In order to be successful when the market changes, you must be able to persuade your sellers to price their homes according to market conditions. Author and trainer Bernice Ross provides strategies and a script to help you have difficult but necessary conversations.
CBS News recently warned that house prices could fall another 20 percent in 2023. To survive in today’s market downturn, you must master two critical types of conversation. First, you need to be able to convince sellers how to value their property correctly, and second, you need to show buyers how to get their mortgage and home on the best possible terms.
Regardless of whether prices, interest rates or inflation are rising or falling, life forces people to move. Your role as an agent is to help each seller and buyer you represent obtain the best possible terms for their transaction, regardless of what the market is doing.
Convince sellers to get realistic prices in today’s market
There are two key components to attracting buyers in a down market: price plus other conditions or incentives. In previous recessions, a third popular strategy was to increase the commission rate paid to the buyer’s agent and/or even offer a car or trip to Hawaii.
In other words, not only must you be able to persuade the seller to offer the right price, but you must also be prepared to discuss additional incentives that can help differentiate your seller’s offering from the competition .
The price challenge in a rapidly declining market
In a declining market, your starting point is still checking the most comparable sales, but in today’s market, you also need to consider the rate of decline. This is never a problem in a seller’s market as buyers usually bid the property up to market value.
To determine how much your market has fallen, examine comparable selling before interest rates and inflation started to rise (before June 2022). As we wrap up 2022, a simple way to do this is to compare the average price increase from 2021 to the average price change over the last six months of 2022.
A quick way to find out how much real estate in your state has appreciated in value is to check the Chart from Advisor Channel that provides the average increases for 2021 on a nationwide basis. You can also check your local MLS stats for this number.
Take advantage of Realtor.com’s new RealEstimate for an object-specific evaluation
To use this tool, click on “Home Value” on the Realtor.com home page and enter the home address. This provides a chart like the one below that tracks how the value of a given property has changed over a given time interval. In addition, it also shows the value of this property up to January 2023. Please note that this AVM estimate is typically at least 60 days behind what is currently happening in the market.
Here is a case study of the current statistics of a property that was appraised two weeks ago and is due to close in early November.
Here is the current RealEstimate Chart for this property:
Please note that two of the AVMs (CoreLogic and Quantarium) have similar values ($861,000 and $844,241). My own CMA came in at $840,000. If you have three values that are fairly close together, calculate the average of those three numbers. In this case, it was $848,000.
Next, search your local MLS or Google for the average amount that prices have fallen in 2022 (or would be even better over the last few months). This property is located in Austin, where Real estate prices have fallen by 10.3 percent from June 2022 to September 2022.
Assuming a 10.3 percent depreciation on a $848,000 home, the depreciation is $87,344. This means that the value of the property is $760,656. The estimate came in at $775,000 last week. As prices go down, the list price should be close to these numbers.
Determine the rate of decrease
Given the numbers above, how much has this property gone down monthly between June and September (four months)? Dividing the total decline of $87,344 by four months gives $21,836 per month.
Even with that big drop, Austin owners who are selling now are still way ahead of the game as prices had skyrocketed 30 percent in 2021.
Closing of sellers if they list their property at a lower price than the comps suggest
Here is the script:
agent: Mr. and Mrs. Sellers, regardless of whether prices are rising or falling, the comparable sales on all offers lag at least 60-90 days behind the actual values. Prices here in Austin are down 10 percent in the last four months. In other words, your home, which was worth $848,000 in May 2022, declined by $21,386 per month between June and September 2022, so it’s currently worth about $762,500.
The sooner you sell the better, because every day you don’t sell, your ownership goes down about $713 a day. To illustrate this point, if you sell after being on the market less than 30 days, you may be able to get your home’s current value at around $762,500.
If it takes 60 days to sell your home, your home will have lost $42,772 in value. If prices keep falling and the sale takes 120 days because you overpriced your home, it’s down $85,544.
If you really want to know how expensive it is not to sell quickly, add the transportation costs (mortgage payment, taxes, insurance, and HOA fees, if applicable) to your calculations.
Very few markets have seen the huge price increases that Austin has seen. For the same reason, they are not experiencing such a sharp decline either. Even if your prices drop by just $5,000 a month, selling in 30 days versus 90 days will save the seller about $10,000.
Incentives for Sellers
Builders have used incentives to attract buyers in slow markets for decades. For example, at the end of 2020, the developer of our subdivision only had three condos left for sale. Here is a list of the concessions we received for purchase by 12/31/2020 and completion within 30 days.
- $10,000 purchase price reduction.
- Washing machine, dryer and refrigerator included in the purchase price.
- Pay Homeowner Association dues for one year (approximately $6,000).
- Artwork, leather chairs for the kitchen island, dining set, Keurig coffee maker and other decorative items that were part of the model.
Want to learn more about seller concessions as well as specific strategies to help your buyers get off the fence and get signed with down payment help, interest buybacks, and other tactics? If so, don’t miss “Your Business for 2023 Depends on How You Have That Buyer Conversation,” coming next week.