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Managing Homeowners’ Expectations

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By Steve Harney

RISMEDIA, September 7, 2007–The days of quick home sales, selling for top dollar and pricing wars on homes are gone. As such, today’s successful real estate agents know that merely getting the listing isn’t enough; you now have to educate your clients on how to price their home correctly so it can still sell quickly in today’s real estate market.

The challenge for Realtors is the homeowners’ perception of what their home should sell for. As recent as June 2007, a survey by the Boston Consulting Group found that fifty-five percent of American homeowners believe their home is worth more today than it was one year ago. In reality, in many locations, home values have gone down.

Unfortunately, some real estate agents, who see their income decline as the number of home sales go down, are now operating in a state of fear. As a result, when they meet with prospective clients, they may be concerned they won’t get the listing (and thus not get a commission), so they tell clients what they want to hear – namely that their home will sell for top dollar in record time. Then when the house doesn’t sell and the client agrees to lower the price, the client/professional relationship becomes strained. Clients can’t help but feel their agent gave them inaccurate information.

To truly shine as a real estate agent today, you simply need to educate yourself on the realities of the market and then tell each client the truth. Help clients understand where the pricing used to be, where it is today, where it will likely be three months from now, and most importantly, why it is that way. Only then will clients be able to make a realistic pricing decision that will enable you to help get their home sold.

Following are the five pricing considerations you need to educate yourself and your clients on. By taking these points into consideration when pricing listings, you’ll be able to put that “sold” sign on listings faster.

1. Increased Inventory

Yes, more houses are for sale right now than in recent years, meaning buyers have a lot more choices and negotiating room. But why are there so many houses for sale today? Because we are witnessing the consequence of a pent-up selling demand. In other words, a lot of sellers waited to list their property because they wanted to catch the top of the market. They waited and waited and waited. Now that they see the market declining, they list their homes in an attempt to still sell at a high price before the market bottoms out. As a result, we have an overabundance of inventory, up approximately thirty-nine percent than at this time last year.

2. Increased Mortgage Rates

News and advertising tells us mortgage rates are at an all-time low, and that’s true in a historical context. But short-term, over the past three months, mortgage rates have been increasing. And every time the mortgage rates go up, even a quarter of a percent, a large number of potential buyers are disqualified from the marketplace. Additionally, a number of mortgage companies are going out of business, with American Home Mortgage company – the tenth largest in the country – as the latest to close their doors. Mortgage companies are getting nervous about what’s taking place in the mortgage market, and that’s making money tighter. When money gets tighter, sellers are affected because buyers have less buying power. Less buying power means fewer home sales. It’s as simple as that.

3. Increased Mortgage Restrictions

During the past few years, mortgage companies granted mortgages to just about anyone, including those who couldn’t or wouldn’t prove their income, those with no down payment and even those with very poor credit. But today, with foreclosures climbing steadily, almost all mortgage companies have re-enacted the tight lending restrictions that were common decades ago. John M. Robbins, Chairman of the Mortgage Bankers Association, says that he’s happy about the restrictions, but that “this is a strong statement that will help curb abuse and will likely constrain consumer credit choices.” Because mortgage companies are nervous about the current real estate market, buyers do need down payments now. A co-signer may not be enough, and credit scores need to be high. Each one of those factors and many more disqualify some people from buying, which in turn affect sellers.

4. Increased Vacancy Rates

During the real estate boom, many people and investors bought spec homes with the hopes of flipping the house for a big profit. Today, vacancy rates on these homes are up over fifty percent. Since most of these people don’t want to act as landlords, they have a strong desire to sell the home rather than rent it out. As a result, many are selling these vacant investment properties for rock bottom prices, grudgingly taking a loss. This greatly affects other sellers in the neighborhood, because when one home sells for a low price, it sets a precedent for the other sales to follow suit. With the surrounding comps having low sales prices, the current listings in that same neighborhood decline in value.

5. Increased Foreclosures

Statistics from First American Real Estate Solution show if one house forecloses in a neighborhood, the average house in that neighborhood loses five percent of its value. If eight percent of the houses in the neighborhood foreclose, the value in that neighborhood goes down twenty percent. No one can deny that bank-owned properties drive prices down. Unfortunately, the real estate and mortgage market is now bracing for the tsunami of foreclosures that is expected to hit. According to the web site www.foreclosures.com, three out of every one thousand homeowners have already lost their home to foreclosure in the first half of 2007.

Experts predict that there’s going to be a crash of foreclosures over the next two-and-a-half-years of more than two million homes. So if your clients get a flood of foreclosures in their neighborhood, it’s going to lower the home values drastically. Additionally, no neighborhood – no matter what the geographic location – is immune from the foreclosure fact. Simply go to http://realestate.yahoo.com/foreclosures to see all the foreclosures in your city or area.

The New Era of Real Estate Sales

The bottom line is if someone wants to sell their home for a decent price, they have to list now – not three months from now and certainly not a year from now. In fact, no one is predicting the market will be back before the end of 2009.

So when you conduct your next listing presentation, be sure to prepare by educating yourself on these five factors, and then explain how these factors impact your clients’ selling decision. Let clients know their options, the realities of the market and what their home will likely sell for given these five considerations. By doing so, you’ll help your clients price their home correctly so it doesn’t sit on the market for years. Even more important, you’ll become known as a trustworthy and reliable Realtor who delivers results, even in a tough market.

About the Author:
Steve Harney is a residential real estate and mortgage expert who specializes in negotiation and sales training. He has been in the industry for over 20 years, first as an agent and then developing his own real estate firm. Most recently, Steve launched a training firm aimed at helping Realtors achieve their true potential. He authors a monthly informational slide presentation for top agents and managers titled, “Keeping Current,” and travels the country as a sought-after public speaker and trainer. Please contact Steve at 631-834-7000 or visit www.steveharney.com.

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