Real estate licensees are resilient in any economic climate. Optimism is a strength. However, when it comes to describing conditions in a declining market, licensees need to be careful not to overemphasize the positives. If you over-sell the positives, prospective buyers could use that information in their decision-making. If they buy a property and it declines in value, you could find yourself facing a lawsuit. In this blog, we provide valuable tips for real estate licensees to avoid this.
Language to Avoid
Even when the real estate market is going well, it can be unpredictable. Declining markets are even more risky. Real estate licensees need to avoid the following:
- Statements that appear excessively confident about the state of the market.
- Phrases that suggest the market is going to improve. For example, “I’m sure the market will bounce back” or “I think the hard times will be over soon”. It is impossible to predict, so never state any thoughts or opinions not based on fact.
- Avoid speculations on how much a property is likely to increase in value.
When a licensee makes any of these kinds of statements, a buyer may rely on that as factual information. If they move in and then discover the value of their property has dropped and it’s worth less than they paid for it, they will be looking for someone to blame. Seeking reimbursement or damages from the real estate licensee is one of the pathways they may take. Claims on the basis of non-disclosure, misrepresentation, or negligence are common grounds for a lawsuit.
Stick to the Facts
Real estate licensees need to stick to the facts when communicating with clients in a declining market. Here are some suggestions for reframing conversations so they are not speculative, but instead based on facts:
| AVOID SAYING: | INSTEAD: |
| “Property values are likely to jump around X%, so it’s a good investment.”
|
“Property values in this area have shown an X% increase so far this year.” |
| “The market is likely to be strong for 3 bedroom condos in the next few years.” | Try to link to something more concrete. Are there new developments in the area that are confirmed? Are there published plans in place that demonstrate an increase in demand? |
| “Investing in this property is a safe bet.” | Provide specific information:
“Even with the current declining market, this property has a current rental return of X%, which is outperforming the local average for this year which is X%.” OR “Despite the slow market, we have had a strong interest in rental properties in this area over the past 12 months.” |
| “Developers will get their money back and more.” | Provide concrete details like:
“Because of the large yard, there is plenty of space for further development if that is of interest to you.” |
| “This property is in a prime location. So, the value isn’t likely to drop, even in a declining market,” | Refer to the latest comps and sales in the area so the buyer can make their own informed decision based on the facts. |
Honesty Builds Trust
Effective communication is important in all markets, but in a declining real estate market, licensees need to especially act with caution. It is a real estate licensee’s job to promote a property as best as possible and encourage a sale. However, the main thing to remember is not to create false hope. Buying a property is a big undertaking. For most of us, it’s the largest purchase we will ever make.
Licensees should keep all your property marketing based on a property’s features and the facts. Being honest and transparent is key to running a successful real estate business. It’s much better to play the long game than to try and over-sell a property, only to be facing a lawsuit and ruining your reputation and business.
Honesty when dealing with sellers in a declining market is equally important. Property owners often believe their homes are worth more than the market will pay. Real estate licensees need to manage expectations when dealing with sellers and ensure they have a realistic idea of the price they are likely to get in a declining market.
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