There are two main types of real estate markets: a buyer’s market and a seller’s market. Each named for the party that the market favors respectively. Ideally, an investor would want to buy in a buyer’s market and sell in a seller’s market. Unfortunately, when to buy and when to sell isn’t always in the direct hands of the investor. This can result in less than ideal circumstances, but if played right, an investor can use some clever tricks to yield favorable returns.
A buyer’s market occurs when there are more homes on the market than there are prospective buyers. Essentially, supply is much higher than demand. For an investor who is looking to buy, this is an ideal time. When supply is high, homeowner’s are more willing to low ball prices and accept less than what was originally marketed. But for investors looking to sell, they may want to consider waiting until the market looks more favorable or risk accepting a lower or even negative return.
A seller’s market occurs when there are more prospective buyers than there are homes on the market. Essentially, it is the exact opposite of a buyer’s market, where supply cannot meet demand. This is the ideal time for an investor who wants to sell. When demand is high, homeowner’s have more bargaining chips and can cherry pick the best offers resulting in higher profits. On the other hand, this is not an ideal time for an investor to buy, as more competition means higher prices and slim pickings.
According to The Washington Post, 2018 is expected to be predominantly a seller’s market [1]. In fact, according to Locations Hawaii, the summer market is known to be very strong for Hawaii real estate [2]. For any investors looking to sell, right now just may be a great time to try your luck in the market. If you’re looking to buy however, then you might find there are not too many deals around. But, does that mean you should refrain from buying at all?
Oahu has seen much development recently, with demand on the rise. From two major housing developments on the west side being planned and the high-rise condominiums springing up across Kakaako, investors may want to consider buying despite the seller market [3]. Buying while costs are high may seem counterintuitive or at the very least not ideal, but given current trends, it may in fact be a good investment. Hawaii real estate has shown consistent price growth throughout the years, only falling in value due to the housing stock market crash in 2008. However, the market has not only fully recovered from the crash, but houses are worth more now than ever before. This trend of increasing value is expected to continue for future years to come. So despite the seller’s market, buying real estate now and waiting to sell later may be very promising.
There are also a few tricks an investor can try in a seller’s market to help better their chances of getting a good price for a home. Such as increasing the amount of earnest money offered and adding an escalation clause [5]. Earnest money is a deposit that upon sale will be applied towards a down payment and escrow fees. Earnest money makes an offer seem more serious and gives the seller confidence that the buyer will not back out of the deal. An escalation clause is a contract stating that the buyer is willing to increase their original offer to a specific price listed should another buyer offer a better deal. It is an attempt to edge out other buyers and seal a deal with the perspective seller.
If for some reason the market switches to a buyer’s market, investors buying real estate will no longer have the same problems noted above, but they may now have problems selling. Waiting until the market flips again, is of course the easiest and most practical approach if time is not of the essence. Should an investor need to sell immediately however, savvy real estate agents have some helpful tips.
Hiring an inspector before putting a home on the market can help an investor to correct any flaws that may be present [4]. While some may not be worth the investment to correct, others can go a long way in making the home more attractive to a buyer. In addition, many buyers today require the home to be inspected before a deal is finalized, so having the inspection already completed makes a listing more attractive to a buyer. In addition to hiring an inspector, give Masterpiece Construction LLC a call to ensure that the home is prepared properly for sale. We will ensure that your home looks great and is an attractive buy, so that you can focus on finding the best offer and buyer.
Familiarizing yourself with the neighborhood market is also a good idea [4]. Understanding why homes in the surrounding area were sold at certain prices can help when negotiating prices with a buyer. For example, if a house in the area was sold for an unusually low amount, it may not have anything to do with the market itself. Perhaps the owner needed to move immediately and sold the house quickly for any price they could get. A buyer may try to use the low selling price as a bargaining chip to get an investor to lower their own price, passing it off as the current going market rate. By understanding the average sales in the area, you can avoid such strong-arm techniques.
As an additional option to selling or buying, rentals may also be a great option. Especially in Hawaii where rentals are literally everywhere, an investor can either buy a home to rent or rent out an existing one if selling prices are not ideal. Renting out a newly purchased home can help cover mortgage and property taxes, making the purchase an even more profitable one. If you, as an investor, are not ready to sell, you can rent out the home to bring in money while the home appreciates in value before eventually be sold. If this is the perfect solution for your investment home, please contact Masterpiece Construction LLC. We can help guide you through the transition process and prepare the home for rental.
Overall, there are many options available to investors in any real estate market. It is important that investors follow current trends and familiarize themselves with the history of the area they wish to invest in. Hiring a real estate agent that is well versed in the local market is also a great idea and highly recommended. This way an investor and their agent can create an educated plan for current and future real estate investments.
[1] https://www.washingtonpost.com/news/where-we-live/wp/2018/01/10/what-home-sellers-can-expect-in-2018-the-market-is-still-in-your-favor-if-the-price-is-right/?noredirect=on&utm_term=.4033a66b333f
[2] https://www.bizjournals.com/pacific/news/2018/04/26/locations-predicts-oahu-home-prices-to-keep-rising.html
[3] https://www.locationshawaii.com/learn/market-reports/market-insights-report-2018/
[4] https://www.bankrate.com/finance/real-estate/5-tips-for-selling-a-home-in-a-buyer-s-market-1.aspx
[5] https://www.realtor.com/advice/buy/what-is-a-sellers-market/
