Getting Buyers To Listen
by Middleton Elite Coaching – expert real estate coaching for top real estate professionals
Contrary to popular belief, the real estate market is actually not very difficult to predict. If you understand the pieces that drive buyer demand and the pieces that drive seller supply, you can determine its impact and help your buyers, and sellers, win.
We cover this in-depth in our recent article: Impact & Understanding
Ready To Buy Now
According to NAR, first-time homebuyers at 30 become move-up buyers at around age 35, and then normally, sometime in their early to mid-forties, that person is buying their family home.
They do so for a number of reasons; they’ve outgrown their starter home; their finances have created enough upward mobility; their household has grown, their kids have grown, they need more space, and they can afford it.
This is a forever home that they’re going to be in for a minimum of 10 to 15 years until they become empty nesters, and then make that next decision.
The two largest demographic cohorts in the real estate market are currently millennials and baby boomers.
Not to generalize or stereotype as this is based on sheer numbers; most Baby Boomers are currently downsizing out of their family home or they’re buying their retirement home or they’re buying an investment property.
They’re selling and they’re buying. And they are in their peak years and age range for doing so.
Millennials, who technically are the largest cohort ever for this country, are now entering into their peak, first-time home-buying years at 30-ish years old.
The trend and pattern with both millennials and baby boomers are the representation of peak real estate transaction years happening with both of these groups. All of this represents buyer demand.
Because our largest clusters are millennials and baby boomers, there aren’t a whole lot of people in the move-up buyer age range right now. The people in the middle make up a rather small portion of the population.
What you do have though, is a lot of people in the 30 to 35 age range who do fairly well financially.
Creating Buyer Urgency
Let’s imagine this setup. Let’s say you have a 35-year-old in your sphere that is not quite ready to buy the family home or the forever home, however, they have the financial ability to.
Here’s something to consider…if home prices were up 50% in the next five years (which is not out of bounds at all), and interest rates were at 6% or 7%, (which is not out of bounds at all), right now a family home that would cost $500,000 at 4% would be $750,000+ at 6% plus five years from now.
If you were to find someone from your sphere who has the financial means to purchase their forever home and you said:
“Are you interested in selling and buying?”.
And they say, “No, actually we kind of like our house. We’re good.”
To which you ask, “If you did sell and buy, when would you do that?”
And they say,
“Uh, I mean, I think we’re probably good in this house for the next three to five years and then we’d be interested in moving up.”
You can make a really compelling mathematical case that it’s to the advantage of that buyer to go ahead and lock in now on a 15 or 30-year mortgage on their forever home, because the data points support that we’ll likely not see home prices or interest rates this low again in our lifetime.
Where Most Buyers Think The Real Estate Market is Headed
(and why it simply isn’t true)
I’d like for you to imagine that buyers sort of live on this scale, where at the bottom, we’ve got low money and at the top, we have a lot of money.
And then across the bottom, we have whether they listen to you or they don’t listen to you.
We end up with four quadrants:
- I have someone who has low money except they listen to me. And because they listen, I can help these people out right now.
They might have to end up more on the outskirts of town, they might have to be okay with buying an 80% home; something that only fits eight out of ten for them, not a 10 out of 10. However, just because they have low financial means doesn’t necessarily mean that they can’t buy, we just know it may be a little bit more difficult for them to compete in the open market.
- I have somebody with a lot of money and they listen to me – great! We love these people.
- Then we have somebody who has a lot of money and they don’t listen.
- And we have those with low money and they don’t listen.
It doesn’t matter if they have no money or an abundance of money. If they don’t listen, we still have a problem. These are the people that want to do lowball offers and who want to question you on the conditions of the market.
If you’re really strong, really crisp on the market, you can hopefully persuade these people to listen.
Your battleground really lives here in the middle.
These are the people that needed to learn on their own, or we just kept making offers and finally, they learned their lesson. These are the people that are kind of on the fringe of do they listen or do they not listen?
If they have a lot of extra money, it’s less about their financial means and more about what can we do to make sure that we’re communicating the dynamics of the market. What can we do to make sure that they know that this isn’t a bubble, that prices are going to continue to go up? The cost of money is going to continue to go up the longer they stay stuck in the mindset of “well, prices are up, so they must come down.”, which simply isn’t the case today.
The longer they stay there, the faster this market’s running away from them.
When you are speaking to those in the middle and describing what’s going on in the market and they keep pushing back on it – ask this question:
“Are you open to considering that this same house is going to be more expensive a year from now?”
You got somebody who’s stubborn and pushing back on you. When you ask this are you open to considering question, some people are going to say,
“Well, no, I’m not open to considering that because I know _______.”
Well, I’m just going to put them in the “don’t listen” category, and I’m going to move on.
They might be nice people, however, I’d like for you to stop wasting time with people who want to argue with you about the dynamics of the market.
Assuming that you know it well, and you’ve done a reasonably good job of explaining it, if they want to argue with you about that, I’d rather you spend your energy somewhere else.
Now, if you ask “are you open to considering?” and they say:
“Well, I mean, yeah, I guess I’m open to considering it. I mean, I know prices are really high. I just don’t know how long they can stay that high. However, I mean, if you’ve got some reason that they might stay high, then I’m all ears.”
Then you go back and you walk them through the factors that drive seller supply and buyer demand, including monetary policy and prices and interest rates likely remaining this high or higher for our lifetime.
The Trajectory of the Real Estate Market: Expectation VS. Reality
Can we agree for discussion purposes that home prices over the past few years have basically done this?
What many people think is going to happen, mostly because it has happened once in their lifetime (2008), is they think the real estate market is going to do this…
Because what happened in 2008, 2009, 2010, felt as though there was all of a sudden a massive buildup of inventory. And, at this point in time in 2008, there were 12 months of supply of inventory in the entire country.
Right now (as of January 2022) there are about 2 months of supply in the entire country.
Here’s what the cooling off of the market actually looks like, whenever we get there, which is no time soon. The cooling off of the market looks more like a line just flattened.
Though buyers are thinking the market trajectory is going to be more of a bubble burst, the real estate market is actually taking more of a flattening trajectory, the market actually just achieves balance; which at the current trend, happens at three to six months.
Here are the facts:
Prices have been going up. Rates have been basically flat. Availability gets eroded a little bit because of pricing and then as rates turn up, affordability starts to take a downward trajectory.
A buyer’s gap while they wait actually becomes this huge gap right here.
They think the bubble burst is going to happen. They’re wrong. And so their missed opportunity is all of this gap area between the decreased affordability and the flattening of home prices.
Affordability For The Foreseeable Future
Your buyer may ask:
“Isn’t what is happening with affordability bad for the real estate market? Isn’t this going to call some sort of a correction?”
My answer is that I doubt it; and here’s why:
As affordability continues to erode, it doesn’t actually cause demand to erode. What it does is that it affects how much house a person can’t buy.
If I’m a first-time home buyer and I’m buying a house because I’m in my household formation years, and it’s more expensive for me to buy a house; it doesn’t quell my desire to have one because I have to live somewhere. I’m either going to have to rent or I’m going to have to buy. However, I probably can’t buy $300k now. I probably have to be okay to buy at $250k now, which means I probably got to go further outside of town.
Now you’ve got the creation of urgency in buyers is both about how you describe the market conditions. And then also about making sure that you’re focusing your energy on those buyers who were willing to listen to your description of what’s happening in the market.
By focusing on improving your skills to become more persuasive with these buyers, to educate them, and not to persuade them into doing something that they shouldn’t do, you can always say “my job is to give you all of the best information possible. And it’s your job to make the right decision for you.”.
Check out Middleton Elite Coaching’s ‘Working With Buyers’ on-demand virtual skills course to sharpen your buyer skills in any market.