When they hear the term “hot market,” most real estate investors I know immediately assume that I, as a realtor, will love working in an area with this description. After all, properties are selling for big bucks, which means I can earn higher commissions, right? Well, yes and no. A hot market, which is usually also a seller’s market, can be a great thing for a real estate agent or a realtor, just as it tends to be a positive for sellers. However, as in any market, you must understand how to navigate the market conditions in order to get the results your buyers, sellers, and investors want.
Here is an example of what I’m talking about:
To say the metropolitan Boston real estate market is a seller’s market right now is an understatement. The lack of inventory has caused an atmosphere of near hysteria in some towns. Melrose, for example, has been quite competitive for years, but over the last three years, the average condominium listed at a competitive price point is selling for 100 percent of list price. At the $300,000-$399,000 price, homes are selling at 109 percent of list price.
List-to-sales-price statistics are only part of the story.
Buyers are throwing everything they have at properties, including waiving the inspection and appraisal contingencies. Some are even throwing all cash at a property or waiving their mortgage contingencies. I recently worked with some buyers who said they had made 20 other offers on other properties and were rejected despite their offer being five percent over list price with minimal contingencies. I’ve heard from other agents about being up against 30 other offers for certain properties.
Hysteria is really never a good thing because at the end of the day, it makes everyone irrational and nervous. Sellers are nervous they won’t sell fast enough or that the buyer whose offer they accept will not be able to follow through on their outrageous terms. Buyers are nervous they won’t be able to find a property to purchase, which often leads them to sit on the sidelines and not even make a move because they think it will be too much hassle. Real estate investors are, in a lot of ways, the calmest people in the population because they are just looking at the numbers to see what types of deals they can do and how the returns will look when the deal is done.
How to Make a Hot Market Work for Your Investment Strategy
It’s fairly common knowledge that it can be difficult to purchase rental properties in a hot market like Boston’s with the cap rates that most investors want. The investors I know who are buying with being a landlord in mind are, for the most part, buying at deep discounts, then planning massive renovations for the properties. For example, I recently helped an investor snag a great deal on a duplex that needed a gut renovation. When she is done, it is going to have a modern look and high-end upgrades to appeal to young professional renters. Of course, that sort of project comes with some serious fine print: She had to make sure the property was zoned correctly and it was realistic to market the two adjacent living quarters based on the local renting population. In this case, it’s likely to be a big success because she did her due diligence up front.
That leads me to another tip, by the way: Just because you are waiving contingencies do not skip your due diligence! If you opt out of inspections or offer to pay cash on a property, that is all the more reason to make sure you have all the information on the property before you make the offer. Learn everything you can about the “prize” you are trying to win whether you are going to use that information to try to negotiate in some way or not.
3 Tips for Selling Fast and For Top Dollar in a Seller’s Market
I meet a lot of investors who are listing their fix-and-flip properties for sale who are surprised that they are not getting those 20 or 30 offers above list price that I referenced earlier. I find that they often have made a few incorrect assumptions about buyers in a hot market that lead them to overlook simple things in their properties. These oversights can drive sales prices down, so make sure that you do not take your local market heat for granted. Take these three tips to heart no matter what you’ve heard local buyers are willing to do for a deal:
#1: Help your buyers see past the “heavy lifting”
Properties that are well renovated and staged attract the most attention and offers. Millennial buyers want properties that are move-in ready and require no heavy lifting on their part. Properties that sit on the market don’t meet this requirement and often require significant cosmetics. If you want top dollar, make your property feel like it’s worth it.
#2: Look for deals in the right places
The deals are there, primarily for properties that don’t qualify for conventional financing and need a substantial amount of renovation.
I’ve personally had many buyers explore the option of the rehab loan when they learn of the premium they will have to pay for a move-in-ready property. The return on investment is definitely there for people who are looking to flip a property.
#3: Don’t cut corners
I see so many properties that have sloppy rehab jobs because the investor got in a hurry thanks to that hysteria I mentioned earlier. You will only get that bidding war you want if you do your renovation well. Don’t cut corners unless you are prepared to literally pay for that decision later by way of a lower sales price. If a buyer is prepared to pay an arm and a leg for a property, do you think they want cheap appliances, poor paint jobs, or a patched roof that will need to be replaced in the next three years? No. They do not. Buyers and their agents do notice these things, and they will cause buyers to walk away from a property as a result.
Kristin Weekley is a real estate agent with Laer Realty Partners. She may be reached at KWeekley@LAERrealty.com.
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