home buyer behavior Archives - Page 4 of 7 - Real Estate News and Commentary

December 11, 2014November 23, 2021

Value vs. affordability – how inflation affects home prices

Home buyers have been tagged as being too picky for not buying homes this year. Surely home buyers have a right to be particular; after all, they’ll be spending a lot of time in the house – and spending a lot of money to get it too! But, maybe there are other reasons that home buyers have become hesitant.

Consider the uncertainty that immediately followed the Great Recession, when home sales volume dropped off. At that time home buyers seemed overly analytic, weighing many factors including short term value. Yet in truth they were fearful about economic uncertainty, and paying for a home that could potentially depreciate after closing.

The specter of another housing bubble in late 2013 may have seemed farfetched by many. But the double digit appreciation in many housing markets around the country reminded many home buyers of the environment that existed in the pre-downturn “go-go” market of 2005-2007. Anecdotal reports of bidding wars and high listing prices in early 2014 may have scared off some home buyers who reported not wanting to participate in such a market.

Reasons for home sales sluggishness during the latter part of this year may have been signs that the fear of a home price bubble was being realized by home buyers. As home buyers sought value, home sellers wanted higher home price appreciation. Was the psychology of fear playing a part in the ongoing home pricing struggle?

In hindsight, the limited housing inventory that existed during 2013 may have caused upward pressure on home prices by forcing increased competition among home buyers. The rapid home price appreciation may have also been the reason for many home owners to go to market. Brimming with listings, housing inventory swelled to levels not seen in years. Yet it may not be home prices per se that is at issue, but rather affordability.

Affordability goes beyond just the purchase price of a home. It comprises the overall costs of home ownership; which includes monthly mortgage payments, property taxes, homeowners’ insurance, regular and emergency maintenance, and utility costs. Putting aside home prices, home buyers are faced with the prospect of sharply inflating ownership costs. Consider the April 25^th LA Times article reporting on utility costs (U.S. electricity prices may be going up for good; latimes.com); Ralph Vartabedian stated, “… the price of electricity has already been rising over the last decade, jumping by double digits in many states, even after accounting for inflation. In California, residential electricity prices shot up 30% between 2006 and 2012, adjusted for inflation, according to Energy Department figures. Experts in the state’s energy markets project the price could jump an additional 47% over the next 15 years.”

Savings also affect the affordability of a home. Marilyn Kennedy Melia, in her May 17^th feature: Savings Habits and the Housing Market: American are saving less, issues with affording a home (nwitimes.com), reported that a lack of savings is preventing some home buyers from purchasing homes by not having enough for a down payment and/or little for homeownership costs. She described a recent Bankrate survey that indicated “…51 percent of Americans have more emergency savings than credit card debt, the lowest percentage since the financial site began tracking this issue in 2011.” Doug Robinson, of NeighborWorks America, was quoted to say, “Two-thirds of the people who faced foreclosure didn’t have any emergency savings…”

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

November 6, 2014July 5, 2019

Real estate changed by internet

The National Association of Realtors® annual Profile of Home Buyers and Sellers is characterized as being a survey of home buyers and sellers that reveals “demographics, housing characteristics and the experience of consumers in the housing market, including the role that real estate professionals play in home sales transactions (nar.realtor). The release of the Highlights of the 2014 Profile of Home buyers and Sellers on November 3^rd by NAR provides insight into home buyer and seller behavior. I compare a small sample of data from three Profiles that demonstrates how real estate changed. Some things have changed, and some things have stayed the same.

The recent lack of first time home buyer participation is one of the issues that experts point to as holding back a full housing recovery, and has been highlighted by the 2014 Profile of Home buyers and Sellers. Only thirty-three percent of home buyers surveyed in 2014 were first time buyers, which the NAR points out as being below the “historical norm of forty percent among primary residence buyers.” Compared to 2003, NAR reported that forty percent of home buyers were first time home buyers. However, fifty percent of home buyers reported being first time buyers during 2010, which is most likely due to the first time home buyer tax credit that was offered at the time to stimulate home sales.

The 2014 survey revealed that home buyers searched on average for 10 weeks and viewed 10 homes; which is reduced from the 12 week average search indicated the year prior. The 2010 report also indicated a 12 week average search, looking at an average of 12 homes. But these home search stats are a far cry from the 8 week average search time viewing 10 homes reported in 2003.

As you might have expected, home buyer use of the internet has grown. In the 2014 survey, ninety-two percent of buyers reported using the internet in some way in the process. The first step for forty-three percent of home buyers was to look at properties online; while only twelve percent of home buyers initially used the internet for information about the home buying process. The use of mobile applications has significantly increased as technology allowed; fifty percent of buyers reported using mobile websites or applications. Compare this to 2010, when about ninety percent of home buyers reported using the internet; and in 2003 when only forty-two percent of home buyers reported searching for homes online.

Rather than eliminating real estate agents, the internet has changed the relationship between agents, buyers and sellers. Ninety-eight percent of buyers in 2014, who used an agent, viewed them as being a useful source of information. Eighty eight percent of surveyed buyers indicated they used an agent to purchase their home, compared to eighty-one percent in 2010, and eighty-six in 2003.

Ninety-one percent of surveyed sellers in 2014 reported their homes were listed on the MLS, but eighty-eight percent had assistance from real estate agents. Only nine percent of surveyed sellers sold “by-owner.” The 2010 seller stats are consistent with the 2014 Profile; while the 2003 survey indicated eighty-three percent of home sellers used an agent’s assistance to sell their home.

There are differences between buyers and sellers also. Among the differences in how they choose their agent: the 2014 survey indicated that forty-four percent of home buyers, compared to thirty-eight percent of home sellers, found their agent by a referral through a friend or family.

Original located at https://dankrell.com/blog/2014/11/06/how-home-buyer-and-sellers-have-changed-and-remained-the-same/

By Dan Krell
© 2014

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October 30, 2014July 5, 2019

When Selling a Home – stay away from gimmicks & listen to buyers

You’ve probably heard a story or two about a home that was priced very low to “create a buzz” and illicit a bidding war. And in fact, there was a 2012 article in a local newspaper about such a sale in DC that touted the rebounding housing market. But guess what? A recently published study, with robust empirical data, suggests that such a strategy may not be the best for a home seller. Furthermore, the study suggests evidence that real estate agents who recommend under pricing as a strategy believe that homes listed for less – sell for less than comparable homes.

Bucchianeri & Minson (A Homeowner’s Dilemma: Anchoring in Residential Real Estate Transactions. Journal of Economic Behavior & Organization. May 2013: 76–92) collected and compared data related to “anchoring” (higher list price to prompt buyers to make higher offers) and “herding” (lower list prices intended to creating bidding wars) theories. Although actual sale prices may depend on location and time on market, the conclusions are that homes listed at higher prices sold for more than those that relied on bidding up the price. The authors suggest that sellers should think twice before under pricing their home to create a bidding war; and suggest that results from such strategies are typically anecdotal.

If setting a higher price may translate into a longer time on market, how could you know if you are priced too high or low? Listen to home buyers. A study conducted by Case, Shiller, & Thompson (“What have they been Thinking? Homebuyer Behavior in Hot and Cold Markets.” Brookings Papers on Economic Activity. 2012: 265-315) of 25 years of data in four metropolitan areas concluded that there is a strong relationship between buyer’s perception of price trends and actual price changes; the stronger the price trend (in either direction), the stronger the agreement among home buyers perceptions.

Home buyers’ short term and long term expectations of home prices can differ. And although Case, Shiller, & Thompson indicate that it is more difficult to gauge long term pricing expectations, they were undoubtedly impressed that buyers’ were “out in front” of short term home price changes. They stated, “…We find that homebuyers were generally well informed, and that their short-run expectations if anything underreacted to the year-to-year change in actual home prices.”

If deciding on your home’s selling price gives you a headache, Stefanos Chen wonders if taking a Tylenol could assist in making a decision. In his October 23^rd Wall Street Journal article (Can Tylenol Ease the Pain of a Home Sale?), Chen reported of to-be-published research that indicates taking the pain reliever may ease the anguish associated with “loss-aversion” (an avoidance of a perceived loss).

“Can acetaminophen reduce the pain of decision-making?” by DeWall, Chester & White is expected to be published in the January volume of the Journal of Experimental Social Psychology (pages 117-120). The results indicate that those who took acetaminophen sold a mug (that was given to them 30 seconds prior) for significantly less than those who tool a placebo. Chen’s question whether taking a Tylenol could help a seller take a lower sales price is a stretch, considering that the study was limited to 95 college student subjects. Although further research is indicated, the study’s conclusions may have implications to lessening the “pain” of letting go of ownership.

By Dan Krell
© 2014

September 17, 2014November 23, 2021

Retro-future of real estate – buyers like representation

When I wrote about the future of real estate brokerage seven years ago, I predicted that consumers would become increasingly reliant on the internet; while the process of selling homes would remain interpersonal. Once thought to free home buyers and sellers from real estate brokers, the internet has become ancillary to the home buying and selling process.

Some real estate experts point to home buyers’ perception of buyer agency as a reason for the integration of the internet into the buying process. The internet has become a prolific source of information that funnels buyers directly to listing agents. With information in hand, many buyers are seemingly ditching their agents when viewing homes; some thinking they can negotiate a sweat deal directly with the listing agent.

Consider this 2012 anonymous post from a popular real estate web site. The poster proclaimed to have fired their agent and on their own negotiated a $490,000 price, when a previous buyer backed out from a $515,000 contract. The poster stated that “it makes financial sense,” the rationale being that there is always a 6% commission built into the price. The post stated that the seller makes more money if there is no buyer agent to pay, even if the offer is lower; while also getting the listing agent to accept a lower commission.

The post’s rationale may seem ostensibly compelling; and if the tactic works, it most likely has nothing to do with commissions per se. The strategy of negotiating a better price based on commission falls flat when you understand how broker commissions are negotiated. Generally, commissions are negotiated between the listing broker and the seller before the home is listed; the negotiated commission is expressly stated in the listing contract. The commission belongs to the listing broker, not the agents. The listing contract is also specific to the amount of the commission to be split if the buyer is represented by a buyer broker. Trends in commissions vary; including variable commissions, which is an agreement to a reduced listing commission if the buyer is not represented.
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Of course this do-it-yourself (DIY) home buyer post (and many others like it) has garnered a lot of attention and unconfirmed corroboration. However, there is no additional information about this specific transaction; and two thoughts immediately come to mind, either: the home did not appraise at the higher price (this was 2012); or the buyer walked on the home inspection.

The truth is that many still value buyer broker representation, which goes beyond just finding a home and negotiating a sales price; and may include (among other responsibilities) identifying and guiding you through any obstacles that can arise during the transaction. Of course, not all agents are the same. If your agent is a strong negotiator, the probability on settling on a better price is higher; as well as other occasions during the transaction where negotiation is paramount – notably during the home inspection process.

What some experts proclaim to be evidence of a trend of home buyers purchasing sans a buyer agent, may actually be just a shift in buyer behavior. Sure, there will always be the “DYI” buyer trying to justify a price by reducing commissions. But the reality may be that, rather than ditching the buyer agent altogether, the internet has allowed many home buyers to put off signing a buyer agency agreement until they are ready to make an offer.

July 16, 2014November 23, 2021

Reality TV and real estate – is the genre shaping buyer and seller expectations?

Reality TV has been a part of our culture since the 1990’s, and chances are that you’ve watched Reality programming at some time. Reality TV has benefited from the booming housing market of the early to mid 2000’s, when the number of real estate reality shows grew exponentially. Today, real estate related reality TV is prevalent, and you could probably catch one at almost any time of day.

What is it about reality TV, or more specifically – real estate reality TV, that draws us in like a moth to the light? Matthew Wilkinson and Paul Clark suggest in their research (2014. Pay No Attention To The Man Behind The Curtain: The Rejection Of Artifice And The Culture Of Choice. ASBBS E – Journal,10(1),132-143) that our affinity to reality programming is our culture’s desire for “fluid, ambiguous, and amorphous experiences.” And before I embark on their philosophical explanation based on “postmodernism” and its implications, it apparently boils down to our search for “authenticity” and the notion of participation.

Alternatively, Alex Weprin reveals that there is a feeling among programming executives that audiences have become bored by “forced, trite reality shows” and are attracted to TV shows that “feel more ‘real.’” But there’s a limit to “authenticity,” even in reality shows. Weprin quotes Animal Planet President and General Manager Marjorie Kaplan, saying “I don’t know that every nonfiction show is going to be authentic; clearly there is room for wonderfully inauthentic reality TV that we all watch and wink and nod and know is contrived….” (Jan 10, 2010. Cablers target laughs, authenticity, geeks. Broadcasting & Cable).

And why not? “Reality” TV is an escape from monotony and lets us perceive we are participants; real estate reality programming helps us imagine how our homes, our lifestyles could be different. Since the airing of MTV Cribs, we imagined how we could live like celebrities. Home renovation, real estate investing, buying foreclosures, house flipping, luxury homes, and home shopping: there is no lack of real estate related subjects on TV today – and they all seem to make it all look easy and exciting.

But there is a concern by some in the real estate industry that reality TV is doing more than entertaining viewers, it is also shaping consumer expectation. The real estate related reality format is typically a condensed version of the process that highlights only parts of the consumer experience; the portrayed drama in this sub-genre can range from the very subtle to the outrageous.

A recent Realtor® Magazine article highlights professionals’ thoughts on the matter (June 16, 2014. Reality TV Skewing Home Remodeling Picture?); and the consensus is that some consumers demand a similar experience to what they see on TV. Some real estate agents have also expressed concerns about home buyers and sellers whose expectations are not realistic; they want more in an abbreviated span, losing perspective on the elements and time that the home buying and selling process requires.

Maybe the entire genre is misconceived; maybe real estate Reality TV should be more realistic, where the drama is drawn out over weeks and months documenting the excitement and tedium of the real estate transaction. But then again, maybe T. S. Eliot was correct in the characterization (Burnt Norton): “…humankind cannot bear very much reality.” TV may not be genuine about being real, as much as it is about entertainment value.