It’s mid-week and you are wondering, “How can I get a couple of these buyers off the fence???”
They keep asking:
- What if prices drop further?
- Have we reached the bottom of the market?
- Should I look for a short sale or a foreclosure?
- Isn’t it still a buyers market? I want to bid low, don’t want to offer full price?
With all those questions are there any answers???
Here are some little tidbits of information to counteract those common questions.
- Prices have dropped 53% since the peak median price in June of 2006. However, the current market shows that for the past three months the median price has gone up from $116K in April of 2009. Let’s say there is a slight possibility that the home prices drop 5% in the next year. Consider though that most people (outside of VA and USDA Rural Housing program) are committing at least 3.5% towards the down payment. Worse case scenario they lose 1.5%. Further, consider that if after we lose the last 5% we begin seeing normal/historical levels of 3% appreciation, then after 14 years of living in the home (this is the Census Bureau’s estimate of how long someone owns a home after purchasing it) the homeowners have gained 37% in appreciation. On the down payment of $4,375 (initial investment) and the future potential sale of $171,250 in 14 years the borrower stands to have a return on investment of 1000%. Clearly a scenario in which the borrower wins, even if prices drop further.
- Like anything in life, everybody looks for the best deal. The question isn’t when the best deal happens it is what side of the deal you want to be on. For example, would your rather buy right before the bottom of the market or right after the bottom of the market? I vote for right before the bottom (even if you lose 5% - see scenario above). The reason right before the bottom is the best is because you, as the buyer, still have the advantage. If you ask for the fans to come with the house in a market where the sellers are eager to sell, you will have an easier time getting them. If you ask when the sellers are having an easier time selling their item, they might want you to pay for the fans. It’s just a classic example of why buying right before the bottom, when people are fearful is better than buying when people begin to get greedy. Don’t give the seller that opportunity.
- Short sales are on the rise. In June, there were 9,350 total sales per ARMLS. Of those 9,350, 13.4% were short sale and 57.2% were foreclosure. That is highest number of closed short sales and lowest number for foreclosure percentage since the beginning of the year. However, the moratorium on foreclosures was recently lifted and so we may see an increase in that percentage in the next few months. Why would you steer the client away from short sale? Time, Effort, and most important cost. Short sales on average cost $82.88 per square foot while Lender Owned homes cost $63.36 per square foot. Basically there is more foreclosure inventory and a better price to be had for that foreclosure inventory.
- Depends on your Market!!! Homes from $349,999 and down have a maximum of 4.6 months of supply, while homes under $99,999 have only 1.9 months of supply. Those markets are quickly becoming a sellers market, where closing cost contributions and any help from the seller will be limited. However, if you have a savvy borrower that can get into the $350+ range, they may still make out like a bandit in this market. According to ARMLS, the inventory jumps up to 7.4 months of supply from $350K and on range. You might still be able to get a lower offer into a $400K property and make it fly, perhaps even to the point where they could use the max financing for FHA of $346,250.
See it really depends on whether or not you can ease the minds of your client. It is never a walk in the park, but with statistics and examples, it is easier to persuade someone that they are making the; right move, best offer, and are generally heading in the right direction towards their home purchase that will inevitably set them up for success and limits failure.
Best of luck and Keep on Selling!
All statistical data is taken from ARMLS of Greater Phoenix.