Strategy: Time To Motivate Your Sellers

As the kids head back to school, the real estate market here in Santa Clara County begins to slow down. Of course it's been slow all year. Despite the increased number of accepted offers, we've actually had fewer closed transactions than last year. Now it's going to get even tougher, but before you fire your clients and look for seasonal work, here are two considerations you can use to motivate your sellers, assuming they actually wanted to sell in the first place.

Interest Rates

The reason home prices appreciated so quickly was because low rates meant lower monthly mortgage payments. Most buyers ultimately purchase homes based on the cost of those monthly payments. Earlier this year, the Fed slashed rates in an attempt to bail out their friends on Wall Street. It didn't work, and now the chief fear among regulators is rapid inflation. The only way the Fed can fight inflation is to raise interest rates. Higher rates increase the cost of monthly mortgage payments, meaning the price of the house has to be reduced to attract the same buyers. If your clients are thinking "wait until next year when prices go up", talk to them about interest rates because it's likely home prices will be forced down if interest rates increase and at this point the only place for interest rates to go is up.

REO Inventory

It seems like every month the Mercury News reports record year-over-year increases in the number of foreclosures and notices of default, even here in the bay area. It can take several months before foreclosed properties hit the market. Given those high numbers, it's likely sellers will face even more competition from bank owned properties next year. Banks have been slashing prices to try to generate interest so that they can clear inventory. If your clients are thinking "wait until next year when there are fewer REOs on the market", remind them that more notices of default today probably mean more bank owned properties next spring, and that's without considering the mortgages that are scheduled to reset next year.

The Solution

It's a simple fact that most sellers in Santa Clara County will make more money by selling now than they will by waiting until next year. Unless they are willing to wait 3-5 years, they need to lower their price to generate offers, just like the banks have been doing. In many cases, banks have received multiple offers on REO listings, some more than 20% over asking, so lowering the asking price doesn't necessarily mean settling for a lowball offer. The buyers are out there and many of them are motivated by concerns over rising interest rates due to inflation. For sellers who are motivated, now is the time to set a realistic asking price that generates offers. Otherwise, they might as well post their fantasy asking price using Zillow's "Make Me Move" feature and stop wasting your time.

Have a heart to heart with your clients about the actual state of the market and how concern over interest rates and rising foreclosures and notices of default mean that it isn't realistic to "wait until next year" in hopes of getting more for their house. Motivated sellers need to reduce their prices to start generating offers now, because the selling season is starting to wind down and they aren't likely to do better by waiting until 2009.

Thanks for reading!

Frank Jewett