How to deal with homebuyers’ unrealistic expectations
As an agent, one of your many duties will be working with homebuyers and managing their expectations. How you deal with those expectations can have a huge impact on the final sale.
If you find yourself scratching your head after reading through the latest “What Homebuyers Really Want,” the annual survey performed by the National Association of Homebuilders, you’re not alone.
Here is what homebuyers want, according to the report:
“Buyers expect to pay … $264,634 for a home,” according to the survey.
And I expect Idris Alba to leave his stunning wife for me.
In whose universe, right? It’s wonderful to have real estate dreams and goals, but not in one of the heaviest sellers’ markets with record-breaking home prices.
So, how do you deal with these buyers without dashing their dream of homeownership completely? Delicately.
This is real life
If only homebuyers understood that those “Reality TV” homebuying shows are far from reality. As an agent, we’re sure you can agree that these shows have been, for years, “… causing unrealistic expectations among potential real-world buyers,” according to Jeff Clabaugh at WTOP.com.
These shows offer a slew of misconceptions about home buying, among them:
Buyers who long to live in a certain neighborhood or have their hearts set on a certain home style or size have huge expectations about you and the process.
The time for them to be set straight is before they look at homes. If that doesn’t work, drastic measures might, such as showing them (during the consultation) a stack of MLS listings of homes they can afford.
But delusions about how far their FHA loan (with a 580-credit score) will take them aren’t the only misconceptions and expectations they have.
What’s your price range for your next home?
That’s the question a Clever Real Estate survey put before young homebuyers (older Gen Z and young Millennials, age 18 to 34).
Are you ready for this?
Thirty-one percent of them want to purchase a home “in the $100,000 to $199,999 price range,” according to the study’s authors. Another 27% want to pay between $200,000 and $299,999.
The Washington Post points out that, as of June last year, the national average home price hit $362,800 (although others claim that it’s a smidge more). That’s a puny price when compared to those in certain regions of the country. In Denver, for instance, the average price of a home is more than $700,000.
Now, if you sell homes in Detroit, Cleveland, Oklahoma City, St. Louis or Birmingham, you may not have a problem delivering for these youngin’s. Apparently, homes priced lower than $200,000 can be had in those markets.
Otherwise, you’re going to need to educate your young buyers on the realities of the current housing market.
With a low budget, they may still be able to afford a starter condo or townhome, depending on market. Yes, they will most likely balk at the thought, but remind them that this is their first home, not their forever, dream home. Baby steps.
Unrealistic expectations based on myths and/or ignorance
According to an October 2021 Rocket Homes® survey, members of Gen Z (ages between 18 and 24), “… think their home will cost 38.5% less than the U.S. median home value of $363,300.”
Step up a generation and a recent survey from Lombardo Homes finds that millennials (ages 27 to 45 in 2022) are just as clueless about the current market and how much home they can afford.
But, here’s a head-scratcher: “Two in three millennials (66 percent) say they are waiting for lower mortgage rates to start the home buying process,” the study’s authors claim. They add what you’re no doubt thinking after reading this statistic:
“This is odd given the fact that rates are currently near historic lows, but it may speak to a lack of education and awareness among this cohort of home buyers.”
Millennials differ from the younger cohort in another very significant way: underestimating how much home they can afford to buy right now. They are under the assumption that buying a home requires a 10% down payment and that their interest rate, right now, will be 4%.
That there are significant numbers of homebuyers in this cohort who aren’t in the real estate market, even though many can buy a home but don’t know it, is mind boggling.
There’s a perfect opportunity here for agents with Millennials in their pipeline. Are they, too, misinformed about current mortgage rates, who pays their real estate fee, home values and down payments? Reach out to them.
Expectations about conditions of homes in their price range
Even homebuyers with a somewhat realistic outlook on exactly what type of a house they can afford, may be unrealistic in their expectations of the home’s condition.
In fact, 87 percent of first-time homebuyers want a home in turnkey condition, according to an older study conducted by national real estate chain.
Real estate agents offer up anecdotal accounts of buyers who turn down homes that fit all of their needs and wants because of dirty carpets or other easy cosmetic fixes.
Many would never walk onto the showroom floor of the local Mercedes dealership and offer to pay half price for the latest S-Class when the only Mercedes they can afford is of the really-old, high-mileage, pre-owned variety in need of cosmetic work.
Yet they think nothing of insisting on a raft of amenities in a home that is “move-in ready.” Sure, we’re all guilty of longing for instant gratification, but nobody is going to sell their turnkey, $450,000 market-value home for $250,000.
“It’s sort of the scourge of HGTV – [buyers] think that move-in ready means that it’s going to be completely to [their] taste, and fixer-upper means just change around some carpet, maybe some paint. And that’s not the case at all,” District of Columbia Redfin agent Dan Galloway tells USNews.com.
These clients require that unpleasant conversation wherein you explain that they are not going to get “flawless” at starter-home prices.
Surprisingly, you’ll avoid this whole mess if you’re working with Millennials. A recent Clever Real Estate study finds that nearly 70 percent of our youngest buyers “would put an offer on a home in need of major repairs.”
The heat of the moment often breeds regret
Real estate buyers who aren’t fully aware of what can happen in this fiery hot market may have unrealistic expectations.
For instance, “… quick purchases …,” according to Sudiksha Kochi at USAToday.com, “… can lead to buyer’s remorse.” The heat of the moment causes many young homebuyers to feel desperate, to go over budget or waive home inspections.
A Bankrate study published last summer claims that nearly 65% of Millennial homebuyers experienced regret after the purchase. Their biggest regret was the high maintenance costs of their new home.
The second most common regret was that they didn’t have the savings to pay for the repairs.
Be the agent who counsels their younger homebuyers, warning them to not max out their loan preapproval amount and to build up an emergency savings account.
Are you helping feed the delusions?
Despite the rhetoric from the housing industry and individual agents, now is NOT always “a great time to buy a home!”
We’re not saying you should enthusiastically advertise a lousy buyers’ market, but there is a middle ground in there somewhere.
You, as your buyers’ trusted advisor, are expected to give your clients an accurate picture of what they’re up against in the current market. Then, let them in on your plan on how you and they will handle whatever comes their way.
Gently shoot down those “we need a circular driveway in front of our mega-mansion” wishes of the first-time buyer who can barely qualify for a mortgage.
Unless, of course, you love driving aimlessly around town, weekend after weekend, because their delusions don’t (and won’t) match reality.
The ramifications of not setting them straight from the beginning include:
It’s up to you to construct the conversations with your first-time buyers to help manage their expectations and avoid disappointment.
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