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By Nigel Fenwick,
This week (Dec 8th 2005) the Wall Street Journal reports
signs of investors pulling out of hot investment markets as the data from
the real estate market shows signs of cooling.
What is perhaps surprising is that so many investors
appear to have waited so long to pull out of the market. The market
slowdown was first indicated months ago as housing inventories climbed and
sales slowed as a percentage of homes on the market.
Any investor with a knowledgeable realtor or investor
specialist on their team should have anticipated this trend and perhaps
sold in August or September when the first observable signs of some
markets slowing could be seen in terms of inventory levels and on-market
time.
A real danger in a slowing market comes from investors
waiting until the last minute to sell in the hope of hitting the highest
price. It is worth remembering that the real estate market is not like the
stock market. It's not possible to "stop-loss" a home sale. Once
the market starts to slow, if your real estate investment isn't sold you
had better be willing to hold it for the long term or take a hit on the
price to sell it ahead of your competition.
So how should you react to the current news? It's true
newspapers are playing up stories of a real estate slowdown because that's
what sells newspapers. When investors read these stories they get scared.
The smart investor goes to their Broker and asks for up-to-date research
on their own local markets. Just because home sales are slowing in Boston
doesn't mean sales are slowing across the country. And let's not forget
the time of year. After thanksgiving sales always slow down significantly.
Predicting The Market
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As investors dump their properties on the market in
the hope of avoiding losses, the inventory levels climb (in some
markets, investors represent twenty or thirty percent of the market).
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As inventory levels climb, so prices start to fall.
This stands to reason since you have too many sellers chasing too few
buyers. (The opposite of what these markets experienced over the past
few years).
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As prices start to fall, home-owners who do not need
to sell pull out of the market, reducing the inventory.
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Eventually inventory and buyers balance out and prices
stabilize.
The problem for investors is that so many will want to get
out at the same time that they can actually force the market down (just
like when everybody wants to sell a stock and nobody is buying).
The good news is that investors who have a long-term view
of the real estate market can hold their property and expect reasonable
returns into the future.
The real estate market is slow to react so here are a few
tips if you have a property to sell at this time and you absolutely have
to get your money out now:
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Forget what you paid for the property. It is only
worth what a buyer in this market is willing to pay for it.
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In most markets there are more buyers in the spring.
Sellers frequently pull homes off the market over the holidays and put
them back on the market in January (or later in colder climates).
Selling in December can leave you with fewer buyers but also fewer
competing homes.
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More properties come onto the market in the spring so
be ahead of the rest and get you property on the market sooner rather
than later. If you want to wait till after the holidays get it listed
for sale in early January. Homes that close in March will have been
shown to buyers in December or January!
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Have you property valued by your Agent/Broker and be
sure to discuss your goals and objectives (this is why you need a good
Agent on your team - you absolutely have to be able to trust him/her
to give you sound fiscal advice).
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Check the comp's (comparable properties) yourself and
look at what else is available for sale in your market. Set your
selling price at the lower end of the price range.
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Offer to pay closing costs for a quick sale and be
willing to be flexible on seller financing if possible.
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Have a property inspection dome before you receive an
offer so you know what to expect - show the report to potential
buyers.
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Include new appliances in the property - make the
property shine.
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Get out and view other properties for sale. Be sure
your property is great value to potential buyers.
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Be aggressive in dropping your price if you are not
getting the traffic you need. Have your Agent review the sales figures
to be sure properties in your area are still selling.
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Consider lease-purchase options for properties that
are hard to sell.
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Don't waste time trying to sell it yourself. Negotiate
a deal with your Agent if you have to but get your property onto the
MLS and get other brokers in to see it.
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Consider renting if you can't get your preferred
selling price. Ask your Broker for info on local rentals.
Buying In A Down Market
Since money is made when you buy and not when you sell,
now can be a great time to negotiate a lower price on potential
investments. Look for investors who absolutely have to unload their
property. You might be doing someone a favor by allowing them to cash out
and you might get a bargain at the same time (Note ... this really only
applies if you are looking to buy and hold/rent).
Foreclosures are increasing and it pays to check out
foreclosure notices in your local papers. Unfortunately, foreclosure sales
aren't always a bargain if other investors bid up the price. Be sure you
know the wholesale price of the property before you buy at foreclosure.
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