Are you noticing a slowdown in your market due to the higher interest rates? The increased cost of borrowing can deter potential homebuyers from entering the market,and higher mortgage rates also means reduced affordability. Realtor.com® Chief Economist, Danielle Hale, reported earlier this year that the median monthly mortgage payment for a house in May 2023 was almost double compared to two years ago — $2,216 versus $1,262. Such significant changes to mortgage affordability poses significant challenges for both sellers and real estate licensees trying to sell homes.
In a high interest rate climate, there are some things real estate licensees should watch out for when selling property. And we’ll also provide practical tips to help real estate licensees navigate these challenges.
What Real Estate Professionals Need to Watch Out For
Be Careful in Your Communications with Prospects
Any discussions with prospects about a property, the economy, or interest rates should be approached with caution. Don’t ever understate the rising interest rates or provide personal opinions about the likelihood of interest rates decreasing soon. Any unqualified predictions or personal opinions could see you facing serious legal repercussions. That means AVOIDING making any guarantees about future interest rate trends or giving financial advice beyond your expertise. Keep any discussions firmly based on the facts and within the scope of real estate.
Over-promising to clients is probably one of the worst things a real estate professional can do. If you overpromise and underdeliver, you will have a disappointed client on your hands. When expectations aren’t met, people aren’t happy, and they are often looking for someone to be held accountable. This is especially so if they have lost money or faced hardships because of your actions.
Aim to set realistic expectations which are likely to be met. It’s okay to be upfront about the challenges posed by high interest rates and their potential impact on the market. By managing client expectations and providing factual information, you can establish yourself as a trusted real estate professional and minimize the risk of legal disputes.
Tips for Real Estate Professionals to Navigate the Risks
As a real estate professional, it is essential that you stay informed about current interest rates. This proactive approach will help you to develop effective sales strategies and also plan for any potential impacts on the local housing market.
Help Your Seller’s to Set Realistic Expectations
Many sellers want to put a price on their homes that is greater than the market will bear. Sometimes real estate professionals need to educate sellers about the potential impact of high interest rates on the market. Work with them to set a realistic target and competitively price their property to reflect the current interest rate climate.
Tell Clients to Do Their Own Due Diligence
Real estate professionals should recommend to all clients and prospects that they do their own due diligence before making any decisions. If someone asks you about interest rates and finance, suggest they speak to an independent mortgage broker or finance professional. If a prospect asks about estimated remodeling costs for a home because they’re concerned about rising interest rates, tell them they should engage a construction professional to do a full inspection and estimate prior to deciding to buy.
Keep Updated About Assistance Programs
There’s no denying that buyers can be deterred from buying in a high interest rate climate. Real estate professionals can familiarize themselves with down-payment assistance and other government programs which are designed to both help homebuyers and stimulate the market. Be careful not to overpromise, but it’s perfectly fine to mention that the programs exist and refer the prospects to the relevant government websites to explore further information.
Adapt Your Strategies and Weather the High Interest Rate Storm
Remember that just because high interest rates have an impact on sales doesn’t mean that no one is buying. High interest rates create temporary challenges, but real estate is an investment, and there is still long-term value in owning a home.
Also, there are still many buyers who are unaffected by interest rates. Real estate professionals can continue to do well in challenging markets by adjusting marketing strategies and targeting those less sensitive to interest rate fluctuations. People with higher disposable incomes, people who own their homes outright and investors are all potential targets.
Often in a low-demand real estate buying market, rentals are strong. Real estate professionals can provide prospective buyers with the latest data on rental demands and estimates for rental returns, which can also help to generate some interest. (Be sure to cite the third-party source of the data and encourage buyers to do further research on the rental market on their own to confirm.)
Foreclosures can also increase in a high interest rate market. While this is an unfortunate position for a buyer to be in, foreclosures are another potential area of real estate that licensees can explore to keep their business moving in slow times.
Protect Your Real Estate Business
Having the right Real Estate Errors and Omissions insurance will give you peace of mind that your real estate business will be protected if you need to defend a lawsuit. CRES Insurance has specialized in insuring real estate professionals for more than 25 years.
As part of one of the largest insurance brokers in the world, CRES has access to more E&O options than just about anyone. We can find you the best protection at the best price. Contact the CRES team at 800-880-2747 to find out more today.