Mood of the Market
Mood of the Market
Recently, a journalist asked me about what dynamics in an individual buyer's situation can cause her to make an over-asking offer, even on today's quote-unquote "buyer's" market.
One I've seen at work time and time again is anecdotal evidence -- hearsay -- from friends and family reporting back that they are getting outbid on home after home. The only thing with more power to make a bargain-hunting buyer go in above the list price is, well, losing a home themselves!
The conversation brought to mind all the ways in which hearsay -- things buyers and sellers and even homeowners hear from other people -- influences their vital real estate decisions and actions:
1. Hearsay creates a sense of urgency.
When prices or rates are reportedly on the upswing, buyers get urgent. What's interesting about this is that so many buyers and consumers set the credibility bar very low for the reports upon which they base their decisions to buy or refi, fast.
Cousin Ray's hairdresser's nanny's report that rates rose an eighth of a point between the time she applied for a refinance and the time she locked interest rates can send a homeowner to the phone to call the mortgage broker faster than an rate increase report on Bankrate.com. Go figure.
2. Hearsay can make a home much more desirable -- or much less so.
When a buyer hears that there are other offers on a home, just the hearing can make the place seem much closer to perfect than it did when no one else wanted it.
I have personally witnessed the mere hearing of other buyer interest jack a home's value up by tens of thousands of dollars in the opinion of a buyer who could have taken or left it just minutes before.
The same can also go for homeowners with their current home. Recent increases in strategic defaults, homeowners walking away from their homes, can be traced to decreases in home equity, sure.
But my experience has been that people who swear they would never walk away from their home -- no matter how underwater it is -- start wondering if they aren't just throwing good money after bad once they hear that a respected friend, relative or colleague is walking away.
3. Hearsay can provoke panic- and fear-based real estate decisions.
I've spent the last three years coaxing homeowners back in off the ledge -- folks who love their homes, planned to live their until death do they part, and who have had no changes in income or mortgage payments, yet start thinking they should "give" their homes back to the bank because someone else they know did.
This is the worst-case scenario: hearsay meets herd mentality. A 12-stepper friend of mine always says not to compare the insides of your life to the outsides of others.
Many times the pal who is "choosing" default is actually struggling to keep up with loads of consumer debt, a rapidly increasing mortgage payment, and bad money habits they would not confess so readily as the story that they've decided to "stick it to the bank."
Panic can also be the ugly flip-side of urgency. It's fine -- even ideal -- to make bold, yet deliberate, real estate decisions.
But buying a home mostly out of a panic about rates and prices going up? Not ideal -- not at all. Real estate moves should be motivated primarily out of an effort to optimize your life, not out of fear.
4. Perhaps most beneficially of all, hearsay can empower buyers, sellers and even renters with information about new possibilities.
After the subprime era, the word on the street was that it would take a 20 percent downpayment to qualify for a mortgage.
Many a buyer had self-disqualified before media reports inspired some to go out and see for themselves; rumor soon corrected itself, and buyers everywhere began to learn about and take advantage of low-downpayment FHA loans.
Sellers who hear the house hunting anecdotes of today's aggressive, educated buyers -- including the ridicule aimed at unrealistic and overpriced sellers -- get a simultaneous reality check and insights about what buyers really do care about.
Mirrors don't have to be kitschy
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