How to prepare your luxury real estate clients for a market correction

The market has reached unprecedented highs over the past couple of years, but as history has shown, what goes up must eventually come down. So with home values experiencing a recent drop, it’s time for agents to make a plan to prepare luxury clients for a market correction.

In my opinion, a market correction occurs when values fall 10% to 15% below the market average. Typically, the luxury housing market is the first sector to feel softening and is the one that feels it most. It’s a headwind that foreshadows what’s to come for homes at lower price points in the following months.

Here’s how we, as agents, can get ready for a market correction in order to help prepare our clients.

Have data on hand to provide context

Joseph Sabeh – Venture Sotheby’s International Realty

Anyone following the news should have an indication that prices are dropping, but clients may be hesitant to face facts when it comes to selling their home. We can help by making sure they have an understanding of what’s happening in the market so they can make informed decisions. This also helps establish trust in the agent-client relationship.

For example, I might share data for the indicators I use to assess whether the market is entering a correction period: an increase in the number of days a property is on the market, decreased calls on listings from buyers and agents, and price adjustments appearing. Having relevant data to back up these insights can help paint a more realistic picture for clients.

Understand the factors buyers are most concerned about

Getting a sense of the challenges clients currently face is the obvious first step to addressing them.

• Interest rates are a concern, as even luxury home buyers still have mortgages in order to maximize leverage. Savvy buyers use this as a negotiation tactic when discussing an offer price — even though they have the means to pay cash.
• The stock market has seen sharp declines as the cost of borrowing has gone up. Luxury home buyers often rely on their portfolios to show strength in their offers, their liquidity, and their ability to purchase. In combination with higher rates, this is impacting purchasing power and causing the potential-buyer pool to shrink.

Look to the past for insight and reassurance

Joseph Sabeh – Venture Sotheby’s International Realty

It’s important to see how history can help us prepare in the present. During the Great Recession in 2008, poor lending standards were a major factor in the financial crisis. Those days are behind us now. Purchases since then have been made by well-qualified buyers who go through much more stringent applications and loan approval processes.

It also helps to do some comparisons to get a sense of the severity of the correction. I primarily sell homes in Fremont, near San Francisco, and during the Great Recession, there were around 800 active units on the market. As of now, we are at approximately one-quarter of that number, inclusive of luxury homes, which is still relatively healthy as far as inventory is concerned. In 2008, the homes located near the best schools, featuring the most desirable floor plans, locations, and amenities still moved — albeit with longer days on market, price improvements, and aggressive marketing campaigns. Moving forward, these data points can be used as benchmarks.

Offer creative solutions

Joseph Sabeh – Venture Sotheby’s International Realty

To keep luxury buyers motivated, I try to offer other solutions to them. We need to cater to their discerning needs in any way possible. For example, a seller-financing option for a large property could offset larger rates — should it be an option and if the clients are motivated — with the tradeoff being a better purchase price.

Other creative solutions could include asking clients if they would consider increasing property value through renovations or asking them to set timelines to see if there’s any flexibility to avoid selling during a market correction.

Keep an open mind and have patience

Joseph Sabeh – Venture Sotheby’s International Realty

I ask my clients to keep an open mind with the market and exercise patience during these periods, as well as remain open to creativity. That advice goes for agents, too. I emphasize that we’re a team, and we need to collaborate on our common goal in order to succeed. Rather than speedy transactions with little negotiating, quick terms, and emotional decisions, buyers and sellers can consider all aspects of a contract and take the time to work out mutually beneficial arrangements.

This article was written by Joseph Sabeh, Jr. from Inman News and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].