 Despite national
stats that indicate otherwise, there are signs of a slowdown in some
markets around the country as the inventory of new and existing homes
increases.
As homes stay on the market longer, new home builders can feel
pressure to reduce prices as they cannot afford to sit on unsold
inventory. Eventually this downward pressure on prices could trickle
through to the existing home sales market.
With existing home prices still increasing at 15.8% over the year,
any downward pressure on prices is more likely to lead to a leveling off
of the price gains as opposed to actual price declines. Exceptions to
this could be areas that have experienced more significant gains over
the past two years. These hot markets may actually see a decline in
prices as inventory builds.
How To Spot A Slow Down
Don't wait for the stats to be published to decide if you are in the
midst of a market slowdown. (Most stats lag the market by at least three
months). Here are some tell tale signs your market is slowing down:
-
The number of homes on the market is
significantly higher than the same period last year.
-
You have more than six months of inventory
on the market. (The number of homes for sale divided by how many
homes have sold over the past year, multiplied by 12 equals the
number of month's supply).
-
Properties remain on the market longer than
you would expect.
-
Sellers are offering price breaks on
competitively priced homes.
-
New-home prices begin to fall.
Inventory levels are the best sign of a buyer's market since real
estate is an almost perfect supply/demand model.
Ask your Home Investor Specialist to give you monthly updates on the
inventory supply situation so you can spot a slow down before it impacts
prices. If you are selling, this will help you to aggressively price
your property before everyone else drops their prices, and if you're
buying, you can start looking for bargains from "must-sell"
owners who are having trouble selling. (Must-sell owners include people
who have already moved out, divorcees, estate sales, people in
pre-foreclosure and owners who risk losing their new purchase if they do
not sell their existing home).
How To Sell In A Buyer's Market
If and when your market turns from a Seller's market to a Buyer's
market here are a few tips to follow:
-
Use a Realtor / Home Investor Specialist to
sell your properties because you must get maximum exposure to as
many buyers as possible to get the best price.
-
Under price your property to create an
artificial seller's market. Aim to price no more than 5% below
market value. You will attract more buyers and be the pick of the
crop. The result should mean you sell faster and probably for a
higher price than if you to start high and reduce.
-
Put the extras in. Don't skimp and leave
out finishing touches to the property. It's a more competitive
market where the property must sell itself against many other
available homes. You can't expect buyers to fall over themselves to
snap it up in a buyer's market.
-
Be flexible. Buyers will want to negotiate
terms. Be as flexible as possible while locking in your buyers.
-
Avoid buyers with homes to sell. Any buyer
with a home to sell is not really a qualified buyer. They might
never sell their home at a price that would allow them to buy yours.
If you have a buyer with a home to sell, follow the tips below.
Home Sale Contingency Tips
-
Have your Realtor list the buyer's home for
sale.
-
Have your Realtor verify the asking price
for the Buyer's home is realistic.
-
Add a "Hubbard" clause to any
Offer or Purchase and Sale agreement from the buyers. The Hubbard
clause stipulates how long the buyers will have to sell their home
and what happens in the event you receive another acceptable offer
to purchase. (Talk this over with your Realtor and/or Attorney).
-
Continue to market the property even after
accepting an offer if the offer is contingent upon another sale
(check with your Realtor regarding local laws).
Buying In A Buyer's Market
As an investor buying in a market with too much inventory you know
you have more properties to choose from. However, beware of assuming
prices will increase. In a buyer's market, the best bet is to ensure you
can still make a profit even if there is a ten or fifteen percent
decline in prices.
This means that you will not be able to buy and hold for three months
and reap a windfall profit. However, you will still be able to buy,
remodel and sell for a profit. When you are remodeling you are buying a
house that other buyers have already rejected (which is how you can buy
it 20-50% below market value) and transforming it into a property that
is appealing to the same buyers that would have rejected it before.
You make your money when you buy it well below market value so you
can remodel it and sell it at 2% to 5% below market value for a quick
sale. |
