Real Estate Fundamentals - Your Key to Success

It’s easy to understand why new-home sales agents have lost their focus, with media coverage and conversation trumpeting sales slumps, the “need” for incentives and issues like sub-prime lending that don’t truly affect most buyers. While this coverage undoubtedly makes buyers nervous, the reality is that this is a good time to buy a new home in the Chicago area.

I am very optimistic about 2008 and beyond. The key is to turn away from gimmicks and back to the fundamentals of what sells a new home.

The Chicago housing market traditionally has avoided the super highs and super lows of other regions, giving us remarkable stability. As I write, statistics show all new construction condominium inventory delivered between 1997 and 2005 has been 100 percent sold, 2006 deliveries were 98 percent sold and even inventory scheduled for delivery in 2008 are at an impressive 80 percent sold to date. From 1998 through 2006, the total contracts/reservations for condominiums, townhouses, adaptive reuse and conversions averaged 4,386 total units per year, with a low of 3,258 in 1998 and a high of 8,162 in 2005, which was the peak of the investor-based sales influence. And 2007 sales are currently projected at over 4,000 units, based on the first six months of sales recorded.

Another factor in our favor is that, unlike other markets around the U.S., we don’t have an oversupply of new, unsold homes in the downtown market. About half of the available inventory of new homes in Chicago’s downtown market is under construction, and only an estimated 2 percent are actually built and ready to occupy. Additionally, home speculators have disappeared and lenders generally have gotten smarter about realistic pre-sales conditions and loan qualifications.

Despite these encouraging signs, we, as a profession, need to reevaluate methods being used to sell homes in Chicago. It seems to me that far too many sales agents rely on incentives to make deals, rather than performing the due diligence of convincing potential customers that the home offered has the value, reputation and quality desired. Roughly two-thirds of new-home agents here have experience only in a strong market in which even bad deals succeeded — this is no longer true. Good deals with good fundamentals still make good sense, but today’s sales agents must demonstrate those fundamentals to customers. For example, most customers we see today don’t have a clear understanding of current prices. While we at Garrison Partners don’t typically participate in auction sales, it’s easy to see why they are increasingly popular. Without taking any risk, consumers can watch the bidding and verify the market price for a given kind of home. Sales agents also need to remember that home purchases are emotional decisions. We see many buyers today filled with anxiety, rather than anticipation, because they don’t understand the home-buying process. Agents can turn these emotions around and make buyers confident and happy. Start with the obvious and ask buyers if quality of the construction, reputation of the developer and location are important factors. If they are, then focus first on finding homes that meet those criteria. After that point, discussions can turn to persuasion and, if necessary, making the purchase more affordable with incentives. Agents who never have worked in a tough market are uncertain how to shift focus. There are many excellent new-home training venues around the U.S., and I strongly encourage agents to take advantage of these opportunities.

Making a return to these fundamental values will be the your key to success.