How to Get Buyers Off the Fence

By Michele Lerner

Hurricanes, earthquakes, a downgrade of U.S. creditworthiness and a rattled economy all are contributing to weak consumer confidence and hesitation among would-be homebuyers. One of the toughest aspects of a REALTOR®’s job these days is to counteract national media reports about the real estate market and the ascendancy of buyers to help them understand the reality of your local market. Many buyers today assume they have all the power in the real estate market and no reason to rush into making an offer on a home, yet REALTORS® report that homes priced right and in good condition are sometimes getting multiple offers.

Encouraging buyers to move off the fence and into homeownership can be challenging, says Carol Mazur, a real estate coach and owner of The Top Producer Group in Wilmington who recommends countering negative national news reports with positive information about your market and the impact of historically low interest rates.

Asa Fleming, a broker with Coldwell Banker Advantage in Raleigh, says, “Fear and uncertainty are stopping some buyers, so it is important for REALTORS® to demonstrate that this is an opportunistic time to buy a home. Interest rates are probably the lowest they will ever be, prices have plummeted and rents are starting to increase. I tell potential buyers that I would hate to see them caught by higher prices and higher interest rates if they wait too long.”

Diane Honeycutt, a REALTOR® with Team Honeycutt at Allen Tate in Concord, says it is important to put down on paper the difference in the monthly payments that a 1 or 2 percent change in interest rates can make.

“Buyers need to understand that not only will their payments go up, but they may not be able to qualify for the same loan amount if rates increase,” says Honeycutt. “Some buyers want to wait until they are sure that prices have bottomed out, but I tell them they can’t wait too long to pull the trigger because interest rates are likely to go up.”

There are several ways to explain the impact of an interest rate increase. For example, a one-point increase in the interest rate on a 30-year loan is the equivalent of a

9 percent price increase. On a $200,000 home, that would mean the payments would go up as much as if the price jumped $18,000.

If interest rates rise from 5 percent to 6.5 percent, the monthly principal and interest on a $200,000 loan would rise from $1,074 to $1,264. Borrowers would need to either have a higher income to qualify for the loan or purchase a less expensive home if they are unable to qualify for the higher payments.

Ryan Wall, a REALTOR® with Providence Realty in High Point, stresses the importance of having good relationships with lenders who can pre-approve buyers and explain various loan options.

“Lenders have a lot of programs that can help buyers, especially if they don’t have a lot of cash, so it’s important to be able to share that information with potential buyers who may think they can’t buy,” says Wall.

In addition to discussing the impact of interest rates, buyers need to be educated about the impact of price changes. “Some buyers will make an offer and then not follow up on a reasonable counteroffer because they expect to be able to get everything they want,” says Honeycutt. “But every $1,000 increase in the price only makes a difference of about $6 or $7. It’s important to put this into perspective, to ask the buyers if they like the home enough to spend another $12 or $18 a month on it.”

Kim Endre, a sales manager with Outer Banks Blue Realty Services in Kitty Hawk, says the resort market has been particularly hard hit by economic woes, but she turns that around to show potential buyers that real estate can be a good investment.

“The fluctuations in the stock market have many people worried, so I explain that low interest rates, low prices and high inventory make real estate in our area a good investment,” says Endre. “We provide very specific information, including rental ratios and insurance quotes, so they know they can insure the property and can make rental income. We put everything on paper to help them see how the numbers will work, including the difference in payments at higher interest rates.”

Fleming says REALTORS® should be ready to talk about North Carolina as a destination state for many businesses. He predicts continued growth, particularly because of the many universities in the state that attract people who decide to stay. In addition, he says REALTORS® should keep themselves informed about prices and developments in their market.

Mazur says, “REALTORS® should read every article about real estate and the economy and think about what facts are relevant to their local market. It’s especially important to find information that can be positive for buyers and to communicate that to your customers. And, if prices go up even a little, you need to share that to create a sense of urgency among buyers.”

Wall spends a lot of time getting to know properties in his area so he can see which homes are undervalued. “I look at the homes that have sold within the past 60 days or less to see which homes were priced right and in good condition,” he says. “I also look for properties that are priced for less than that market value to see if they are a good buy for my customers.”

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Fleming says rents have been rising for the past four years, so potential buyers need to be educated on the fact that they can lock in their housing payments with a purchase.

“REALTORS® need to explain to renters that they are not getting anything other than a place to live with a rental, while they are making an investment by buying a home,” says Fleming. “They can build equity by paying down their mortgage, the property will appreciate, and they can deduct their mortgage interest payments and property taxes off their federal income taxes. They are also buying something they can pass on to their heirs.”

Affordability is another concern among buyers, who may not be aware that in some areas the cost of buying can be less expensive than renting.

“A lot of renters think they can’t afford to buy a home, so it’s important to share your knowledge with them about programs that can help them get into home with less cash,” says Wall. “People tend to forget that if they move from one rental to another they will need the first and last month’s rent and a security deposit, all of which can add up to almost what they need for a down payment in some cases.”

Wall also points out the value of purchasing a property at below market price, making a few minor improvements and creating equity by paying down the mortgage, versus renting.

Mazur says, “REALTORS® should explain that having a mortgage is a form of forced savings. Even if the property doesn’t go up a dime in value, you have an asset that you are paying off. Most people think of buying a home as spending $300,000 for a home, but in reality, if you make a down payment of $30,000, that’s all you’ve spent. The rest is often equivalent to what you would be paying in rent anyway.”

“You have to educate buyers about what sellers are accepting and give them a feel for the local market and what is happening with prices,” says Honeycutt. “If they are looking at a $275,000 home but can only spend $200,000, they may be thinking they can get it for that price. It’s important to sit down with buyers and evaluate what they must have, what they want, and what they are willing to sacrifice to meet their price range.”

Wall emphasizes to his buyers the importance of buying an undervalued home now so that they will be able to sell it in a few years if needed. “Buyers today sometimes think they should be able to buy whatever they want, then they get discouraged if they can’t find the perfect home at a bargain price,” he says. “I ask them to decide what features are the most important to them, whether it is the size of the place, the location, or amenities like a swimming pool. If they can’t afford everything they want, I talk to them about the value of buying something else, especially if they can get a foreclosure or a home at a low price, building equity and then having something to sell in the future. If they wait, they won’t have the opportunity to build equity at all.”

Knowledge of the local market and the financial implications of homeownership, presented in a positive way, can provide a boost to consumer confidence and turn potential buyers into homeowners. n

By Diane Greene Director of Community Outreach