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There is a debate among professionals as to whether open houses are an effective method of marketing a home.

The Statistic

Many opposed to open houses quote a statistic from the NAR that reported where a buyer found the home they purchased.  Less than 1% said that it was from the open house.

A Closer Look

The funny thing about statistics is they seem so concrete and conclusive but are often very misleading.  This statistic must have a closer examination.  On it’s face it seems like it would be a waste of time to do an open house, but let’s dig deeper into the context and see why this 1% may not be telling the whole story.  If you had the most effective marketing method available to market a home and zero agents used that method then what do you believe would be the percentage of buyers who found their home by this method.  That is right!  0%.  You see how the numbers may not tell the whole truth.

The Context

I did a quick search of the number of single family homes currently on the market.  The number is 9,430.  Then I looked to see how many open houses there would be this Sunday.  The number for that is 178.  So if you take 178 from 9,430 you get 9,252 homes that are currently for sale that will not be having open houses.  Out of those 9,252 homes being marketed without open houses, how many do you think will have a buyer that found it via an open house.  That’s right 0%.  However the remaining 2% of the homes that are being marketed with open houses will represent according to the NAR statistic 1% of the home sales.  Looking at the last month we have statistics for there were 1138 sales.  1% of that is 113 sales.  So there are 178 homes being marketed with open houses that will represent 113 of the sales for this month.  Do open houses still look like a bad idea?  Following these numbers one could conclude that an open house will be successful in selling the home 63%(113/178) of the time!  However you would again be concluding wrong.  My point is statistics are only useful in pointing us towards an idea.  To make a conclusion you must carefully construct an experiment, control variables and follow the scientific method before you can even begin to draw the over reaching conclusions that some agent are trying to draw.

The Opinion

My opinion is that open houses are still a viable method of marketing homes.  Of course all open houses are not created equal.  Certain homes are better for open houses than others.  The advertising of an open house differs depending on the house.  Then there are differences in the presentation and skills of the agents doing the open house.  I think it is hard to speak specifically of the method without considering and defining the execution of the open house.  If the house is in poor condition, in a low traffic area, the open house is not advertised, the agent does not present well and does not engage the visitors then I agree that it may be of little to no use.  But with the right home, I have had an open house  executed properly create over 100 visitors and result in the Sale of that home.  So, in conclusion I think instead of prematurely writing off an effective method of selling a home I think the professionals should instead focus their energy on identifying the right home for the open house, the right time for the open house, the right advertising for the open house and the right execution for an effective open house.

There are some changes coming down the pike for spring/summer and they are not particularly good. The first thing you need to know is when the housing collapsed, one of the things the government did was start buying mortgage backed securities. This effectively allows the government to manipulate the interest rate that you the borrower pays when you get a loan. It has been reported that the government intends to stop buying these mortgage backed securities in March of 2010. If that happens we very well might see a sharp rise in interest rates. Many experts expect we will be in the 6’s by summer instead of the 5% rate many are getting right now on a 30 yr. fixed. That calculates to a significant increase in payment. Looking at principal and interest only on a $180,000.00 loan the payment would be $966.28 at 5%. At 6.5% the payment would be $1137.73. Also if you take that same $1137.73 and apply it to a loan at 5% you would now be looking at a loan of $211,000 instead of $180,000.00. So that one and a half percent difference in interest rate results in your purchasing power being decreased by $31,000.00. That is significant and more important than negotiations of that last $500.00 that many get hung up on. Second only to location, location, location would have to be timing, timing, timing and right now the timing is perfect.

Another thing that has happened as a result of the crisis is that there has been a steady increase in the proportion of loans that are FHA loans. Below is a graph showing FHA Single Family Activity in the Home-Purchase Market.

Keep in mind this graph is of  all purchases.  Not just purchases with a lender.  According to a local Oklahoma City lender,  the estimate of government secured loans is over 50% where he works.  Why this large increase since 2007?  Because, when housing blew up conventional loans become much harder to come by and when they are available the mortgage insurance is more expensive and the down payment required is more when compared to an FHA.  This is what resulted in the sharp increase we see on the graph from 2007  till present.  Along with this increase has come a greater strain on FHA default reserves.  To answer this FHA has announced that it will be increasing the up front mortgage insurance 50 basis points to 2.25% from the current 1.75%.  This increases your payment.  Also, in order to reduce their exposure FHA is going to reduce the allowed Seller Concessions from 6% to 3%.  This is the amount of closing costs that the Seller is alllowed to pay for the Buyer.  On lower priced purchases this means that the Buyer will sometimes not be able to ask the Seller to pay all of the closing costs. 

The final thing I see in my crystal ball is an increase in prices for first time home buyers as the time runs out on the First Time Home Buyer Credit.  In the inevitable act of human folly,  many first time home buyers are currently dragging their feet only to find themselves fighting with the other first time home buyers for the same few homes as time again runs out on the credit.  These are the same people that were in a panic last November.  Got a reprieve and then decided to relive the panic this April.  Only this time I doubt there will be a reprieve.

If you break from the herd and buy a house now you will be handsomely rewarded.  If you wait you may find yourself paying higher up front mortgage insurance, getting less concessions, paying 6.5% instead of 5% and paying a premium in price for your house as you fight it out with the other procrastinators as the clock winds down.  In short you could be throwing a couple hundred dollars a month away for the next 30 years as punishment for your tardiness.  In case your curious that is $70,000.00.  Surely you don’t want to penalize yourself that much.  Call your favorite Realtor today and get the deal of a century.  If you don’t have a favorite Realtor contact me at the links below and I will become your favorite Realtor.  Remember you heard it here first.