Many real estate markets across the country are about to experience a major shift. We’ve been basking in the glow of a seller’s market for at least five years, and most economists predict the COVID-19 global health crisis and the following economic uncertainty will almost certainly lead to a shift toward a buyer’s market.
But this shift doesn’t mean you should turn in your open house signs and go back to law school. You can still survive and thrive in buyer’s markets (even one precipitated by a pandemic) if you know how to adjust your strategies accordingly.
What Is a Buyer’s Market?
A buyer’s market occurs when the supply outweighs the demand. When you think about a real estate buyer’s market, the supply is the number of homes available for purchase, and the demand is the number of buyers looking for a new home.
How Can You Prepare for a Buyer’s Market?
Here are 15 ways your real estate business is going to change and how you can prepare for them.
1. Median Home Sale Prices Are Going to Drop
I know, this is a bummer, but it’s the truth. Markets respond to lower demand by lowering prices until a balance is met (thanks a lot, Alfred Marshall). This is going to be especially true in local markets where there’s a large supply of homes that were recently in demand by members of the community who are now experiencing some economic distress.
How to Adjust Your Strategy
Real estate agents winning on this point are the ones who can develop a new comparative market analysis (CMA) model to match the buyer’s market. Instead of using comparable sales from three, six, or nine months ago, your CMA needs to be more focused on the existing property listed, the activity it’s generating, and what you can learn about property in the here and now. The real estate game from 2019 isn’t the one you’re playing now; whoever can learn the new rules fastest will win.
2. Real Estate Contract Terms Will Get More Aggressive
In a buyer’s market, buyers (and their agents) know they’ve got the upper hand, so expect contracts with some more aggressive terms, like longer inspection windows, more lenient earnest money deposits (EMDs), custom COVID-19 clauses, and even requests for things like furniture.
How to Adjust Your Strategy
If you’re a buyer’s agent, it’s time to get creative. Remember, your fiduciary responsibility is to your buyer’s best interest, which means start throwing things against the wall to see if they stick. Ask for things like seller concessions to cover closing costs, home warranties, even cash at closing for items revealed during inspection that need remediation.
If you’re a seller’s agent, prepare your seller for the likelihood that there are going to be some requests, and maybe even try to pre-empt them. Try offering a home warranty as a part of a counteroffer in place of more expensive cash requests.
3. FSBO & Expired Listing Opportunities Will Increase
I suppose the subheading here could have read “Fewer of Your Listings Are Going to Sell the First Time Around,” but that just sounds depressing. Look, it’s true—in a buyer’s market, there’s a dip in the number of closed sales every month, which means that there are going to be more expired listings and more sellers who get frustrated with the process and just try to sell their home on their own.
But, instead of looking at this glass as half-empty, look at it as half-full by seeing more FSBO and expired listing leads for you to go after.
How to Adjust Your Strategy
Start shifting some dollars toward prospecting platforms that help aggregate expired and FSBO data in one place. Prioritize platforms that also provide contact information for those sellers; this makes the outreach and first-contact process even easier.
Our favorite provider for this sort of service right now is REDX. They offer a tool for expired listings, for FSBO listings, and even a dialer (StormDialer) that helps you get through your entire prospect list quickly and efficiently. Check them out to see how much time you can save.
4. Contracts Will Take Longer to Close
This isn’t necessarily a symptom of all buyer’s markets, but it almost certainly will be of this buyer’s market. Thanks to the economic uncertainty the U.S. is sure to experience for the foreseeable future, mortgages are going to be harder to come by and will likely require more scrutiny for anyone who isn’t A+ qualified.
How to Adjust Your Strategy
This one’s pretty easy: write longer contracts. I know this can be frustrating for buyers and sellers alike, but you’d rather have those frustrations now than have to be chasing down signatures for a contract extension, so plan on an extra seven to 14 days for properties to close.
If you have buyers and sellers really pushing back on this, try changing the boilerplate language of your buy/sell agreement to read “transaction to close on or before X date,” rather than just “transaction to close on X date.” That way, if a loan is ready beforehand, you can close early.
5. Property Marketing Will Get More Aggressive
When the competition in the market switches between buyers trying to get into a property to sellers trying to get their properties in front of buyers, marketing is bound to get more aggressive.
This is going to mean more paid advertising for properties, top-notch photo and video work, and open houses (when we’re allowed to have them again) that come with catered food and personally guided tours.
How to Adjust Your Strategy
I’m going against the grain here. Most of your competition is going to equate the word “aggressive” with “expensive,” but I suggest you make your move more toward “creative.”
You don’t need to drop $100 on Facebook ads for your new listing—you need to create one piece of really shareable media that people want to send to their family and friends. You don’t need to pay $500 to have your next open house catered—you need to give an ice cream truck driver $200 to sit in the driveway for a couple of hours and give away his product to your attendees. The winner here doesn’t outspend their competition—they out-think them.
6. Homes Will Be on the Market Longer
2019 was the year of the same-day offer. Brokers from Boston to Los Angeles reported putting a property on the market at 10:00 a.m. and having offers by 10:30 a.m. When a buyer’s market moves in, things look a little different.
Unless you’re in a housing market that is incredibly tight on inventory already, day-of-listing offers are going to be a thing of the past for a while. Buyer’s markets tend to add anywhere from 30% to 50% to the typical days-on-market.
How to Adjust Your Strategy
If you’re a buyer’s agent, this is great news for you. You still want to be vigilant in the representation of your clients; continue to watch the markets closely for anything hitting that ticks all their boxes, but at least you’ve got some breathing room.
As a seller’s agent, timing becomes critical here. Pay close attention to when traffic on your website is highest. Create “coming soon” content to share on social media. Come up with a coordinated launch strategy to get a new listing in front of the right buyers at the right time.
7. Homebuyers Will Be Smarter
During a seller’s market, especially one exacerbated by tighter than normal inventory, even the smartest of buyers can’t always leverage their preparedness to get a great deal. They’re so desperate to compete with other buyers that they’re willing to compromise on just about everything to get a contract.
With the shift to a buyer’s market, more buyers will be better prepared, better educated, and savvier about markets.
How to Adjust Your Strategy
As a buyer’s agent, you’ll need to step up your game. According to NAR, over 90% of homebuyers will research homes, markets, and agents before actually reaching out to someone to help them with a purchase.
Expect your buyers to be better informed about the market and the homes they’re interested in. This means you need to provide next-level analysis of market conditions—breaking down neighborhoods, accessing real estate agent networks for pocket listings, and other perks buyers can’t get for themselves on Zillow.
As a seller’s agent, it’s key that you nail the pricing of a property on the first try. Buyers aren’t interested in properties that are priced just so your seller can “give it a try.” There will be a lot of other homes competing with your listing; your likely buyers will know about all their other options, so make sure yours is a compelling one.
8. Homes Will Have More Showings Before a Sale
Since buyers will have more options, less pressure to make a decision quickly, and will be better educated about what the market has to offer, they will undoubtedly use this chance to see more homes than they would otherwise.
How to Adjust Your Strategy
Buyer’s agents should expect their days to be a little longer, especially when first-time homebuyers and those uninitiated in the homebuying process are starting their search.
Who is most affected by this new wrinkle? Sellers, specifically the ones who have to get out of the house every time someone wants to see their home. Seller’s agents can help them through this by setting up windows of time for showings so they know when to expect requests and by holding more open houses so multiple buyers can see the home at once.
Virtual tours are also an option seller’s agents should consider, especially in the early days of the economy opening back up, as buyers may still be leery about physically touring homes.
9. Your Relationships With Lenders Will Be More Important
Remember, in a buyer’s market, it is the buyer who is in the driver’s seat. And what do nearly all buyers need in order to purchase a home? That’s right: a mortgage. Lenders have always been a good source of leads for real estate agents, but especially in times when the buyer’s priorities dominate the real estate landscape, mortgage professionals will be just as anxious as you to find agents they can partner with to exchange referrals and generate leads together.
How to Adjust Your Strategy
If you’ve never explored lender-partnered marketing before, this is a good time to start. The concept is simple: You and a lender you trust go in on marketing pieces like mailers or digital ads in order to defray costs and present a unified package of funding and real estate representation.
If you want to go the digital route, neighborhood marketing expert Parkbench offers packages on their community websites for lenders and agents to work on together. These sites are great options for developing your reputation as the real estate expert in a particular area.
10. Property Marketing Will Have a Lower ROI
If fewer of your listings are going to sell (at least the first time around), it stands to reason that the marketing dollars you’ll be spending on those listings aren’t going to get you as good of a return.
But remember, every piece of property marketing you do is an extension of your branding and personal marketing. Consumers will see how you’re marketing a property and keep in mind how you’re serving your clients.
How to Adjust Your Strategy
First, you’ll need to adjust your expectations. If you’re used to spending $2 to get back $4, that may not be the case any longer, so revisit your business plan and adjust your expected return on investment (ROI).
Secondly, you can adjust your strategies toward free or low-cost marketing techniques that rely on great content rather than brute-force dollars. Yes, you’ll have to get good at using video (or hit up a professional on Fiverr to help you), but viral content shares itself, so focus on creating high-quality material and let the community share it for you.
11. Fixer-uppers Will Be Harder to Sell
Get ready to hear the following words from your buyers a LOT:
“I’m looking for something that’s move-in ready.”
When buyers hold the advantage in the market, the sale of physically distressed homes or properties in dire need of update and renovation are going to slow to a crawl. Buyers know that they can get into homes that will fit their needs with no demolition and renovation needed, so they’ll be less inclined to spend the time and the money to rebuild.
How to Adjust Your Strategy
If you’re going to list a fixer-upper, the price has got to be right. Make sure your sellers are aware of what the market conditions are for fixer-uppers and the realities of what they’ll get for their property in its current condition.
Also, it’s worth investigating the costs of doing some of those renovations prior to listing the home for sale. The return on investment of simple things like carpet and paint is usually well over 100%, and can make your listing much more competitive.
If your potential listing needs some major work, there are companies out there that are offering renovation services with a bill that can be paid when the property closes. I heard a pitch from a company called Curbio doing this sort of work the last time I was at an Inman Connect conference; they’re worth checking out if you have a necessary big project that your seller doesn’t have the budget for.
12. Homebuyers Will Be Pickier
With the general shift of power from the seller to the buyer, buyers are going to have the chance to be pickier about the sorts of homes they consider before they even schedule a showing. My prediction is that we’ll actually see the average views of a property go up on platforms like Zillow and Realtor.com, but the number of showings will stay flat.
How to Adjust Your Strategy
In an age where buyers are pickier, you’ve got to do something to make your listings stand out. Marketing is great (and necessary), but there are other “pre-contract” perks you can provide to buyers to induce a showing.
For example, consider putting a home inspector on retainer to perform “pre-inspections.” These can be full-blown property inspections if you want (that would end up getting pricey), or they can be a general snapshot of a home (roof, mechanicals, appliances, and so on) so that a buyer can see that the home has been certified as sound in the typical major areas of concern.
13. Renter Prospecting Will Become Lucrative
Representing first-time homebuyers can be a labor of love, but when it comes to a buyer’s market, it can also be a big opportunity. During a seller’s market, it can be very difficult for first-time homebuyers to compete in terms of budget and flexibility in challenging markets.
However, during a buyer’s market, potential buyers have more to bring to the table. The problem is that there are tons of renters in housing markets across the country who may not be aware of the opportunities they have to purchase a home with a monthly mortgage payment at or even below their current rent.
Yes, we can expect loans to be a little harder to qualify for, especially while we are still between the teeth of COVID-19, but as a roadmap of economic recovery starts to roll out, real estate agents can expect more and more buyers will qualify for home loans.
Real estate agents who can effectively prospect this segment of the market are going to come out on top.
How to Adjust Your Strategy
Start by thinking long term. Most renters have leases that are hard to break, so the prospecting you’ll be doing will likely only show returns at the ends of lease periods. Focus your strategies on pointing out the financial benefits of homeownership, the opportunity to “buy low and one day sell high,” and above all, find ways to deliver value with every message you send them.
For many renters, direct mail is a great way to reach them, so if you’re looking to do a postcard campaign to local apartment complexes, check out ProspectsPLUS! for some great templates and attractive designs perfect for going after pre-homeowners.
14. People Will Be More Community-oriented
In the wake of COVID-19 and the historic orders to “Stay Home, Stay Safe,” people are going to be anxious to engage with their community more than ever once the quarantine is lifted. Joni Mitchell was right when she sang, “You don’t know what you got till it’s gone,” so when we are able to leave our homes and start to engage with our communities again, expect there to be massive interest.
How to Adjust Your Strategy
This is a major opportunity for real estate professionals to be present, be visible, and be part of the community conversation in your local market. Try some local event sponsorship, volunteer with community organizations, or serve on nonprofit boards (especially ones that focus on housing issues.)
In a time when people are going to be looking to their community for inspiration and new ways to participate, you can further your branding as a real estate expert by being present and involved.
15. Short-sale & Foreclosure Rates Will Rise
With the current options for mortgage forbearances in light of COVID-19, it’s really hard to say exactly what the short-sale and foreclosure activity is going to be. But, historically, when our national economy is shaken (like after the 2008 financial crisis, after 9/11, after the savings and loan crisis of the 1980s, and so on), there is a rise in financially distressed property sales.
Because foreclosures take so long to process (upward of 24 months), this effect is likely to not be immediate, but it’s coming.
How to Adjust Your Strategy
First of all, make sure you’ve got your empathy turned up to 11. Most of the homeowners who are in a short-sale or foreclosure situation are not there because they blew the mortgage money in Vegas. They are there because of situations out of their control, so be kind, be helpful, be empathetic.
If you don’t know the ins and outs of the short-sale and foreclosure process, now is the time to start learning. Investopedia has great articles on both short sales and foreclosures to get you started.
The real opportunity in this space is going to be for real estate agents who can identify homes and homeowners who are headed down the path toward these negative outcomes and can intervene with home sale options before it’s too late.
Zillow offers a preforeclosure search tool on their website, but you can also do mailer and social media marketing to blanket your community with messages of help for homeowners who are struggling to make their mortgage payment every month.
Bringing It All Together
Buyer’s markets can offer a lot of challenges, but also significant opportunities for real estate agents who can effectively adjust their strategies toward the new needs of their clients. To stay up to date with the latest strategies from The Close as well as thousands of other real estate professionals from around the country (and the world), check out.
