order to have a competitive offer in today’s climate. Not so! Buyers can have contingencies, but they need to be smart about how they structure them in an offer.
This means being fully underwritten and approved by a lender before starting their home search. This will allow the buyer to shorten their financing contingency period along with the appraisal contingency.
Buyers need to consider if they have the ability to guarantee a certain price to the seller should the property not appraise and communicate that with their offer. Inspection period timeframes should also be limited to help provide certainty to a seller that all won’t be dragged out for no reason.
If a buyer presents an offer that shows they have their act together financially – working with a trusted lender who reaches out to the listing agent to assure them about the buyer as well as their process and that they will work towards an expedited closing – a seller may be apt to choose their offer over others that aren’t as detailed or who haven’t expressed as much proactiveness in the process.
Buyer myth no. 9: You can’t negotiate on overpriced properties.
It can be easy to think that there isn’t any negotiability on properties on the market today. If a buyer is willing to focus on those that are overpriced and have been lagging on the market for a couple of weeks or have fallen out of contract a few times, they may be surprised at what kind of transaction they can put together, within reason.
This is not the time to go in with extreme lowball kinds of offers, but rather something reasonable while still limiting timeframes for contingencies to make it attractive to the seller.
Buyer myth no. 10: It’s better to buy an off-market property.
Some buyers think they will get a better deal if they can just find something not officially on the market. These buyers think there is an owner just waiting to give them a special deal not available to anyone else.
Agents expend hours of time and money trying to find these listings. What buyers don’t understand about off-market deals is the only way for those to work is if it is on the seller’s time and terms. A seller is not going to be willing to compromise much and of course they are going to want a premium price because they are not going on the market or they may plan to if they can’t work it out with a buyer and ask even more.
Sellers are very savvy and well aware of what the properties around them are going for. They aren’t going to leave money on the table because they don’t necessarily want to be listed.
Off-market properties can also be ripe for more things to go sideways. The seller may not play by the same rules as if they were listed and might drag their feet through the transaction and perhaps threaten to change their mind.
If a seller has signed a contract to sell their home to someone else, specific performance clauses still apply, but the time, expense and hassle of trying to fight that vs. trying to find another home to buy might not be worth pursuing for a buyer.
Real estate markets wax and wane, and with each shift comes a whole host of myths and misperceptions by both buyers and sellers of how things will be or what to expect. In many ways, myths are a blessing to the agent that knows how to act as an advisor and trusted confidant to duly guide the buyer and seller through turbulent waters to achieve their goals on the other side.