One of the toughest objections to handle is buyer’s remorse — when your buyer gets cold feet and wants to back out of the deal. What steps can you take to avoid buyer’s remorse in the first place and, when it does occur, still keep your deal together?
In a recent Inman column, Carl Medford outlined 15 reasons that buyers back out of deals (i.e., get buyer’s remorse) and preemptive steps sellers can take to avoid these issues. Most buyer’s remorse falls into two primary categories: financing issues (appraisals and interest rate changes) and property-related issues (physical and environmental conditions, title, and permits.)
Medford recommends that before the sellers list their property, they take preemptive action to address these issues including obtaining a preliminary title report plus doing a preemptive physical inspection (and preferably the repairs).
However, what steps can a buyer’s agent take to prevent buyer’s remorse, and even more importantly, handle it when it does occur? Here are 10 recommendations:
Prevent buyer’s remorse when you begin working with buyers
1. Conduct an in-depth buyer interview
Interview your buyers to determine if they are pre-approved (and recommend they get pre-approved now if they are not) and to identify their primary motivation for purchasing.
You must also determine their “must-have” features, (i.e., their five most important needs) vs. their wants, which are what they would like to have when they purchase.
2. Give them copies of all the relevant contracts when you begin working with them
Create a buyer’s package with all the required documents filled out and the word “SAMPLE” written across the documents. This includes the Agency Disclosures, Purchase Contract, Property Disclosure form, sample escrow instructions, and other documents required in your area. This way the buyers can ask questions at the beginning of the process rather than when they’re ready to write an offer.
3. Explain that closing costs are in addition to the down payment
Buyer closing costs usually run about 2 percent to 3 percent of the purchase price. On a $400,000 loan, this would be $8,000 to $12,000 in addition to the 20 percent down payment of $80,000. Buyers need to know that closing costs are on top of the amount required for their down payment.
By the way, never give your buyers exact closing costs, even though under RESPA/TRID, the lender is required to do so. Instead, advise your buyers these estimates vary depending upon the closing date and other factors.
4. Provide them with a step-by-step outline of the closing process
Show the buyers a sample timeline of what takes place in the transaction. This includes explaining how their earnest money deposit will be handled, the date it must be placed into escrow/title company, typical timelines for physical inspections and approvals, other recommended inspections (geological, mold, pest, radon, etc.), loan contingency requirements, etc.
This is especially important for out-of-state buyers where the closing process may be very different from what they experienced on their last purchase.
5. There’s no such thing as a 100 percent house
Before you take your clients out to look at property, explain that even if they were to custom build, “There’s no such thing as a 100 percent house.” If they’re married you can add, “There’s also no such thing as a 100 percent spouse — you have to decide which set of warts you’re willing to live with.”
Therefore, it’s critical that you ask your buyers to identify the top five factors a property must have if they are to purchase it. If they find a property that has their top five features, they should write an offer on it.
If the buyer decides they want to add a sixth factor to their list, ask which of their top five features they will be deleting from their list. If they tell you they want all six features and there is nothing available that meets their criteria in terms of the area and the features, follow up by asking,
Would you like me to look in a less expensive area to get the features you want, or can you qualify for a home in a higher price range?
This question helps them to confront the reality that they may have to compromise on what they want. The secret is to make sure they get what they need.
Before you write the offer
6. Do an Automated Valuation Model (AVM) pricing CMA
Since appraisals are a primary source of buyer’s remorse, before you write the offer, create a CMA based your MLS comparable sales. Also review the AVM evaluations from Realtor.com, Redfin, and Zillow.
Please note that Realtor.com displays their own valuation of the property (search “home value”) as well as the estimates from CoreLogic, Collateral Analytics, and Quantarium. Currently, Quantarium is the most sophisticated (and probably the most accurate predictor) since it is the only AVM that includes an evaluation of over 900 interior factors (i.e., type of appliances, cabinets, counters, flooring, fixtures, finishes, etc.).
In terms of the price, if two or more of these independent AVMs are close in their estimate, that number is probably the most accurate assessment of the property’s current value. Make sure your buyer sees these valuations prior to writing an offer.
Do an updated analysis for the appraiser. Whenever possible, meet the appraiser at the property and provide the appraiser with as much detailed pricing data as possible, including interior shots if available. This is the best way to avoid buyer’s remorse resulting from a low appraisal.
7. Pull the property reports from NARRPR.com, HomeDisclosure.com, and the C.L.U.E databases
Realtors Property Resource (RPR) is the nation’s largest property database exclusively for NAR members. RPR provides you with extensive data about the property that your buyer will want to see.
Moreover, RPR just launched a new pricing tool that provides you with 32 charts that let you do a deep dive into the exact trends happening in your local market. (You need a minimum of five sales in the area for this tool to work.)
You can also add or delete comparable sales plus make adjustments for repairs or upgrades the owners have made to the property.
HomeDisclosure.com provides data about environmental hazards, school ratings, and a host of other useful information.
C.L.U.E. (Comprehensive Loss Underwriting Exchange) provides insurance claims information for individuals, vehicles, and properties. Check this report to determine if there have been any insurance claims against the property for fire, flood, hail, lightning, slip/fall, smoke, theft-burglary, vandalism, etc.
To access the report, contact the listing agent or the sellers to see if they will obtain the report for your buyers. LexisNexis C.L.U.E provides consumers with one free report annually. Alternatively, the buyer can ask the insurance agency that will be issuing their homeowner’s policy to check this information for them.
Once the offer is accepted
8. Provide your buyers a calendar with important transaction dates
Rather than listing the dates, most people fare better when they have a calendar with the dates and times the various transaction events take place.
Be sure to include all contingency dates including the time of day they expire, the dates you plan on contacting your buyers about the progress of their transaction (at least three times weekly), when the appraisal is due, the date their earnest money must be deposited into the escrow/title company, physical and other inspection dates, the appraisal date when you receive it, plus when and where they will sign the loan documents, and/or meet for the final closing.
9. When the interest rates jump up half a point
When you have an interest rate increase, the best way to tackle the problem is to take the increased cost down to a daily amount.
For example, for a $400,000 30-year fixed rate loan at 5.48 percent, the principal and interest payment are $2,266 per month.
If the rates increase to 5.75 percent, principal and interest will be $2,334 per month, a difference of about $68 or just a little over $2.00 per day.
If the rates jump to 6 percent, the payment will increase to $2,398 or an additional $132 per month. That’s a bit over $4.00 per day, about the price of a cup of Starbucks coffee per day.
Once you have shared this data with your buyers, close by asking, “Are you willing to let this house go for $4.00 per day?”
Also, if the buyers are renting, rents have been continuing to climb as much as 10 percent or more per month. At $1,500 per month, that’s an additional $150 per month, which is still less than the interest rate increases of $132 per month ($4 per day.)
10. Remind them that there’s always something
Once the offer is accepted, tell your buyers that 95 percent of all transactions have problems severe enough that the principals believe the transaction will not close. Nevertheless, over 90 percent ultimately do close.
I remember one of my trainers who liked to give each of her buyers a box of four Godiva truffles once their offer was accepted. She then asked them to open the box and enjoy one of the truffles to celebrate how sweet it will be when they move into their new home. They were to save the other three truffles for closing.
When something did go wrong in the transaction, she would call them and say:
Get the truffles out and eat one right now. This is to remind you of the sweetness you’ll experience when your transaction closes.
Once they had finished she would say:
We have a challenge in our transaction, but do you remember when I told you 90 percent of the time, we will get these issues solved, and your transaction will close.
The bottom line is that most buyer remorse is simply fear. You can minimize their fear and buyer remorse by having sellers provide preemptive inspections, a preliminary title report, property reports from RPR, HomeDisclosure.com and C.L.U.E. plus the other nine buyer suggestions above. The more information you provide for your buyers, the less fear and buyer remorse your buyers will experience.