The Real Story …
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
Timing the Real Estate Market…
The experts agree that nobody can time the real estate market, not even them. This may leave you wondering: If the pros can’t time the market, how can you? To begin with, you can use the same techniques that have worked for many who live by the creed: Buy low and sell high.
The first step is to determine the type of real estate market that exists in your desired market area. In determining the type market it is critical to be very specific about your target market area/location and price range by looking at local market data for activity within the past six months.
Types of Real Estate Markets Although there are many forms that markets can take, basically real estate markets fall into three categories:
Buyer’s markets
A Buyer’s market exists when there is more inventory, that is houses for sale, than buyers. Because buyers have many homes to choose from, not every home for sale will sell and sellers must compete for buyers. The standard for identifying a Buyer’s Market is the existence of six months or more of inventory on the market. The larger the reserve of house for sale the stronger the market is for Buyers.
Seller’s markets
On the other hand, a Seller’s market exists when there are more buyers than available inventory. Generally, when there is less than four months of inventory the market is deemed a Seller’s Market. The lower the inventory reserve falls the stronger the market is for Sellers.
Neutral markets
Neutral markets are balanced. Typically, interest rates are affordable and the number of buyers and sellers in the marketplace are balanced. In a neutral or balanced market inventory is generally around four-to-six month range. While good buys may exist in neutral markets, the market does not favor buyers over sellers or vice versa.
I know of no one who would not classify the current market as anything other than a strong buyer’s market. While this is generally true, there may well be a few isolated markets that are neutral or actually favor sellers. However, given the almost universal nature of today’s market favoring buyers, the balance of this discussion will be focused on the characteristics of a Buyer’s Market.
Buying in a Buyer’s Market:
If you are going to buy a home and can afford to wait for the best conditions, a buyer’s market is it; there is no better timing. Here are a few advantages to buying in a buyer’s market:
· Buyers control the transaction: Buyers can ask for longer inspection periods, extend closing deadlines and ask for early possession — terms that would be automatically rejected in a seller’s market.
· Buyers can demand concessions: Buyers can ask sellers to pay their closing costs, providing their lender will allow the credit. Buyers can also expect sellers will pay for special reports such as pest inspections or roof certifications and a home warranty.
· Contingent offers are more acceptable: Sellers are generally more agreeable to accepting a contingent offer that is dependent on the buyer selling the buyer’s existing home. An offer in the hand is better than no offer at all.
· Lower sales price: Sellers are more willing to wheel and deal because they know if they refuse to accept your purchase offer, they might not receive another. When fewer homes are selling, prices typically fall.
· Request for repairs more easily negotiated: If the home is in need of repairs or updating its systems, sellers will often credit the buyer for the repairs or fix the problem(s) noted by a home inspector.
Selling in a Buyer’s Market:
If a seller does not need to sell, there is no logical reason to put a home on the market in a buyer’s market. Here are disadvantages to selling in a buyer’s market:
· Sellers do not control the transaction: Buyers tend to ask for “out” clauses that would let them walk away from the deal all the way to closing.
· Buyers expect concessions: Buyers will ask sellers to pay for closing costs, thereby lowering the seller’s net proceeds.
· Lowball offers: Sellers in soft markets lose equity. Little demand for homes puts pressure on sales prices, causing buyers to make lowball offers.
· Contingent offers are riskier: If a buyer’s home does not sell, neither will the seller’s, and by that time, the number of buyers typically declines even more.
· Buyers demand repairs: All those little things sellers have put off repairing will pop up in the home inspection, and buyers expect sellers to fix them.
Let’s face it while buyers are obviously desiring a better place to live, they are also making an investment in the future. The expert investors mentioned at the outset of this discussion find themselves in amazement at the number of people who totally miss the market by buying when the market is up and selling when the market is down.
An interesting statistic from the last two quarters (2009) of real estate transactions is that the number of investor transactions has increased by 20%. Not only is it a Buyer’s Market it’s an Investor’s Market … time to buy high quality properties at lower prices… the second step to market success.
