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We’ve seen a lot of headlines recently about how millennials are now the largest single group of homebuyers, but that doesn’t tell the whole story. A recent report from the National Association of Realtors (NAR) shows baby boomers and the silent generation still makes up 33 percent of all homebuyers. That’s a massive chunk of the market, and as more baby boomers retire, it will only grow.
Today’s retired homebuyers are unique. They aren’t the least bit flustered at the thought of buying a house later in life.
Many of them:
- Do not want to downsize
- Anticipate living with their kids, or even their parents, in the near future
- Are comfortable with taking a long time to find a real estate agent, and even longer to find the right house
- May need to take a novel path toward financing
What else do real estate agents need to know about working with this growing segment of homebuyers? Retired homebuyers know what they want — and won’t settle for less.
A recent presentation at the annual National Association of Home Builders (NAHB) trade show revealed some valuable information about older buyers.
One of the most interesting tidbits for real estate agents is that older buyers take a lot longer than younger buyers to buy a home — up to two to four times as long.
For some, affordability is a hindrance, but many simply have a very precise idea of what they want and won’t settle for anything less. For agents, that means patience is an absolute necessity, along with the ability to listen to what your clients want since they’re not going to compromise on their expectations.
More retired homebuyers are open to owning 2 homes
Many of today’s retirees are looking to retain their current home (often with renovations) and purchase a second home in either a retirement or vacation community. The fact that many retiree purchases are for a second home may explain why these buyers can be so patient, searching for months or even years before finally buying.
Many of these retirees are looking to make “aging in place” renovations for their current home instead of packing up and moving to an assisted-living facility. These changes to the home allow easier accessibility as the occupants age.
Popular “aging in place” renovations include widening doorways, installing slip-free flooring, redoing bathrooms, lowering the heights of features like sinks, counters, cupboards, and toilets, and even installing home elevators.
They’ll also be looking for these features in their new home, so agents should understand exactly what they need so they can assist them in their search.
Many of today’s retirees are looking for multigenerational homes
A lot of retired baby boomers, especially those on the younger end of the spectrum, have elderly parents and adult children who might move in with them in the near future. As these retirees look for their next home, they’ll be looking for one that can accommodate multiple generations.
What does that mean, in practical terms? Features like multiple master bedroom suites, mother-in-law suites and separate entrances. An open floorplan is fine for common areas, but the rest of the home will need features that have plenty of privacy.
Not all retired homebuyers are looking to downsize
While the conventional wisdom is that retirees want to move into a smaller home, research from NAHB found that many baby boomers are actually moving to homes that are slightly larger than their previous home, while another survey by Merrill Lynch found that 30 percent of retirees moved to larger homes in their last move, and 49 percent didn’t downsize at all.
What’s behind this “upsizing” trend for retirees? Part of it is that the previous decade’s market run has enriched their retirement accounts, and part of it is that today’s retirees simply put a higher premium on quality of life considerations.
Prepare for complicated financing
Qualifying for a mortgage involves providing proof of income — but most retirees don’t technically have any income other than Social Security or other retirement payments. They can probably still qualify for financing, but the route could be a little circuitous. You’ll want to prepare them as much as possible, or at least help them get together a list of questions for their lender.
Distributions from retirement accounts like 401(k) plans, Keogh accounts, or IRAs don’t qualify as income because they represent the depletion of an asset and so have a defined expiration date. Buyers can still potentially use them to qualify for financing.
Still, they will have to prove that their distributions are expected to continue for at least three years from their mortgage application. However, regulations state that only 70 percent of the value of their accounts can be used to calculate how many potential distributions are left since the assets in the accounts can fluctuate wildly in value.
How often they do or don’t withdraw from their retirement accounts could also come into play. If they only take money out once in a while, it may not be steady enough to qualify as income.
A real estate agent experienced with seniors will advise clients to start taking regular withdrawals out for two or three months before applying for a mortgage, so they can meet the income requirement.
Social Security does qualify as income, since it doesn’t have a defined expiration date, though Social Security alone likely won’t be enough income to qualify for a mortgage. Pensions qualify as income, too.
It’s not as hard as it used to be for retirees to buy homes, though. Freddie Mac changed their guidelines in 2011 to make it easier for applicants to qualify for a mortgage when they had no income but substantial assets, a rule made with retirees in mind.
Know a good lender for retired homebuyers
A big part of a real estate agent’s job is networking and being able to connect clients to trustworthy service providers. As we’ve discussed, retiree financing can be complicated, so if you’re working with a lot of retired homebuyers, you’ll want to be able to recommend some specific lenders who know how to navigate the process.
Consider becoming a Senior Real Estate Specialist (SRES)
If you’re going to be regularly working with retired homebuyers, it could be worth your time to become a Senior Real Estate Specialist. To be certified as an SRES, you simply have to be a member of NAR and then complete the SRES course with at least an 80 percent average.
The SRES course teaches agents about the finer points of retiree financing, the needs of senior clients and residents, popular markets for seniors, and the basics of the Housing for Older Persons Act (HOPA), which sets out the rules for senior-specific developments and communities.
According to census data between now and 2030, 10,000 baby boomers a day will cross the threshold in a “gray tsunami” into retirement. Working with boomers might become more than a niche so stay on top of this trend as more consumers will be reaching out with these specific needs.