Gary Keller, best-selling author and founder of Keller Williams Realty International, responds to your questions about the real estate market and his new book, Your First Home (McGraw-Hill, 2008), which he cowrote with Dave Jenks and Jay Papasan.
Why did you decide to write a book targeted specifically to first-time home buyers?
KELLER: I launched my career helping first-time home buyers and even called on newlyweds I found in the local paper’s wedding announcements to generate business. So, I have a soft spot in my heart for this special class of buyers.
We also wanted to focus on a group of buyers who represent the economic foundation of our industry. In any year, first-time home buyers constitute about a third of the real estate market. As they make their purchases, sellers are able to trade up, triggering more sales — building momentum from the ground floor up. First-time home buyers are an important catalyst for a healthy real estate market.
Finally, our goal with this book was to write a user-friendly guide buyers could easily reference before or during the process to make it easier for them — and to get them out of their rentals and into their new homes. We fundamentally believe in homeownership.
The book is to be the first in a series by Keller Williams. What other topics will be covered in this book series?
KELLER: We will expand the series to meet the needs of our associates and the buyers and sellers who work with them. The next two books address greening your home and staging your home. We feel both are timely in that the green market is growing at an incredible pace and staging is of vital importance in a buyers’ market.
We want to be serving our people at the highest level. Your First Home was actually ready for publication in 2007, but we took the time to revisit our chapter on financing and made sure it was appropriate for the financing challenges present in the current market.
Many first-time home buyers are hesitant to jump in the market right now. What are you telling first-time buyers who are scared to get into real estate?
KELLER: We are very straightforward on this topic: now is a great time to buy. First-time home buyers have an amazing opportunity to move into homeownership. The real estate market is the most accessible it’s been in five years in terms of pricing.
Your First Home really delves into the financial realities of homeownership, citing the U.S. Federal Board’s Survey of Consumer Finances, home owners had an average financial net worth of $184,400, while renters’ net worth was just $4,000. And, for those deciding whether to continue renting or buy, the book shows that the tax savings on mortgage interest alone usually make up the difference between a rent and mortgage payment.
Add to the fact that interest rates are holding steady near historical lows and FHA (Federal Housing Administration) loan limits have been increased, first-time home buyers are well- positioned to make the move to home ownership.
What finance alternatives are you pointing out for first-time buyers?
KELLER: We give first-time buyers the same advice regardless of the market — save up for a down payment and buy within your means. The traditional ways for first-time buyers to get into a new home are still their best bets.
A down payment is often perceived as the biggest hurdle, but we try and highlight the many options buyers have for pulling together down payment funds. For example, asking relatives to gift down payment funds is one of the easiest and best choices for a new buyer. I couldn’t begin to count the times parents helped my clients buy a starter home. There are also a variety of grants available for first-time buyers in addition to tax incentives. When I purchased my first property, I actually refinanced my nearly paid-off Honda Accord and used the money as a down payment.
A real estate professional and a lender can help first-time home buyers with these questions and we point that out in the book. We also touch on creative financing options, such as owner financing. And because there is such a need for this type of information in the current market, we went a step further and published a comprehensive e-book, Financing Solutions, for our associates.
Are certain marketing strategies more effective at reaching out to this segment of buyers?
KELLER: I like to say that it’s not so important what you do, but rather that you do. There’s no silver bullet — just make a decision and get after it. That said, relationship-building continues to be key to reaching any target audience. Establishing yourself as an honest and reliable agent is one of the most consistent ways to build your business. Just enhance your referral marketing with some targeted messages: it’s a great time for first-time home buyers to get into the market, you love working with first-time buyers and do they know anyone who might be thinking of homeownership. That’s not a script, per se, but you get the idea.
We also created a first-time home buyer’s seminar based on the book, so agents can offer seminars at their local lender’s office, bank or community center. It’s a very successful model for getting in the path of interested first-time homebuyers. We are also creating targeted marketing campaigns agents can direct to their geographic farms and other audiences.
What tends to be first-time home buyers biggest concerns when working with a real estate practitioner?
KELLER: In my experience, first-time home buyers really welcome working with a real estate professional. Homeownership is a big step and likely the largest financial commitment they’ve ever assumed. The real estate transaction itself is quite involved and they sometimes worry that they will have to know everything about the process. So when agents clearly express their value proposition, these buyers tend to be very receptive.
In the book, we state that there are three areas of expertise that make for a great homebuying experience: knowledge of the homebuying process itself, knowledge of their local market, and knowledge of their own personal criteria. Of those, the only one they really need to master is the last — what they want, what they need, and what they can afford. A talented and professional agent along with a support team of specialists — from mortgage professionals to closing officers — will take care of the rest.
In your book, The Millionaire Real Estate Agent, you highlight a direct mailing campaign that you can use to break into a market share. Do you have any other ideas for trying to drum up more business in a location if a direct mail campaign doesn’t seem to work?
KELLER: Direct mail is a proven way to build a long-term pipeline of new business. Our research suggests that enhancing a direct mail campaign with some good old-fashioned prospecting will lead to more short-term and long-term business. Get face to face with your customers, knock on doors, call on expired listings and FSBOs, host a community party, or give a homebuying or selling seminar in your area. Any or all of those suggestions will amplify the results you get from your marketing efforts. And, curiously, many find that these prospecting activities are better received when people know of them from their marketing.
When do you think the housing market will rebound?
KELLER: First, I wouldn’t believe anybody that says they have a crystal ball. I don’t think we will get a clear idea of when the market will rebound until early 2009. The best option for real estate professionals is to keep a positive mindset and hope the market will rebound quickly, but act as if it won’t. The reality is that our business is cyclical. This isn’t the first tough buyer’s market we’ve faced and it certainly won’t be our last. Those agents who acquire the skills to succeed today will be laying a foundation for a long, successful career.
Do you think the federal government should do anything to help give the market a boost?
KELLER: I think our government is very clear that real estate is an important pillar of our national economy. They appear to be taking things very seriously and working hard to provide some relief. I sincerely hope they do whatever possible to help the many families facing foreclosure — it is an unfolding tragedy as many that experienced the dream of home ownership may now lose it.
We’ve really ramped up our training on topics like short sales. Beyond any government intervention, we have an opportunity to be a part of the solution as well. I know agents who are on a personal mission to save home owners from foreclosure.
Has the current market changed your approach in continuing to grow your company, Keller Williams?
KELLER: We’ve always believed that the success of our company and of our offices is directly dependent on the success of our agents. So our focus and energy continues to be directed at serving our agent partners. We’ve gone on a training blitz. I launched a new Web site (www.agentmountain.com) with audio, video, and other educational tools relevant to today’s market; we launched a new nationwide skills-based seminar tour, “Thriving in a Shifting Market”; and we wrote 12 new market-specific courses that teach associates how to take advantage of the opportunities of the current real estate market from short sales and REOs to alternative financing.
Is real estate sales still a good business to be in?
KELLER: Without a doubt. For determined, skilled professionals, this is opportunity time. I personally launched my sales career in a down market and we launched Keller Williams Realty in a down market, so we know that it can be done.
Right now we are working on our next book, Shift, which focuses specifically on the 12 things agents need to do to survive in a down market, and teaches agents how to see the market as an opportunity.
Ultimately, any real estate professional has to plan and be prepared to live through these cycles. If you are passionate about the business, you’ll do what has to be done, and rarely will you give up the market share you gain in a market like this.