Finding the right home is EASY.
Finding the right HOME-FINDING strategy is not.

Ok, you are thinking about buying a house. After all, you are here reading this! You are probably on the internet looking at, searching for, comparing to, and talking about properties you are interested in. EXCELLENT! Good choice. This is a very good way to learn about prices, areas, styles and options. But, depending on the phase you are in it is absolutely the wrong way to manage your buying strategy or process.
We like to think of the buying process in three very distinct phases. We like to call them:

  1. Percolation – This is the very earliest phase. This is the phase where you are just thinking, and, maybe not even talking about buying or moving. You are considering the consequences of a move and its purchase. You are thinking about what it would mean to your partner, kids and family. With a job change you may even be wondering what the new geography would be like.
  2. Information Gathering – This phase is where you actually begin to compare, evaluate and build your information base about what is available. You are looking to narrow your questions and gain insight into what a new home would cost; and, how the style, location, price, schools, and geography will impact everyone involved in this decision. You classically have not made a decision on the house but you are making a decision about price, schools and life-style.
  3. Active – In this phase you are now looking at specific houses and beginning to compare and evaluate….moving toward a decision. You are probably interviewing for an agent. Most buyers don’t even know that is what they are doing, but begin to decide who they like and who they don’t.

You don’t need to be digging to
find what you want

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What is “managing a buying strategy”?
Things to consider:

  1. First, recognize which phase you are in. This may sound obvious, but it can allow you to get the maximum benefit from each phase. For example, acting or thinking as if you are in the Active phase can cause you to make some errors in your future decisions. If you’re actually in Percolation you could be 9 to 14 months away from data such as price being meaningful. The information you are interpreting can change substantially in this time frame. As a point of concern would be what the price actually will be when you are ready and what will happen to the inventory at that time. There can be significant changes with both of these.
  2. Second, select an agent Recent studies over the last 25 years show that most agents are property-centric. They are focused on the property they can show now rather than the needs of the buyer. A good agent can save you enormous amounts of time, money and headache. On property listed for sale, there is not a direct agent cost to you. Almost always, they are paid by a commission agreed to by the seller at the time of the property being listed for sale. Don’t work directly with the SELLER’s agent. In our opinion there is almost never a time where there is not a conflict of interest.

Who is the right agent?
Well, there are some VERY specific criteria you can rely on.

  1. The agent will focus on you first rather than rush out and show you a house(s) especially the one that caught your attention. They will take the time to conduct an in depth needs-analysis to assist them in crafting an effective and encompassing strategy for you.
  2. The agent will work with you AT YOUR PACE! They will not put pressure on you, irrespective of the phase you are in. And, they will not waste your time. By understanding your pace and phase, they can make sure you are getting exactly what is wanted, needed and suited for the phase you are in; and, in the time frame that works for you. You can NEVER be too early in the process to have that agent work for you.
  3. Most importantly, you should NOT need to see a lot of property with them when you are in the active phase. Seeing a lot of property in the active phase confuses and wastes your time, taking your attention off of what a reasonable offer is and how to make it all work. Agents that show you a lot of property have not done the job of understanding your wants and needs and have drifted into that style of work by being property-centric. (They want the showing of property to fix their lack of knowing what you need to see!)
  4. Make sure your agent knows Market-Speak. Market-Speak is the language of the market. It is just like a foreign language and requires interpretation. Especially to someone not speaking the language. Insist that they know both the Market Velocity and Buyer-to-Seller Ratio. This is a critical and reliable method to understand how to strategize in a given market. The Buyer-to-Seller Ratio measures Velocity. This defines a major part of the strategy in managing during the Active (Discussed extensively in the next part of this dialogue.)By the way, you will have a difficult time finding and agent who knows Market-Speak because as previously noted most of them are property-centric.
  5. Make sure your agent puts you to the front of the line for offers instead of naturally being in the back. (Next section.)

What are The Factors that govern the Dynamics of the Real Estate Market Place for a buyer?
Buy low – Sell High. Every buyers concern.

  1. Buyer-to-Seller Ratio – This is another one of the best kept secrets in real estate. The science of this is a proprietary and exclusively licensed technology that helps buyers and sellers know the actual market-velocity of a property in question.
  2. Market Velocity – Market Velocity determines the pressures on the measured market with prices and time-on-the-market both directions – up and down.

Let’s do a short review of economics 101. In any market such as oil, its price is governed by market pressures such as how much oil is actually available versus active buyers; and the delivery costs.*
 (* Independent of inflation; the delivery costs of Real Estate include primarily mortgage interest rates and sales commissions together with other property transfer costs.)
When the available inventory of oil goes down such as an oil shortage during the early 80’s the price of oil/gas rose aggressively. When the availability of oil increases the cost of oil/gasoline goes down as well.  The inventory’s rate-of-turnover is called Velocity.

  1. Velocity –What do you mean?- Now Real Estate. The primary pressure influencing price is available inventory versus Active Buyers. (We are NOT talking about absorptions-rates here.) If the Buyer-to-Seller Ratio is high the Velocity or rate-of-turnover-of-inventory is VERY high.

More buyers than property = higher prices = higher velocity
More properties than buyers = lower prices = lower velocity
For example in a market where the ratio of Buyers-to-Sellers is 1 active buyer for an inventory of 2 active properties the pressure on the price of property is VERY high. However in the identical demographic-geographic market at a different time, a ratio of 1 active buyer to 8 active properties will cause the velocity to be very low and the pressure on the price of property is flat or down. Velocity determines the pressure on price…up or down and time on market!
Three Velocity Groups:
High Velocity = High Pressure on Property and short time on market
Med Velocity = Med Pressure on Property and medium time on market
Low Velocity = Low Pressure on Property and long time on market

Ok…what does that mean?

  1. What is the Right Price? A low ratio of available properties for a buyer means higher prices. High ratio of available properties for a buyer means lower prices. The right price depends on the real needs  of the buyer and the properties place in time for the purchase.
  2. Why, is everything I look at sold already? This is a secondary characteristic of the high velocity market. The market experiences MANY agents vying for the same property (shortage of inventory.) This is a time of multiple offers.  What happens during periods of multiple offers is that buyers work with agents that are property-centric. They rely on you the buyer to tell them what you want to see and by the time you see the property it is already under contract or at best getting offers already. It becomes a bidding war between all the buyers and the seller. In past periods of this type of market it is not unusual to see 15 to 35 offers on a very desirable property.

If you come late to the party, your experience is: “Why everything I look at is sold already?” You cannot fix this with your current strategy. You need to be working with an agent that can get you to the front of the line. Relying on the internet to find you property during this current time commits you to being in the back of the line; this is simply because of the nature of the market and the lag between listing and showing.

Summary

  1. Recognize and work within your timing Phase
  2. Find an agent that is Client Centric; takes time to find out your needs and wants
  3. Make sure they will craft a strategy and work with you at Your Pace
  4. Make sure they DON’T waste your time
  5. Make sure they know Market-Speak; and understand Velocity and can quote you Buyer-to Seller Ratios
  6. Make sure they have a strategy to insure you are at the Front of the Line in multiple offer situations

© 2015, 2018 Douglas M. Yeaman – All Rights Reserved