With mortgage rates near 7.5%, rent vs. buy comparisons are getting a lot of attention online. Meanwhile, sellers are holding firm on prices based on comps from before mortgage rates climbed.
That’s the Q4 challenge George Laughton discussed with Byron Lazine and Tom Toole on the Knowledge Brokers Podcast. Laughton is founder and team leader of EveryPlace Real Estate; his team ranks No. 7 in the country according to RealTrends and closes about $1 billion in annual volume.
Their conversation points to four moves agents can make to keep deals moving through Q4.
#1. Get Ready for a Wave of Rent vs. Buy Content in Q4
Right from the beginning, Tom Toole laid out the stats behind the recent slowdown in home sales:
“Rates hit their high for the year….and I’m already hearing people talking about this. They came in at 7.45% yesterday. The 10-year hit 5.202%, the highest level since 2007. And you know this is going to be something as we head into the winter… Obviously, there’s a couple things in play here, but really that conflict in the Middle East is number one. Oil prices are up. Inflation’s been coming in a little hot. The Fed just hiked rates… So, what’s the mindset with rates hitting their 52-week high right now?”
Byron mentioned a reel that showed the stats comparing the costs of renting to buying in today’s market. And as we’ve covered before (recently), renting currently costs less in most markets.
While that type of content is sure to get clicks, a single month of costs gives a limited view of a long-term purchase. The comparison doesn’t factor in the down payment a buyer chooses or the negotiating room buyers have when fewer people are shopping.
How long someone plans to stay is also something to factor in. Byron said renting can make sense for a short-term decision.
“If you’re making decisions on 30 days, on 12 months, on 24 months, on 36 months, then certainly renting versus buying is probably going to be the decision every single time. And all three of us would tell anyone, Hey, if you’re making a 24 a month decision to rent, especially today, you know, you can go out there and get a great deal.”
Over a longer stretch, homeowners and other asset holders are the ones building wealth in this market, assuming they don’t end up in foreclosure (which is something you can help with by ensuring your buyers understand the full picture of what they’re saying yes to).
Byron’s bigger concern is how pro-renting content could affect buyers.
“This type of content is worrisome, and you’re going to see more of it over quarter four. And what it’s going to do is it’s going to lock a lot of would be buyers into the side line as opposed to at least having consultations with agents, the right agent who said, ‘Hey, there’s just an opportunity to look at how we can position your offers to kind of make up for where the rates are because there’s less demand on these homes right now.’”
Agents who know their local numbers and study their market can walk buyers through their own situation.
#2. Use Reverse Offers to Start Negotiations
A reverse offer flips the usual order. The seller’s side writes up a signed offer and sends it to a buyer.
Putting it on paper brings the numbers into the open. A buyer’s agent may have mentioned them in general terms, and some buyers are seeing them for the first time.
Some agents skip this option because they assume offers have to come from buyers. Byron said he sees this with agents who join his team after a year or two at a traditional brokerage.
“Well, obviously, in any business, anybody can make an offer at any time. There’s not a law or a rule against how offers can be presented or when and who can present an offer.”
George’s team uses reverse offers to create activity on listings that aren’t moving. When a buyer’s agent shows one of his team’s listings, his agents follow up with a written offer.
“If we have listings that are sitting….These rates going up are not going to help, because a lot of agents aren’t going to be educated enough to have the right conversations with their buyers. And so you need to educate those buyers’ agents, too. And the best way that I found doing it is if they showed a house, write a reverse offer showing them what’s possible within the transaction.”
#3. Why Recent Comps and “Best Time to Buy” Pitches Miss Current Conditions
Comps reflect the market from a couple of months ago. Here’s what the hosts pointed to at the time of recording:
- A sale that closed two weeks ago reflects conditions from about 60 to 75 days earlier
- Daily mortgage rates were around 7.4% to 7.45%
- The weekly rate reading hit 7% for the first time in a long time
Pricing a listing off older sales can set a seller up to expect a number the current market won’t support. George’s team is preparing sellers to be flexible in other ways, and he wants buyers to know concessions can help offset higher rates.
“If I’m representing a buyer, I’m going to tell them, ‘Hey, we can try to make some of this up with rate buydowns and seller concessions,’ because one, we’re going to start having those conversations with our sellers, too, and saying, ‘Hey, we’re probably going to have to be more flexible on what we’re willing to do for a homebuyer right now. Instead of doing this price concession, let’s talk about applying something towards a rate buydown, applying it towards closing costs.'”
Buyers face their own version of this problem. Byron cautioned agents against telling buyers it’s the best time to buy simply because fewer people are shopping.
“That’s only a very small part of why somebody maybe should buy is a vacuum of demand… you have to be much more nuanced with your position on who should buy, when they should buy, how to sell.”
These conversations take longer with each client. Byron said they’re what help the people agents serve.
#4. Follow Affordability Across Price Points
The best opportunities move between price ranges in every market. George said finding affordability is one of the first things he talks through with his team.
“I think right now for us, what I’ll talk with the team about is where do you find affordability? Because affordability still exists, and you need to start educating your buyers.”
Byron said agents who move with those opportunities give themselves more room to grow.
“I want to move to where the affordability exists, where the opportunity is in a given market, as long as you’re willing to move in and out of that and you’re not getting stuck with ‘I only do 10 million and up sales forever and always.’ If you have the runway to say, that’s all I’m ever going to do, then go ahead. But if you want to have growth in your business quarter over quarter, year over year, then you got to be able to move into these different points of the market that George is talking about.”
Agents who track where buyers in their area can afford to move will have more deals to work with.
Why This Market Deserves More of Your Time With Clients
Each of these approaches means spending more time with every client. Agents who study their local market ahead of Q4 conversations will be ready to walk buyers and sellers through their own numbers.
Byron said the extra time with clients pays off.
“…because they do need more nuance and it’s going to take longer to work through it. You’re going to have to spend more time with clients right now, but it’s a moment that deserves your time.”
George keeps his team focused with a simple reminder.
“The real estate industry is always moving and changing, but you know what has never happened? There have never been zero transactions. So, go out there and get your transactions.”
