Monday, July 28, 2008

Addressing the Two Weaknesses in this Real Estate Market


As we progress in 2008 there are two weaknesses that need to be addressed in our housing market by the real estate agent. Simply put there are too many homes for sale and fewer mortgage products. This reality can be addressed by strengthening each weakness at the same time.

First we need to fully understand both weaknesses. There are various types of sellers in today’s market adding to the inventory. While I cannot name every type of seller, I would argue there are three broad categories in any real estate market.


  • The “Have to ” seller: Foreclosures (bank owned) and the short sale

  • The “Need to” seller: Relocating or having a life event; divorce, death, long term illness, job loss, etc.

  • The “Want to” seller: Those that would like to sell their home for all the normal and numerous reasons
The more “Have to” sellers that exist in a given community, then the weaker the price points will be for competing properties. The fact of the matter is any neighborhood with bank owned or owners seeking a short sale will drive overall sales prices down. The “Need to” sellers must sell but have enough equity and cash flow to withstand a typical sales cycle. However this category of sellers must sell the property in most cases. In a stable market “Want to” seller is the market. In a stable market the “Have to” and the “Need to” would make up a small percentage of the sellers. However a fact confirmed in every bleak headline the “Have to” sellers are growing. The “Need to” sellers will only grow if your local overall economy weakens to the point of an exodus for better opportunities elsewhere. At this time it appears the “Need to” will remain in historical percentages to the occurrences of life events. Therefore the stable market “Want to” seller is in competition with the growing “Have to” and perhaps a higher percentage of “Need to” sellers. But this is not the only weakness.

The second market weakness is the buyer. Today’s buyer is weaker in direct relation to income and credit. The reason why the “Have to” sellers are growing so rapidly is the inability to finance. The mortgage programs that allowed these sellers the chance of homeownership have been eliminated. Regardless of your personal views on the mortgage lending debate as to whether these programs were right or wrong, the fact is these programs are now history and it has had a negative effect. The direct affect is the buyer not able to pay cash for the property must document his income. This might seem like common sense that a borrower must document income but how lenders verify income will limit the given pool of eligible buyers for a property. There are additional numerous mortgage weaknesses that are preventing buyers from purchasing property that I will expound on in future articles for example: credit score price adjustments, increasing interest rates and today’s adjustable rate mortgages. I will focus on the income needed weakness and how a seller can strengthen their listing and sell their property.

As discussed there is an overcrowding of properties on the market and the buyer pool has become more limited. As a realtor your focus is on the “Want to” sellers the stable market but your buyers are first drawn to the “Have to” seller’s listing. You and I know that this appeals to buyers because of the intrinsic below market price point that is hoped to be found by bidding on these properties. The first problem with the bank owned or short sale is the length of the contract. Many times a buyer offers a respectable price for a property only to wait three or four months for the deal to fall apart because the seller cannot accept the price offered. At best trying to put together a “Have to” sell deal is a crap shoot unless you can get some control over the process. If you show your buyer or try to attract the buyer to a “Want to” sell listing the obstacles from the buyer are:


  1. Questions if it is the bottom of market?

  2. Waits to see what will happen over the summer, this turns to fall and so on.

  3. Needs to sell his home first to buy the dream home

  4. Can’t qualify for the home by the lenders standards

  5. Wants a deal

As the listing realtor on the “Want to” sell listing you are constantly asking your seller for a price reduction to get activity to the property. Is there a solution? The answer is yes.

As the realtor you need to confront both the seller’s weakness and buyer’s weakness simultaneously via a team approach to closing the sale. Who makes up this team is extremely important as is the education process of both the buyer and seller. For a successful transaction both the buyer and seller must win for the deal to move forward. You need to adopt a financing solution into the marketing of the property. The team is comprised of the listing agent, buyer’ agent and mortgage planner. The buyer’s agent must bring the buyer to a mortgage planner that understands both the lending environment as well as the buying process in our current market. As a mortgage planner I illustrate the difference between getting $30,000 off a sales price vs. using that same amount of money toward lowering the total cost of financing. The listing agent needs to understand how to position the property from a financing perspective to have it stand out from its competition. How do you think a property might be better positioned: “New price seller is highly motivated” or “Seller funded below market interest rate”? You can no longer ignore the mortgage and its affect on the transaction. How the mortgage is structured is an integral part of having success in this market. Understanding current lending guidelines and using the unique ability of the seller to affect mortgage terms is a huge benefit. The fact is if you can have a permanent effect on the buyers payment you will affect your pool of qualified buyers. I have adopted a program that can be immediately implemented into your sales process that will allow you to sell the “Want to” sell listing. It addresses both weaknesses in our market and succeeds when adopted. Contact me if you are interested in learning more about applying program. In addition I have an expired listing marketing approach as well. I service the entire Massachusetts, New Hampshire and North Carolina market.