Dealing with Home Buyers’ New Psychology

It’s not really “new” … the Charlottesville area has been considered a buyers’ market for a couple years now. What may be new is the occasionally extreme nature of the buyers and that they are now accustomed to and comfortable with the “new” normal – they have choices and aren’t afraid to exercise their right to choose. The market is on their side.

I remember the clients, the houses, the neighborhood when I knew the market had changed … it was like a switch was flipped.

What was most profound is that I had been working with these particular buyers for about 18-24 months (as is often the case with my buyer clients). When we started, we were looking at new construction, and I had to tell them that whatever they wanted changed would have to be done by them, at their expense after closing, as the builders were not going to make any concessions or alterations.

Fast forward eighteen months and we were still looking at new construction in Albemarle. Now they were looking at houses completely differently. Now they expected builders to fix this, fix that, change this, change that. And they were right.

The thing is, there aren’t that many more homes on the market in the Charlottesville MSA now versus four years ago. (2523 -v- 2716) But nearly 14% of homes for sale in May 2006 sold versus 9% in May 2010. Looked at another way, 249 homes sold in May 2010 and 342 sold in May 2006. That’s a difference that matters – both to actual sales numbers and perceived sales numbers – to the market’s collective psyche, if you will. See for yourself (PDF).

Add to this the fact that the average Days on Market in May 2006 was 69 and the average Days on Market in May 2010 is 106 and the market rightfully feels slower.*

The New York Times wrote about this shift:

Before the recession, people simply looked for a house to buy. Later they got squeamish just thinking about buying. Now they are on a quest for perfection at the perfect price.

Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.

It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.

In the Charlottesville market, there is no way to determine how many contracts are canceled – on resale or new construction – other than through anecdotes from Charlottesville Realtors. I know this – the market is harder – for buyers and sellers (and Realtors) – but as one Realtor whom I trust and respect says, the market is the market. Good or bad, it is what it is; calling it one or the other matters little, but sometimes calling it “bad” is a briefly consoling.

Many Sellers don’t want to “give their homes away” (hint: price your home to sell from Day One) and many Buyers want to feel like they get a “deal” and many buyers have unreasonable expectations – resale homes are used homes; they are not new construction. Frankly, what sellers need or want to sell their homes for is irrelevant; too few sellers still recognize this. Buyers get this …

“We didn’t feel we were being that aggressive,” said Mr. Dunn. “We had the position, ‘If the seller is willing to come down enough, we will buy this home.’ If they weren’t willing, we would have just moved on. In this market, you have a lot of options.”

In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.

Contrary to the Time’s headline, Housing Market Slows as Buyers Get Picky, which probably would have been more appropriate four years ago, buyera aren’t slowing the market, the government’s constant interference and the market are slowing down the market.

That said, there are segments of the Charlottesville real estate market that aren’t flooded with quality choices, and my buyer clients tend to recognize the segments that are overloaded with inventory, which ones tend to have scarcity and which ones are more balanced.

They also are prepared to walk away if things don’t go their way – there will be another house that suits their needs and wants; five or six years ago, another house would come on the market, but it would probably have been more expensive.

* Much of the data in the Charlottesville MLS is crap, due to Realtors gaming the MLS and other reasons.

* I wrote in 2007 the shifting buyer psychology from a different angle.

* Huge thanks to my client for sending me the New York Times story.

Update 21 June … I’ve been thinking about this post since I wrote it early this morning, as I’m wont to do, and was curious – how long has Charlottesville been considered a “buyer’s market”? Looking back at my archives, I think we’ve been in a buyer’s market since at least mid-late 2006.

I was talking then about how to differentiate your home from the competition; in the early 2000’s differentiation didn’t matter so much. There were buyers everywhere.

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  1. Etta June 21, 2010 at 13:24

    Well said! Though I am a Cville resident now, I still have my real estate license in another state and can relate so much to your experiences from when I was a full time agent. I wish I had gotten a degree in Pyschology to help me with my clients.

  2. Drew Holzwarth June 21, 2010 at 16:04

    Jim, I love this post. It is scary that the new home market had gotten so hot that homebuilders were able to dictate what homebuyers would recieve (in terms of design and finishes) and the “fear of loss” allowed the industry to be cavalier during the sales process. If one purchaser would pause, another would be in their place to purchaser the home the way it was built. This market has brought some normalcy to the new home market and purchasers demand to receive the largest purchase in their lives exaclty the way they want it or they will not purchase. As a homebuilder, I have gotten tremendous pleasure out of saying “yes” to all of our clients needs while building their home, their way and it has brought fun back to the homebuilding process for my entire team and my peers in homebuilding that are doing well in this market. It is the largest purchase of your life and is where you spend the vast majority of time with the people you love, why would you not want your home exactly the way you want it? Buyers drive and dictate markets. Great post.

  3. Kate White June 21, 2010 at 19:13

    Yes Jim, I agree with Drew. Excellent post. I see it here in Belvedere. It is a Buyer’s Market here, hard on the home builders but good for the community. Buyer’s can get what they want for sure. I would love to see more articles on Buyer Psychology.

  4. Doug Francis June 24, 2010 at 14:47

    There aren’t a lot of quality choices out there for home buyers in Vienna,VA, and what is being offered still seems a tad high for many home buyers. So, they wait.

    With mortgage rates still at record lows (about two years now) there is “low-rate-fatigue”. Mentioning how low the rates are does not create a sense of urgency anymore, especially when you read rates are going to remain low for the foreseeable future. So, the home buyers wait.

    What does not help the immediate real estate market is the fact many transactions were moved up to April to beat the tax credit deadline. The wind was blowing hard then, now the market sits littered with the debris left by the storm.

  5. Jim June 24, 2010 at 19:10

    Etta –

    Thank you for the comment.

    Drew – I’m glad that time is behind us. What’s amazing is that there remains a seemingly insatiable demand for crappy products. It seems that if this recession isn’t sufficient to diminish that demand, nothing ever will.

    Kate – Thank you! I’m working on more …

    Doug – Brilliant analogy.

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