By Eugene L. Meyer
RISMEDIA, April 7, 2008-Janice Petteway has a simple solution to the credibility gap that seems to plague the real estate industry as a result of public cynicism bred by media doom and gloom contrasted with smiley-face broker optimism.
“We just want one of the candidates to have a good affair and we’ll be really fine,” says the Orlando, Florida broker. Then, she says, the media would obsess over the scandal and publish fewer downbeat housing stories. Even without such a scandal, she adds, “The election has helped, because the media is on a different tangent.”
While that may not be entirely the case, many brokers believe that without what they consider media-fueled fear of the market, they are better able to give clients their best angst-free advice. For a lot of brokers, that translates into a recommendation to buy now. Or, as Barbara Reynolds, president and chief executive officer of Real Living Realty One of Cleveland, puts it: “If you’re in buyer’s market, you should buy.”
Keeping It Local
But what to tell clients in this complex marketplace, where perceptions are national but realities are local, may be one area where one size does not fit all. If consumer confidence is built on a foundation of straight talk, the rap can-and probably should-vary from region to region.
Wichita and Phoenix, for example, might as well be on different planets, their markets are so different. Wichita brokers’ biggest problem is not the local market-which is remarkably stable, with 4% appreciation forecast this year-but local perceptions based on negative national trend stories.
“Probably our biggest problem is simply overcoming the national press, because what they report has nothing to do with what’s going on here,” says Gary Walker, vice president and general manager of the residential division of J.P. Weigand & Sons Real Estate in Wichita. “If people are coming from one of the 27 states where values are depreciating, it’s a little hard to convince them that it’s not going on here. We haven’t been affected at all by the things that have been a downward force in other parts of the country.”
Consider what Phoenix-area agent Debora Nichols has to say. “In May 2005, we had somewhere around 7,000 to 8,000 homes on our market. Right now, we have over 56,000.” And, with a lot of adjustable-rate mortgages scheduled to reset in May, the expectation is for more foreclosures and further price reductions. “That tells me that the bottom of our market is nowhere near in sight.”
Nichols’ prescription might sound contrarian to some. “We’re all in it to make a living,” she says, “but I think taking care of your clients is more important. If they’re not going to benefit in the long-run or as far as we can see, then it’s not good to advise them to buy now.
A Relationship Based on Trust
“When you start to bond with somebody and build a relationship, I think they expect honesty. They expect you to be on their side. I hope that if I’m honest with them and they appreciate the straight talk that will come back to me in referrals. Or maybe when they are ready to buy, they’ll come back looking for me because I was honest with them.
“In the current climate, I try to put myself in the client’s shoes, because it’s really important for us to understand their longer goals.” If a buyer plans to stay put for five or six years, “it’s a good time to buy. Interest rates are good. There are a ton of opportunities. But if they don’t know what their future holds, then we tell them they’re better off to rent.”
Jennifer Melo, a working mother with three children whose mother-in-law recommended Nichols, appreciates her low-pressure style. “She’s not trying to sell me a house; she’s just waiting for me to pick one I like,” she says. “[Nichols] has the mindset of, ‘if it’s right, it will be.’ She’s very honest and just really open about how she feels. If we walk into house and it’s not meeting my qualifications, we’ll still look at it but she’ll tell me, ‘It doesn’t have the things you want.’ So I just don’t rush it. She keeps us updated on what the market doing.”
Says Keith Geissenberger, a Nichols associate: “My approach is honesty. I tell buyers the market is still dropping and has a very long way to go. My approach with sellers is simply to lay out the facts. I talk about just how bad the overall market is and show them the latest stats from the Arizona MLS. Most importantly, I tell them that no matter how much they love their house, they will only get what the market values it at.
“If all Realtors would just point out to their clients that the markets are efficient and no one is going to over pay just because they wish it, we would recover faster. Lenders know that. They’re not lending above appraised value. If you sell something that doesn’t appraise, what do you have? A lot of angry people.”
Lori Reynolds, moving from Arizona to Iowa, chose Geissenberger after the firm had sold her brother’s house. Working with him, she and her husband have dropped their asking price by about $50,000, from an initial $389,000. The house has been on the market 120 days.
“They’re pretty realistic and honest with you, as far as what to do to make it most presentable,” she says. “They don’t sugarcoat anything, as far as telling you to ‘sell it at this or that price.’ They continue to update you, looking at what you’re charging per square foot, compared to houses selling and listed.”
An Incentive for Buyers
The Florida market has also experienced rapid appreciation and is now trending downward. But Petteway says more buyers are looking now that prices are lower. “Our showings were up 200 percent in the last month,” she says. “Buyers are not sitting on the fence. They’re out there. Buyers are starting to see ‘Just Sold’ and ‘Sale Pending’ signs. They don’t want to miss it. I think the negativity has gone too long. The world has not fallen apart.
“People need homes,” she continues. “It’s a little bit different than consumer confidence in buying a vehicle. You can live with the car you have to get back and forth to work. But most people prefer to get their families settled. You can’t be settled in a rental, because you don’t know when it’s going to be pulled out from you. We’ve had people renting who don’t know if it’s in foreclosure, and they’re three days away from being homeless.
“We do what’s best for them. We want to make sure they’re 100 percent financially able. We don’t encourage them to buy over their means and grow into it. We encourage them to do 30-year fixed mortgages and buy into an area that’s right for their family. We make sure they have all the data they need. There are times we advise people to wait a year or two, typically not because of the market but because something is happening or not happening in own their own situation. If they are looking at being in area for only one or two years, it’s best to rent.”
But overall, she notes, “A lot of people seem to forget that when you’re buying real estate, you’re buying a huge asset with a very little bit of your own money. It’s one of the few things you can buy that is so leveraged, and you get to live in it.” Unless, of course, you’re an investor, as is Petteway, who is buying a rental property for $60,000 or $70,000 less than she would have paid at the height of the market. For her, she says, “it’s a smart time to buy.”
According to Rick Weidel, president of a large central New Jersey brokerage that bears his family name, “There is no time when you shouldn’t buy,” though, of course, buyers will be purchasing a home “relative to the market.” Even if a house doesn’t appreciate, however, he says, “it’s better than paying a landlord, and the odds of someone living in a house for only a year are very slim, next to zero in my market, unless there’s a financial hardship.”
Keeping It Real
The message for sellers unhappy over prices, Weidel says, is to look not at a home’s peak value but at the cost basis. “[Look at] what someone paid for the property,” he explains. “That’s what we try to get our associates to focus on; sellers then feel very realistic and pleased. I don’t know why the real estate industry is fixated on what a product sold for yesterday. ”
To which Reynolds, the Cleveland CEO, adds: “Until last year, it was very much a seller’s market. From my vantage point, there is just a tremendous opportunity in the market today, particularly for first-time buyers. There are fewer buyers in the marketplace, and that puts the buyer in the driver’s seat.” Only if a client plans to move in two years, she “would tell them to save money, build up equity for where they are moving and, in the meantime, rent.”
Lynn Kosner, manager broker of Baird & Warner’s Highland Park, Illinois office, also urges house-hunting clients not to wait. “Real estate, whatever it’s doing at the current moment, will increase in value at the end of the day.” But she adds, “Unfortunately, so many properties are in distress and the process is so much more complicated. We’re all learning to deal with the correction. It’s a great time to take advantage of it. There is no bad time to buy.”
In Connecticut, brokers are also challenged in their client dealings by national headlines that don’t reflect local reality. “Lately, we’ve had to do a lot more educating because the media is broad-stroking,” says Candace Adams, president of Connecticut Prudential Realty. “We drive people to a quarterly market report on our website, so the public understands that our market is healthy.”
With interest rates still low and sellers willing to negotiate, Adams urged her own daughter to purchase a house less than a year ago. Buyers, she said, should “get a clear perspective on value and pay what it’s worth, understand the trend and offer 5% less if you think the property will be worth 5% less in a year.
“Our role,” she adds, “is to educate and support clients, sellers and buyers, through any time. Historically, housing remains a great investment.” Over the decades, there have been down times accompanied by “some awful headlines. People listened to them or they didn’t, and if they didn’t they’re millionaires or billionaires today.”
Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.