By Robert Williamson
In this article, Bob debunks the idea that there is a “magic marketing pill” that will automatically make you successful. He explains why fundamental marketing principles call for a deeper understanding of what your clients really want, and shows you how to prepare yourself to offer them something your competitors are not offering – something your clients really want – and how to actually deliver on the promises you make.
“If [you] can … make a better mousetrap than your neighbor, … the world will make a beaten path to your door.”
Ralph Waldo Emerson
Most originators understand (conceptually at least) that in order to increase market share in a competitive marketplace, you must offer something of relatively high-perceived value to the consumer, something the consumer would not expect to get from your competitors.
But most originators don’t act on that understanding. And many of those who do act on it get hung up trying to appeal to the consumer’s perception of value, while completely ignoring the actual value of the service they provide.
In other words, they’re concentrating on the hype, rather than on their performance.
Which is a shame, because with some creative-out of the box thinking and a little focused effort, you could actually deliver on a promise big enough to convince most serious prospects that you are unquestionably the best lender for them!
The Prospective Homebuyer is undoubtedly one of the most crucial market segments for a mortgage lender. These are the people who, by definition, have not yet signed a purchase agreement but who will be buying a home (new or resale) some time in the next 12 months.
When I first started coaching loan originators, the “Prequal” (using only borrower-supplied information to determine what a buyer could borrow) was the hot marketing concept of the day. Today everyone is offering a “PreApproval”, where the customer’s credit is actually underwritten and approved subject to a property. Most lenders are now able, thanks to automated underwriting, to offer the possibility of virtually instant loan approval.
These innovations are all inside-the-box improvements on the initial Prequal idea, which was a response to consumer demand for reliable information about what they could afford before they went out and made an offer on that dream home.
There is nothing wrong with inside-the-box improvements. But have you noticed how many of your competitors were able to provide those improvements around the same time you were? See, they are all thinking inside the box too!
If we wanted to think outside of the box, we might begin by asking ourselves this key question:
What do prospective homebuyers really want, that they’re not getting now, that we might find a way to provide? What could we offer them that would be so valuable it would permanently tip the scales toward us and make them customers for life?
Okay, that was more than one question. But the point is, if the only question on your mind as an LO is how to get more business for yourself, it might never occur to you to ask what unmet need you might be able to resolve for your customer. What’s your priority? If your priority is getting more business, your energy will be focused on “what to say to get ‘em in” and your sales & marketing approach will be characterized by gimmicks and flowery but vague promises about your service. On the other hand, if your priority were to find breakthrough ways of serving your clients, a natural result of accomplishing that is you’d have all the business you could handle! This is the difference between hype and performance.
Recently the NAR commissioned a nationwide survey of homebuyers to measure their level of satisfaction with the service provided by Realtors. Here is the finding that should get your attention:
“Of greater concern to the homebuyers surveyed was the lack of incentive for a [Realtor] to negotiate the best possible sales price. The buyer cares most about getting the lowest price, while the perception is that the salesperson is motivated to complete the transaction and be paid a commission based on the final price.” (Emphasis added)
The Buyer cares most about getting the lowest price, but Realtors on both sides of the transaction are almost universally working for a commission – based on the final sales price and paid by the Seller. It doesn’t take a genius to figure out that the higher the sale price, the higher the commission – so where’s the incentive to negotiate the lowest possible price for the Buyer?
The Buyer is, without question, the most under-represented party in a residential real estate transaction. Most buyers are actually in a much better negotiating position than they realize, but they don’t have the information that would allow them to capitalize on that strength.
The Buyers are going to have X number of dollars for down payment and closing costs. They’re going to finance the rest. So any difference between the lowest price the Seller would have accepted and the listing price is going to be rolled into a loan amount and amortized over the term of the loan. If you can provide them with information that helps them buy a home listed at $200,000 for, say $190,000, you have helped them save the $10,000 difference plus the interest they would have paid on that difference. If they stay in the home for 10 years, they will have spent more than $6,000 in interest for that $10,000 (at 7%, 30-yr. amortization). In this rather modest example, you would have helped the Buyers save over $16,000, not even counting their savings on discount points, title fees, and other closing costs.
Meanwhile, back in your market, Realtors are probably telling Buyers they should shop the mortgage companies to get the best deal. And you LOs are out there scrapping and clawing and killing each other over a few hundred dollars difference in closing costs! (If the glaringly obvious opportunity presented by this situation isn’t smacking you between the eyes, please review the numbers in the previous paragraph.)
What you really want to do is help your Prospective Buyer clients do a better job of negotiating the purchase price of their home. That’s where the real money gets saved. If you can do that, you will earn loyalty that will not only transcend competitive differences in loan pricing, but will also position you as a trusted financial advisor. If you stay in touch, they will never go anywhere else for a mortgage loan, and they will recommend you to their friends.
.
How to Help Your Clients Negotiate the Lowest Possible Price for the Home They Buy
We have seen that most lenders realize they must offer the consumer some kind of Unique Selling Proposition [USP] in order to distinguish themselves from the competition. Unfortunately, too many of us get hung up on the hype (how we market ourselves; the message) and pay little attention to our actual performance (the actual value of the service we offer our clients).
We also know that the homebuyer cares most about getting the lowest price, but that Realtors on both sides of the transaction are almost universally working for a commission – based on the final sales price and paid by the Seller. The higher the sale price, the higher the commission – which creates an environment in which the real estate agent has no incentive to negotiate the lowest possible price for the Buyer.
I might add that there is nothing wrong with that – in a free market economy, you “dance with the one what brung you,” and for the Realtors involved in the transaction, that’s the Seller. This is simply the way the system works; it works quite well for Sellers, and to complain about it is pointless.
Instead, I’d like to draw your attention to the opportunity for the enterprising mortgage lender to fill the void left by the fact that no one is truly representing the Buyer’s interests in the price-negotiating aspect of the home purchase process.
If you can fill that void, you will be giving your homebuyer prospects an absolutely compelling reason to do business with you – and even if your competitors down the street have better loan pricing, they’re still not going to be able to match the bottom-line savings you help your clients obtain!
I’m not suggesting that you get personally involved in negotiating real estate contracts for your clients. I am suggesting that, as part of your initial consultation with the client, instead of focusing exclusively on the loan, you help your clients understand some of the practical things they can do to protect themselves and improve the strength of their position when it comes time to negotiate the price of a home.
Here are some of the recommendations you could make:
1. Know the neighborhood; Know the market.
Narrow your search to no more than three neighborhoods that meet your criteria for:
Type and size of home
School systems
Travel time to work
Neighborhood safety
Churches
Shopping and community services.
Once you’ve selected a neighborhood, research the market – especially the current ratio between the total number of homes on the market and the average number of homes sold in a month. The higher the ratio, the stronger the buyer’s negotiating position. If there are 50 listings in an area, and there have been an average of 5 homes sold each month in that area over the last 6-12 months, the ratio of listings to sales is 5 to1 – conditions which strongly favor the buyers – but only if they know it!
Buyers should also have a record of all homes sold in their targeted neighborhood over the past 6-12 months –the address, square footage, number of bedrooms & baths, the original listing price, and the final sales price, so they are aware of the difference between current listing prices and actual sold prices for similar properties.
You can help your buyer clients obtain this information from a good Realtor (the information is usually available, but the buyer has to know to ask for it). You may want to join your local Board of Realtors and access the information yourself, or you may be able to get it from your appraiser. Or, you can get it from a database service that uses public record and/or title plant information, such as NiteOwl Plus (http://www.niteowl.net/).
2. Know your buying power; Take appropriate steps to improve your negotiating position.
Lenders tend to focus on determining the maximum loan amount for which a buyer can qualify. While this information is useful, smart buyers should also know the minimum amount they can realistically expect to spend and still get the kind of home that meets their needs. And in the negotiating process, the goal is to spend as close as possible to the minimum, not the maximum.
Explain why it’s to your client’s advantage to get preapproved for their mortgage financing. Among other things, if your clients can furnish a lender’s commitment letter with their purchase offer, the seller is assured that the buyers have the financing to consummate a quick closing, and will take the offer more seriously even if it is below the asking price.
Most lenders issue a standard commitment letter showing the maximum purchase price (or loan amount) for which the buyer can qualify. If your client is trying to buy a home listed at $190,000 for $175,000 and your commitment letter says they can spend $200,000, you’re undercutting your client’s negotiating position by divulging that information! Instead, if you want to represent your client’s best interest, issue a commitment letter based on the price your client is offering – even if that means generating multiple commitment letters for the client.
3. Understand how to negotiate with the Realtor/Seller in the transaction.
This is where you can make the greatest contribution to your clients’ bottom line. Good Realtors are well-trained, highly skilled sales professionals. Unless it’s a very hot seller’s market, the Buyer is usually in a stronger negotiating position than the Seller – but few buyers know it, so they’re not prepared to press their advantage.
Counsel your homebuyer clients to walk the fine line, in their dealings with Realtors, between giving away too much information (thus jeopardizing their negotiating position) – and appearing to be obnoxious, rude, or uncooperative (thus removing the Realtors’ desire to work with them). Your clients should always be friendly, polite, and respectful – but firm in their insistence on keeping their finances private and on paying no more than necessary for a home that meets their needs.
Realtors will always ask your clients how much they have to spend. But it’s not in your clients’ best interest to reveal that information to a Realtor. Instead, you should teach them to politely explain that they have already been preapproved with you and that when the time comes to make an offer on a home, they will supply a lender’s commitment letter. In the meantime, questions about price range should be answered with a description of the neighborhood(s), size of home, and other criteria, regardless of the asking (listing) price.
Coach your clients to avoid “falling in love” with a home, because that invariably interferes with their best financial judgment. And you should stress that even if they do fall in love with a house, they should never reveal that emotional reaction to the real estate agent. The Realtor should always be given the impression that your buyer clients stand ready today to buy the right home -- for the right price – but no more. If a particular home can’t be bought for a price they’re willing to pay, they will simply keep looking until they find a home that can be bought for the right price. There are always other options. In a normal market, for every home sold in a month there are 3 homes that don’t sell. Consequently, Sellers are almost always under much more pressure to sell their home than your Buyers are to buy that home. This is your client’s negotiating advantage, and it is one of the best-kept secrets in real estate.
Advise your clients to present themselves as being fully prepared to consummate the right transaction very quickly, while at the same time being fully prepared to take whatever time is needed to find that right transaction. In other words, even if your clients are in a hurry to find a home, they should not reveal that to a Realtor, because it reduces the strength of their negotiating position.
If you’re not an expert on your local real estate market, and on the finer points of negotiating the price of a home, you can educate yourself. One of the best books I’ve seen on the subject is Not One Dollar More: How to Save $3,000 to $30,000 Buying Your Next Home, by Joseph Eamon Cummins. (If you don’t find it in your local bookstore, you can get it from amazon.com: http://www.amazon.com/gp/product/047135726X/qid=1139964104/sr=2-1/ref=pd_bbs_b_2_1/102-2359722-9183339?s=books&v=glance&n=283155.)
One of my clients, who has been using this approach for the last three years to attract and keep purchase clients, has actually gone to the trouble of maintaining a database of every purchase client -- where he has tracked the original listing price of the home and the actual price they paid for the home. In a market where the average sale price is about $125,000, his clients have saved an average of $14,000, which means his clients borrowed $14,000 less than they would have if they’d paid full listing price. Now, you do the math: how much lower would my client’s competitors’ pricing have to be in order to equal that $14,000 saving plus the interest his customers will save by virtue of having borrowed $14,000 less? And can you imagine the impact it has on his prospects when he shows them the spreadsheet detailing the money his clients have saved with his help?
How to Use This Approach to Market Yourself to Homebuyers
To generate homebuyer leads, run a small ad in the real estate classified section (or in real estate magazines) offering a Free Report showing people how to save money on the price they pay for the home they buy. The report should give them a taste of what they can learn about negotiating for a home if they meet with you. I have written a 12-page report for this purpose. To obtain a copy, along with a sample ad you can run, click here: http://www.loanofficermagazine.com/store/store1.php?item_no=lom1
Unquestionably it will take some effort, some time and some research in order to be able to competently advise homebuyer clients on the ways in which they can help themselves negotiate a lower price for the home they buy. Some loan originators would rather look for the magic marketing techniques and the quick fixes.
But if you think about it, that is the difference between hype and performance.
.........................................................................................................
Bob Williamson is a trainer and personal coach whose clients include some of the mortgage industry’s top producers.
He can be reached at 505-292-4318
ã 2002, Robert Williamson. All rights reserved.