There is a good chance that real estate magnates with billions of dollars in assets, such as Chicago’s Sam Zell and Santa Barbara’s Tom Barrack, would all agree that nobody can time the real estate market, not even themselves included. It could make you ask, if the experts can’t time the market, how in the world are you supposed to do it?
To begin, you have the option of using the same strategies that have proven successful for many people who live by the philosophy “Buy cheap and sell high.” The first thing you need to do is analyze the nature of the real estate market in the city or town where you live.
Different Categories of Real Estate Markets
Even though there are a great number of permutations and twists, real estate markets can generally be broken down into one of three categories: markets that favor buyers, markets that favor sellers, and neutral markets.
On the other hand, a market favors sellers when there are more buyers than there are items on the market. Because there are fewer properties available, purchasers will have fewer options to select from, which means that practically every property will sell. In a market that favors sellers, the amount of available inventory is often substantially lower than six months’ worth. In very competitive seller’s markets, the amount of inventory on hand often covers less than two months.
There is a buyer’s market when there is more inventory, which in this case refers to residences for sale, than there are buyers. Because there are so many properties on the market for buyers to select from, not every house that is put up for sale will end up being purchased. The majority of industry professionals are of the opinion that a buyer’s market exists whenever there is at least six months’ worth of available inventory. It is important to keep in mind that in markets that favor buyers, there will be a lower total number of transactions, which might cause the median price to be off.
The equilibrium exists in neutral marketplaces. The interest rates are usually within a reasonable range, and there is a healthy balance between the number of buyers and sellers in the market. The market is considered to be normal and is not experiencing any volatility swings since the scales have not tipped in either way. The average length of time an inventory is kept is around four months, give or take. Be aware that there are opportunities to make excellent purchases even in markets that are considered neutral, but there are no overarching signs that favor buyers over sellers or vice versa.
Buying in a Buyer’s Market
A buyer’s market is the ideal market scenario to wait for if you are planning to purchase a property and have the financial means to do so. There has never been a better time to purchase a new home or an investment property than right now.
Because they are aware, or should be aware, that if they decline to accept your purchase offer, they may not get another one, sellers are more inclined to haggle and negotiate with potential buyers. When there are fewer people purchasing properties, prices often go down.
Buyers have the right to request that sellers cover their closing expenses, if the credit is allowed by the buyer’s lender. In addition, prospective purchasers might anticipate that sellers would pay for specific reports, such as pest inspections, roof certifications, and property warranties. If the house is in need of repairs or an update to its systems, sellers will often credit the buyer for the repairs or address the problem(s) reported by a home inspector. Another option is for sellers to fix the problem(s) themselves. The buyer has the ability to request parameters that would be automatically refused in a market where there is a seller’s market, such as prolonged inspection periods, extended closing deadlines, and early possession.
The sale of the buyer’s current residence is often a condition that sellers are more amenable to satisfying before accepting a contingent offer on their house. It is preferable to have an offer in hand rather than none at all.
When it’s a Buyer’s Market, You Should Sell
There is a possibility of a loss for a seller who is not under any pressure to complete the transaction when they put their house up for sale in a market that is favorable to purchasers. When selling in a weak market, sellers risk losing equity. The lack of interest in purchasing properties will put pressure on sales prices, which will in turn drive the market in a negative direction. Because of this downward movement, many buyers submit offers that are below the asking price.
Homebuyers usually request that sellers pay for all of the closing expenses or at least the bulk of them, which results in a reduction in the seller’s net profits. Buyers also have the option of making deals dependent on future events, such as the sale of the buyer’s own property. On the other hand, given the current state of the housing market, it is possible that the buyer’s house will also take some time to sell.
During a buyer’s market, prospective purchasers are aware that they are in the position of power. They could require the seller to undertake improvements or repairs as a condition of the sale of the property. The house inspection will reveal all of the little issues that the sellers have neglected to correct, and purchasers anticipate that the sellers will make the necessary repairs.
In addition, purchasers have a propensity to inquire about “out” provisions, which provide them the right to back out of the transaction up to the day it is finalized.
Purchasing Items in a Market That Favors Sellers
A seller’s market is not the best time to buy a house for a buyer who is not in a hurry to purchase a property. Purchasing a house in a market that favors sellers has a number of challenges, the most noticeable of which are related to the cost of the property.
It is not uncommon to get many offers. The asking price or the list price is often what the buyer pays, and occasionally even more. The sellers, who are OK with the current state of the market, are hesitant to pay any of the closing expenses or inspection fees for the buyer. As a result of the plenty of buyers in the market, sellers will often advise prospective purchasers to purchase the house “as is” and refuse to undertake repairs or lower the price to account for the need for repairs.
Because there are three more potential purchasers just around the corner, the majority of sellers will not budge from the terms of the initial contract, regardless of the conditions.
Selling in a Seller’s Market
It is the ideal moment to sell a house in a market that is favorable to sellers, such as the current market. In marketplaces dominated by sellers, the ratio of the list price to the final sales price is smaller, which indicates that sellers may demand higher prices, sometimes even much more than the list price. 1
They have the power to refuse to pay the closing fees that the buyer is responsible for, and they often reject bids that require the seller to pay for inspections. Buyers still have the option of obtaining home inspections, but in most cases they will not make a request for repairs and will instead accept the property “as is.” Additionally, since the seller is the one in control of the transaction, it is very uncommon for sellers to negotiate shorter inspection periods and to require buyers to waive certain contingencies such as appraisal or financing conditions. This is because sellers are in a position of power.
Those buyers who need to sell their current property before purchasing a new one will have an easier time selling their current properties. These purchasers are participating in both the buyer’s market and the seller’s market, so they need to strike a healthy balance between selling their present property and purchasing a new one.