Real Estate Marketing Ch. 4

Demographics

- Basic descriptors of human populations - Area Population - Age of population - Family composition - The future of a real estate market is impacted by both current demographics and how those demographics are changing - Changes have an impact on home price appreciation/depreciation

Race of Homebuyers

- Many hispanics are recent immigrants and are younger than the general population. Most people don't buy their first home until they are past their mid-twenties. - Married couples are far more likely to buy homes than singles or unmarried couples. Blacks have lower marriage rates than whites which influences home purchase rates.

Selling the Area

- Real estate agents should question buyers about their travel patterns to sell the convenience of a location. Agents can't sell convenience unless they understand what is convenient for each individual buyer. - Currently employed people tend to have somewhat limited choices in the areas they consider when purchasing a primary residence. A short distance to work is important to most purchasers. Commute times limit the geographic areas acceptable to home buyers. - Retirees often desire to be close to children and grandchildren, but tend to be more open to location options. - Buyers are far more flexible with vacation homes. Agent must ask buyers where they live and how often they plan to use the property.

Specific property development costs are often imposed by local and state governments...

- Restrictive zoning - High impact fees

How much does it cost me today? How much will it cost me each month?

- Some buyers are concerned about the sales price. Some are only concerned with closing costs and monthly payments. A real estate agent must be prepared to discuss home prices in the manner most useful to the buyer. - A real estate agent should keep up with both closing costs and interest rates to be able to provide the buyer with an accurate estimate of closing costs and monthly payments. - THE AGENT MUST KNOW property tax rates, home insurance costs, current interest rates, down payment amount and the expected terms of the loan to use internet software. - Monthly payments are sharply impacted by the total loan amount, interest rate, the length of the loan, and other loan terms.

Emotion and Status

- Understanding how buyers intend to use the property is often key information used by agents to understand buyers probable emotional response toward a property. - The agent should be able to convert the features of a property into the emotional benefits a buyer is seeking.

Age of Population

- Younger households often seek larger homes to accommodate growing families. - Parents will consider school districts, while older groups may not - Older groups may be selling their primary home to move into a retirement community - Some agents might choose to segment their market by age. Ex, some might focus on young, first-time home buyers.

MUST HAVES to purchase real property

- down payment - closing costs - disposable income to make mortgage payments

When interest rates increase, two things happen in real estate...

1.) Fewer people can afford to buy a home 2.) There are more mortgage defaults and foreclosures when interest rates increase - especially for those with variable mortgage rates This tends to increase the supply of available properties for sale. This supply increase tends to lower home prices are cause property values to increase at much slower rates.

Table 1 & 2 Trends

Age of population trends. Read table 1, table 2, and the top of page 3 of notes.

Buying Center

All of the people making a decision or influencing a purchase. When there are multiple deciders and influencers the sales process is far more difficult.

Quality of Life

An individuals perception of the enjoyment gained from living in a specific community. Some factors such as public safety, ease of transportation, availability of quality healthcare, and the availability of high paying jobs are common among everyone.

Public Safety and Healthcare

Areas with high crime rates have lower housing prices than areas perceived to have low crime rates. Public safety also includes fire departments and other governmental services. The availability of healthcare can differ significantly between communities and can influence housing prices.

Household Disposable Income and Household Wealth

Both directly influence the ability to purchase a home. Also determine the maximum price a person can pay for housing. Disposable income is necessary for making mortgage payments. Must have enough money to make a down payment.

Stress

Buying a home is stressful. Read pages 14 and 15.

Population Size in Washington DC

DC's population declined, therefore the housing market was depreciated.

Impact Fees

Fees on new homes charged by a local government. Reasons given for impact fees include paying for municipal service costs increased by new population or because of supposed environmental harm caused by new home construction. Impact fees are often quite popular because they impose a tax on people who are frequently unable to vote within the district because they do not live there yet.

Family Composition

Four family composition factors can cause a person to buy or sell a home: marriage or forming a household, having children, divorce, and the death of a spouse or housemate.

Unmarried couples purchasing homes pose additional complexities.

Given the increasing rates of people living together, it is important for a real estate professional to be familiar with the laws of their state regarding real property purchase by people who are not married.

Transit

Having a short work comment can have a large influence on housing prices. Transit includes traffic density at different times of day. Easy access to mass transit is important to many.

Trees, Water, and Open Space

Home buyers will often pay a significant premium to be beside water (lakes, rivers, oceans). Having trees on the land or having trees in parks/public areas can increase housing prices.

Economic Fundamentals of a Real Estate Market

Housing expenses are such a large part of most family budgets, economic fundamentals are critical to understanding the housing market. Employment patterns, household income, household wealth, interest rates, tax and restrictions on development are all important criteria in determining who can afford to buy a home in a specific market.

Taxes

Impact the ability to buy property in two ways: 1.) General taxes such as income, sales, social security, etc. lower the amount of cash available to purchase real estate of cover mortgage payments. 2.) Property taxes are direct taxes paid annually on the value of land and buildings by property owners. When property tax increases, fewer people can afford to buy homes.

Conservation Subdivisions

Land developers are building cluster subdivisions that clusters houses tightly together while providing private parks and green space to property owners of the subdivision.

Multiple Decision Makers

Many people may influence a home buyers purchase decision. The real estate agent must identify both the deciders and the influencers on the property purchase decision.

Population Size in Nevada

Nevada's population grew exponentially, therefore property appreciated much more rapidly than the national average.

Restrictions on Development

One new housing cost differing immensely between states and local areas is the availability and cost of property needed for new housing. In some areas, there is a shortage of land to build new housing. - Manhattan Island: has little undeveloped, raw land. - Las Vegas is surrounded by desert, a large lake, and massive parcels of undeveloped land owned by the US gov. New housing supply is limited when little land is available to build new homes. This in turn causes prices of existing homes to rise.

Community A: Population of 250,000 in 2017. In 2018, the population increased by 10,000. 7,500 homes were sold in 2018. The communities population for 2018 was 260,000 and the growth rate was 4%. Community B: Population of 30,000 in 2017 and had a 5,000 population increase in 2018. Population in 2018 was 35,000, and the growth rate was 16.67%.

Only looking at the population growth rate would give the impression that Community B generates more annual real estate commissions than Community A. For this reason, it is important to consider total population size, population growth rate, the number of area home sales, and trends in all these factors when determining current and potential future commission generation. Must know size of the underlying market.

Population Size

People need a place to live. Population size in a market drives primary demand for housing.

Deciders

People who can make the decision to purchase. This can be a single individual, a married couple, an unmarried couple, or even more complicated situations.

Influencers

People who have an important influence on the decision maker but are not making the actual purchase or sale. Common influencers are children, relatives, close friends, and financial advisors.

Ex. if a major manufacturing plant moves into a county with a current population of 25,000, the population might grow an additional 25,000 over the next two years. This is a 100% growth rate over a two-year period. However, a county population of 50,000 may still be small relative to other counties in a state.

Population growth rate one does not mean that a large number of real estate commissions are generated or that home prices appreciate rapidly.

Does the buyer understand the sales process?

Providing accurate information on both the general sales process as well as specific progress being made towards the final sale is the responsibility of the agent. Helping set realistic expectations will improve customer satisfaction and improve the chances of future work and referrals.

Table 3 Trends

Read table 3 and notes at the top of page 4

Table 4 Trends

Read table 4 and notes at the bottom of page 4

Table 15

Read table, notes at top of page 10

Table 6 and 7

Read tables and refer to notes at the top of page 6

Tables 9-14

Read tables, page 9

Table 8

Refer to table 8 and read notes at the bottom of page 8

Schools

School quality has a strong impact on housing prices. Parents define school quality in different ways - for some it may be academic but for others it may be athletic.

Restrictive Zoning Laws

Some local governments use zoning laws to restrict the ability to build new housing. Some cities and counties requires very large lots which drives up the costs of providing new housing.

When people decide to live together they often purchase a home.

States provide clear property ownership guidelines for married couples who either divorce or the relationship ends due to a death of a spouse.

Interest Rate

The cost of borrowing money

Employment Patterns

The employment rate in an area in an area is a critical determinant of people's ability to afford real estate. Since most people live fairly close to where they work, the local employment rate is important and not the state or national employment rate. Local areas dependents on few employers are more risky to real estate than areas with a diversified employment base.

Disposable Income

The income left after taxes and other payments mandated by the government like alimony and child support. Disposable income is more important than total income in real property transactions. It is what someone might actually spend on a real property purchase.

Loan principal

The lump sum borrowed

Population Growth Rate

The percentage increase in population for a market area over a given time period.

Household Wealth

The total assets minus total household debt.

Time Pressure

To best represent the interests of their clients, an agent should determine the time frame for the purchase decision. Also impacts the buyers negotiating power.

Population Size

Total number of people living in a market area.

Disposable income and household wealth...

are primary factors enabling or disqualifying someone from obtaining a loan to buy real estate. Liquid assets such as cash, stocks, and other forms of wealth are used for the down payment for purchase. Areas where many have high disposable incomes or high household wealth have more potential buyers.

Millennials and older generations are...

behaving in similar fashions when buying homes

A real estate agent should...

identify all deciders early in the sales process. Asking potential buyers who will sign the contract and be living in the home should be done first. Follow up to see if anyone else will be consulted before the purchase decision is made. This will help identify other deciders or influencers.

Market values are ultimately...

set by prices of completed real estate transactions. Providing buyers with comps in the area is the best way to convince them that an asking price is reasonable.

DO NOT tell buyers...

what market values will be in the future either for the local market or a specific property. Nobody knows for certain what future prices will be.

Technology has changed the way we search for homes, obtain information, and even how we obtain mortgages but...

younger and older buyers (excepting homebuyers over 70) search for homes, use agents, and buy homes in similar ways