First-time homebuyers made up 38 percent of purchasers in 2013. That’s a bit below the historical norm of 40 percent, but still a sizable chunk of the market. These homebuyers might need a little more time, expertise and help making a final decision, but if all goes well, they could be clients — and sources of referrals — for life.

 

Taking the Plunge

Tips from the trenches on working with first-time homebuyers.

By Gayle Bennett

Betty Kerr, CRS, handles rentals and sales in the Palm Springs and Yucca Valley areas of California. She often gets calls from people looking to rent, but she turns them into happy homebuyers.

“If they are going to be here three to five years, which most of them are, and they call me looking for a $1,000 rental, then I can get them into a home,” says Kerr, with HomeSmart Professionals. “Then their money can be used as an investment instead of just throwing away $1,000 a month.”

Recently, a man named Michael came to her looking for a new rental. He was on a fixed income and needed to stay near his current rent of $450; he didn’t think buying was a possibility.

“I have him in a home with a mortgage payment of $400; all his utilities brings it to $480–$490, and he doesn’t have to worry about moving again,” says Kerr. “He was never a homeowner and now he is. You should see the smile on his face.”

First-time homebuyers made up 38 percent of purchasers in 2013. That’s a bit below the historical norm of 40 percent, but still a sizable chunk of the market. These homebuyers might need a little more time, expertise and help making a final decision, but if all goes well, they could be clients — and sources of referrals — for life.

Before the Hunt

As with any client, the relationship with a potential first-time homebuyer begins with a conversation. Why are they looking to buy? Are they ready to make this big decision?

During this initial conversation, Courtney Phelps, CRS, an associate broker with Reilly REALTORS^® in Austin, Texas, says he’s not focused on sharing his track record and history. “They don’t care how much you know until they know how much you care. It’s more about getting information from them. If you show that you want to work in their best interest, you can help them make an informed decision on whether they want to rent or own.”

But before they start lining up houses to go see, savvy agents make sure their clients are pre-approved for a mortgage. It is crucial for buyers to know how much house they can afford before they start working with an agent.

“Sometimes people say, ‘I just started looking so I’m not going to get a pre-approval yet,’ and I don’t go down that path with them,” says Rosemary Reed, CRS, with RE/MAX Crossroads in Akron, Ohio. “I stop them from the start and say, ‘You really need to be pre-approved before I start unlocking doors because otherwise, I’m setting you up for possible disappointment,” because they could end up looking at houses they can’t afford to buy.

However, Reed does spend important time with clients before they get pre-approved. She gives them a notebook with all the information they will need at the different stages of the home-buying process. “We do it every day, so we don’t think about how overwhelming it is,” she says. “When I sit down with them, I show them a flow chart. Their eyes get so wide when they see all of those steps. I say, ‘We aren’t even going to talk about all of these things, but it’s great to have this binder with you and you can refer to it along the way.’”

Similarly, Kerr has a 35-page e-book she got from her lender that explains the whole process to first-time homebuyers. “I tell them to highlight it and if they have any questions, we can go through them together.”

Care and Feeding

Once first-time homebuyers are pre-approved, the fun begins — showing them houses. Some REALTORS^® find that, on the whole, first-time homebuyers take more of their time. Not Reed. She says they generally take less of her time, particularly compared to a new-to-her move-up buyer who didn’t have a great experience before. “Sometimes I feel like I have more proving to do with people who’ve been through the process before.”

But her first-time homebuyers often apologize if they don’t find a house on the first try. “I call it the House Hunters mentality,” she says, referring to the three houses the HGTV program shows buyers deciding between.

But some first-time buyers have a case of the perfect-house syndrome, which can drag on the process. Peggy Bouchard, CRS, with RE/MAX Commonwealth in Midlothian, Virginia, tells her first-time homebuyers that they aren’t going to find the exact house in their heads or on their Pinterest boards. They don’t always believe her at first, but she says it’s important to plant that seed early.

And Reed is frank with clients about what they can afford. If what they say they need in a house is exceeding their pre-approved limit, she advises them to start prioritizing their needs or else there won’t be much to look at. “Is it important to have granite countertops or is it important to be in one of the best school districts in the state?” she’ll ask clients.

In Austin, Phelps often first shows his clients houses that are a bit below their price point, say a $240,000 house to the couple who’s pre-approved up to $300,000. “If I’m showing them the $240,000 good-value house, it helps them feel more comfortable. They start to think, ‘This guy gets paid more if we spend more money on a house, and he’s telling us it’s in our best interest to stay in our comfort zone.’ It adds to the feeling of trust.” Furthermore, he says, “People who feel comfortable at the higher end will pull you to that price point.”

Not Getting Older, Just Wetter
31	Age of the typical first-time buyer
52	Age of the typical repeat buyer

Tech Issues

Not all first-time homebuyers are younger, but many of them are. According to the National Association of REALTORS^®, in 2013, the typical first-time buyer was 31 years old. This generation of buyers — called Generation Y or the millennials — comprises the largest share of homebuyers at 31 percent and the largest share of first-time buyers at 76 percent, according to NAR data.

Having grown up with the Internet, younger clients are very comfortable searching for houses online. But, it’s not just younger clients: According to NAR data, 42 percent of homebuyers start the house hunting process by looking for properties online. This is great before they’re working with a REALTOR^®, but can be messy after they team up with a REALTOR^®.

Reed sets up accounts for all of her clients on her company’s portal, where they gain access to new listings as they are posted. She tells them that this is better than anything they can find on their own, but not everyone believes her. “I start getting all these emails of all these wonderful houses they found on Zillow,” she says. “So I’ll go through the first couple of homes, and of course, they are under contract, never listed, whatever. And then I’ll say, ‘You’re not going to look at Zillow anymore.’”

Bouchard also often navigates this issue with first-time homebuyers. “First-time homebuyers, especially the younger ones who are doing their work online, have a hard time letting go of the control of being the master of everything Realtor.com, Zillow and Trulia have.” On their first outing, these clients will often choose the houses they want to see from their own research. Bouchard goes with it. “What they find is that once they get to the neighborhood or the property, it doesn’t look and smell like they thought it was going to look and smell. Then, they begin to say ‘Is there anything better?’” Of course, she’s already picked out some better listings for them to see immediately.

It’s a process, but once first-time homebuyers trust their agent, it goes beyond that first sale. The happy first-time homebuyer is not only a potential future move-up buyer, but also a new source of referrals.

 

Gayle Bennett is a writer and editor based in Washington, D.C.

 

Read more about generational first-time buyer trends in this NAR report.