Real Estate Psychology 101

There is no question that we are currently in a buyer’s market for residential real estate, but there are key questions in both buyer’s and seller’s minds that affect the dynamics of the overall market and individual transactions.

v Should I wait to sell until prices start going up again?

Ø We’ve all heard the expression that “timing is everything.” The decision to buy or sell a home is often driven by life circumstances, not market conditions.

§ Life Circumstances:

· Employment-related: Job relocation, job loss, increase or loss of income, retirement,

· Family-related: school district, raising children, children growing up, retirement, divorce,

· Health-related: illness, disability, death

· Personal Finances: Inheritance, unexpected income or expenses, savings have reached a goal level

· Timing: Retirement or vacation home planning, end of lease on rental home

§ Market Conditions: Sellers

· Time to take a profit, time to sell while prices are high, time to sell before the market goes down

§ Market Conditions: Buyers

· time to buy while we can still afford it, time to buy while prices are low, time to buy while what we want is within reach, time to buy while the selection is good. Information for buyers can be found on our page discussing Is it Time to Buy?

Ø Is it Time to Sell - Can I sell at a Loss?

§ No question, it’s better to be selling into a seller’s market than selling into a buyer’s market, but for many people, when they need to sell, they need to sell.

§ Key decision variables for sellers include:

· Should I wait until the market goes up again?

¨ It could be years before most of the excess inventory in the residential real estate market is absorbed. If you’re willing to wait for an extended and open-ended period, you may not want to sell now.

¨ If you anticipate life changes that will make the sale of your home necessary in the next couple of years, you may be better off selling now than waiting. It is quite possible, if not likely, that the market will continue to worsen for a while. If the market remains soft or worsens, your competition will continue to lower prices, reducing the price you can get and lowering appraisals when they sell.

¨ For a deeper discussion on this subject, see our page titled Is it Time to Sell? - Can I Sell at a Loss?

· My house is worth more than what I can sell it for!

¨ There is a simple universal rule in economics that applies to home sellers, which many bankrupt businesses have overlooked: A product is worth what buyers are willing to pay, and not a penny more.

¨ Buyers don’t care what you paid, what it cost to add improvements, or what you think it is worth. Buyers compare what you’re offering to what your competition is offering, and they will buy what they perceive to be the best value for their needs and preferences. No exceptions.

¨ Real estate values tend to increase over time, so eventually your property should increase in value. Only you can determine the value of your time and the cost of waiting in terms of the quality of your life.

Ø Is it Time to Buy?

§ It is clearly a more opportune time to be a buyer now than it was in the peak years of 2005 and 2006. There is more available inventory and there are more motivated sellers than there have been at any other period in this decade. Many buyers are waiting on the sidelines, wondering if prices will go down further.

· The psychology of the market at this point in time favors buyers. Since sellers do not know when conditions will improve, those that are motivated will price aggressively and/or will consider aggressive offers from value-oriented buyers.

· Should I buy a foreclosure property?

¨ It is to the buyer’s advantage to have their agent research the tax and mortgage records of a distressed property before making an offer.

¨ There are many distressed sellers with their properties on the market today. Some of these properties are priced very aggressively and/or the sellers will consider very aggressive offers by buyers. Others were bought at the peak of the market, and the sellers and/or the lender will have to lose money to sell at a competitive price.

¨ Some properties are in pre-foreclosure, with the sellers months behind on their mortgage payments.Some lenders are permitting borrowers to sell at a “short sale” price, which is below the amount owed on the mortgage.

¨ Some properties have been taken over by the lenders, and are known in the industry as “REOs”, or Real Estate Owned. Lenders will sometimes discount these properties below the current market price to get them out of their inventory.

¨ Sometimes, the best values are properties that are not in any stage of foreclosure. The sellers may have bought several years ago, have considerable equity, and/or have strong motivation to sell.

¨ Sometimes the sale is driven by health considerations or a death, divorce, or other financial or family issues. When an estate is divided among multiple parties, the price reduction is also divided.

More information on Foreclosures, Short Sales and Distressed Properties for Buyers and Sellers can be found here.

Real Estate Psychology 101

Scott A Field MBA