How to Invest in Real Estate During a Buyer’s Market vs. Seller’s Market

So let’s explore how to invest in real estate during a buyer’s market vs. seller’s market. We’ll start by defining market conditions, and then look at several actionable tips to make the most of your real estate investments in both markets.

What is a Buyer’s Market?

• Increased inventory. There are more listings available than normal because more people are selling than buying.

• Less buyer competition. Because fewer buyers are competing for available listings, buyers are less likely to face pressure to make a quick decision. Competing offers and bidding wars are less likely than they would be in a balanced market.

• Lower prices. Home prices may slip as fewer buyers are willing to pay prices they may have paid if there was more buyer competition.

• Longer days on market. Properties tend to stay on the market longer before being sold, as it takes longer to find a willing buyer.

• Seller incentives. Sellers might offer additional incentives to attract buyers, like paying for closing costs or providing financing options.

• Conditional purchase offers. There is an increased likelihood that sellers will accept offers with more contingencies than normal. For example, sellers may accept offers contingent upon the buyer selling their current home. Or they might entertain offers that require the seller to pay a concession to the buyer to cover the buyer’s real estate agent’s fees. 
  
  

What is a Seller’s Market?

• Limited inventory. There are fewer homes available for sale because properties are being purchased as soon as they are listed for sale.

• More buyer competition. Because more buyers are competing for fewer listings, buyers are forced to act quickly when they find a suitable home. Competing offers and bidding wars are common occurrences.

• Higher prices. Due to the high demand and competitive bidding, homes are likely to sell at or above the asking price.

• Quick sales. Homes may sell within days or even hours after listing, as buyers look to get their offer accepted before a competing offer can beat it.

• Fewer contingencies and concessions. Buyers are more likely to waive contingencies, such as inspections or appraisals, to make their offers more attractive and stand out in a competitive environment. Sellers are less likely to offer concessions as incentives to buyers.

• Seller control over terms. Sellers might dictate the terms of the sale, including closing dates and fixtures to be excluded from the sale, knowing that buyers have fewer alternatives.
  
  

How to Invest in Real Estate During a Buyer’s Market

1. Focus on value-add investments. Distressed properties in need of renovation can often be purchased at below-market rates. You can add value to real estate through strategic improvements and either rent at higher rates or sell at a profit.
2. Negotiate aggressively. Investors should use the leverage they have in a buyer's market to negotiate better terms. This can include lower purchase prices, seller concessions, closing cost assistance, and favorable financing terms.
3. Acquire rental properties. Lower acquisition costs can lead to better cash flow from rental income.  In many cases, the rental market increases as homebuying declines because more people choose to rent. So you can enjoy more renter demand and higher rental rates.
4. Take your time. Without the pressure of a fast-paced seller’s market, investors can afford to take their time to perform due diligence, assess multiple properties, and make more calculated decisions.
5. Avoid selling if possible. Unless you have a really strong reason to liquidate a property, don’t sell. Selling now will result in lower profits and worse terms than if you were to wait until conditions swing in favor of sellers. 

How to Invest in Real Estate During a Seller’s Market

1. Focus on off-market properties. To avoid the competition and potentially high prices of listed properties, look for off-market deals through direct outreach to homeowners or networking with real estate agents who specialize in your desired area.
2. Be prepared to act quickly. With properties selling fast, you need to be pre-approved for financing and be ready to make an offer to avoid missing out on potential opportunities.
3. Flip properties for fast profits. When property values are going up by the week, you can leverage shorter hold periods for quick returns. Flipping a house may only take 6-12 months, and you’ll benefit from the growing market in addition to the value added.
4. Make your offer more attractive. To beat other offers, offer terms that appeal to the seller. Cash offers with waived contingencies and quick closing are ideal for most sellers. 
5. Develop new multi-family properties. When homes are expensive, more people rent. Building a multi-family structure allows you to leverage one piece of land to create multiple income-generating units, which will likely be in high demand. 

Navigate Changing Market Conditions with Gatsby Investment