Gary Keller wrote Shift: How Top Real Estate Agents Tackle Tough Times, with Dave Jenks and Jay Papasan. Copyright 2009. The McGraw-Hill Companies Inc.
Overcoming Buyer Reluctance
Your sales expertise can help buyers feel comfortable jumping into a shifting market. Don't miss this exclusive excerpt from Gary Keller's new book, "Shift: How Top Real Estate Agents Tackle Tough Times" (McGraw-Hill, 2009).
January 1, 2009
Excerpted and abridged from Shift: How Top Real Estate Agents Tackle Tough Times, by Gary Keller with Dave Jenks and Jay Papasan. Copyright 2009. The McGraw-Hill Companies Inc.
A buyers' market should be just that—a buyers' market. It's not a fence-sitting, waiting, loitering, delaying, dawdling, postponing, vacillating, hesitating, wavering, faltering, pausing, foot-shuffling market. It's a buyers' market. By its very name it means buyers should be doing one thing and one thing only—buying. So where are the buyers, and why aren't they buying?
The great irony of a buyers' market is that even though the opportunity to buy is high, buyer urgency tends to hit an all-time low. The media becomes the excited purveyor of negative news and uninformed advice, and buyers buy it all. Actually, it feels like the only thing they're buying.
Their reluctance is ironic since not so long ago buyers were incredibly excited about buying—and it was a sellers' market. Prices were escalating and it was perhaps one of the most difficult times to buy value and yet people were buying like there was no tomorrow. Buyers were afraid of losing out by not buying, even though the advantage was all to the seller.
Now a shift has occurred. Fear is still in the driver's seat but the tables are turned—the fear of paying too much seems to stop most in their tracks and immobilizes them. When they should have been afraid of paying too much they weren't, and now that they shouldn't be afraid of paying too much they are.
It's one of the great paradoxical moments of any market and the herd instinct at its most pure. Reluctance in the face of great opportunity becomes an agonizingly defining characteristic of a shift.
The Myth That Fuels Reluctance
There are two types of buyers—those who believe they can time the market and those who are always in the market and believe timing will find them. History supports the latter—it says that if you're always actively paying attention, although you may never sell at the peak or buy at the bottom, you can buy right and always do well over time.
Logic says that you can't predictably time the market to be able to buy at the absolute bottom and sell at the absolute top.
A simple technique to prove to potential buyers, or even sellers, that they can't perfectly time the market is to do this easy demonstration: Take out a blank sheet of paper and pen. Now, starting at the top of the paper, draw a line going down and at the same time ask the buyers to stop you when the market has bottomed out.
As long as your line keeps going straight down they won't be able to. The moment you start back up, they'll say "there!" but of course they missed the bottom. Now, keep drawing your line up while asking them to tell you when the market has peaked. Again, they won't be able to tell you until you've rounded the top and started back down. Then they'll say "there!" and once again they'll be behind the peak.
This should be a moment of truth for them. Buyers cannot perfectly time a market—no one can. The smartest people know this. They play in the safe zone. The safe zone is where smart people plan to buy and sell. Anyone who buys at the top of a market is just unlucky and anyone who buys at the bottom of a market is just lucky.
People who buy in a buyers' market are the smart ones. They aren't looking for a killing because they know that's a matter of luck, not planning. They're looking for a sound decision with a predictable result and, therefore, ask the question: "Has the market dropped enough now to make a sensible purchase?" More often than not, when they're asking this question, they're already in the safe zone and the answer is yes.
Target the Able, Ready, and Willing
Understanding buyer urgency—its root cause and how to respond to a lack of it—is imperative in a shift. When buyers are more reluctant than ever to make offers and more than willing to walk away from signed contracts, you must be prepared. You must help buyers rediscover a sense of urgency.
Only buyers who are able, ready, and willing to buy a home ever actually buy one. Able, ready, and "waiting" may or may not. As a result, when you first meet potential buyers, the three fundamental things you want to understand are their ability, readiness, and willingness to buy now.
- Ability always comes first and is tied to factual answers to some basic questions: Do they qualify for an appropriate loan or pay cash? Do they have money for the down payment and closing costs or can they get it? These are show-stoppers for you. If buyers aren't already prequalified, your first job is to put them in the capable hands of a loan officer.
Tightened lending standards or higher interest rates can act like a blast of arctic air on the real estate market. At the beginning of my career, interest rates soared so high that buyers had to ask sellers to buy down interest rates by paying as many as sixteen discount points! Can you imagine? Even ready and willing buyers were often rebuffed by sellers in that market.
Due to the cost of money, creative financing became the only way to give buyers the ability to buy. Though not the same, after the subprime, free-lending ways of the early- to mid-2000s, mortgage lenders created another "ability" crisis for buyers. Knowledge and a great loan officer are the keys [to overcoming ability challenges]. By teaming up with a loan officer immediately, you'll not only serve the best interests of buyers but also increase the number of people you can help.
- Readiness is about buyers' wants and needs—their personal reasons for buying a home. These are the things you discover in the course of qualifying them and doing your buyer consultation. Readiness always underpins buyers' motivation. In fact, it is their motivation. It is the "why" that leads them to buy.
Buyers' personal reasons for moving, buying up, or owning instead of renting are possibly the most powerful determinants of their readiness to buy. Think of [readiness] as a spectrum. On one end you have "maybe someday" and on the other you have "right now, today!" Personal reasons tend to be the most "shift-proof." Real buyers have real wants and needs. Their wants drive them and their needs compel them.
When I was in the fourth grade my parents sold our first home and bought a larger one that was closer to our schools. Three months later we had to move again because dad took a new job that required we live in the school district where he would be working. Personal wants are powerful in their own right, but needs are the most powerful. No matter the exact reason, personal needs create buyers no matter the market.
Make your buyer prequalification and consultation time count. If you don't have a firm grasp of buyers' personal reasons for moving you've missed out on one of the most powerful resources for reducing reluctance and reinforcing urgency. Once you understand their motives, you can help them overcome any doubts or reluctance by reminding them of what they are going to gain by buying now.
- Willingness is simply about action. It's about buyers mentally and emotionally making a choice about when they'll buy. Buyers can be able and ready, but if they're not willing then they're just waiting.
In a sellers' market buyers usually fear missing out on accelerating home values. Once a market starts to shift, however, they fear overpaying. This is troublesome since the fear of overpaying can not only make buyers reluctant to make offers but also lead to buyer remorse. Buyer reluctance leads to fewer contracts and buyer remorse leads to more cancellations. Some days it can truly feel like you're running up a descending escalator, exerting a lot of energy and effort with little progress to show for it.
Willingness not only has to be there at the start of the buying process, but it has to be checked on regularly to make sure it remains intact. Just as an unwilling buyer can become willing, a willing buyer can become unwilling. This means you must be on your toes from start to finish or you could be in for a surprise.
All of these—buyer ability, readiness, and willingness—add up to one key decision for you: Are they worth investing your time, money, and effort when all those resources are already stretched? Either they are able, ready, and willing or they aren't. There are no shades of gray. Buyers who are willing have a sense of urgency. Buyers who aren't willing are reluctant. If you can't help buyers overcome their reluctance today, it may be better to drop them into your cultivation program and check back with them another day. Your focus must be on the motivated.
While it's true you can't motivate a buyer, you can "motive-aid" them. There are proven ways you can educate buyers on the market, support their tapping into their personal reasons for moving, and help them overcome their fears in order to rally them to become buyers now. Three ways to energize buyer urgency:
1. Become the local economist of choice.
I once heard someone laughingly say, "Some of my best thinking was done by other people." I don't know about the "best" part of this, but, unfortunately, when it comes to buying real estate in a shift, I do believe that most buyers are letting others do too much of their thinking for them. These other people might include family, friends, and the media. On one hand, a lot of good information can come from these sources. On the other hand, if these are the only real estate information sources people are using, then they're not getting the entire story.
So what's missing? Expert advice. Buyers need professional advice in a shift more than ever. The challenge is that most don't realize it. They've read the newspapers and magazines, listened to the news, talked to some friends and family members, and formed an opinion. So far so good. The problem is that more than likely, they've not gotten the entire story about the market or how to approach it. They believe they are fully informed, but they're not. The media rarely tell the whole story, and most people have limited experience. As a result, buyers are either half informed or misinformed. Both lead to decisions that are poorly formed. So what can you do? Become the professional voice they listen to. Become their economist of choice.
Find every way possible to overcome the media-driven real estate malaise. Be the one with the facts. Educate them that real estate is a cyclical business. All of this has happened before, and it will happen again. What goes up must come down. More important, what goes down has always come back up. Home values will most certainly continue their long-standing trend of appreciation over time. At the very least inflation will see to that. And equity buildup through mortgage debt paydown still remains a proven path to financial wealth. You will have to constantly educate and remind buyers of these economic certainties.
The extreme mobility of buyers today has led to some unrealistic expectations that surface in a shift. It is a case of people wanting to bend market reality to reflect their mobile lifestyle. Somehow, people have been led to believe that they can buy and sell every three to five years and make a killing on both ends. This economic idea is quite unrealistic. Any successful real estate investor will tell you that real wealth comes from the combination of any appreciation plus debt paydown. And for home buyers this can be further enhanced by any available tax advantages for homeownership. While it is often possible to buy good value (or "make your money going in"), not every home sale results in a windfall. When my parents sold their first home they lost money. They did it anyway. Why? They wanted another home.
As an expert, you can teach buyers about realistic economic expectations. They can't sell high and buy low at the same time. If they sell and then buy during a sellers' market, they will get more when they sell and then pay more when they buy. When they sell and then buy in a buyers' market, they will get less from their sale but be able to make it up with greater savings when they buy. In the end, homeownership is best viewed as a long-term investment, just like the stock market or any other sound investment.
Give a historical perspective as well as a current one. Offset a national perspective with a local one. Show buyers the local market information—your area's job growth, population growth, household income increases, and the factual decline in area home values. Share current interest rates and financing options. In a buyers' market, the presentation of these facts generally adds up to a powerful argument to buy now.
The key here is to not appear to be self-serving or simply offering up your own opinions. Cite independent sources and quote experts. Often the same articles that create a gloomy outlook for sellers prove it is an opportune time for buyers. If the local real estate section interprets a decline in a local prices as creating risk, you can use those same stats to make your case that it is a great time to buy value or trade up.
Finally, share the success stories of people who recently made the decision to buy and are very happy that they followed through with their purchase. I can't overstate the importance of collecting and sharing these authentic personal stories. By sharing them, you will give buyers reassurance both that it's okay to buy and that others are in fact doing it.
2. Tap into their why.
At the end of the day, nothing trumps buyers' personal motivations for moving. People move because . . . now you finish the sentence.
What did you choose? A new job, a new baby, a new marriage, retirement, being closer to family or certain places, a divorce, a death, a bright vision of a new life elsewhere? Tapping into someone's list of reasons is getting them in touch with their heart as well as their head. Invariably, a factual reason for buying has an emotional string attached to it. Whatever the reason, I've learned that these internal motivations are among the most powerful of all. So, especially in a shift, you must tap into their reasons for moving.
The best way to get to understand a client's motivation is to ask personal questions. Why are you thinking about buying? Really, tell me more. Now, what will that do for you? What will that mean for your family? When you have their answer, you must keep it on the tip of your tongue and at the top of their mind. It is the central topic that defines all of your conversations.
Talking about personal wants and needs is not manipulation. It's simply reminding people what they want to buy and why. I actually consider it my fiduciary duty. I've learned that in life it's much better to be able to say "I'm glad I did" rather than "I wish I had." I believe it. In fact, I know it's a lesson to live by and it has guided me well in advising my customers. And I've had countless notes, letters, calls, and conversations (sometimes many years later) with buyers who thanked me for reminding them why they were looking—for helping them overcome their doubts.
3. Overcome buyer reluctance.
When people have a good reason to buy, they do just that—except in a shift. When the market changes it can throw people off balance. They're going along with their lives, and then the market tosses a wrench into the engine driving their decisions. All of a sudden they are not sure of themselves and are hesitant to move forward. They want and may even need to buy, but yet they hold back. It's frustrating for you and it's frustrating for them. They need someone to intervene and help them overcome their reluctance.
Ask them the question: "Do you think that prices have dropped?" They'll answer, "Yes." Next ask, "Do you think they'll ever go back up?" Again, they'll say, "Yes, eventually." Then ask, "So, aren't you then saying that it's actually okay to be out buying again?" They're caught and may or may not answer. That's okay. Go ahead and ask them one last question: "Given how you feel, if we found the home today that met all your needs and your most important wants, is there any reason you wouldn't make an offer to purchase that home today?"
Once the market settles or shows any sign of improvement, opportunities start slipping away. The very moment sellers no longer have to make concessions, they won't. And, since there is almost always group think at play with all of the waiting buyers, the pent-up demand will show back up and buyers may be faced with mounting competition for the best homes available.
This is the time to put your sales skills to work. A buyers' market is a skill-based market, and you are best served to practice your scripts, find a coach, engage in regular role play with a partner, and get familiar with the proven best practices for helping your buyers make good decisions. Take a look (right) at four classic strategies for helping buyers overcome their reluctance. Just as your consultation is designed to identify and assess a buyer's ability and readiness to buy, careful consultation can also help initiate a buyer's willingness to buy.
Four Strategies: Help Buyers See the Light and Make the Offer
1. Why wait? The hazard of timing the market.
Buyers who choose to wait until prices come down more are also gambling that interest rates will hold steady or drop. What is not widely understood is the impact interest rates can have on the real monthly costs of homeownership. Even a 10 percent drop in home prices is immediately nullified by a mere 1 percentage point increase in interest rates on a 30-year mortgage loan.
2. Trade up—the opportunity of a down market.
If buyers are planning on trading up, you will need to highlight how saving on the larger home purchase will offset any loss on the sale their current house.
A Buyers’ Market Is a Trading Up Market
Falling home prices are a great opportunity for move up buyers. Even though your home sale price may be lower, the smaller loss at sale can be compensated by greater savings at purchase. If home prices dropped by 5 percent, here’s what it could look like if you decided to trade up:
Old home price = $200,000
Sell at $190,000 = $10,000 less
New home price = $400,000
Buy at $380,000 = $20,000 savings
3. Less is more—narrowing the field.
One of the challenges for buyers in a shift is simply that there are too many choices. Barry Schwartz, psychologist and author of The Paradox of Choice: Why More is Less (Ecco, 2003), states, “There’s a point where all of this choice starts to be not only unproductive, but counterproductive—a source of pain, regret, worry about missed opportunities, and unrealistically high expectations.”
So what does this mean to you? Your job is to help your buyers narrow the field. This is hands-on, personal consultation time. If their search criteria are yielding dozens, even hundreds, of potential homes, science tells us they are likely to be overwhelmed, shut down or, worse, make a poor “first good choice” kind of decision. You must either presort their choices or sit with them and patiently help them sort the stack. The goal is a handful of great choices.
Take the discards and physically tear them up. Drop them in the trash can. Make the point that those homes are no longer under consideration. There should never be more than five or so homes that are under consideration at any one time. The best agents understand the benefit of this step-by-step selection process. They know it helps the customer decide, it speeds up the home search, and it makes their work with buyers more efficient. They make this their standard practice and, in a shift, so must you.
4. Find a best buy—get while the gettin’s good.
One aspect of the “less is more” theme that can help you overcome buyer reluctance is a “Best Buy List.” This is a list you have compiled of the current best buys in the market. It will be based on your consistent tracking of new listings, price reductions, and pre-foreclosure or foreclosed properties. It will be one of the most useful outcomes of your daily previewing of homes. This becomes a great opportunity to continually pull buyers into the homebuying process, plus it might actually help you stand out from the competition. A Best Buy List actually becomes your unique intellectual property and a powerful magnet for people to work with you.
Another great benefit of a Best Buy List is that it can create additional buyer urgency. “Hi, Tom—a home just hit my Best Buy List that could be exactly what you and Sarah are looking for. I’m not sure if it is even still available, but if it is could we set a time as soon as possible to go see it?”
Here’s the point: You can’t create urgency if there isn’t a good reason for it, and you certainly can’t fake it. You must find real, honest, and compelling ways to help buyers feel optimistic about the market and comfortable with you as their expert guide.
DOWNLOAD THE PODCASTS
Free Shift podcasts, now on iTunes! Listen as coauthors Gary Keller and Dave Jenks discuss the 12 tactics and provide a strategic vision for success in any market. At the iTunes store, search for “Gary Keller” under the podcast tab in the business category.