Fighting confusion in a cooling market

A cooling housing market is no longer a threat lingering somewhere in the future. It is here. Even national builders are starting to see the effects. The good news is that you can still succeed in a cooling market. But you must have a clear understanding of how the market works in times like these.

In a cooling market, buyers are confused. They suddenly see prices dropping or leveling when they are used to prices rising. They aren’t sure if they should take advantage now, or hold out for better deals later.

The marketplace itself is confused. Interest rates have risen, and continue to rise. Some builders are offering huge incentives to get prospects to buy. There are more resales. The market is over-saturated with properties that investors are trying to flip. These conditions have reduced potential buyers’ sense of urgency.

Builders are also confused. What was once a builder’s market, suddenly is not. Builders don’t know what sorts of measures they should take — should they discount their homes? Build fewer of them? They see a need to lower prices, and in many cases they can afford to do it, but they are also afraid that doing so will signal market weakness and discourage people from buying.

The salespeople who work for builders become confused. Their sales slow down. They don’t get them as quickly or easily as they are accustomed to. They think their builders should be lowering prices, offering incentives and spending more money on advertising so they can continue to make sales as easily as they did when the market was hot.

To thrive in a cooling market, you must not be confused.

The fact that the market is cooling doesn’t mean it is turning into a bad market. It is simply returning to normal. Imagine that the average yearly temperature over a period of centuries in a given area is 75 degrees. Suddenly, the average temperature in that area jumps to 115 degrees. It stays there for a few years, and then begins to fall. If the average temperature the next year is 95 degrees, are you going to say that it’s abnormally cold? Of course not. It has just been abnormally hot for a few years, and now it is returning to normal. The same thing is happening with the housing market.

Back to basics

What’s happening now is no different than what happened in 1974-75, when the Arab oil embargo triggered a market slowdown, or in 1981-82, when interest rates rose to 18 percent and caused a housing recession. We went from good markets to transitional markets.

In the past few years, many people have experimented with all kinds of “touchy-feely” relationship-selling techniques, and they appeared to be productive, even though they weren’t, because in markets as good as the one we’ve had, houses sell even when the sales techniques are bad.

There are many people in this business who have never been through difficult market times, and unless they are “coachable,” they will flounder as things get tough. Many people have only come into the new home sales profession in the past five or 10 years. All they have known are booming times. It will be difficult for them to make the mental shift necessary to thrive in changing conditions.

As the market changes, you must identify which things you can and can’t control, and then learn how to improve on the things that you can control.

You can’t control interest rates, but you can control people’s perception of interest rates. You can’t control what the competition does, but you can control what you do — presentation and sales skills, appointment-setting, how your models look, etc. You can’t control what the articles in the newspaper say, but you can control what you put in the newspaper. You can’t control the weather outside of your sales office, but you can control what kind of environment people experience when they come into contact with you.

As the market changes, there will be less traffic to convert, so you must work to increase conversion ratio. Make every prospect who walks through your door count.

Here are some other specific things you can do to succeed in the confused market:

• Maintain strong, thorough knowledge of your marketplace. Track resale information on a monthly basis, including how many listings go unsold, how many close, the average sales price, average sales price as a percent of listed price and average days on the market prior to selling.

• Look at trends. As the market cools, there will be more resales than before, and they will stay on the market longer. How many re-sales and investor sales are available? At what rate are they selling compared to normal market absorption (the average over the last 12 months)? You can use this information to estimate how long it will take to sell your inventory. Also note the names of the Realtors who are selling the resales. They can help you. If they sell something in your price range in your market, you can reach out to them and get to know them, and they may be able to sell some of your homes.

• Compare your prices with other selling prices in your marketplace. You may need to rework your product. You might need to downgrade the specs of some of your models. As interest rates increase, even gradually or marginally, people’s buying power decreases. They can no longer afford to pay the same prices that they could afford when rates were even slightly lower, because monthly payments are higher. You may need to reposition your product to be more in line with current sales prices.

• Assure prospective buyers that your market is a strong market. Never let them think that it is weak. Always tell them that business is incredible. Don’t ever let them suspect that you may be struggling. Be a beacon of clarity and reassurance when everything else is confusing to them.

• In an extraordinary market, it is easy for ordinary salespeople to look like very good salespeople. But in an ordinary market, it takes hard work to be an extraordinary salesperson. As the market becomes more ordinary, many salespeople will get out of the business and go back to doing what they did before the housing boom. But those who keep a clear focus stay informed about their marketplace, perfect their presentation and practice diligent follow-through will continue to succeed even in tough times.

Bob Schultz, a new home sales and management expert, heads New Home Specialist Inc., a full-service management consulting and sales company, producing books, manuals and systems for home builders, developers and Realtors. He is the author of two best-selling books, “The Official Handbook for New Home Salespeople” and “Smart Selling Techniques.” For more information, newhomespecialist.com or call 561-368-1151.