What is the biggest driving force for today’s homebuyers?

  • To reduce their housing costs (64%, 9 Votes)
  • Improve their housing amenities (21%, 3 Votes)
  • Investment purposes (7%, 1 Votes)
  • Relocation for a job or health reasons (7%, 1 Votes)
  • Downsizing (0%, 0 Votes)

Total Voters: 14

This article discusses how real estate agents can pivot and exercise new strategies to continue to profit during a buyer’s market.

Working in a buyer’s market

The past decade of real estate sales has given preferential treatment to the seller.

During this time, sellers — and real estate agents — have gotten used to experiencing housing as a get-rich-quick scheme. This was especially true during 2020-2021, when receiving 20 or more offers on a home was commonplace. Home prices skyrocketed, fueled by basement-level mortgage interest rates and buyer fear of missing out (FOMO).

This all ended spectacularly, following California’s peak in home prices in May 2022. Just five months later and home prices have plummeted 7% in the low tier and 10% in the mid- and high tiers, as of October 2022.

Faced with falling home prices and rising mortgage interest rates, most buyers are taking a back seat to today’s housing market, choosing to wait it out rather than rush into a purchase they will quickly regret. Sellers are becoming increasingly desperate, cutting prices and offering concessions.

With a dearth of homebuyers and rising multiple listing service (MLS) inventory, the few homebuyers still active in 2023 are finding the driver’s seat empty; the engine raring to go.

In other words, the seller’s market of yesterday is gone. In its place — a buyer’s market.

Any real estate agent who began practicing within the past decade is unfamiliar with this type of environment. Even if you were practicing during the last buyer’s market — through the aftermath of the Millennium Boom and Great Recession — these time-tested strategies can fortify your income as the housing market reaches an inflection point in 2023.

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Recessionary buyers think outside the box

Agents need to pivot from focusing on providing seller services to finding and working with buyer clients. This means refocusing expertise on the needs of both traditional buyer-occupants and investors purchasing at the bottom of the market.

Become an expert in assisting clients with the types of sales common during a recession, including purchasing:

As prices continue to dive in 2023, plunging recent mortgaged homebuyers underwater, these types of transactions will become more common. Seasoned agents will recall REO sales made up a whopping half of all home sales in 2009.

REOs become a large presence in the market when home prices broadly decline. Then, recent homebuyers quickly find themselves underwater, weighed down by a mortgage balance larger than their home’s fair market value (FMV) — a detrimental condition known as negative equity.

When the inability to make mortgage payments or the need to relocate strikes, some of these homeowners will seek out mortgage modifications or short sales.

Others will simply head toward foreclosure, waiting for the trustee’s sale to compel them to vacate. These homes will become REO properties in the portfolios of mortgage lenders.

Brokers in search of the best deals for their clients will form relationships with lenders and servicers. With this insider status, they will learn about REOs with the best investment potential before they hit the MLS and build a reputation as a dedicated agent an advocate for homebuyers seeking discounted REOs.

Watchful brokerage offices, typically the small ones, will set up REO departments to capture this unconventional sales market typically dominated by lenders.

Related article:

MLO recession survival guide part 3: Working with REO property

Buyer financing deals found during a recession

Mortgage interest rates soared over the course of 2022, dropping buyer purchasing power 31% below a year earlier as of December 2022. In other words, a homebuyer with the same income is able to borrow 31% less purchase-assist mortgage money than a year ago when mortgage interest rates were still near historic lows.

To get around this deep cut to buyer purchasing power, today’s homebuyers commonly ask sellers to pick up the tab by paying for mortgage points.

Mortgage points allow the homebuyer — or seller — to pay an upfront fee to the lender in exchange for a lower mortgage interest rate over the life of the loan. A lower mortgage rate enables a buyer to pay a higher price with the same loan payment, or just save on monthly expenses.

Editor’s note — any homebuyer taking out a minimal down payment today will find themselves underwater by the time they sign on the dotted line. To avoid the heavy burden of negative equity, today’s homebuyers need to put down a significant down payment or pay with cash — or, better, wait until prices have fully bottomed, which firsttuesday anticipates will happen here in California around 2025.

However, there is another way buyers can find a lower interest rate. Creative buyer’s agents can help them find a listing offering seller financing, also known as carryback financing.

Carryback financing generally offers the buyer:

  • a moderate down payment;
  • a competitive interest rate;
  • less stringent terms for qualification and documentation than imposed by traditional lenders; and
  • no origination costs or lender processing hassle. [See RPI ebook Creating Carryback Financing]

For seller’s agents, carryback financing can make their property more marketable, enabling a higher sales price, while also allowing the seller to defer the tax bite on their profits.

Related article:

Brokerage Reminder: Carryback financing – securing alternatives for buyers and sellers

Investors purchasing at the bottom

Smart investors buy when the market is at a bottom — but during these down times, when cash is king, real estate investment can be a hard sell.

The various types of investors a broker works with during a recession include:

  • equity purchase (EP) investors, who purchase property from sellers-in-foreclosure; [See RPI Form 156RPI e-book Buying Homes in Foreclosure]
  • local syndicators who form and manage real estate acquisitions of any type property, the purchase price paid using commercial mortgage funds coupled with equity funds raised from investors joining the syndicate, structured as a limited liability company (LLC); [See RPI e-book Forming Real Estate Syndicates] and
  • speculators or flippers who purchase with short-term, hard money mortgage funds in anticipation of a resale at a profit in a matter of months based solely on an upward wave of market momentum.

The real estate broker who negotiates the acquisition of the property and organizes the group is known as the syndicator or manager.

real estate syndicator works with the cautious investor, creating an LLC of cash investors who may otherwise be unwilling to individually purchase property during a recession or early recovery period.

Beyond acquisition, real estate brokers are uniquely positioned to assist with the management of investment property. The broker performs property management services during the group’s ownership of the property, and later handles the resale of the property, set up to earn and eventually profit from a long-term rental property investment.

Related article:

MLO recession survival guide Part 4: Arranging mortgage originations for investors

Advertising buyer services

Since the past decade or so has seen brokerages focusing on attracting and snagging listings—previously a “sure thing” but now quickly becoming a time-consuming drag on resources — new market dynamics require new marketing tactics.

Download firsttuesday’s Client Q&A letters — free to download, personalize and distribute to buyer clients. These letters offer information on the basics of buying for first-time homebuyers and more seasoned purchasers of real estate.

Agents can also download free FARM letters, designed to be distributed on a wide scale to the agent’s FARM or marketing area.

FARM letters are customizable templates created in the form of monthly newsletters, postcards, door hangers, and real estate information flyers. Agents use these letters to introduce themselves and generate business from individuals in the neighborhoods, apartment complexes and broader community serviced.

Related article:

Career Coach: FARMing 101

Advice for buyer’s agents during a housing recession

The best time to buy is when prices have bottomed. Anyone purchasing while prices are still falling is liable to regret their decision. This is especially true for mortgaged homebuyers who put down a minimum down payment amount, since they will fall quickly underwater.

But when prices find a bottom — anticipated to occur around 2025 — traditional buyer-occupants will find themselves competing against cash-heavy speculators, flippers and long-term buy-to-let investors for these low prices.

With the ability to offer large sums of contingent-free cash, investors have the upper hand. But there are steps buyer’s agents can take when their clients are up against investors.

buyer’s listing agreement employs the broker and their agents to locate qualified properties to be purchased by the buyer represented under an exclusive right-to-buy listing. [See RPI Form 103]

The exclusive right-to-buy listing provides greater incentive for brokers and their agents and imposes a duty to work diligently and continuously to meet their buyers’ objectives.

The buyer benefits under an exclusive right-to-buy listing due to the greater likelihood the broker will find the property sought.

Other steps the broker can take to successfully land the buyer’s chosen property when competing against investors include:

  • negotiating: contact the seller’s agent and find out what terms are most important to the seller — it helps greatly to know the seller’s agent personally;
  • inspecting the property with the buyer, with the intention of their meeting and talking to the seller or seller’s agent to build a personal relationship, returning again to further that bond;
  • submit the buyer’s offer in person when possible, to personally present the best case for the buyer to the seller’s agent, and get a sense of the seller’s willingness to negotiate on terms;
  • keeping the offer simple by refraining from requiring little fixes (like a leaky faucet) in the offer;
  • excluding any appraisal or loan contingencies if your buyer has cash reserves beyond their down payment amount they are able to access, even if they choose to finance the purchase;
  • including a substantial earnest money deposit to demonstrate your buyer’s seriousness, but limiting their liability exposure to a few hundred dollars, never the full deposit;
  • having the buyer’s mortgage loan officer (MLO) contact the seller’s agent to vouch for the strength of the financing;
  • offering to secure pre-approval by the preferred lender of seller’s agent; and
  • including current proof of funds and loan pre-approval (pulled within the last 30 days).

While cash-flush speculators and flippers are an easy client for brokers looking for a quick profit during the bounce back from the ongoing downturn, that clientele can never provide long-term sustainable income. Thus, see these types of clients as bonus sources of income rather than your main focus.

The bread and butter of the housing market are traditional homebuyer-occupants and long-term buy-to-let investors who will refer friends and family and provide repeat business over the years. Watch for a bump from this group of ender user buyers to arrive in 2026-2027, once it’s clear prices are rising and the economy is expanding.

Be the first in your service area to seize the post-recession expansion. Subscribe to Quilix, firsttuesday’s weekly agent and broker newsletter, to track the 2023 housing recession’s path in California.

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Real estate speculators during recessions and recoveries