Buyers With a Home to Sell Should Be Handled With Care
In today’s down market, builders need to adopt strategies to sell homes to prospective trade-up buyers who are reluctant to move forward with a purchase because they are having trouble selling their existing home, according to panelists at last month’s International Builders’ Show in Las Vegas.
When a person wanders into a sales office and says they would like to buy a new home but have to sell the one they’re in now first, the initial reaction of the sales person “makes all the difference,” said Kerry Mulcrone, president of Mulcrone and Associates in Hudson, Wis.
The sales person’s response should be, “‘No problem, we’re glad you have a house to sell,’” said Mulcrone. “‘We both have a home to sell and we’re going to figure this out together.’ This pulls them off the street and away from the competition.”
Mulcrone said that sales personnel should use role playing to practice and rehearse a “script” that enables them to establish from the start that they are willing to work with the buyer as an advocate. Buyers who are concerned that their home has lost value need to be reassured that they will be able to make up for the loss by buying a new home for less than it would have cost during the housing boom.
Instead of providing a monetary discount, builders should consider packaging and bundling the sales of the departure home and the new home, she said.
Under this approach, the sales person visits the departure home, looks it over and then tells the prospective buyer what they can do to increase its appeal. “Send a painter or a handyman into the house to fix it up,” Mulcrone said. “They need you to help them make their old home look new.”
In addition to employing the services of trades people and venders, the sales staff should also establish a good working relationship with other professionals — such as lenders who can explain to potential buyers how the sales process works and the financing products that are available and Realtors® who can help them sell their home.
“It is a journey that goes on for a while,” said Mulcrone. “Understand the reality” of customers who face the contingency of having to sell their existing home first, she said. “Understand their reality, don’t blow it off.”
Working With Realtors
“Everything sells, it’s just a matter of price and time,” said Fafie Moore, CRP, a broker owner for Realty Executives of Nevada in Henderson, Nev. “Good relationships with builders are a key to success for Realtors®. They want to feel connected, that they have something special over everybody else.”
Moore said that Realtors® are looking to forge alliances with builders who make them look good. “Make me feel important,” she advised, “especially if I’ve got a client with me.”
Cultivating that relationship is well worthwhile, she said, in a market where it is commonly assumed that nothing is selling. Realtors® “have some great strategies you may not know about “ that can keep the prospective buyer with a home to sell coming back.
Builders should provide Realtors® with something about their properties that can be disseminated electronically, Moore said. Also, “Realtors® need to understand the value of your product. You have to educate them and let them know what makes you different and special.”
As for dealing with the prospective buyer with a house to sell, “focus on the value of the new property versus the loss on the existing property...Explain how much they are getting in new housing. In many cases, they are selling for lower than what you can build them for.”
Buyers also need to be reassured that the REO market will eventually fade away, and that homes will once again begin increasing in value once these homes have been absorbed, Moore said.
In today’s slow market, there are a couple of other facts that builders need to keep in mind: roughly 40% of prospects are looking for a first home and aren’t encumbered with a home to sell and 35% of home owners have paid off their mortgages. “Don’t assume that someone who has a home to sell isn’t free and clear. They may actually have some equity,” she said.
Working With a Tax Accountant
Tax expert Heidi Pope, of RSM McGladrey, Inc. in Bloomington, Minn., presented calculations showing how holding onto a current residence as a second home, converting it to an investment property or renting it out until the market returns can be feasible options for prospective buyers who are unable or unwilling to sell their home in a weak market.
Pope’s prototypical home buyer — “Ingrid” — located her dream home and purchased it at the start of the year with a $300,000 mortgage. Mortgage interest on the home will be $18,000 annually and property taxes will be $8,000.
Ingrid’s existing home was purchased four years ago for $300,000 and has declined in value to $270,000, with the land accounting for $50,000 of the property’s value. The home has been her principal residence for each of the four years. $200,000 of the purchase price was financed with a 30-year loan with a 6% interest rate.
Ingrid’s only income consists of a $75,000 salary and interest income of $25,000. She pays a flat tax rate of 28% with no personal exemption and has the financial ability to hold both properties.
Pope ran numbers for four possible scenarios available to Ingrid:
- If she sells her current residence at a $30,000 loss just before purchasing her new home, at the end of a five-year period her total cash flow is more than $271,000.
- If she converts it into a second home and uses it for a total of three months a year for vacation purposes and sells it on Dec. 31 five-years later for $310,000, her total cash flow is more than $267,000.
- If she converts the old residence into an investment property and doesn’t use it at all until selling it five years later for $310,000, her total cash flow is almost $275,000.
- If she converts the home to a rental property and sells it five years later for $310,000, her five-year cash flow totals almost $369,000.
Conversion to an investment or rental property makes sense for Ingrid, Pope says, if the real property appreciates by at least 3% annually, she is able to locate good tenants and, for tax purposes, she does not plan on utilizing the property for personal purposes.
Tax Credit Web Site Looks at Opportunity of a Lifetime
Builders and other industry professionals can help spur home sales by referring prospective first-time home buyers to www.federalhousingtaxcredit.com. The NAHB Web site provides detailed information on the $8,000 federal tax credit for first-time home buyers included in the economic stimulus legislation signed into law by President Obama.
Consumers can use the Web site to find information on the tax credit – including a detailed question and answer section. It also includes information about other housing-related and small business measures in the legislation and a number of home-buying resources for consumers.
“The new tax credit provides a great opportunity for first-time home buyers,” said NAHB Chairman Joe Robson. “Combined with today’s near record low interest rates, the large selection of homes on the market and very competitive pricing, the tax credit should provide the extra incentive needed to get prospective buyers who have been sitting on the fence into the market.”
Industry professionals are encouraged to highlight the tax credit Web site when marketing to their potential first-time home buyer market.
‘ValueMatch Selling for Home Builders’ Available at BuilderBooks.com
“ValueMatch Selling for Home Builders,” available through BuilderBooks.com, presents a selling process that focuses on selling feelings and appealing to prospective buyers’ emotional need to buy a new home in today’s market rather than product.
Learn how to build rapport with prospective home buyers, meet their needs, make powerful presentations that are focused on their values and go for the close.
To view or purchase this publication online, click here, or call 800-223-2665.
Get the Marketing Edge With IRM
Meet the current market’s sales and marketing challenges fearlessly when you take Institute of Residential Marketing (IRM) classes.
Courses include "The Challenge of New Home Sales Management,” “Understanding Housing Markets and Consumers,” “Marketing Strategies, Plans and Budgets” and more.
The courses are part of the credits needed to earn the MIRM designation, the top-level achievement for professionals in new home marketing. Find upcoming IRM classes here.
Subscribe to Sales + Marketing Ideas Magazine for Cutting-Edge Information
For additional cutting-edge sales and marketing information, subscribe to NAHB’s Sales + Marketing Ideas magazine (www.smimagazine.com).
Click here to learn about membership benefits of the National Sales and Marketing Council and the Institute of Residential Marketing.