Lynda Lynde Real Estate Client Advocacy

What Motivates Buyers and Sellers:  Need Versus Speculation

For buyers and sellers a successful real estate transaction outcome between need and speculation can be worlds apart. Motivation is the glue that causes things to happen, or not.  There may be need on the one side, and not on the other.  This will cause the transaction's motivational force to be out of synchronization. Will the transaction ultimately pass the litmus test of win-win for both sides, I think not. Let me explain.

To begin, let's begin with what I believe is the myth of overnight success in real estate ownership.  If you study the trends in real estate you will find natural ebb and flow of values and the long-term normal trend is upward in typically five-year cycles.  At every moment of the cycle there are overpriced properties, and those priced below or at current market value.  No one wants to overpay for a property, and those who are seller speculators make buyers suspicious of all sellers.  Thus it is very important to find out the motivation of the seller if you are the buyer.  And it makes a huge difference in how an offer is tendered in each of these cases if you wish to succeed in acquiring the desired real estate.  If you don't care, then you more than likely fall into the buyer speculator category and your motivation level is not very high.

Unless sellers' needs are caused by 1) a default 2) a life changing event 3) an estate sale, 4) a high loan to value ratio, or 5) a pending offer on another property; sellers may not have sufficient motivation to price their property for a quick sale.

Throw into the mix supply and demand, high or low interest rates, lender and/or government lending regulations, availability of funds in the secondary mortgage money market, national and international monetary economics, politics, job security, inflation, taxes, land use legislation and environmental issues, and you may be amazed that free enterprise works as well as it does.  The miracle of home ownership happens in spite of factions such as these that affect the price of a residence.  The latest twist to all of this is how real estate speculation, loose credit, and greed from the top down have shaken our whole economy.  The tumbling economics of real estate in several large U.S. cities has affected the whole nation.  Those of us in good markets have been surprised that we too would feel the trickle down affect of this magnitude.  This has not been just a simple case wherein a buyer or seller speculator took advantage of one individual, this phenomenon happened on a national scale.  This is cause and effect on a grand scale and it has affected all of us!  Lenders have returned to conservative lending practices and having a high credit score has never been more important. 

There have been some over corrections to stop the bleeding caused by real estate speculators who were "flipping," as the term came into vogue during the easy money era, because they caused the biggest share of default foreclosures by lenders.  Government regulation has made investors a targeted group for tougher lending regulations.  The new lender guideline now allows an investor no more than four income property loans at a time.  Thus, investors now have a need for more investment capital but speculators were the cause of the interruption in that supply.  This is an example of a no win situation.

When you consider all of these elements you begin to understand how important it is to work with well-informed REALTOR^® who is working in the trenches each and every day.

One scenario is a seller's market; you really like a particular property and you decide to make an offer; at this particular time the demand is greater than the supply, so it is just a little overpriced and you understand their will be multiple offers so you will be bidding against other buyers.  This requires very good negotiating skills by your Buyer's Agent. It is important that you have a lender ready to finance for you.  In this scenario it may be prudent to offer more than the seller's asking price, and/or you may have other factors that would make your offer more attractive than competing bids including a large earnest money, quick closing, uncomplicated contingencies, and compelling reasons why you are the most capable buyer to close with your offer.  If you are successful in acquiring this property, and it satisfies your needs and the seller's needs, then you have a win-win transaction. 

Another scenario is a buyer's market wherein the seller is a speculator.  You, the buyer, fall in love with the property, realize it is overpriced, and make a reasonable offer.  A reasonable offer "normally" falls within the 10% price range of the selling price, but if it is significantly overpriced and you tender what a seller considers an "insult bid," then chances are you will be at loggerheads in trying to arrive at a fair price.  Sometimes people aren't necessarily even speculators...they just hear what others are getting for their properties and they over-estimate the value of their property.  These are unrealistic sellers as apposed to speculator sellers.  The result is the same.  A contract is unlikely to occur and there are no winners.

Then there is the buyer who hears from the national media that the housing market in particular areas are bad.  They assume the stories they hear apply to the market they live in as well.  The simple truth is there can be markets within markets even within one community in good times and bad times; for instance, high-end homes versus mid to low-cost housing, or new construction.  The high foreclosure rate varies from community to community.  Helena and Montana statewide have had far fewer foreclosures during this economic downturn than the national average.  Our lenders simply were not providing the easy money loans on the scale of the big cities nationally, so we are in far better shape.  Yes, there will always be some foreclosures happening, and right now, with the current psychology you could negotiate a better price with the lender market than I have seen in recent times.  If the foreclosed property has a second lien on it, it will depend on who is the stronger (bigger) company, the first lien holder company, or the second lien holder. The reason is the bigger/stronger company may push the primary lender for a piece of the "pie" since they know the primary lender does not want to drag out the foreclosure process any longer than necessary. This is because the longer it takes to foreclose, the more expenses they incur.  If you make an offer on one of these "short sale" foreclosure properties you need to be in a position to wait.  In this situation it is the buyer speculator who winds up the bigger winner at closing and the lender's needs are met by ridding themselves of a bad loan.

Another situation that often backfires is when a buyer tests the mettle of a seller who has priced his home fairly by offering a less than equitable price for a property.  There is a delicate line at which people will balk if they feel they are being taken advantage of.  It works the same for buyers and sellers.  Once the trust has been broken, it is difficult to get it back from either party.  In this case the buyer is a speculator and is not sufficiently motivated unless his terms are met and the seller may be motivated, but pride can override need.  This offer most often turns into a no-win transaction.  Quite often what happens is someone else makes an offer somewhere closer to the asking price.  The seller has been softened by his previous experience, and he still has needs to sell, so another buyer benefits from the exercise and turns it into a win-win sale.

The best of all worlds is when sellers and buyers are realistic about their offers (healthy motivation).  This is helped by a seller's listing agent who knows the market, provides good comparable sold market data, and the seller prices their property from the information gained from this resource.  Buyers gain knowledge when they have been exposed to sufficient homes that interest them in the market within their price bracket, have the financial means and are counseled by a knowledgeable buyer's agent.  This situation has the best opportunity to succeed.  There are many ways to negotiate an offer to meet buyers and sellers individual needs and come to closing with a win-win transaction after all of the contingencies have been met.

©Lynda Lynde, All Rights are Reserved.

Lynda Lynde, Broker/Owner, REALTOR^®, ABR, CRS, GRI, WHS

Lynda Lynde Realty, LLC

www.HelenaMontana.info     Lynda@HelenaMontana.info.