Young buyers are becoming a major force in the real estate market. Here’s what you need to know to work with them effectively.

By Gwen Moran

Millennials haven’t had it easy. Also known as Generation Y, those people born between the early 1980s and the mid- to late-1990s, they emerged into the marketplace saddled with more student loan debt than any previous generation, only to face higher unemployment rates than the general population during and after the Great Recession. As a result, a 2014 Census report found that an average of 30.3 percent of millennials lived with their parents between 2009 and 2013.

But the times, they are a-changing. This economically battered segment, which represents 23 percent of the U.S. adult population, is poised to be the next big wave of homebuyers. The rebounding economy has helped many find jobs, and high rents are making home buying more attractive. Real estate listing site Zillow predicts that millennial homebuyers will outpace Generation X homebuyers — those born between the early 1960s and the early 1980s — for the first time in 2015, with half of young adults saying they want to buy a home within the next five years.

Other market factors also favor that millennial buyer optimism. Mortgage interest rates are still near historic lows. In January, the Federal Housing Administration (FHA) cut the annual mortgage insurance premiums new borrowers will pay by 0.5 percent. In October 2014, U.S. regulators dropped a proposed rule that would require borrowers to make a 20 percent down payment for a mortgage.

At the same time, millennial buyers can still be a challenge. Student and consumer-loan debt affects their financing eligibility and their expectations may be incongruent with their budgets. However, REALTORS® who know how to effectively serve this market segment will reap the rewards.

Taking the Kids to School

To effectively serve millennial buyers, it helps to understand their mindset, says real estate sales coach Travis Robertson, founder of Robertson Coaching International in Newport Beach, California. When baby boomers and, to a certain extent, Generation X buyers, entered the marketplace, they typically had an expectation that they would have to start with a modest home and move up or improve from there, Robertson says. Many were children or grandchildren of people who had lived through the Depression and didn’t have lavish homes. Millennials, who may have grown up in — or are often still living in — the large homes their parents acquired over time, may be in for a rude awakening.

“Agents will see them entering into this process going, ‘Gosh, we want these 10 features but can only afford these two. How do we find a house that has all 10?’ There’s sometimes an unrealistic expectation of what they can afford,” Robertson says.

At the same time it’s not like they don’t have resources. They’re in line to be the primary inheritors of the boomers’ wealth. More people are transferring wealth to their children during their lifetimes, so millennial buyers may be more apt to have resources from their parents, Robertson says.

But that doesn’t mean they have financial knowledge, says Charles “Chip” Morrison, Jr., a millennial REALTOR® with Team Realty Group in Atlanta, Georgia. Morrison, who recently purchased his own home, doesn’t hold back when it comes to talking about his generation’s financial acumen.

“We have little knowledge, if any, to start with,” Morrison says. “Our money-saving approach, in most cases, is ‘Well, I guess I’ll just save some money from my paychecks, and when I have a lot of money, I guess I’ll buy.’ I can tell you that kind of attitude runs rampant through our generation.” Of course, that’s a bit of hyperbole, but he reinforces the fact that REALTORS® need to be prepared to educate millennial buyers throughout the home-buying process.

The homes that appeal to these buyers are generally low-maintenance and located close to amenities, says Mario Dominguez, CRS, who heads the Dominguez Realty Group at ERA Herman Group Real Estate in Aventura, Florida. Dominguez is beginning to see an influx of millennial buyers in his market, and believes that to be effective, REALTORS® need to understand the lifestyle these buyers are seeking.

“The price is really what’s pushing those clients. Millennial buyers prefer convenience, access and short commute times over the size of the home. Social gathering places, restaurants and small specialty shops instead of large retail malls, within walking distance of their homes, are key factors in most cases,” he says. “To start themselves in their process, they’re typically buying small homes, town homes or condos.”

That reflects Morrison’s experience, too. In his market, millennials are typically looking at starter homes ranging “from the high $100,000s to the $300,000s,” he says. While they don’t care about things like 9-foot ceilings, they do like luxurious touches such as granite countertops and tall cabinetry. And all that talk about how “green” millennials are? Yeah, they like those features, but not if it drives up the price, says Robertson.

Finally, homes in urban centers with high degrees of walkability are most appealing, Robertson says. “So many of them have not started families yet and so being in an urban center where, number one, the jobs are located, and number two, the other single people are living, that’s how they’re going to start to build these connections and these relationships that are ultimately going to extend them into the next phase of their lives,” he says.

The Parent Trap

Millennials are also the first generation to have so-called “helicopter parents” en masse, so when your client sits across from you in your office, he or she may be flanked by one or two parents.

CRS certified instructor Lee Barrett, CRS, founder of Barrett & Co., Inc., a brokerage in Las Vegas, Nevada, was recently helping a young couple who would have had trouble qualifying for a mortgage. They each had single mothers and, with their incomes, they were able to buy a house for all four of them.

Morrison says parents may also have other motivations to help their offspring launch into home buying, especially if they’re still living at home. “We have no idea when the ‘right’ time [to buy a home] is, to be honest. It could be when mom and dad are tired of us eating all their food and living at home rent-free until we are 28, and decide it’s time to have a ‘talk’ about our future,” he says. Typically he finds that a REALTOR® who the millennial or his or her parents knows is a key driver in starting the buying process.

Millennial buyers certainly come with unique circumstances and challenges. However, agents who are willing to work to overcome these challenges, understand clients’ needs and wants, and deliver the level of service and attention they expect will be well-positioned to benefit from the wave of millennials who will enter the market over the next several years.

Gwen Moran is a writer based in Wall Township, New Jersey.

Learn more from the CRS Webinar recording, The Millennial Revolution: How to Prepare Your Business for a New Generation, with Travis Robertson.