How do you talk to buyers who say they're waiting for the market to crash? Well, they're going to be waiting for a really, really long time.
Let’s start by clearing this up: The reason the market crashed back in 2008, was because of a few very specific reasons. The first one was because home appraisals differed from one day to the next. There were not enough guidelines on appraisals, so houses were appraising for significantly more from one day to the next, one week to the next, or one month to the next. That's not happening anymore because there's really strict guidelines now on appraisals.
The second reason was because banks and institutions were giving people loans with no money down. All it took to get a loan was stating your income. They didn't check or verify anything. So for example, people were buying homes that were $600,000 when they really shouldn't have even been able to buy a home that was $200,000. So in the end they couldn't afford it.
That is not happening now. In order for you to get a loan, you need to show anything and everything and go under very stringent guidelines. They check and cross reference everything. So they're not just handing loans out to people that really can't afford them.
There's something else you need to think about. The National Association of Realtors and the California Association of Realtors had their end of year market report which summarizes the past year and their predictions for the future. Housing inventory levels are at an all time low. They're not building enough homes to sustain the amount of people that are actually living right now. We are increasing the population but not increasing housing.
They're not building enough homes. Why aren't they building homes? Right now the cost of goods, the cost of materials and labor have skyrocketed. Contractors are hard to find which means if you can get one, they’ll charge three times more than they used to. That means that it's harder and way more costly to build a home right now. So here's the deal. If you're dealing with buyers, just know that it's probably going to be very, very difficult for a long time. You have to be able to educate your buyer about what's happening in the market.
Remember supply and demand. When there is low supply and there's high demand, prices go up. We are going to continue to have low supply for a very long time and even though interest rates just recently increased by about a percentage over the past week, it has not changed at all for buyers. I just wrote an offer for my daughter on a property, there were 40 other offers. Yes, the majority of those were conventional loans, which means that even though the interest rates have increased over 1% in the past seven days, buyers are still out in full force. This property was over a million dollars and the square footage was over a thousand dollars per square foot.
You need to make sure that you know what people are qualified to offer. Make sure you’re giving the highest amount, the best terms that you can to the seller and not looking in neighborhoods that are at the top of your budget. Doing this from the beginning will ensure you put your best foot forward and save you from problems coming up.
Oftentimes people only look at the comparables, but that’s usually old information. If you are looking at data that happened 30 and 45 days ago that's not a true indication of what's happening right now in the market. You should be looking at the absorption rate. The absorption rate tells you how much inventory there is and how long homes will stay on market.
Research shows that anytime you have less than six months of inventory it’s considered a seller's market. The absorption rate is the amount of time it takes to get rid of inventory. So if there's 12 days of inventory, you didn't add anything else, all the inventory would be gone in 12 days. It's a 12 day absorption rate. This is something you should educate your buyers on.
Keep track of inventory. When you're making offers, call agents and say, “I noticed that home just sold. How many offers did you have?” Educate yourself about what's happening in these different neighborhoods of houses that have gone pending in the past 30 days. Just ask the question, how many offers did you have? Compare what the houses were listed at to what they were actually selling at.
Know that if you're competing with cash offers, you're also competing with non-contingencies. You've got to be really realistic about whether or not you are even on the playing field. If you're not, it might not be the right time. Expecting the market to crash, it's not going to happen. There's not going to be a crash, because things are entirely different than they were in 2008.
Search for off-market properties, people that don't want to list their homes like normal because for a variety of reason. Maybe they don't like people trampling through their home, there could’ve been a recent death, etc. I know they're much harder to find, but they're going to be easier to get because you're not competing with so many people.
You've got to know your market inside and out. Understand the inventory, absorption rate, the list price to sales price and make sure that your buyers are not looking at the top of the scale. That's how you get your buyers' offers accepted.
