Focusing on the Buyer

by Marqué Bressler

It's been a buyer's market in Central Ohio this year. With inventory rising to almost 30 percent more than last year and mortgage interest rates leveling off at such a reasonable rate, today's buyer can rule the market. But sales are down. Why is that?

Are the reports right? Have we exhausted the market? No way!

Buyers are out there right now. A tad fewer than last year perhaps, but plenty enough to fuel the needs of our anxious sellers, bankers, agents, appraisers, builders, and all professionals whose livelihood depends on the healthy flow of property sales.

So let's focus on the buyer. Who are they? Where are they? What are their motivations? Here's some ammunition to help you find them, motivate them and convince them that now is the time to buy!

Who's your buyer?

According to the 2005 NAR Profile of Home Buyers and Sellers, the typical home buyer is 41 years old, earned $71,800 and purchased a home costing $214,000 that was 1,815 square feet in size. They searched eight weeks and visited nine homes before making a decision. Sixty-one percent of buyers are married couples, a record 22 percent are single women, nine percent single men, and seven percent unmarried couples. Eleven percent were born outside the United States.

. . . OK, so when is the last time you had a typical deal with a typical buyer?! The word typical just doesn't cut the mustard today! That said, it is interesting to compare the results of these studies with what you are seeing.

The demographic characteristics of homebuyers can provide insight into the current demand for housing and how it will evolve over time.

First-time buyers continue to be a significant share of the market, accounting for roughly two of every five home sales (40 percent). The percentage of first-time homebuyers under age 25 has been increasing from 11 percent in 2001 to 14 percent in 2005. Thirty-eight percent of all home buyers were under 35 years of age.

While married couples are still the norm, they represent a smaller share of the home buying public than they did just 10 years ago, from 70 percent of home buyers in 1995 to 61 percent today. Also, 61 percent had no children under 18 years old residing at home.

During this same time, the proportion of single women buying homes has increased, from 14 percent in 1995 to 21 percent today. Nine percent were single males (up only 7 percent from 2001).

What they Buy

Buyers purchase homes in different areas -- suburban or city -- and of different types and at different prices. Existing homes account for the majority of homes sold in any year, but new homes are popular.

^l Three out of four homes purchased in 2005 were detached single-family homes.

^l The typical homebuyer purchased a home 12 miles from their previous residence.

^l 56% of homes purchased were in the suburbs.

^l 68% ranked neighborhood quality as the most important factor influencing the location of their home
   purchase.

^l One in five purchased a newly constructed home.

The average sale price in central Ohio this year is $175,700. First-time buyers generally purchased less expensive homes than did repeat buyers. This is not surprising since repeat buyers tend to have higher incomes and can use the equity from their previous home toward their next purchase.

Why They Buy

People buy homes for many reasons: as an investment, for more space, to be closer to schools, relatives, or their work. And the reasons for purchasing a home differ for first-time buyers and repeat buyers.

The most important motivation for first-time buyers is the desire to own a home of their own. The desire for more living space was cited as the primary reason for a housing change by 29% of repeat buyers.

Other reasons for a home purchase include retirement, a job relocation, and desire for less space due to a change in household size (children have left home, divorce, etc.).

Trade-up buyers still seek the pride of ownership, but lifestyle changes often drive their desire for a different home. The need for more space, a job change, or the desire to be closer to friends and family motivate some buyers to purchase another home.

Others purchase a vacation home to serve as a personal retreat or an investment property that will generate additional income.

The key to any home purchase is identifying the needs and desires of the buyer. Now, more than ever, it is critical that you check your personal feelings and intuition at the door and focus on what the buyer is saying. If you listen carefully, they will tell you what they want. Then, use your unique expertise to make it happen!

Where are they looking?

If you guessed the internet was the number one source of information, not so. It's YOU! The real estate professional still reigns with 9 out of 10 home buyers seeking your assistance to find their next home.

The internet ranks second at 77 percent (up from 2 percent in 1995). And 93 percent of Internet searchers also used a real estate agent as a source of information. Yard signs (71%), open houses (51%) and newspapers (50%) were also popular information sources.

Both Internet searchers and non-Internet searchers were equally likely to first learn about the home they purchased through a real estate agent.

Although most buyers use an agent to complete the transaction, 36 first learn about the home they buy from a real estate agent, 24 percent from the internet and 15 percent from yard signs.

More repeat buyers used a home builder as an information source they were more likely to purchase a new home and so consequently use a builder (or builder's agent) when searching for that newly constructed home.

Do Buyers Need You?

Absolutely! Use of the Internet has not diminished your role in the home purchase process. You are still the consumer's number one resource for information as well as assistance with purchasing a home.

Homebuyers rely on the experience and professionalism of their real estate agents. The two most important factors in choosing an agent are reputation and knowledge of the neighborhood.

^l 77% of homebuyers purchased their home through a real estate agent.

^l 72% of buyers rated their real estate agent as very useful in the home search process.

^l Buyers searched for a median of two weeks on their own before contacting a real estate professional.

^l Over three quarters of homebuyers used only one agent in their home search.

^l Buyers ranked reputation as the most important factor when choosing a real estate professional to assist with a home purchase.

^l Two thirds of agent-assisted buyers would definitely use their same agent again or recommend that agent to others.

More than half of first-time buyers found their real estate agent through a referral from a friend, neighbor or relative (or knew the agent). Well over one third of repeat buyers (38%) also depended on referrals for an agent, but 17 percent of repeat buyers also relied on their previous experience with an agent.

How will they pay for the home?

The NAR study identifies how buyers paid for their home year in 2005. But what we need to focus on is how they will pay for their home today.

^l 92% financed their home

^l 28% financed the entire purchase price!

^l Savings was the primary source of first-time homebuyers'down payment.

^l 66% of repeat buyers used equity from their previous home as a down payment.

^l 94% of all buyers believe that their home purchase was a good financial investment.

And here's where you come in. It's no secret that Ohio has made the news repeatedly for high numbers of foreclosures. Not only this, but mortgage payment delinquencies are also at an all time high in our market.

Gone are the days of getting them in a home in any way you can. The sad fact is that our typical buyer has proven they are not capable of handling the fallout from zero percent and adjustable rate mortgages.

The share of adjustable-rate mortgages (ARMs) in Columbus fell to 28 percent in the first quarter of 2006 from 58 percent a year ago. Though ARMs are the best financing choice for some homeowners, they also carry risk in the current rising interest-rate environment. The reduction in ARM usage is, therefore, a positive sign in minimizing risk. (Check out the article on ARMs on page 15.)

With interest rates near 45-year lows, those who can afford a home should take advantage of the market and buy now. But advise them to use caution when it comes to exotic mortgage products. Your long term objective is to help these buyers move up some day. In order for this to happen, they need to keep their home! Use your expertise to help them help themselves!

Conclusion

Regardless of who they are, where they've looked, or how they will finance, what buyers want most from you is help finding the right home to purchase.

This is great news because we still have almost 15 percent more inventory on the market today than one year ago!

Buyers may be distracted during the holiday season, even extending through Super Bowl Sunday for some. Get their attention! This is the absolute best time of the entire year to be a home buyer.

Why? First of all, only serious motivated sellers have their houses and condos listed for sale during this slowest season of the year for home sales. Second, competition from other prospective home buyers is at its lowest so offers will be extremely welcome and seriously considered!

And third -- interest rates are still near 45-year lows.

So get out there and find those buyers! They really are waiting for you!

Sources: 2005 NAR Profile of Home Buyers and Sellers -- National Association of REALTORS®, NAR Home Price Analysis for Columbus Region -- July 2006