With many Americans unable to work during the lockdown, many real estate investors expected that later in the year, there would be lines of cash-strapped homeowners desperately seeking buyers for their homes. But despite the harsh economic conditions which followed the pandemic, we’re in the middle of a seller’s market.
Instead of property prices crashing through the floor, they are breaking through the roof. The median sales price for homes appreciated 16% in most American cities and suburbs. For homes in the Northeast and West, the price gains have been as high as 21%. Contrary to the expectation that they would have their pick of properties, investors are finding the following:
- It is now harder to put properties under contract
- Competition is so stiff that unless an investor is willing to make an offer as high as the asking price for a property, they might as well not bother
- Banks are refusing offers on their REOs if they include a contingency to inspect the home
The Challenge is Also the Opportunity
As an Atlanta property investor in this market, how should you respond? Where other investors are exiting the market because of its volatile state and putting their money in more stable (though less profitable) investments, what should you do? The truth is there is money to be made in a seller’s market if you know how to. But it calls for you to bring your A-game by:
- Sharpening your bidding processes
- Improving your negotiation skills
- Developing relationships that let you get the first shot at deals
- Acquiring the ability to act with speed
- Networking with the right lenders and mortgage brokers
- Strengthening your brand to give it more clout
A seller’s market makes you better as a real estate investor because it forces you to evolve your thinking and methods to match the demands of a new environment. As a rule, people don’t change. But conditions, such as those imposed by a seller’s market, can lead you to make positive adjustments in the way you operate your business.
What are the most important things you should know about how to thrive in a seller’s market?
Tips for Investing in Real Estate in a Seller’s Market
1. Know What Homes Are Selling For
In a seller’s market, the owner’s list price is often below the market value of their property. Sellers do this to generate interest and increase competition. Knowing what similar homes in an area are selling will let you cut to the chase by bidding higher or for the actual market value.
2. Determine Your Budget and Shop Below It
In a seller’s market, prices increase rapidly in a short span of time. Shopping below your budget creates wiggle room in case a property is more expensive than expected. It protects you if the home’s value stops appreciating in the future.
3. Make a Bully Offer
If you know the real market value of the property – versus its list price – you put yourself in the position of being able to make a bully offer. When you make a bully offer, it is usually a preemptive offer that doesn’t wait for the offer date.
4. Make an Unconditional Offer
In a seller’s market, owners often receive multiple offers for their homes. Forced to choose between two similar offers, the offer with the fewest conditions will often win. The fewer hurdles you place in front of buyers, the more attractive your offer will be.
5. Include non-price factors
Non-price considerations – such as giving the owner more time to move out, limiting inspection days, or something similar – can have more value than how much a buyer is offering. Sellers may accept a lower offer because they like the non-price factors attached to it.
6. Make a Larger Deposit
Offering more than the expected earnest money deposit will improve your position when trying to fend off rival investors. If the highest deposit buyers make in your area is $25,000, offer at least $30,000. This is a mark of how keen you are on the deal.
7. Prepare For a Low Appraisal
Lenders’ appraisal for homes in a seller’s market will often be lower than the price buyers agree with sellers. Be prepared to make up the shortfall in how much the bank is prepared to loan you. This is another reason to limit your search to homes that are below your budget.
8. Make Sure Your Down Payment is Easily Accessible
Since property prices in a seller’s market are always increasing, it is important to manage your down payment in a way that lets it appreciate in lockstep with property prices. However, avoid putting the money in instruments that are not easily converted to cash.
If, after doing the above, you find yourself consistently outbid, it may be time to rethink your options. Perhaps you need to target a different kind of property (smaller lots, fewer bedrooms, one bathroom, etc.) or a less competitive location. Or you may need to review your budget upwards.
Are you in the market for your next Atlanta rental property? Real Property Management Citywide can help! We work with real estate investors at all levels, helping you find great off-market deals. Contact us today!
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