The Chicago Association of REALTORS®, the “Voice for Real Estate” in Chicago since 1883, represents over 17,000 members from all real estate specialties including commercial sales, development, property management, appraisal, auctions and residential sales.
As you know, our market in Chicago is experiencing an inventory strain. Our June statistics indicated a 3.1 months supply. We polled our top producers to ask how they work with their clients and approach the unique situations that come along with low inventory markets. Here’s what they had to share.
IN A LOW INVENTORY MARKET, HOW DO YOU SET BUYER EXPECTATIONS?
I usually explain why the inventory is low, and how the prices will keep climbing. Then I share that there will be multiple offers on the few homes on the market and discuss how to decide how much to offer. I ask them to be patient, as they might go through multiple offers, and that it takes time. Lastly, I ask them not to get emotionally attached to any house until we have it under contract.
At our initial meeting, I explain to [clients] the current market, what is happening and what they can expect. We go over different scenarios of possibly submitting an offer and how to prepare to be in a strong buying position, which includes a strong pre-approval letter, no sales contingencies, strong down payment or higher earnest money amount.
I obtain as much information about the buyer’s wants and needs in their new home and focus on those criteria in my search. There may be only a few homes that meet all the buyer’s criteria, and the buyer knows they need to choose one of those homes to buy what they want or to start removing criteria from the search. This way the buyer obtains what they are looking for and does not have to compromise their purchase criteria, even in a low inventory market.
Nancy McAdam, Jameson Sotheby’sInternational Realty
HOW DO YOU KEEP BUYERS MOTIVATED DURING THE HOME SEARCH PROCESS WHEN INVENTORY IS LOW?
You have to constantly remind them the benefits of owning vs. renting and always bring them back to their motivation for purchasing. It doesn’t matter if it’s about more space or for financial reasons. I find myself asking a lot of buyers, “What happens if you don’t purchase a home?” They usually self-discover [their motivation] and do what is necessary after that.
It is definitely challenging to keep your buyers active in this market. No one wants to be outbid or feel like they are overpaying. At the end of the day, the house must solve the buyer’s problem and provide space, function and privacy. I always remind my clients that the harder the process feels, the more rewarding it will be at the end.
The process can be frustrating but reassuring them we are proactively sourcing any and all options that could work is helpful. We leverage our past client and agent relationships to uncover new opportunities coming [to market].
Constant communication because clients get discouraged. As a broker, you can also get discouraged, so you must remember to also work on yourself. Make sure you’re internally pumped up so you can convey this energy to your clients. If you are motivated, it helps to motivate them. Also, every client is different and has a different situation, so you must fine-tune your model and customize it to fit each client’s needs and timelines.
HOW DO YOU APPROACH MULTIPLE OFFER SITUATIONS WITH EITHER A BUYER OR A SELLER?
I have the conversation with my clients long before ending up in a multiple offer situation. Very early on we discuss different scenarios and how to approach them. When my clients then find themselves in a multiple offer situation, they are able to remove the emotion and think about their options with a clear perspective.
I give my market analysis of what the home is worth and let my buyers decide if they want to go higher, but I also don’t want them to overbid. I educate them on the price and let them make the final decision. I make sure my sellers keep in mind that if the offer is over asking price, that doesn’t mean it will appraise for that amount, so I give some analysis so they understand what might happen.
When we are representing the seller, we always start by understanding their motivation to sell and what is most important for them. The saying “the highest offer isn’t always the best offer” is completely true, especially when taking into consideration the needs of your seller and the quality of the offer.
When representing the buyer in a multiple offer situation, we try to understand the needs of the seller, build a strong relationship with their listing agent and find ways to unlock value/equity so we have a safe path to increase the offer price when offering over ask.
WHEN INVENTORY IS LIMITED, WHAT DO YOU DO TO GENERATE MORE LISTINGS?
We continue to reach out to our past clients to see if they might be ready for their next chapter. In 2020, we worked with three repeat clients who had purchased between 15-25 years ago.
We’re honest with potential sellers about how red-hot the market is and whether we feel there is a likelihood of multiple offers. If there is, sellers are way more inclined to list!
I send out hundreds of mailers to areas that I farm. Perhaps it’s old-school, but it works! I also call my past clients who’ve been in their properties for a few years, explain the market and see if they’d like to test the waters and trade up.
HOW DO YOU TALK TO SELLERS WHO ARE TOYING WITH PUTTING THEIR HOMES ON THE MARKET?
I always turn to what’s next for them. If they are unsure of where to go, I get them set up with a lender and start a search for them. Then we start touring so they can get a feel for where to go next. If they are moving across country, then I hook them up with another broker in another state to get the conversation started. If you can get them excited and educated about next steps, that always seems to help.
I remind them interest rates will not stay low forever, and future reduction in buyer demand will likely result in a lower price. I am excited and energized about the opportunity to represent a client, always!
By putting a plan together of how we are going to sell their home for top dollar and how we are going to help them find their next home.