Industries may vary, but supply and demand remain the key determinants in any market. Ever since Alfred Marshal created “Principles of Economics” to demonstrate the relationship between supply and demand and price elasticity, the world could understand the driving force behind any product’s price. Such concepts can be applied to any industry including the real estate industry. The concepts of a buyer’s market and a seller’s market are derivatives from supply and demand. Without understanding the factors that affect supply and demand, you cannot grasp the concepts clearly.
What is a buyer’s market?
A buyer’s market is a concept used to describe real estate; it describes a situation where supply exceeds demand for any given product. In the real estate market, the supply of properties for sale will exceed the number of buyers demanding properties which can drop the prices.
The real estate market, right after the crash in 2008, was best described as a buyer’s market. It was not only the supply that affected the market crash, other factors came into play to generate a welcoming atmosphere for a buyer’s market. Homeowners were struggling to get out of their homes as they owed more on their mortgages than the price of the actual property; many filed for bankruptcy as they defaulted in payments for their mortgages and ended up losing their homes to foreclosures. Selling an investment property with profit is not easily attainable in a buyer’s market.
What is a seller’s market?
The opposite of a buyer’s market is a seller’s market– a situation where demand exceeds supply. Meaning that property owners can up the asking price for a property and choose the most lucrative offer to sell for. Bidding wars occur often in a seller’s market, as most property owners wait for the right circumstances to be selling an investment property to ensure a higher price for their property as well as a higher speed of completing a sale for it.
The perfect example of a seller’s market is the real estate market in the early 2000s. Buyers were constantly looking for the best real estate investments, which increased the demand compared to a finite supply of properties.
Related: Major Signs That a Real Estate Seller’s Market is Near.
How can you ensure profit when selling an investment property in a buyer’s market?
There are a few actions that property owners can take to ensure profitability in a buyer’s market:
Hire a quality agent or broker
Finding the right broker can take some time and effort, especially when property prices are low as most successful brokers will have their hands full. Make sure to find an agent specialized in your neighborhood or area as he/she will be more familiar with the targeted buyer for such investment properties.
Don’t underestimate marketing
As a property seller, it’s your duty to get the word out that your property is on the market. Property owners who invest time and effort into advertising their investment properties on multiple online channels are guaranteed to get more calls. It’s important to upload photos of your investment property and describe it well.
Conduct a real estate market analysis
Running a real estate market analysis (also known as a comparative market analysis) can give you an idea of what your property’s value is compared to other properties in the real estate market and the housing market. Knowing the real estate comps for similar properties can help you get an exact market value for your investment property.
Related: Should I Get a Real Estate Market Analysis or a Home Appraisal?
Consider minor renovations
There are many forums and blogs online to guide you through minor renovations that make a big difference when selling your property in a buyer’s market. A simple paint job might do the trick for some investment properties, others may require more extensive work such as a bathroom remodel or retiling or even a kitchen update. Consider doing renovations that can increase the value of the property with minimal costs.
Stage the property
Property staging doesn’t necessarily mean making your property look like a photo in a magazine; it can be as simple as decluttering and creating space in the property. If you are listing your investment property online, and you should, consider looking at other property listings to see which ones you like. Property listings must give a good idea of your space while making the best impression you can. You must declutter your space. It helps to keep clutter-free counters and surfaces to create the illusion of space and sophistication.
How can you ensure a good price when buying an investment property in a seller’s market?
In a seller’s market, property owners will most likely receive many offers to choose from. Here are a few pointers to stay ahead of the game as a property buyer in a seller’s market:
Hire a savvy realtor
If you don’t think you need a real estate agent in a seller’s market, you are mistaken. Experienced real estate agents have both the knowledge and hustle to sweep a deal from under any potential buyer. A good realtor can help you estimate property prices and advise you with regards to what to offer. Additionally, if you land yourself a well-known real estate agent, he/she will most likely have a form of connection to the seller’s agent which can boost your chances of landing the property.
Related: Buying an Investment Property: What to Look for in a Realtor.
Apply for a mortgage as soon as you can
Real estate investing requires real estate investors to think three steps ahead. Applying for a mortgage early can protect real estate investors and homebuyers from unexpected delays. Having applied for a mortgage early, a property buyer can make his/her offer more confidently.
Attach a mortgage preapproval letter to your offer
Attaching a mortgage preapproval letter makes your offer bonafide. From the property seller’s point of view, he/she may choose a different offer simply because the other one obtained preapproval.
Make smart, fast decisions and offers
To make fast decisions in a seller’s market, a property buyer will have to decide if the property is appropriate for his/her goals quickly. (This rental property calculator can help!) It’s important to prepare yourself with an idea of what you need and what you can live without. It’s good to keep in mind that differentiating your offer from another can be as simple as a flexible closing date or a $1,000 higher offer. Having a clean offer with no contingencies can assure the property seller of the strength of your offer.
The concepts of a buyer’s market and a seller’s market can be applied to any location at any time. Knowing what kind of market is dominating the real estate market can help you whether you’re selling an investment property or buying one. So, keep an eye on market trends near you as it can be helpful to your real estate investments.
We can help real estate investors in a seller’s market and a buyer’s market! Learn how here. To start your 14-day free trial with Mashvisor, click here.