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Industry Insights: Five Challenges for Downsizers

February 23, 2017

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From empty nesters to elderly individuals in need of greater care, the population of homeowners seeking to move into smaller residences is unquestionably growing. The results of Freddie Mac's first survey of 55+ homeowners bear this out, indicating that nearly 26 million homeowners over the age of 55 want to move at least one more time.

"What's more, half of the 26 million likely movers expect to buy less expensive homes," emphasizes Sean Becketti, Freddie Mac Vice President and Chief Economist. In fact, the survey found that affordability of living in a particular community (46 percent) is the top factor influencing 55+ homeowners' decision of whether to move and where to live.

While many downsizers may have sufficient home equity to pay cash for their new home, community lenders nevertheless could have a significant opportunity if they choose to focus on this market segment.

Becketti continues, "Whether the borrower is financing age-in-place renovations or buying a new house, even a relatively modest increase in lending to 55+ homeowners could add trillions of dollars in new originations in a relatively short time."

To seize this opportunity, lenders must be prepared for a few unique challenges that many downsizing families present. Here are five of them:

  1. Shortage of appropriate homes
    Older downsizers face greater challenges than most in the current seller's market. "It's hard to find one-level homes with accessibility features – all at a lower price point for someone on a fixed income," explains Nikki Buckelew, co-founder and CEO of Seniors Real Estate Institute.

    Lenders familiar with low down payment options, like Home Possible® mortgages – Freddie Mac's 3 to 5 percent-down solution – may help expand the housing options (including condo living) available to downsizers in their communities.
  1. Family members and reluctant downsizers
    While younger retirees are often excited about downsizing, the elderly often are not. It can be jarring to leave a familiar home where one has lived for several decades, Buckelew notes. "It's not just a physical move," she adds. "It's also emotional. You have to address the emotional grief process." Often, adult children or other family members are involved in downsizing, so multiple needs and expectations come into play.
  1. In-person interactions and a longer sales cycle
    Seniors who are contemplating a move want to meet in person. "As a real estate agent," Buckelew says, "I plan on three hours for the first consultation." Lenders, too, should plan to meet in person with an older downsizer. Face-to-face communications help downsizers not only with comprehension, but with confidence in the lending process as well.

    Because seniors are vulnerable to scams, Buckelew points out, "We're trying to teach them to be more careful about what they're signing." In-person communication helps to build trust, as does "future pacing," a technique that communicates what's going to happen in advance. "With these customers, email is not effective. The phone is not effective. Communicate in person or in writing."
  1. Knowledge beyond your regular mortgage products
    Even if your bank does not offer reverse mortgages, do you know how to explain them to a prospective senior customer? In Buckelew's experience, very few of the people who ask about reverse mortgages actually obtain one. But by having the information that downsizers seek, you may establish yourself as a trusted advisor, who then gets their business for a regular mortgage – or a referral to a family member.

    You may also want to be prepared to offer a bridge loan at a reasonable cost, something that Buckelew has sought out for her elderly customers, whom she encourages to move first, then sell. "You might have 40 years of belongings to sort through. The last thing you want to do is rush an 85-year-old into finding a place to live within 30 days."
  1. Heart motivation
    Profitability cannot be your sole motivation, Buckelew forewarns. "The people who come to our program want to make a difference in somebody's life." She considers this "heart motivation" to be essential.

    John "Skip" Frenzel, Seniors Real Estate Specialist® (SRES) and founder of Agape Long Term Care, agrees. "It might sound contradictory, but you may be helping them stay in their home rather than making the sale."

    However, a payoff usually comes eventually. "You'll be recognized for having compassion and care for the person. This could lead to referrals or repeat business with family members and caregivers."

    As the population of downsizers has grown, so too have resources to help mortgage lenders prepare to work effectively in this niche. Buckelew and Frenzel both recommend that you learn about the general issues that seniors face. "Attend a community workshop at a hospital or social service provider," Buckelew suggests. Frenzel adds, "Get involved in local issues related to senior housing."

    Buckelew concludes, "If you become knowledgeable about these things, that's what makes you highly desirable – and highly referable."

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